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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
Object Description
Title |
Significant Developments relating to no par shares |
Author |
Wildman, John Raymond, 1878-1938 |
Subject |
Stocks -- Law and legislation |
Citation |
Haskins & Sells Bulletin, Vol. 10, no. 06 (1927 June), p. 42-44 |
Date-Issued | 1927 |
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 10-p42 |