The oddest result of this system was that some shares might actually trade at a negative value! In other words, someone would pay you to take their shares in the company, and we have recorded negative values for shares from the London SE.a Let's say that a share is trading at u5 and a u10 assessment is due, but you don't have the u10, then you might pay someone u5 to take the shares off your hands and avoid the u10 assessment.a Having to pay someone to take shares of a company you invested and lost money on would certainly add insult to injury.
Another problem this system created was that several shares could trade simultaneously.a You might have shares with u30, u40 and u50 trading at the same time reflecting the amount paid in and creating confusion.a For this reason, prices were often quoted in the London Times at a premium or discount to the par value, so the same amount would be paid regardless of which shares you were buying.a So if the shares were trading at a u5 discount, you would pay u25 for the u30 shares or u35 for the u40 shares. Up until the mid-nineteenth century, most shares on the London Stock Exchange that were not at their fully paid value were listed this way.
There was another problem this created. When the railroad boom got going in the 1840s, stocks increased in value dramatically.a If a railroad needed to raise more capital, and the shares were already fully paid in at 100 and had risen in price since then because the railroad was profitable, it became difficult to raise additional capital because the price of the shares was so high.a So how do you raise additional capital?a The answer was simple, you issue fractional shares.
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts