Court Opinion

ID: 5195704
Source: CourtListenerOpinion
Date Created: 2022-01-06 15:42:55.665582+00
Date Added: 2024-06-11T08:27:04.387718
License: Public Domain

Laughlin, J. (concurring):
I concur in the main in the views expressed by Hr. Justice O’Brien, but wish to add some further observations. The statute regulating the increase of the capital stock of a corporation (Stock Corp. Law [Laws of 1892, chap. 688], §§ 44, 45, 46, as amd. by Laws of 1901, chap. 354) provides that such increase, within the limitations, if any, prescribed by law, may be made by the unanimous consent of the stockholders, or by the vote of the holders of a majority of the stock, either in person or by proxy, at a meeting duly called for that purpose. The statute is silent as to whom or the terms upon which the increase of stock shall be issued. These questions are, therefore, to be determined by the application of common-law principles. Where the stockholders all agree of course no question could arise, but where the majority favor the increase of the capital against the wishes of the minority or upon terms opposed by them, then important questions are liable to arise. In that event I think the statute confers implied power upon the majority to determine whether the stock shall be issued at par or above par at_ what may be deemed its actual value in view of the value of the assets of the existing corporation, the right to ultimately share in which the holders of the new issue of stock will thus acquire. The action must be taken, however, in a manner that will secure to the existing stockholders an opportunity of exercising their pre-emptive right *390of subscribing for a share of the increased capital stock in proportion to their holdings of the original. I think, for instance, that the sale of the new stock to the highest bidder upon sealed proposals would be a violation of this right. A stockholder prior to the increase has a right to a voice in the management and to a share of the assets of the corporation, on final dissolution, in the proportion that his holdings bear to the entire outstanding capital. These rights are materially affected by an increase of the capital stock; and such increase must, therefore, be made in a manner to enable Mm to become the purchaser of such a proportion of the increased capital stock as will preserve Ms right to the same proportion in the assets on final liquidation as he originally had and also the same voice in the management of the corporation. Moreover the immediate effect of an increase in the capital stock of a corporation, the value of which is above par, would be to depreciate the value of the original stock unless the new capital is issued and sold at a valuation equal to that of the original issue. It is, therefore, manifest that if the holders of the original stock are not to purchase the entire new issue, it is to their interests that the increase of stock be issued, not at par, but at what will be its actual value as near as the same may be ascertained. The rule contended for by the plaintiff would be equitable only in those cases where all existing stockholders could afford to purchase their respective proportions of the new issue at par. This, it is evident, many stockholders could not do. Furthermore, issuing the new stock at its actual value would more substantially increase the working capital, which is ordinarily the principal advantage to be thus attained, whereas, if it is issued at par to the existing holders, they and not the corporation will receive directly on a resale the excess value above par.
Judgment reversed, new trial ordered, costs to appellant to abide event.