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is, of course, in line with the whole theory of the no-par-value stock, that one share of stock represents one aliquot part of the excess value of assets over liabilities.

A brief summary of the results achieved in the issuance of stock without par value, as provided for in the New York law, follows: 1-Working capital may be provided without the necessity of

inflating the book value of assets. 2–Stock may be issued for its real value without reference to

any nominal value. 3—Stockholders are assured that stock issued is "fully paid

up.” 4-Potential creditors are notified of the minimum capital

actually paid in and are protected against any depletion of

the capital of the company below such amount. 5—The credit of the corporation is based upon sounder and

more substantial valuation of assets and in consequence will probably receive greater confidence on the part of investors and creditors than would be accorded to the same corpora

tion without such assurance. Though these advantages seem clearly to inhere in the case of corporations organized under this statute, it would, however, seem that the statute does not forbid the depletion of the actual capital, whether invested or earned, except when such depletion will reduce the capital below that stated in the certificate of incorporation or subsequent notice of addition or deduction. In other words, in so far as the New York statute is concerned it would appear that dividends may be paid out of capital if that capital exceeds the amount of stated capital. The law of Ohio specifically forbids the payment of dividends from any fund received from the sale or disposition of capital stock, and Pennsylvania and Delaware forbid the payment of dividends out of capital or out of anything except net profits or surplus earnings.

A study of the various statutes demonstrates that Pennsylvania is the only state which authorizes the issuance of stock preferred as to principal without par value, but several other states appear to authorize the issuance of stock preferred as to dividends, the New York statute being worded to authorize the issuance of shares of stock of such corporation other than preferred stock having preference as to principal without any nominal or par value.

California and Maine have similar provision, but Delaware and Maryland specifically except stock preferred as to dividends as well as stock preferred as to distributive shares of assets or subject to redemption at a fixed price. The Ohio law provides only for the issuance of common stock without par value and further provides that preferred stock with par value shall not, in number, be more than two-thirds of the total number of all shares. Illinois does not specify exceptions.

A rather interesting decision has just been handed down by the supreme court of Kansas in the case of the North American Petroleum Company, a Delaware corporation, organized under the no-par-value statute of that state, which sought to do business in the state of Kansas, which does not have a no-par-value statute. The state authorities attempted to exclude this company on the ground that it was not such a corporation as is contemplated by the laws of Kansas. The court in its findings advanced the following in support of its contention that the company should be admitted to do business :

The problem of determining the solvency and bona fide capitalization of the plaintiff presents no unusual difficulty. The fact that the shares of its stock have no nominal par value is of little consequence. Any prudent charter board, in determining, whether a foreign corporation is worthy of admission to do business in Kansas, would attach little importance to the nominal value of its shares of stock, even if they have a nominal value. As in all other cases, the charter board should concern itself earnestly to ascertain the genuine capital—those assets permanently devoted to the corporate business as a basis for its business credit, and upon which the hope of profit is rationally founded.

The "lawfully issued capital” and the "capital stock" of such corporations are the assets that it devotes to the prosecution of its business. When the value of these assets is ascertained, the fee, required to be paid by law, can be based on that portion of the assets which the corporation proposes to "invest and use in the exercise and enjoyment of its corporate privileges within this state.”

The defendants contend that the plaintiff is not such an organization as is called a corporation in the constitution and laws of this state. The answer to this contention is that corporations without capital stock and without shares of stock are not new; they are as old as corporations themselves, and have existed in England and in this country for many years; our constitution recognizes them, and we have laws for their control and government.

In recording stock of no par value on the books and setting up values in the statements of assets and liabilities, it does not seem that any difficulties are presented. The capital account should reflect the value at which the stock was issued—whether for cash, property or services. The only other account representing a measure of value in the outstanding stock, outside of certain reserve accounts, would be the surplus account. In my opinion this account should at all times represent undistributed net earnings of the corporation.

