In this case;

              82 HASKINS & SELLS November
In This Case
THE question of what to do with the
surplus of a corporation which, hav­ing
common stock without par value, de­clares
a stock dividend, is not as simple
in the abstract as it might appear. One
who attempts to answer a question of this
kind without all the facts of a concrete
case and a knowledge of the state laws
applicable thereto - is indeed treading on
dangerous ground. There are, however,
certain generalizations which may be made,
if the discussion is properly prefaced with
the foregoing qualifications.
When a corporation having common
stock with par value declares a stock divi­dend,
the amount which passes from sur­plus
to capital stock is automatically fixed.
But where the stock has no par value the
question immediately arises as to the
amount which is to pass from the surplus
to the capital account. This question
may at the moment be entirely theoretical,
but with the trend in the direction of non­par
value capitalization and the present
tendency of declaring stock dividends
there is little doubt it will soon be one with
which to reckon.
Were the directors in declaring the
dividend to fix the amount, or specify the
amount per share, there would be no diffi­culty.
But directors have been known to
overlook small matters of this character
with the result that the omissions have
gone on unnoticed until someone has
attempted to frame the entries for the
books.
There are certain underlying questions
of interest, one of which is what would be
accomplished by the declaration of a stock
dividend in the case of a corporation hav­ing
stock without par value. If a certif­icate
of stock without par value repre­sents
a share in the excess of assets over
liabilities of a corporation, does it mean
anything to give him two certificates,
each stating that his share interest in the
net assets is that proportion which his
two certificates bear to the total number of
certificates outstanding?
At first glance, the proposal to declare
non-par value stock dividends smacks of
absurdity, but the suggestion probably
has some basis of reason. As in the case
of stock with par value, the stock dividend
denotes a reapportionment of share capital
without withdrawing any funds from the
business. It operates as a dilution of the
net asset value per share in the same
manner as with stock having a par value.
It may or may not result in a reduction of
future cash dividends per share. But if
unaccompanied by a transfer of surplus
to capital there would remain a somewhat
excessive amount of earned surplus avail­able
for distribution as cash dividends.
Apparently, there would be no detriment
suffered by creditors in this event, nor
would there be any detriment to share-