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presumption is certainly in favor of this right where the whole or a part of the product is intended for interstate or foreign trade. Section 7 provides for cumulative voting. Each stockholder is entitled to one vote for each share, multiplied by the number of directors to be elected, and is permitted to cast all his votes for any one or more of the directors.

One of the most important provisions of this measure, is that contained in Section 8, which prohibits all corporations organized pursuant to the act from purchasing, acquiring, or holding stock in any other corporation. This absolutely forbids the formation of holding companies. Section 17 contains a provision to the effect that when property is furnished for stock subscriptions in place of cash, it shall be valued in such a way as to prevent fraud. The Commissioner of Corporations may appoint one or more persons to make a valuation of such property, and fix a compensation which shall be paid for it, and no stock shall have a par value in excess of the value of said property, as proved to the Commissioner of Corporations. There is also a provision in the same section that the burden of proof, if any one is defrauded by false statements of any director, is on the corporation, which must show that the one so deceived or misled did not rely upon such statements.

The directors of corporations are prohibited by Section 23 from declaring dividends, except from net profits, nor shall they withdraw any part of the

capital stock of the corporations or reduce the capital stock, except as authorized by law. There is also a provision in Section 27, that the stockholders of corporations shall be jointly and severally liable for wages due to employees other than directors, for services performed. Whenever any corporation shall fail to pay off written obligations or an execution shall be returned unsatisfied, the Commissioner of Corporations is empowered by Section 31 to appoint a special agent, of whose appointment notice shall be given to the corporation, who shall proceed to ascertain whether the corporation is in unsound financial condition, and the Commissioner of Corporations may exercise the power of appointing a receiver to take charge of it.

These briefly are some of the more important provisions of the administration measure. While they are not so comprehensive as those of the German law, yet if adopted they will go far toward eliminating the evils of corporate organization and management. If this plan prevails, it will present a most difficult problem in administration, and can only be attended with success if the administrative branch having charge of its enforcement is characterized by ability and impartiality.

CHAPTER IV

BANKING CORPORATIONS-STATE AND FEDERAL -OUR MONETARY SYSTEM

THE distinctive feature of the laws and regulations relating to banking corporations, as compared with those pertaining to other corporations, is the greater severity of the former. This statement, strictly speaking, refers only to the federal laws pertaining to national banks; nevertheless, from year to year a greater degree of supervision is being applied to organizations under state laws and state control. There are manifest reasons for this distinction, based upon weighty considerations of public policy. No failure causes so much injury to the general public as that of a bank. There are hundreds of banks in the United States, having more than fifty thousand depositors. One bank in Philadelphia has more than 250,000 depositors. Confidence in their stability is essential; they are the centers of financial operations in the communities in which they are located. The failure of a single one of them creates widespread havoc and loss, not only to depositors, but to all business interests.

From the standpoint of national or state control,

the history of banking institutions in the United States may be divided into two periods. The first commences with the Bank of North America, established in the city of Philadelphia in 1781, and extends to the year 1863, when the law providing for the organization of national banks was passed. During this first period, from 1781 to 1863, with one exception, all banks were organized under state laws, and were under the control of state authorities. The single exception was the United States Bank, also located at Philadelphia. It was first chartered in 1791, for a period of twenty years, and again in 1816, for another twenty years. The central office was at Philadelphia, but there were numerous branches located in the various states of the Union.

This first period of our banking history was characterized by a great degree of laxity and favoritism, and the same lack of uniformity in banking regulations among the different states which is now manifest in the laws relating to other corporations. For fifty years after 1781, banks were established under special charters, and the granting of a charter was often the result of political favor. Antagonism between the Federalist and Republican parties in the state of New York was never more bitter than in the controversies over the chartering of banks. This privilege was regarded as one of great value, and was given to prominent men or leaders of the one party or the other. Another

characteristic feature of the banks in this term of fifty years was that in most cases the state itself insisted upon subscribing for part of the stock. A prominent reason for this was the expectation of large profits in the banking business. Again, a share in their management was desired. It was believed that if the state held a part of the stock and shared in the management, a greater degree of consideration would be given when public loans were needed. The United States held one-fifth of the ten millions of stock of the first United States Bank, and an equal proportion of the capital of its

successor.

A serious danger during all these years arose from permission to pay stock subscriptions in notes, and the absence of any effective requirement for their collection. Thus banks would begin to do business without adequate resources and without that stability which should characterize financial institutions. Bank statements and the filing of accounts were not required. Much stress was laid upon the note-issuing feature. Indeed, many of the banks were organized not for deposit banking, nor for loans to the commercial communities in which they were located, but for the privilege of issuing circulating notes. This was the most potent cause of the scandals and failures which characterized the state banking system in the years preceding the Civil War.

Two general plans for the security of notes and

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