Capital case

“ So long as every dollar of stock issued by a corporation is represented by a dollar of property, no harm can result to individuals or the public from distributing stock to stockholders.... All that can be required in any case is that there shall be an actual capital in property representing the amount of share capital issued. ”

“ The gross profits from capital, the gains returned to those who supply the funds for production, must suffice for these three purposes. They must afford a sufficient equivalent for abstinence, indemnity for risk, and remuneration for the labour and skill required for superintendence. These different compensations may be either paid to the same, or to different persons. The capital, or some part of it, may be borrowed: may belong to some one who does not undertake the risks or the trouble of business. In that case, the lender, or owner, is the person who practises the abstinence ”

“ Surely the legislative intent that the full value of the stock authorized and required to be subscribed, in other words, the entire capital, shall be, in fact, paid in when required,-that it shall be real, and not merely nominal,-is plain enough when the authority to exist as a corporation and to do business is given on condition that the capital subscribed shall not be less than a specified sum. ”

“ The necessity for such an inquiry is emphasized by the poor earnings record of this enterprise in the past. Findings as to the earning capacity of an enterprise are essential to a determination of the feasibility as well as the fairness of a plan of reorganization. Whether or not the earnings may reasonably be expected to meet the interest and divident requirements of the new securities is a sine qua non to a determination of the integrity and practicability of the new capital structure. It is also essential for satisfaction of the absolute priority rule of Case v. ”

“ An obvious inadequacy of capital, measured by the nature and magnitude of the corporate undertaking, has frequently been an important factor in cases denying stockholders their defense of limited liability. ”

“ Upon a careful review of the cases, the following conclusions were reached by the court:
'That 'moneyed capital in the hands of individual citizens' does not necessarily embrace shares of stock held by them in all corporations where capital is employed, according to their respective corporate powers and privileges, in business carried on for the pecuniary profit of shareholders, although shares in some corporations, according to the nature of their business, may be such moneyed capital. ”

“ In this manner a portion of the value of each exempted security reflected in the capital, surplus, and profits is deducted before the value per share is determined by dividing the capital surplus and profits so diminished by the number of shares outstanding. ”

“ Presumptively all the property of the corporation or company is held and used for the purposes of its business, and the value of its capital stock and bonds is the value of only that property so held and used. ”

“ Nothing, I submit, can be plainer than the fact that the value of the capital stock of a corporation represents all its property, franchises, good will,-indeed, everything owned by it wherever situated. ”

“ Reserved and accumulated earnings, so long as they are held and invested by the corporation, being part of its corporate property, it follows that the interest therein, represented by each share, is capital, and not income, of that share, as between the tenant for life and the remainder-man, legal or equitable, thereof. ”

“ Many corporations, without legally capitalizing any part of their profits, had assigned definitely some part or all of the annual balances remaining after paying the usual cash dividends, to the uses to which permanent capital is ordinarily applied. Some of the corporations doing this, transferred such balances on their books to 'surplus' account-distinguishing between such permanent 'surplus' and the 'undivided profits' account. ”

“ It is true that the capital stock of a corporation may in a general sense be said to be all the property in which the capital is invested, so that an exemption of the capital stock, without other words of limitation, may operate to exempt all the property of the corporation. ”

“ After full consideration, this court declared that income may be defined as gain derived from capital, from labor, or from both combined, including profit gained through sale or conversion of capital. ”

“ They show that he or his assignors, immediate or remote, have contributed capital to the enterprise, that he is entitled to a corresponding interest proportionate to the whole, entitled to have the property and business of the company devoted during the corporate existence to attainment of the common objects, entitled to vote at stockholders' meetings, to receive dividends out of the corporation's profits if and when declared, and, in the event of liquidation, to receive a proportionate share of the net assets, if any, remaining after paying creditors. ”

“ If the yielding of a plank by the borrower to the lender is a natural, equitable, lawful remuneration, the just price of a real service, we may conclude that, as a general rule, it is in the nature of capital to produce interest. ”

“ In a word, what the company says is income shall be income, and what it says is capital shall be capital.' 'In most if not in all cases, the inquiry as to the time when the profits were earned by the company is an immaterial one as between the tenant for life and remainder-man. ”

“ Then the company commences business and incurs obligations, representing all the while to those who deal with it that its capital is the amount of stock taken, when in truth the fund which is held in trust for creditors is only that part of the stock which has been actually paid in. ”

“ In Great Britain it is well settled that where a corporation, whether authorized or unauthorized by law to increase its capital stock, accumulates and invests part of its earnings, and afterwards apportions them among its shareholders as capital, the amount so apportioned must be deemed an accretion to the capital of each share, the income of which only is payable to a tenant for life. ”

“ Where, it may be asked, is our clear consent, that any taxing officer can destroy the fundamental liberty, by calling what the Supreme Court has maintained for half a century to be Capital, and Capital only;—what it never in all history has been, that is the entirely different thing called "Income"? ”

