New Britain herald. [microfilm reel] (New Britain, Conn.) 1890-1976, 1922-12-14

The agitation, for the taxation OF
corporation surplus or stock dlvi-
dends representing transfers from
surplus account to capital account,
has been'rcyivcd, and 10 at once the
cause AID result of numerous stock
dividends recently. The announce
ments Of these dividends, which
under q decision OF the U. S. SUI
preme Court are non-taxable for
the very good reason that they do
not transfer anything, has excited
q portion of the public, which
understands them to be distribu-
ton Of profits, and prompted de-
mand for more taxation. On the
other hand, the revival of the de-
rnand for the taxation of such SUR
plus or stock has naturally prompt
ed corporations TO complete any
action Of the kind they Ylay have
been contemplating.
What Is a Surplus1
II Is not strange that many peo-
pie should be unfamiliar with cor
poration finance, in which the term
surplus" is used in technical
sense. In the case of corporation
il does not mean cash on hand or
an excess of any kind of assets
over its needs, but simply an ex-
cess over the sum of obligations
and capital stock outstanding. The
surplus" shown in corporations
statement may be, and commonly
is, all invested in buildings, ma
chinery, and necessary working
capital. In the operation of the
business it is indistinguishable
from that part of the capital repre-
scented by capital stock.
An individual in an unincorpor-
ated business does not have sur
plus in the same technical sense,
nor does partnership, because
they have no outstanding stock
They do not ordinarily make the
distinction between capital" Sur
plus" and undivided profits" that
is done in corporation bookkeep-
ing.
When it comes to taxation, indi-
vidual proprietors and members of
partnerships pay the regular per-
sonal income taxes upon that por-
tion of the profits of the business
which belongs to them, whether
they Withdraw any part Of it from
the business or not, and that is all
the taxes paid upon those profits.
The profits are counted as income
to the proprietors once, and that
ic all.
The Corporate Organization
The foregoing is something to
bear in mind in considering what
is just and fair treatment as be-
tween persons who choose to carry
on business under the corporate
form and those who carry on per-
haps the same kinds Of business as
individual proprietors or in part
nerships. From the standpoint of
public policy, there is no good rea-
son why the Government should
against the corporate
form OF proprietorship 1t is the
greatest agency in existence for the
widespread distribution of the
ownership Of large undertakings.
II is the most practicable means
available for promoting cooper
alive industry on large scale. II
has become common practice for
operating public utili-
les 10 sell their new stock issues
% their patrons and employees,
/ notable example of such dis
.ribution being the case of the
American Telephone and Tele-
graph Company, which has over
.35, 900 stockholders, of whom over
5000 are telephone employees.
Although great portion of the
business of the country is carried
IN by individual propristors and
partnerships, in many lines the OPP
.rations are of such magnitude, re-
luiring so great an investment of |
apital, that they cannot be handled
economically and for the best SER
rice of the public except by cor
,orations. 1t is not desirable that
he development of industries on
arge scale shall be limited to indi-
'iduals rich enough to own them
lone or in partnership with few
,thers. The joint stock corpora
ion has opened the way for gen.
raj participation in industry on a
arge scale.
Even in the case of small enter
rises, there are advantages on the
ide Of corporate organization.
thousands of such organizations !