Evening star. [volume] (Washington, D.C.) 1854-1972, 1903-09-19

services. Most underwriting Ia done Mt q
cash commission of to 8 per cent on the
amount of securities floated. A profit Of 70
per cent in underwriting may seem large,
but 1t Is not unusual. The underwriting
syndicate for the United States Steel Cor
poration pledged 500. O00, 600. but actually
had to advance only $4,000 600. Its profits
were $4oO0OOOO. or 100 per cent of the
money actually put in. While the profits
OF successful underwriting are great, the
risks are correspondingly large. and 1t Is
a rule OF business that risks and profits
should go hand in hand More than one
underwriting syndicate has come to grief
with severe losses to all engaged In 1t.
Wh1le no attempt has been made to
sketch an ideal organization. the effort has
been to give an idea OF the basis on which,
and the way by which, the promoter forms
a new company He requires the assistance
or the banker and his following of capital
ISIS, OF trained lawyers, skillful in drawing
up incorporation papers under the most IA
vorable laws, and in some cases of experts
in stock market manipulation, so as to pre-
pare the market to absorb the new securi-
ties issued. 1t Is easy to conceive of a COM
pany being formed on a much more euui-
table basis than the one that has been
sketched, but there have been many which
have been overcapitalized far more grossly
DISQUALIFICATION.
That laws might properly be enacted to
prevent DISQUALIFICATION, and some Of the
new companies, need scarcely be said The
recent establishment of the bureau of cor
porations in the Department of Commerce
Is a move in that direction Publicity Will
cure most of the evils of trusts without
any necessary disclosure of legitimate trade
secrets. 1t is noticeable, however, that
many of the states, even Massachusetts,
are liberalizing their Incorporation laws,
and there may be no way of securing uni
far 1,.I fnt,l 10
formation of new companies but by the
passage of a national Incorporation act.
No one has ever drawn definitely the line
between proper capitalization and over
capitalization. 1t does not necessarily fol-
low that because company is capitalized
in excess of the money actually invested In
the business, or the actual value of plant,
that 1t is always overcapitalized 1t is gen
orally considered proper to capitalize the
earning power of business. but even there
difficulties arise, for after having been capt.
taliZed on present earning power that earn
ing power may soon decrease, when the
company will appear to be largely overcapi-
talized. There would appear to be equal
obstacles in the way of the equitable ad-
justment of capitalization on the basis Of
either value or earning power. Perhaps a
commission of experts may take this sub
ject up some time and let us have a clear
idea of just what proper capitalization is.
"Water"
have used the word water in speaking
Of watered stock. 1t Is one Of those apt
Wall street phrases that express so much
in so small a space. The professional hui
morist has long delighted to picture the
farmer as filing up his cans of milk with
water from the town pump. In like manner
the promoter may dilute the capitalization
of the new company so that it no longer
represents either value or income and the
unwary investor who purchases the stock
may find that he has bought. not the milk
Of profit but the water Of disaster.
SERENO 8. PRATT