Divestiture

“ The capital stock of said company, with all its immunities and franchises herein specified, and all machines, cars, engines, or carriages belonging to said company, together with all their works and property, and all profits which shall arise from the same, shall be vested in the respective stockholders of the company forever, in proportion to their respective shares. And the capital stock of said company and the dividends shall be exempted from taxation until a dividend of six per cent. ”

“ I. Equity regards the property of a corporation as held in trust for the payment of the debts of the corporation, and recognizes the right of creditors to pursue it into whosesoever possession it may be transferred, unless it has passed into the hands of a bon a fide purchaser; and the rule is well settled that stockholders are not entitled to any share of the capital stock nor to any dividend of the profits until all the debts of the corporation are paid. ”

“ 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. ”

“ Whether the actual dividend occurs at the moment when valuable rights are distributed or at the moment when their value is realized through sale or exercise, it is clear that when a corporation sells corporate property to stockholders or their assigness at less than its fair market value, thus diminishing the net worth of the corporation, it is engaging in a 'distribution of property' as that term is used in § 316. ”

“ If a different course were pursued the only method of providing for replacement of property which has ceased to be useful would be the investment of new capital and the issue of new bonds or stock.... If, however, a company fails to perform this plain duty and to exact sufficient returns to keep the investment unimpaired, whether this is the result of unwarranted dividends upon over issues of securities, or of omission to exact proper prices for the output, the fault is its own. ”

“ Is it not pretty clear that, whether such householder be a tradesman, who indemnifies himself in the price of his goods,—or a letter of lodgings, who does so in his rent, —or a stockholder, who receives it back again in his dividends,—or a country gentleman, who has saved so much fresh levy on his land or his other property,—one way or other, it comes at last pretty nearly to the same thing, though the pressure for the time may be unjust and vexatious, and fit to be removed? ”

“ 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. ”

“ 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. ”

“ Support to the view that the list of an individual should include undivided as well as divided profits is derived from the requirements of the one hundred and twentieth section, which levies a duty of five per centum on all dividends in scrip or money thereafter declared due, whenever the same shall be payable to stockholders, policy-holders, or depositors, as part of the earnings, income, or gains of certain described companies, not including manufacturing companies, and on all undistributed sums, or sums made or added during the year, to their surplus or contingent funds. ”

“ Where profits exist, either earned currently or accumulated, the matter of a declaration of dividends is thus seen to be always a question of financial policy. In view of the other problems confronting the corporation—its policy of growth and expansion to meet competition and enter other markets, its specific and pressing requirements for funds—the question of the wisdom of a declaration and payment of dividends frequently demands careful consideration. ”

“ This Proposition better pleas’d those wealthy Citizens, than if we had plaid the Hucksters with our Commodities, wherefore two of the most wealthy and greatest account amongst them bought all, paying us ready money without a penny Credit. After that every man had received his share or dividend proportionably, and according to a general Agreement; we divided our selves into parties as Interest or Inclination lead us. ”

“ 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. ”

“ The words of the thirteenth article, 'as declared by the board of directors,' do not qualify the words 'dependent on the profits for each particular year.' They should rather be read in connection with the preceding words, 'non-cumulative dividends, at the rate of six per cent. per annum, in preference to the payment of any dividend on the common stock.' Preferred stockholders of the old company, receiving in exchange preferred stock in the new company, did not thereby become creditors of the latter. ”

“ The transferring of the stock and dividend to another irresponsible corporation, and the appropriation of the same to the construction of a road, is a violation of and impairing the obligation of the contract made and entered into with the purchasers or holders of the bonds of the State, under a solemn act of the Legislature. ”

“ The word 'invested' in itself imports a restrictive qualification. When speaking of the capital of a business corporation or partnership, such as the act deals with, 'to invest' imports a laying out of money, or money's worth, either by an individual in acquiring an interest in the concern with a view to obtaining income or profit from the conduct of its business, or by the concern itself in acquiring something of permanent use in the business ”

“ Such a paper, therefore, by whatever name it may be called, is, upon its face, evidence for each stockholder, to persons with whom he may have dealings, of the amount of the previous net earnings of the company; that such net earnings, to the amount specified, have been expended in constructing and equipping the railroad and in the purchase of real estate and other properties appertaining to the same, and that the holders of the certificates will be entitled to dividends whenever dividends are paid upon the capital stock. ”

“ 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. ”

“ The inclusion in the periodic dividend of the return of a portion of the capital thus legalized is approved from a business standpoint on the ground that from its very nature the enterprise is speculative in greater or less degree and creditors are therefore sufficiently warned in their dealings with such a concern. Of course, if any such company expects to be permanently engaged in such enterprises it may be the part of wisdom to reserve from distribution all the capital or whatever portion of it may be necessary to finance each new undertaking. ”

