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Bulletin HASKINS & SELLS 93 Styles in No-Par Stock Laws BY JOHN R. WILDMAN of Haskins & Sells STYLES in no-par stock laws bid fair to become as distinctive as those of women's dresses or of men's clothing. Figuratively speaking, the Delaware style is smart, chic, and daring; that of Wisconsin is old-fashioned, high-necked, and conservative. Translated into appropriate language, the Delaware law might be said to permit anything which finance, high or low, may see fit to undertake. The Wisconsin law, with slight qualification, sanctions nothing but practices approved by sound economic doctrine. It is axiomatic of economic theory that dividends may not be paid out of capital. This proscription has been written into the statutes of many states. The principle has served as a basis for judicial decisions on various occasions. The principle has been respected by Wisconsin. It has been ignored by Delaware in framing its most recent law governing the issuance by corporations of shares without par value. The Delaware law permits both preferred and common shares to be issued without par value. It permits the consideration received for shares to be apportioned between capital and surplus. Dividends may be paid out of any surplus, and surplus is defined as the excess of assets over liabilities and capital stock. Depletion, under certain circumstances, need not be taken into consideration in determining net profits available for dividends. These are the salient features of the law. The contrast with the new Wisconsin law (July, 1927) is marked. "Any corporation . . . may issue shares of stock (other than stock preferred as to dividends or preferred as to its distributive share of the assets of the corporation or subject to redemption at a fixed price) without any nominal or par value." "The amount of all moneys and the money value of any services or property paid for shares without par value as fixed at the time of the issuance of the shares therefor by the organizers, the directors, or the stockholders, whichever shall have fixed the price for the issuance thereof, shall constitute the capital applicable to such shares, which capital may not be diminished by the payment of dividends." "No dividend shall be paid by any corporation until at least fifty per cent. of the authorized capital stock has been fully paid in, and then only out of net profits properly applicable thereto, and which shall not in any way impair or diminish the capital . . . But any corporation which has invested net earnings or income in permanent additions to its property, or whose property shall have increased in value, may declare a dividend either in money or in stock to the extent of the net earnings or income so invested or of the said increase in the value of its property; but the total amount of such dividend shall not exceed the actual cash value of the assets owned by the corporation in excess of its total liabilities, including its capital stock." Careful reading of the quotations will show them to be highly satisfactory from the point of view of sound procedure, except with respect to permitting the declaration of cash dividends based on an increase in the value of property. The two sections relating to dividends conflict. First, it is stated that dividends may be paid only out of net profits. Then they are permitted out of an increase in the value of property, suggesting that the phraseology
Object Description
Title |
Styles in no-par stock laws |
Author |
Wildman, John Raymond, 1878-1938 |
Subject |
Stocks -- Law and legislation |
Citation |
Haskins & Sells Bulletin, Vol. 10, no. 12 (1927 December), p. 93-95 |
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-p93 |