“ Negatively, the company is not a commercial institution, or one of business. Its transactions do not enter into or make a part of the ordinary commercial transactions of life. It has no capital and gain, and profit is not made to the corporation or its managers. ”

“ It has done this without a dollar of cash capital, and in defiance of the prohibition in the 7th section, by which the company was forbidden to commence, that is, to do any business, as a stock company, without a stock capital. Such is the absurdity into which our opponents are driven by their own hypothesis. ”

“ At first, corporations could be formed under the general laws only for a limited number of purposes-usually those which required a relatively large fixed capital, like transportation, banking, and insurance, and mechanical, mining, and manufacturing enterprises. ”

“ If Capital obtains this right, in addition to financial reward for the use of capital for the time for which it is invested, is Labor not in justice equally entitled, in addition to its monetary reward, to a voice in the control of industry in which, for the time being, its life and skill are likewise invested? ”

“ And again, if a company is formed “to acquire and work a property of a wasting nature, for example, a mine, a quarry, or a patent, the capital expended in acquiring the property may be regarded as sunk and gone, and if the company retains assets sufficient to pay its debts, it appears to me that there is nothing whatever in the Act to prevent any excess of money obtained by working the property over the cost of working it from being divided amongst the shareholders.” ”

“ The point to be determined has been, whether capital or labor shall in future determine the terms upon which the invested resources of the nation are to be employed. To the employer, it is a question whether his individual rights as to the control of his property shall be so far overborne, as to not only deprive him of his freedom, but also expose him to interferences seriously impairing the value of his capital. ”

“ They did not understand that they were acting as a corporation, nor did their cealings so far purport to be dealings of a corporation as to preclude the finding that was made. Now suppose that we take nothing more than the facts that one man furnishes capital and another his personal service in disposing of it, and that the latter is admitted to be interested in the profits, if any, and, at the same time, not to be a debtor of the former. We have a right to infer that, if a man furnishes capital, he expects some gain from it. ”

“ The inviolability of the capital is a condition of incorporation—the price of the privilege of trading with limited liability, and by no subterfuge will a company be allowed to evade this cardinal rule of policy, either by paying dividends out of capital, or buying its own shares, or returning money to shareholders. ”

“ As very justly observed by the circuit judge, 'It would not satisfy the demands of common honesty, if a man engaged in business of any kind, being asked the amount of capital employed in his business, should include in his reply all the sums which, in the conduct of his business, he had borrowed and had not yet repaid.'
There is no difference in the business of banking as conducted by individuals from the business as conducted by corporations, which would warrant any different meaning to be given to the term capital in the two cases. ”

“ The primary object of the provision that 'no increase of capital shall be valid until the whole amount of such increase is paid in' was to prevent the 'watering' of stock, that is, prevent banking business being done upon the basis of an increased capital which did not in fact exist. ”

“ Much of the property of the country is in the hands of incorporated or joint-stock companies; the business in which they are engaged being of a magnitude requiring an outlay of capital that can be met only by associated wealth. ”

“ On the other hand, if the element of monopoly enters into the business to any noteworthy extent, the prices of the product may be kept so high that fair dividends may be paid even on this high capitalization. That the tendency towards increasing the capital has been very strong there can be no question, and a penalty is apt to be paid for this somewhat reckless financiering. ”

“ We have a million or a million and a half of capital, and, conducting the business of the bank within the law applied to bankers, we can earn any dividend we like, and we can divide it, even up to 40 or 50 per cent., and it has been done, and nobody finds any fault. Now, we might start a manufacturing establishment and we can divide any profits that we can legally make up to 40 or 50 or 100 per cent., or we can start a mercantile establishment and conduct it so as to bring any profit—there is no limit so long as we are within the laws of trade. ”

“ In reality, however, we as seldom meet with interest [179-3] pure and simple, as we do with rent pure and simple. A person who works with his own capital can, at best, by a comparison with others, determine where, in the returns of his business, wages stop and interest begins. [179-4] And even in the loaning of capital, it depends largely on supply and demand, whether the creditor shall suffer a deduction in consequence of the absence of care and labor attending his gain, and whether the debtor, in order to get some capital at all, shall sacrifice a part of the wages of his labor. ”

“ But plaintiff made no attempt to show that there were other businesses or courses of investment in the state employing moneyed capital in competition with its business or that of other national banks. The evidence with respect to capital invested by individuals, taken as a whole, falls short of establishing that the capital thus used is employed substantially as in the loan and investment features of banking in making investments by way of loan or discount, or in notes, bonds, and other securities, with a view to sale or repayment and reinvestment. ”

“ Therefore, when a distribution of earnings is made by a corporation among its stockholders, the question whether such distribution bution is an apportionment of additional stock representing capital, or a division of profits and income, depends upon the substance and intent of the action of the corporation, as manifested by its vote or resolution; and ordinarily a dividend declared in stock is to be deemed capital, and a dividend in money is to be deemed income, of each share. ”