ment to determine, in each case, what proportion of bonds and stock to issue.

Special Information Required for Incorporation. In the case of railroads and many other corporations, it is sometimes provided by law that the articles of incorporation shall state: (a) the total amount of its capital stock; (b) the par value of a share; (c) the amount of stock subscribed and by whom; (d) the amount actually paid in; and, sometimes also, (e) if more than one class of stock (common stock), the name, quality, and privileges of any additional classes of stock. In this matter, also, the specific requirements of the statute must be followed; these differ in different States, as well as for different kinds of corporations in the same State.

Amount of Capital Stock. In some States there are also requirements as to: (a) the amount of capital stock already paid in at the time of the "first meeting"; (b) the percentage of the capital stock already subscribed; (c) the percentage of the capital stock already paid in; or (d) the percentage of the capital stock already subscribed which has been paid in. Sometimes such a requirement must be fulfilled before the incorporation is effected. In other cases, it must be fulfilled before starting business.

Stock: How Acquired. Stock may be acquired in several ways; by subscription at the start, by later purchase from the corporation, or by transfer from some other stockholder. Although transfer of stock is allowable, certificates of stock are held not to be properly "negotiable instruments." A stock certificate is a written acknowledgment of the interest of the stockholder, and a transfer of stock must be registered on the books of the company.

Subscriptions: Privileges and Responsibilities. The subscriber, before incorporation, not only secures some privileges, but he also incurs legal responsibilities. In general, a subscriber must pay his subscription. In some States the subscription stands as an offer which may be withdrawn before the charter is secured, but which is accepted and becomes a contract the moment the charter is secured; in other States the subscription, once made, cannot be withdrawn unless for fraud or similar adequate cause. Sometimes subscriptions are conditional, but commonly not; sometimes, or in some States, there is an implied condition that all the shares shall be subscribed for unless otherwise specified; but a subscriber may waive this if he sees fit. No general rule of universal application can be laid down here as to the responsibility of the subscriber.

Subscription Agreements. In some States a formal subscription agreement is necessary. Whether necessary or not, an agreement "in consideration of the subscription of others hereto, I promise " forms a contract which probably would be enforced.

The contract of the subscriber is with the corporation and not with the other subscribers; it must be enforced through the corporation, and it has been held that the subscriptions are valid commonly not only by virtue of the statute, but also as a matter of Common Law.

Full Paid Stock. In some States it is unlawful to issue stock to stockholders except on payment of its par value. In other States corporations of certain classes may issue stock on payment of less than par value under some circumstances. When par value has been paid, the stock is nonassessable. National Banks are a notable exception to this rule; holders of full paid stock of National Banks are liable to an additional assessment equal to the par value if this be required to pay depositors or other creditors. In some States a similar rule prevails as to all corporations.

Additional Assessment. Where stock has not been paid in full, the stockholder, in most States, may be called upon for additional assessments up to a point where his total payments shall equal the par value of the stock. His liability is primarily to the corporation, although eventually to creditors in case the assets should be insufficient; but in many States this is true only in case of insolvency or its substantial equivalent. The liability of stockholders has been held sometimes to be jointly and severally, sometimes proportionally.

Where a corporation is clearly solvent and in successful operation, stocks not fully paid for will not be assessed because there is no occasion for such action. The statutes relating to corporations have been changed frequently and vary so much in different States that a careful reading of statutes, as well as an examination of decisions, is necessary to ascertain what are the liabilities of stockholders.

Special Liabilities of Stockholders. In some States the stockholder is liable beyond the full paid stock for the wages of employees of the corporation. He is also liable for any refund which has impaired the security of creditors. In some cases there has been a limitation on the period for enforcing the liability of stockholders. In the case of transfer of stock, the rule as to the liability of transferor and transferee is variable. In California, stockholders are liable for all debts of a corporation.

Stock Issued other than for Cash. While stock is commonly issued for cash, the law countenances its issue for labor or other services or for property if its purchase would not be "ultra vires," a term to be explained later. In some cases practically the only way in which a railroad can be constructed is by paying the contractor in the securities of the corporation. The measure of value of services or property must be, in general, the equivalent of reasonable value, or just valuation, but in a very few States an agreed value, or an arbitrary value fixed, is held to be legal; and in the absence of fraud, the judgment of the board of directors as to value is con

clusive. Stock thus issued other than for cash has been held to be nonassessable.

Stock as Bonus. In some States, in payment of a debt when the credit of the company is poor, payment may be made in bonds with a bonus of common stock, provided the market value of bonds and stock be not less than the par value of the bonds. It is not uncommon, too, to finance corporations by issuing a block something as follows: bond, $1000; 8 shares preferred stock; 4 shares common stock; the selling price for the block being perhaps $1100.

Preferred Stock. Preferred stock is sometimes issued in addition to common stock; the word "preferred " means little or nothing unless the preference is explained. Ordinarily such stock is specified to be preferred, or to have priority, both as to assets and dividends; the provision then is that the preferred stock shall have first claim on assets in case of liquidation, and shall receive its full specified dividend before any dividend is paid on the common stock. Preferred stock usually has a specified rate of dividend; if "cumulative " preferred stock, then in case a dividend is omitted in any year, it shall be paid later whenever money is earned in excess of fixed charges and current preferred requirements, and before any dividends can be paid on the common stock. Unless the quality of preference is in some way explained or specified, the use of the word appears to have no effect.

