Every evening, Wilmington daily commercial., 1921-11-23


was discounted by the prospect OF an
Income tax to be paid thereon. In
short, the question whether dividend |
made out OF company profits consti- |
tutes income OF the stockholdcr is not |
affected by antecedcnt transfers OF |
the stock from hand To hand
There Is more force In the sugges-
ton that, looking through and through
the entire transaction out of which
the distribution came, Il was but 4
financial reorganization of the busl-
ness Ms II stood before. without d.
ipinution Of the aggregate assets or
change in the general corporate OH
iects and purposes, without change cf
personnel either In officers or stock
holders. or change In the proportion
ate interest OF any individual stock
| holder. The argument. I'm effect. Is
| that there was no loss of essential
| identity on the part OF the company,
| only change Of the legal habln-
ments In which the aggregate corpo-
rate interests were clothes, no sub
stantial realization by individual
| stockholders out of the previous ac-
| cumuation of corporate profits. mere
| w n ulS'llnulltn vi duinillf1Hl FPlt1ll~
Gates indicating an increase lin the
value OF their capital holdings This
brings into view the general effect of
the combined action of She entire body
of stockholders as n mass.
In such matters. what was done.
rather than the design and purpose
OF the participants. should be the test
However, In this case there is no
difference. The proposed plan wns
set out In the written communicable,
from tho president OF tho New Jersey
Ioorporation to the Stockholders, a
written assent signed by about 90 per
cent Of the stockholders \ n written
agreement made between the old com
u pany and the new, and bill of sale
lmade by the former To the latter all
of which are I'm the findings. The
plan as thus proposed and adopted
and as carried out involved the fo.-
nation of q new corporation to take
over the business and the bushes.
, assets OF the old; IL was to he and
was formed under the laws of a df.
fcrent state, which necessarily i'm.
ports different measure Of rcsponsl
, hility to the public, and rrcsumabl,
, different rights between stocliholdcrl
. ard company and between stocihold
ers inter e'e. than before. Tn,
articles of association of neither com
any is made To appear. but in favo
of the asserted identity between tn,
companies we will assume tcontrar,
To the probabiities) that there wa
no significant difference here. But III
{ new company was to have authorize
capital stock 'aggresating s2i0. 900 90
|. nearly four times the aggregnt
l. stock issues and funded debt uf IN
- old company--of which lcss than one
{ half Cs11S,515,900) was to be issue
Il presently to the old company or II
stockholders. leaving the future dis
=, position of a majority OF the author
lied new issues still 60 Lc determined
a There was no present change of oi
:. ticers or stocknolders nut, manifest
#, continuation Of identity I'm this rc
. sp, ct depended upon continued unan
nous consent or concurrent action Z
,. 4 multitude of individual stockholdci
. | lCiuated by motives and influence
necessarily to some extent divCrgen
Ia the light OF all this we cannot r,
card the new company as virtual
" Identical with the old. hut must tree
- Il rs a substantial corporate bod
with it's own separate identity. an
It's stockholders as having propcri
rights and interests materially di
. ."rcnt from those incident to Owner
" ship of stock in the old company.
!, The findings show that II was II
, t. ded To be established as such, ar
that IL was so created in fact and
law. There is nothing To warrant .
=, in treating this separateness as In
aginary, unless the identity of Il
lody Of stockholders and the transit
- in Solido of the manufacturing bus
=, .css ard assets from the old compar
70 the new necessarily have that q
of >ct. But the identity of stocSholdc
:, ! was hut temporary condition, su
IA. ;rct TO change at any moment at q
option Of any individual. AS TO 4
y, assets. the very fact of their transf
r. from one company to the other eN
GO aenced the actual separateness of {
~ two companies.
"a But further. IL would be erroneo,
IN We think. to test the question wheth
NJ an individual stakeholder derived
,1 come I'm the true and suhstant
II. sense through receiving part
n the distribution of the new shar
n. by regarding alone the general eff,
10, Of the reorganization upon the a
ri eregate body of stockholders. i
- liability of a stockhalder To pay
OIL individual income tax must be test
nd by the effect of the transaction up
in The individual. IL was a part of l
Al purpose and a necessary result of
=, plan of rcorganizationI as carried %
h. that common stock of the new COZ
h. pany to the extent of s5S'S5i.Z
g. should be turned over 10 The old col