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2 H A S K I N S & S E L LS January THE liberality which characterizes the corporation laws of some states tends to a frame of mind which dismisses from serious consideration reported actions of corporations organized under the laws of those states. One reads in the newspapers of certain actions taken by a corporation existing under authority of the laws of a certain state, and passes along to other news items with the thought that anything approved by formal vote of directors, is possible under such laws. The action need not be rational. It may be unsound economically. The effect may be a suppression of the facts. But if expediency so dictates, and the action is taken properly, the action has the stamp of legality. Such is likely to be the mental attitude of one who is familiar with these matters. In fairness to such laws, it is interesting to consider, without prejudice, the proposed action of a certain holding company as reported in the news column. Is the action facilitated by the laws governing the organization and corporate conduct of the company in question? Is there anything questionable about the proposed action? Does it gain any improper advantage on account of the character of its shares of capital stock and the laws authorizing the issuance of such shares? "The Blank Corporation has called a special meeting of class B stockholders for November 28 to vote on a proposal to reduce the stated value of the class B stock from 365,849,369.00 to 346,842,721.00, thereby creating capital and capital surplus and applying a portion of the capital and surplus to write investments down to market value. "The purpose of the proposal is to reduce the paid-in capital of the class B stock from 310.00 to 35.00 and bring about a capital readjustment and thereby correct the existing situation under which the payment of dividends may be interrupted, while the corporation is receiving income from investments sufficient to cover dividend requirements." The foregoing quotations, slightly disguised, are as reported by the press from the company's announcement. The discussion which follows is based on the newspaper statement. Analyzing the announcement, it is apparent that the company issued some of its stock for, or purchased from the proceeds thereof, certain securities, at prices, which, on the basis of the market (October 31, 1930) would have to be reduced substantially. This would result in a material reduction of the balance sheet value of the securities owned. The paper loss incident to such devaluation presumably would be large. It would be too large to permit of absorption by the surplus accounts, the character of which is not disclosed. The corporation may have had earned surplus, or surplus arising from valuation of securities, or paid-in surplus resulting from arbitrary classification of paid-in capital. At any rate, whether from motives of necessity, or of expediency, there was not sufficient surplus to absorb the write down. And so, it is proposed that stated capital shall be adjusted, so reducing it as to make Capital Reductions
Object Description
Title |
Capital reductions |
Author |
Anonymous |
Subject |
Corporations -- Delaware -- Law and Legislation Securities |
Citation |
Haskins & Sells Bulletin, Vol. 14, no. 01 (1931 January), p. 2-5 |
Date-Issued | 1931 |
Source | Originally published by: Haskins & Sells |
Type | Text |
Collection | Deloitte Digital Collection |
Digital Publisher | University of Mississippi Libraries. Accounting Collection |
Date-Digitally Created | 2009 |
Identifier | hs bulletin 14-1-p2 |