Significant Developments relating to no par shares;

              42 HASKINS & SELLS June
Significant Developments Relating to No Par Shares
BY JOHN R. WILDMAN of Haskins & Sells
THE perplexities of accountants in deal­ing
with corporate shares of no par
value have centered, to a considerable ex­tent,
around surplus. Statutory definitions
of surplus have been lacking. Legal con­cepts
have been derived largely from im­plications
in the state laws. Accountants
in attempting to adhere to economic doc­trines,
when considering questions related
to surplus, have been severely tried. Sur­plus,
at times, has meant everything from
profits on turnover of investment, to the
excess of asset values over liabilities and
stated capital.
Judicial decisions have been quoted to
support the latter view. "Williams vs.
Western Union" has been referred to re­peatedly
as an outstanding case constitut­ing
precedent for this theory. But careful
thinking lawyers seem to have tended
latterly to the opinion that earned surplus,
perhaps excepting premium on par stock
sold, is the only safe basis for the declara­tion
of dividends.
Now comes the State of Delaware, with
amendments to the corporation law,
adopted March 2, 1927, and upsets these
opinions which seemed, to some persons at
least, to be having some effect in the direc­tion
of influencing sound practice.
Whether one agrees with the definitions
is beside the point. That economic doc­trines
may have been violated is another
question. In Delaware this matter of
surplus has been cleared up—definitely,
fearlessly, and in no uncertain terms.
There are four points in the amended
law which are of particular interest to
accountants. The consideration received
for shares of stock without par value may
be divided; part being credited to stated
capital and part to surplus. The excess of
asset values over liabilities and stated
capital is the measurement of surplus.
Dividends may be declared out of any
surplus. Profits may be determined with­out
taking depletion of wasting assets into
consideration.
Lest there be any question raised as to
the interpretation of these points the fol­lowing
passages are quoted from the law
as amended: "1928, Sec. 14 * * * any cor­poration
may by resolution of its Board of
Directors determine that only a part of the
consideration which shall be received by
the corporation for any of the shares of its
capital stock which it shall issue from time
to time shall be capital; provided, however,
that, in case any of the shares issued shall
be shares having a par value, the amount
of the part of such consideration so deter­mined
to be capital shall be in excess of
the aggregate par value of the shares issued
for such consideration having a par value,
unless all the shares issued shall be shares
having a par value, in which case the
amount of the part of such consideration so
determined to be capital need be only equal
to the aggregate par value of such shares.
In each such case the Board of Directors
shall specify in dollars the part of such con­sideration
which shall be capital. If the
Board of Directors shall not have deter­mined
(a) at the time of issue of any shares
of the capital stock of the corporation
issued for cash, or (b) within sixty days
after the issue of any shares of the capital
stock of the corporation issued for prop­erty
other than cash what part of the
consideration for such shares shall be
capital, the capital of this corporation in
respect of such shares shall be an amount
equal to the aggregate par value of such
shares having a par value, plus the amount
of the consideration for such shares with­out
par value. The capital of the corpora­tion
may be increased from time to time
by resolution of the Board of Directors
directing that a portion of the net assets
of the corporation in excess of the amount