Unless the statutes authorize the issue of preferred stock, its legality is doubtful. When the statutes authorize it, it is not altogether clear whether the corporation has a right to issue it after the common stock is subscribed, but the weight of authority favors its legality. It is often issued when reorganization of a railroad becomes necessary, sometimes in place of bonds upon which it was found difficult or impossible to pay interest, and which were retired in favor of preferred stock.

Stock of Other Corporations. Although at Common Law a corporation could not in general hold stock in other corporations, yet in most States this is now authorized. This seems almost necessary in the case of insurance companies with much money to invest, and also in the case of trust companies for the investment of trust funds. At present it is not uncommon for "holding companies" to own the stocks of several companies operating in a single line of corporate work, and this seems not unlawful now unless it is a combination in restraint of trade, which is unlawful not only under the Common Law, but often directly under Statute Law also.

The federal anti-trust law, the so-called Sherman Anti-Trust Law, not only defines the offence, but also attaches a penalty which includes possible imprisonment. This law is not on its face directed at corporations, but most action under it is likely to be against large corporations, and its terms

should be understood by anyone forming a corporation which has at all the character of a combination or trust.

Sherman Law. The federal anti-trust law, the Sherman Law, is directed against any combinations or operations in restraint of trade. It affirms the Common Law principle as to restraint of trade, causes it to apply to interstate transactions, thus curing difficulties arising from the inability of a State to exercise sufficient jurisdiction and control of many cases. In addition to defining the offence, the act also imposes a penalty of fine or imprisonment or both. It also provides for an action in Equity to enjoin operations declared illegal by this act. It took some time for the Supreme Court of the United States to determine the true meaning and application to the act, but this was finally accomplished under what has been denominated "the light of reason." The dissolution of the Standard Oil Trust and the Tobacco Trust were accomplished under this act. With the fixing of this meaning and application it is expected that it will be possible to enforce the penalty of imprisonment, which had seemed not to be possible while the meaning remained somewhat vague. The certainty which the law aims to secure is temporarily disturbed with relation to this act by the later legislation known as the Clayton Act and The Federal Trade Commission Law enacted late in 1914; new Statute Law of this sort is likely to bring about new rulings and definitions of the law from the Supreme Court, as the laws overlap.

Clayton Act. The Clayton Act is specifically an anti-trust act. It prohibits discrimination in price between individuals "where the effect of such discrimination may be to substantially lessen competition or tend to create a monopoly." It further prohibits making contracts which specify that the purchaser shall not use or deal in the goods of a competitor if the effect is to lessen competition. The act further provides, in the case of banks and certain other corporations, that any individual shall not hold positions of director or important officer in more than one such corporation, where both corporations are naturally competitors; this is known as the "interlocking directorate" provision.

Federal Trade Commission. The Federal Trade Commission is a body appointed under United States laws to investigate and remedy infractions of the laws as well as any acts suppressing competition. Provision is made so that it may act less formally than a court of law in such investigations.

A careful reading of all these acts and of the decisions rendered will be necessary for a proper understanding of the laws, and there may then remain some uncertainty as to their scope and application until there has been time for Supreme Court decisions to bring about the stability which business needs and which the law seeks to secure.

Another federal law, the Interstate Commerce Act, deals not only with railroad rates but also with safety appliances for railroads, thus giving a new expression of federal powers; the same is true of the federal Workmen's Compensation Act, which however is not confined in its action to corporations, although in practice few personal employers are interested.

Amount of Capital Stock. As to the amount of capital stock, it should be understood that the value of property is mainly determined by its earnings. With corporations having public service qualities, a high rate of dividend return, if the capital stock is small, will tend to cause dissatisfaction on the part of the public, and perhaps bring about adverse legislation; over-capitalization on the other hand results in higher taxes under the laws of many States. It is not altogether uncommon with corporations for preferred stock to be issued to the amount of the physical value of the property, and common stock to capitalize the additional or surplus earnings, representing the value of the franchise or good-will of the company; such stock is sometimes called watered stock.

Capital; Capital Stock; Capitalization. In considering the financial side of the corporation it may be proper to distinguish between: (a) capital, the property value of the corporation, its assets, or the fund with which it does business; (b) capital stock, the amount of stock authorized; (c) capitalization, which includes bonds as well as stock.

Promoters. In the formation of a corporation, an important person sometimes is the "promoter," whose function it is to effect the incorporation and organization of a company; who brings together the persons who become interested in the enterprise; who aids in procuring subscriptions and sets in motion the machinery which leads to the formation of the company itself. His position differs much from that of the subscriber.

While a contract comes into force between subscribers and corporation the moment the charter is secured, on the basis of a continuing offer then accepted, it is held in most States that there is no such contract between a promoter and the corporation. The promoter's services were performed before there was any corporation to make either an express or an implied contract to pay the expenses of promotion.

Payment to Promoters. If the promoter expects payment for his services, he should have a contract with the subscribers or with some individual or individuals, with proper assurance that enough money is available. The agreement should be in writing; for, if the subscriber he dealt with should die, the other subscribers might be inclined to dodge responsibility if opportunity offered. While a promoter has no claim that he can enforce against the corporation, on the other hand there appears to be no legal obstacle to the payment by the corporation, at its pleasure, of expenses connected with organization, and these may properly include