Lancaster daily intelligencer. [volume] (Lancaster, Pa.) 1864-1928, 1882-05-03
Aa1lcaster fmteuiqe,lcer.
"WEDNESDAY EvEN1Na. NAY 3, 1854.

S$ssS0o>kS EItIIlItAElllEIs
"WEDNESDAY EVENING, NAY 3, 1854.
Cefpsratlsa Profits.
The directors of the Pennsylvania rail-
road, in dividing among the owners the
money earned, and paying for the i'm
provements and extensions of their prop
erty by increasing the capital stock, have
pursued . proper policy. The money
earned by q corporation belongs to its
stockholders and should not be perma-
nently invested in the business without
their consent. It does not follow, how
ever, that the money made should all be
divided. A prudent direction will al
ways keep surplus on hand to preserve
the credit of the company against any
contingency. In England it is the Gus
tom Of corporations to consider the
money earned as belonging to the stock
holders and not to be appropriated with.
out their assent. A contrary practice
prevails here. The directors consider
themselves at liberty to use the accrued
profits in enlarging and bettering the
property in any way. The Pennsylvania
railroad dividend Of four per cent. was
due the stockholders if it was really
earned and was not needed to meet any
probable requirement in the company's
business. The directors declare that
the business of the road is rapidly in.
creasing, and that some nine millions Of
dollars will be required during the year
to be expended in the enlargement of its
facilities. Six millions Of this they pro-
pose to raise by q sale Of stock, appro-
priating the remainder out Of the sur
plus income Of the year, which they think
will suffice for the purpose after paying
the usual dividends. If nine millions OF
dollars are needed to equip the company
to do its increased business, then it is
certainly right to expend it if it can be
properly raised and the sale of stock is
a better way to raise it than a loan
would be. But if it is proper to obtain
two-thirds of the proposed permanent
Improvement in this way, it would seem
to be proper to so obtain the whole of
it. It is not to be supposed that one
third of the cost is to be wastefully made
SO that it will not be represented in the
increased value Of the property and this
is the only possibility in which the
omission to represent such portion
ofthe cost in the capital would be justi-
fed. The cost of the improvements of
property made should all be represented
in its increased value, and that should be
represented in its stock, bonds and sur.
plus fund. A stock is in no sense watered
when it stands for dollars we'll expended
on the property.
AN expenditure Of nine million dollars
in one year by railroad direction in ex-
tension and improvement seems, how.
ever, to be enormous, even when the cor
poration is SO great as this one and it
should not be made by the direction
until it has been we'll understood and
clearly authorized by the owners. The
people Of the state, too, have large in
terest in the matter for it is not
in accord with sound public
policy to permit a corporation
to grow to q magnitude that is
not strictly necessary to its business.
And this affords strong reason why dr.
rectors of corporations should not be
permitted to apply its revenues to the in.
crease of the property without represent
ing the money SO applied in stock and
bonds. The amount of these is limited
by law; but il corporation is allowed
to expend its income in enlargement
without showing the expenditure in its
capital, the law is defeated in its object.
1t is a fond habit of corporation man.
ayers to do this thing for this very OBJ
ject. The Pennsylvania directors do not
do it at this time, probably more because
they have not the surplus revenue for
the purpose than because they prefer to
have their expenditures shown in their
capital stock. 1t il none the less right,
however, because it may be forced upon
them by their necessities !; and it would
be a very beneficial law which would
forbid all corporations from expending
their net profits in any other way than
in dividends.