The Detroit times. [volume] (Detroit, Mich.) 1903-1920, 1911-12-12

viii be worth moro than the amount
ia represents. IL "a has been un wisely
IIocated OF, badly managed. n will be
| worth less than the amount IL repre-
I sents The thareholder chose his IN
yestment. elected his management and
and fares badly 10 has no claim that
1.-THE public shotiiH kdemnify him. m he
1 did well. the pubic cannot either right
ly OF wisely fail TO recognize and re.
ward his foresight, so Ions as his road
Is managed With propcra regard 20 the
| interest OF the community. and for the
development OF the traffic which IL
| carries
| The principal OF bond Is fixed
| sum. It's Interest hNcd charge The
value OF share OF stock Is essential
\ ~ variable, it's profit essentially indie
| terminate,
There Is n persistent tendency 10 ig-
more this distinction, 10 emphasize I'M
| duly tho face value Of the stock. TO
treat the shares in a railroad or other
public service corporation as claims
her OF dollars they represent rather
than as fractional interests In a more
or less hazardous enterprise, in which
the investors took risks or loss and
TO claim immunity from public regu-
latton when the dividend on the face
value OF the shares Is below the pre-
vatlfng rate OF interest, and TO sub
THIS dividend is above the PREVAIL n
rate OF Interest. even when such prof
II may be a fair compensation for risks
act 2ally incurred In the past or a nee
new capital and the taking OF new
risks in the future.
state Legislation ReGarding stock
Issues.
Nowhere has this tendency been
more marked than IN the legislation OF
q Ia l-aI faNa fNfr ar IA
sues OF railroad corporations. IL has
led our lawmakers TO lay too much
stress on keeping down the nominal
amount OF stock. and too little upon
getting the actual amount or capital
needed and having IL properly used
Nearly al the states require that
railroad sto-'k issues should be paid
In full at their face or par value
Eighteen have this provision in their
constitutions. a majority OF the others
have more or less Definite Jaws 10 the
same effect Even without such speci-
nc statute the requirement that the
shareholder may be called upon TO
meet the fun value of his stock sub
scription IL operative in the absence
Of legislation TO the contrary. OF such
legislation there has been relatively
the states, expressly sanctions the is
suanCe OF stock at less than par, al
though there are several others where
exec ptions TO the rule OF fun payment
statute or by spe cial act OF the legis-
lature in particular cases.
Evasion OF state Laws.
Where the strictness OF the law re-
ga sding capital stock has interfeEsd
with the building of railroads In new
spirit ny railroad companies have been
frequent. The very rigidity OF the sta
tute has caused the public TO be negli-
CERT In its enforcement In some
ha In ~ ra N a =
actually 20 invite evasion, by specifical-
~ leaving IL to the judgment OF the
directors 10 decide what constituted an
adequate confederation for the shares
to represent that their stock was fully
paid. when this was not In fact the
case Sometimes stock has been Is
sued by the promoters OF a company
TO themselves as a reward for their
services in organization and manage
ment. Sometimes il has been issued in
exchange for rights-of way and other
forms OF assistance 10 the construction
OF a new road. without much regard
TO the cash value of the consideration
received. Sometimes II has been is
sued 10 stockholders TO represent, the
increased value OF their property, ac-
tuaI or prospective. on the theory that
such value represents uNffvfded prof
It's which the STOCKHOLDERS have not
received or do not receive In cash,
and are therefore entitled to obtain
in scrip Sometimes IL has been issued
I'm reorganiZations. consultations, or
in exchange. for the stock OF other
companies. on terms not really war
ranted by the facts in the case. Some
times stock so issued as full paid has
been given as a bonus TO induce people
70 subscribe for bonds ute
Besides these direct methods OF eva
sion, there have been more indirect
means OF reaching the same result.
Lines have been built through the
agency OF construction companies and
paid for by the issue OF securities
whose face value considerably exceed
ed the actual cost OF the roads them
selves.
All these practices. with the possible
exception OF the one last named, have
been much more frequent in the past
particularly during the great periods
of railroad expansion from 1S53-51.
1922. 1S79-S2-than they have been
In recent years. This change is not
wholly due 10 increased strtngency In
the laws. II Is partly due TO wise adj
ministrative measures for their en-
forcement, and partly to the Increased
demands OF investors in bonds for the
real data as TO the security underly-
ting them. which has compelled mana
gers OF corporations TO give greater
publicity as 20 the real facts. The
Chicago & Alton reorganization Is the
only instance In the last decade which
has been brought to our cogniZance
where the public has been offered
large issue of railroad stock Gas dis
tinCt from the stock or a hOld1nR COM
pany), based merely upon an estimated
increhse OF value. Recent attempts TO
capitalize expected profits in connec-
tion with other public service Corpor-
ations or with industrials. do not come
within the scope OF this inquiry
Danger Of Evasion OF Federal Law.
A federal law requiring full pay
ment of all stock issues. without spe-
cial machinery TO enforceit. could he
evaded as state laws have been evad-
ed in the past In fact the liability
to evasion might be because
in come parts Of the country statu-
tory requirement OF this kind Imposed
by the federal government would be
regarded as an Interference with the
rights OF the several states: and local
companies attempting 10 build new
lines with stock not fully paiyd might
have the support OF local public SEN
timent in so doing. IL Is possible that
In some Instances the federal govern
ment could not even count upon the
Vigorous assistance Of the state author
tiles themselves in trying TO enforce
such an Act at all rigidly. Such fed
eral requirement superadded TO the
state requirement might amply mean
that every company would he led to
make two deceptive returns instead OF
one. A federal requirement conflicting
with state requirement might leave
us in an even worse case; for the inn
possibility OF obeying both authori-
ties would be made an excuse for obey