New-York tribune., 1907-07-13
WOULD ABOLISH THE S.
ON SHARES or STOCK
Ed7o0rd u. Shepard Opposes Nomi-
nal MOney Capitalization.

Gaiesburg, Ill, July 12-An address by Ed
ward NJ Shepard, of New York on Corporate
capitalization and Public Morals" was the feat
pre- OF to-day's session of the annual meeting
Of the Illinois Bar Association. Preceding this
address the subject OF Railroad Rate Regu-
iation" was thrown open for general discussion
pE members of the association. Mr.. Shepard
said. In part:
II IS the falsity Of the present plan Of corporate
capitalization which should condemn it. For the
very reason that IT facilitates deceit the deusion
OF investors and insncere dealing with public SEN
ent or public officers, it should be ended. If there
he better plan think there is. I propose that
me snare OF stock shall have dollar mark: that
Us only essential feature shall be the truthful
certihcation that 1t is OF a given total number
Of equal shares into which the enterprise s divided
Who lends a corporation money upon the nom
inal amount or its capitalization? The creditor
who is sane considers not the nominal but the
actual situation his concern is with the company's
realzable property, its mortgage lien debts. its
noatng debt, its gross income and its net income
Is not, however the creditor entitled 10 know that
the capital of which he has been assured shall not
uhlii he Is paid be taken from the company IN
dividends but remain fund for his security? In
deed he IS entitled that. Our system of
ina capitalization does not give him that assur-
ance The creditor might. however, require cor
pOration, a condition Of his extension of credit
to provide him with statement Of present and
actual conditions, just broker requires
I2ent OF the soINehcy OF partnership whose notes
he places tho market. For carelessness or dis
honesty IL making such statements the common
law provides ample remedy. The essential thing,
as conceive il. is that the basis of the dividend
or of the credit shall be found in responsible
statement of present actual facts not in fictitious
Or nominal or obsolete capitalization.
Mr.. Shepard also spoke of the common idea
that the profits of railroads and other public
service corporations should be restricted to @
per cent. This in his opinion is a fallacy and II
so restricted would prevent industrial advance
ment. He continued:
Private capital viii no. go into new and untried
enterprises unless upon 1 promise that IN case of
success the profits shall exceed the rate of interest
which could be earned upon assured investments
Sensible capitalists Will take the risk OF total
or partial loss unless paid for the risk in the mag
nitude of probable possible profit Il Is absurd
10 suppose that constructive genius and financial
and even moral courage would have carried rail-
Rockies. or the Sierras on the assumption that II
the enterprise failed Z great loss should be borne
by the promoters but that II the enterprise sue
ceeded then their profit should be limited to what
they could have earned without risk by lending
their capital on bond and mortgage.
However. the owners Of railroads and other like
properties in considerable part have themselves
thank. If from the beginning they had openly in
sisted that their risks should be compensated by
nee I1'l.1aetuEeE or the merchant VINO loads
ship for Cathay-if IN this matter there had been
neither concealment nor insncerity Juggling OF
hgures. there would to-day be less OF the notion
that railroad ought be adjusted 10 produce
not more than or or per cent.
beg you to observe that it is nominal capitalza-
that a company shall have any given actual capt
tai. For that is quite different matter. An i'm
portant reason for the plan is that IS that very
requirement which the law fails effectively TO make
The law In any case may prescribe-and in many
cases especially where a company IS 70 hold n
public franchise and enjoy privileges Ike that OF
condemning property II ought to prescribe-the
minimum or maximum amount of net capital which
corporations OF 4 given class shall may hold.
that is to say, minimum maximum amount Of
actual property at actual value. less debts. But
this does not involve that the capital stock
be fixed in dollars does IL involve the assign
ment Of any par value 20 share And with the
abolition OF money capitalization l would more
vigorously enforce upon business corporations the
obligation Of truth in every publication they make
in respect 10 their capital their debts like
see no reason why a corporation. II II sees III
should not. for mere expectation even mere hope
Of profit, issue Its shares having denomina ton
But II ought not 70 be able at present It IS able
and without liability, 70 certify seem 70 certify
for such expectations and hopes actual present
money values which they do not have which
no well Informed person supposes they have