Court Opinion

ID: 6981500
Source: CourtListenerOpinion
Date Created: 2022-07-24 02:20:26.141878+00
Date Added: 2024-06-11T16:09:12.873420
License: Public Domain

Mr. Justice Thompson, dissenting: The construction given the general Corporation act by the decision of the court nullifies many of its provisions. By holding that the “amount of authorized capital stock” need not be stated in dollars it ignores the plain language of the statute and opens the door to fraud. Section 4 of the act requires that the statement of incorporation set forth, among other things: “(8) The total amount of authorized capital stock;” “(6) the number of shares into which the capital stock is to be divided, whether all or part of the same shall have a par value, and if so, the par value thereof, which shall not be less than $5, nor more than $100, per share, and whether all or part of the same shall have no par value;” “(9) the amount of such stock which it is proposed to issue at once (which shall not be less than $1000, all of which must be subscribed) ;” and “(10) the payment of at least one-half of the capital stock, which it is proposed to issue at once.” The term “capital stock,” properly speaking, signifies the amount fixed by the corporate charter to be subscribed and paid in by the shareholders of a corporation. It is the property of the corporation contributed by its shareholders to the extent required by its charter. While the capital or assets of a corporation may be increased by accumulation of profits or enhancement in the value of property or reduced by losses or decrease in values, the amount of the capital stock remains fixed unless it is increased or reduced by or under legislative authority. (Armstrong v. Emmerson, 300 Ill. 54.) “The amount of authorized capital stock means the total sum of money necessary to be paid into the treasury of the corporation to secure the issuance of the total number of shares of stock authorized by the articles of incorporation.” (People v. Emmerson, 305 Ill. 348.) This is true whether the shares issued state a par value or state no par value. The capital stock is divided into a certain number of shares, each share being the interest the owner or stockholder has in the management of the corporation and in its surplus profits, and, on a dissolution, in all its assets remaining after the payment of its debts. The corporation issues to each stockholder a stock certificate, which is a written acknowledgment of the interest of the stockholder in the corporate property. This certificate of stock is not the stock itself. It is mere evidence of the holder’s ownership of the stock and of his rights as a stockholder to the extent specified therein. (5 Fletcher’s Cyc. Corp. sec. 3425.) If the stock has a stated par value that par value must be expressed in the certificate, but if the stock is of that variety known as stock having no par value, then the dollar-mark does not appear upon the certificate. In either event the stock has, in fact, a par value, — i. e., a value equal to the fractional part of the authorized whole represented by it. In the one variety it is expressed on the certificate ; in the other it is not. Whatever the character of the certificate issued, each share represents an aliquot part of the total assets of the corporation, regardless of what its nominal or its actual value may be. Rarely, if ever, is the actual value of a share of stock the same as its nominal value. Practical experience shows that it is impossible to maintain a constant equilibrium between the nominal capital of a corporation and its assets. The par value of a share of stock, whatever the character of the certificate issued to the shareholder, is the fractional part of the share capital, represented by a particular variety of stock, produced by dividing the total amount authorized by the number of shares into which such variety is divided. For example, the par value of the no-par-value stock of appellant is 1 /10,000th of $50,000, or $5. That the act requires the amount of the authorized capital stock to be stated in dollars is evidenced by the fact that the legislature has said that the amount which is proposed to be issued at once shall not be less than $1000. It does not say the minimum may be 200 shares of no-par-value stock. When the legislature fixed the amount it fixed it in dollars. How is the Secretary of State to know when one-half of the amount of capital stock, which it is proposed to issue at once, has been paid, if the amount is not stated in dollars ? I know of no way to pay “one-half of the capital stock” except to pay it in dollars or their equivalent. Section 23 makes directors liable for assenting to an indebtedness in excess of the amount paid in on the shares of capital stock of the corporation issued and outstanding and for declaring a dividend which will impair the capital. Section 28 requires at least one-half of the amount of an increase in capital stock which is issued, to be paid in before the new stock is issued. If the increase in capital stock is merely a certain number of shares of stock of no par value without the amount of the increase being stated in dollars, when is one-half of the amount of the new issue paid into the treasury of the corporation and when does the new issue become lawful ? Section 53 makes each stockholder liable to creditors to the extent of any unpaid portion of the shares issued to him. If shares may be issued by the corporation without regard to their par value, how is the “unpaid portion” to be determined? These sections, and many more, are a nullity unless the amount of the capital stock of a corporation must be stated in dollars. . Whether the shares of stock have a stated par value or have no par value stated, the corporation cannot issue the stock for less than par. In order to secure the issue of all the shares of stock there must be paid into the treasury of the corporation, in cash or its equivalent, the total amount •of its authorized capital stock. Under section 32 the corporation is authorized to sell its shares of stock having no par value for such consideration, not less than $5 nor more than $100 a share, as may be prescribed in the certificate of incorporation or as from time to time may be fixed by the board of directors pursuant to authority conferred in its certificate, but the price fixed could under no circumstances be less than par. If the total amount of authorized capital stock of a corporation be $10,000, divided into 1000 shares of no par value, the minimum price for each share must be $10. The board of directors may likewise fix the price at which par-value shares may be sold by the corporation so long as it does not sell them for less than par. Section 30 requires each certificate for shares of capital stock to have stamped or printed on it the amount actually received by the corporation for the shares represented by it. There is nothing in the act to indicate that the legislature meant to exempt from these general sections, corporations issuing shares stating no par value. Section 1 of article 9 of the constitution gives the General Assembly power to tax corporations owning or using franchises and privileges in such manner as it shall from time to time direct by general law, uniform as to the class upon which it operates. The legislature may classify corporations for taxation, (Coal Run Coal Co. v. Finlen, 124 Ill. 666,) but the classification must have some reasonable relation to the end proposed by the particular legislation. (Springfield Gas Co. v. City of Springfield, 292 Ill. 236; Commonwealth v. Alden Coal Co. 251 Pa. 134, 96 Atl. 246; State v. Minnesota Farmers’ Mutual Ins. Co. (Minn.) 176 N. W. 756; Hayes v. Smith, (Mont.) 192 Pac. 615.) Corporations may be classified as banking, railroad, mining, insurance and manufacturing, because each of these classes has characteristics which differentiate it in important particulars from the others. But there is no reasonable basis for placing corporations issuing their stock with a par value in a. class different from those corporations issuing no-par-value stock. Take, for instance, two companies manufacturing the same article by the same process and each of which has an authorized capital stock of $100,000 divided into 20,000 shares. What possible difference can it make if one of these corporations issues certificates stating a par value of $5 while the other issues certificates which state no par value? The actual par value of the shares in both corporations is exactly the same, and so, also, is the liability of the directors and the stockholders to creditors and the rights of the shareholders to participate in the business of the corporation. But under the amendment added in 1923 to section 105 the corporation issuing certificates expressing no par value must pay an annual franchise tax twenty times as large as the corporation issuing certificates expressing a par value. This is a discrimination which finds no basis in authority or in reason. Whether stock be par value or no par value, it merely represents the proportionate interest of the holder in the corporate assets, (8 Thompson on Corp.—2d ed.—sec. 3447a,) and the burdens of taxation must fall equally upon all corporations of a given character without regard to whether their stock is of the one kind or the other. The amendment is unconstitutional and void. Mr. Justice DeYoung took no part in this decision.