Evening journal., 1917-04-13


surplus before declaring dividends a sum |
as working capital. but IL does not re-
strict the companys working capital TO |
the sum so set aside Il does not mean |
that the Company shall not use any of /
its quick or fluid assets as working CAPT !
tai, except the sum so reserved, but !
that, in order TO justify the board of di |
rectors in not distributing its entire !
surplus in dividends its previously exist /
ing working capital, il any, is to be add !
ed TO by the sum so reserved. Tho forms |
in use by the Company recognize work |
ing capital in the commercial sense and
not in this restricted sense The author
ity TO acquire or purchase out of "all
sums reserved as working capital or
otherwise is not confined TO It's capital
stock. but includes cts bonds or other
obligations cor other property" and the
provision that shares of such capital
stock 30 purchased or acquired may be
/ resold should be read in connection with
the direction that neither the stock.
bonds or other property so acquired shall
be regarded as accumulated profits for
the purpose Of declaring or paying divi.
dends.
The board Of directors are therefore
expressly authorized 10 invest in the
things enumerated including the Com
pany's capital stock all such sums as
shall be reserved as working capital or
otherwise, but the directors are not limit
ed to the use of the sums so reserved for
the purpose OF its capital stock to the
exclusion of the use of other funds of
the Company. The authority to so in.
vest is expressly declared to be sin fur.
therance but not in limitation of the
powers conferred by law" As the di-
rectors are authorized 10 purchase the
Companys bonds or other obligations or
shares Of its own capital stock or other
property and are not confined TO invest
ment in its capital stock, it would fol-
low that, if the provision is construed TO
mean that the funds the Board may use
, in the purchase OF its capital stock are
TO be confined to the sum so reserved, the
same limitation would apply TO its
bonds, or other obligations, or other
property purchased by IT, This would
lead TO the absurd conclusion that if the
Company had in its working capital large
amounts of cash on hand without having
any such sums reserved. it could not. If
1t found IT TO its advantage TO do so.
purchase its own bonds or notes before
/ maturity or any other property for in
, vestment.
IL is concluded that this section of the
Z charter cited \ authorizes certain pur.
chases TO be made with the sums set
aside ont of surplus, but does not ex.
4 clude the use Of other funds of the Com
y pany in making such purchases
As the powers conferred upon tn,
q board by Paragraph VII, Section lbl ar,
declared TO be lin furtherance but not il
p limitation Of the powers conferred b,
law" the corporation laws of New Ter
q sey of 1896, under which the Powder
r Company was organized, will be ex
A amined
n Section l, subdivision 4, and Section q
/. PROVIDE
$ Every corporation shall have power
d ". To hold, purchase and convey sue
It real and personal estate as the purpose
N Of the corporation shall require.
At 20. The shares of stock in every col
ne poration shall be personal property"
he In Berger v. United States Steel c.
of 60 n. J. Eq. 500, decided by the Court
ed Errors and Appeals, it was said:-
rh "ln Chapman v. Ironclad Rheostat c.
he 80 VIZ (62 n. J. Law 497 Mr.. JUST,
to Dixon, in an opinion delivered in OF
in Supreme Court, very clearly demon
IS, strates that under the Corporation AZ
e. of 1896, there is an implied grant c
b. power 70 corporations to purchase share
n, of their own capital stock whenever sue
es purchase is required for legitimate col
lpoTate purposes. Section 20 makes sue
N shares personal property; Section ], sui
r division I, gives power TO purchase sue
IN personal property as the purposes of Oh
n corporation shall require except wha
is excepted in Section which exceptio
T. does not include shares of its own stool
Therefore in connection with Section
20 and 80, the right of a corporation I
b. purchase its own shares is necessaril
Sc implied"
r. Section 80 Of the New Jersey Corpol
re. alton Act is relied upon by the defent
Sc ants as preventing the acquisition of il
he own stock except from surplus. III
: Section reads:
~. The directors of a corporation sha
not make dividends except from its SUI
100 plus, OF from the net profits arising fror
~ the business of such corporation, II,
- shall it divide, withdraw, or in any wa
pay to the stockholders or any of theT
any part of the capital stock of sue
corporation, or reduce its capital stoC
~ except as authorized by law"
r. Then follow the penalties impos'
eA upon directors for violation of the Or
te- visions of this section).
* No case appears TO have come befo
Use the cOurst of New Jersey in which III
let statute was neld 20 prohibit a copor
ck ton from the purchase of outstandi
M shares of its own stock. Il is construl
er- by counsel for the defendants as appl
er. ing to the present case upon the grom
All that the proposed transaction won
or have been a payment to Coleman
to Pierre of part of its capital stock (th
its Is, its paid in cspitall in payment f
of the shares.
tty It is difficult to see the application
md the Section TO the situation in this ca
&C. Even if it IS 10 be construed as meant
her that a corporation may not impair or
so plete its capital stock by the purcha
lu- of its own shares, the reasons of [
ar statute law and the common law
Use such a prohibition are that the paid
rs; capital represents to the creditors {
ur- assets of the Company TO which III
un- may have recourse for payment of I
red Companys debts, and If the Compa
I'M has to use its paid in capital in or,
W." TO make payment for its own stock,
of is preferring its stakeholder as a ere
mr. tor and, to the extent to which the pi
III, in capital is used, it is depicting
of fund TO which its other creditors
but TO look for payment. Assuming that
red Act is intended to reach such a case,
Sec is incumbent upon the defendants
to know that the capital of the Compa
and over and above its capital stock paid
,rll- was not sufficient to pay its then exi
wi ing creditors, and also TO pay for
4