Inasmuch as the capital account will not generally reflect on its face the number of shares outstanding it will be necessary to show in the capital account itself the shares issued. It does not become necessary, as in the case of stock with par value, to carry any portion of the proceeds received from its sale to a paidin-surplus account. Furthermore, the fact that stock may be issued at varying values for each share has no significance other than to raise or lower the unit or share value for every other share outstanding. Each share represents an aliquot part of the entire capital, other than that portion which may be allocated to one class of stock by virtue of preference.

The number of shares authorized should be noted on the capital stock account. A separate account is, of course, unnecessary to record this fact.

It is probable that very few cases will arise involving donated treasury stock, as that is one of the evil practices this form of legislation was designed to prevent. No reasonable object would be attained by issuing stock of no par value at a nominal value and then donating a portion of that issued stock back into the treasury, presumably for sale to provide working capital. The incorporators would undoubtedly retain the required number of shares for this purpose at the time of incorporation. In the event of such a contingency arising, however, I would suggest that the number of donated shares be carried in treasury stock account without any money value. The number of shares indicated by this account would then be deducted from the issued shares shown in the capital account, in order to show on the statement the actual number of shares outstanding in the hands of the public, which is the essential fact.

When stock of this description is purchased by the company and placed in the treasury, it should be recorded in treasury stock account at its purchase price and shown on the statement

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SYNOPSIS OF ESSENTIAL FEATURES

Amount of capital necessary Corporations excluded

to commence business Moneyed corporation or cor- Minimum $500 porations under jurisdiction Par value of authorized preof any public service commis- ferred and $5 or some multision.

ple thereof for each share of no par value stock authorized to be issued

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IN VARIOUS NO-PAR-VALUE STATUTES

Consideration for issuance

Basis of taxation

Organization tax 5 cents for each share authorized, 12 cents for each share on sales or transfers

Consideration prescribed in certificate of incorporation or fair market value, in judge ment of board of directors or such consideration as consented to by two-thirds of each class of shares outstanding Consideration to be fixed by board of directors but if stock already outstanding confirmation by two-thirds of holders of each class is necessary

Presumed to be of the par value of $100 for bonus and franchise tax

Consideration prescribed in articles of incorporation

an

Amount stated in certificate of incorporation, each share

aliquot part of entire capital subject to the amount. or par value of preferred shares Presumed to be of the par value of $100

Any amount stated in cer. tificate of incorporation or determined upon by board of directors

As provided in certificate of incorporation or fixed by board of directors if authorized in such certificate. If certificate of incorporation does not authorize directors, then by consent of two-thirds of holders of each class of stock As determined by corporation and according to statement filed with and approved by state corporation commission As provided in certificate of incorporation or determined by the board of directors, not less than $5 per share

as

Classes of stock which may
be issued without par value
Other than preferred stock
having a preference as to
principal

Other than stock preferred as
to dividends which is subject
to redemption or stock pre-
ferred as to its distributive
share of the assets of the
corporation
Other than preferred stock
having a preference as to
principal

Other than stock preferred as
to dividends or preferred as
to its distributive share of as-
sets or subject to redemption
at a fixed price
Other than preferred stock
having preference as to
principal

Presumed to be of the par
value of $100

Other than preferred stock

Presumed to be of the par
value of $100

Class of stock not specified.
Each certificate shall have
stamped thereon when issued,
the amount actually received
by corporation for such stock,
either in cash, property, ser-
vices rendered or expenses
incurred
Preferred stock of any or all
classes or common stock of
any class or both preferred
and common stock, prefer-
ence to be named in certifi-
cate. Preference rights, limi-
tations and restrictions may
be stated in dollars and cents

Presumed to be of the par
value of $100

Consideration prescribed in
certificate of incorporation,
by stockholders or by direc-
tors acting, under authority
of stockholders

per share

sumed to be of the par value of $50

Common or preferred

Shares of common stock

Consideration prescribed in
certificate of incorporation or
authorized by two-thirds vote
of stock outstanding
At time of opening books of
subscription for such consid-
eration as

may be decided upon by incorporators and thereafter fair market value or as agreed to by a majority of the outstanding common stockholders

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