“ The first three of these deposits, at least, will be made of the total dividend of the subsidiary corporation. Not one of these six deposits represents trade. Payments of wages and rents should count as trade, but payments of interest and dividends stand on a separate footing. When a man has bought a stock or a bond, he has already bought all the income which is to come from them, and to count the interest and dividends as separate items is double counting. They are payments, but not trade. ”

“ And when used with respect to the property of individuals in any particular business, the term has substantially the same import; it then means the property taken from other investments or uses and set apart for and invested in the special business, and in the increase, proceeds or earnings of which property beyond expenditures incurred in its use consist the profits made in the business. It does not, any more than when used with respect to corporations, embrace temporary loans made in the regular course of business. ”

“ When we come to apply the act to gains acquired through an increase in the value of capital assets acquired before and converted into money after the taking effect of the act, questions of difficulty are encountered. The suggestion that the entire proceeds of the conversion should be still treated as the same capital, changed only in form and containing no element of income although including an increment of value, we reject at once as inconsistent with the general purpose of the act. ”

“ It is a contract to sell all the bank stock of the vendor, rating the stock itself at par, and the dividends which had already accrued thereon, at three per cent. No stipulation was made to return this sum of three per cent. or a part of it, if no dividend or a less dividend than four per cent. should be declared, nor to add to the sum, if a larger dividend should be declared than was estimated by the parties. ”

“ A dividend of so much in the pound is then to be made equally and rateably to all who have already ascertained, or may then prove, their debts. Within eighteen months after the commission issued, a second and final dividend is to be made, unless all the effects were exhausted by the first. And if any surplus remain after satisfying all the creditors, it shall be restored to the bankrupt. ”

“ It is to be feared, that those who may have calculated upon such a result, have taken a false measure of their prospective situation; and it is on account of this apprehension, that it appears highly important to call the attention of the Proprietors to the care of their own substantial interest in the dividend; an interest, which to them is, and must be paramount. ”

“ From business on the Exchange I was barred until after final settlement with creditors. As a matter of fact this was more of a loss to the Exchange than to me. During 1895 our name had appeared on the contracts of fully ninety per cent. of all the business done on the floor, and in the five years immediately following our failure the entire business did not equal that of any two months in 1895. ”

“ Thus, if we take as an example a Brewery company with a total debt and capital of three millions, we may suppose that it will have a million 4-1/2 per cent, debenture stock, entitling the creditors who own it to interest at that rate, and repayment in 1935, a million of 6 per cent. cumulative preference stock, giving holders a fixed dividend, if earned, of 6 per cent, which dividend and all arrears have to be paid before the ordinary shareholders get anything, and a million in ordinary shares of £10 each, whose holders take any balance that may be left. ”

“ A, having 100l. Stock in Trade, though pretty much in debt, gives it out to be worth 300l. on account of many privileges and advantages to which he is entitled. B, relying on his great wisdom and integrity, sues to be admitted a partner on those terms, and accordingly brings 300l. into the partnership. The trade being afterwards given out or discovered to be very improving, C comes in at 500l.; and afterwards D, at 1100l.; and the capital is then completed to 2000l. If the partnership had gone on no farther than A and B, then A had got and B had lost 100l. ”

“ They were meant to show that in the case of a stock dividend, the stockholder's interest in the corporate assets after receipt of the dividend was the same as and inseverable from that which he owned before the dividend was declared. We think they are not controlling here. ”

“ All the property thus assessed must be the object of quiritarian ownership. Originally it had been but the land and the animals associated with it (res mancipi) , [1047] such objects as had been conveyed by mancipation, and for the evidence of the transfer of which from hand to hand the mancipation witness could be summoned. But the growing mercantile community had to take account of movables, and throughout the historical period all objects of property, corporeal or incorporeal, which constituted pecunia in the later sense of the word, were subject to valuation and taxation. ”

“ At the close of the Transition Period the volume [Pg 253] of interest bearing indebtedness and dividend earning investments was estimated at fifty thousand millions, and the average cost to the people six per cent. per annum, or an aggregate of three thousand millions every year to be taken out of the wealth produced by the people. The bulk of these obligations, public, corporate and private was held by the great banking institutions which had been established by the corporation and trust magnates, who practically owned the lands and all the machinery of production and distribution. ”

“ A profit made, or loss imposed on the necessities of the borrower, whatever form, shape, or disguise it may assume where the treaty is for a loan, and the capital is to be returned at all events; has always been adjudged to be so much profit taken upon a loan; and to be a violation of those laws which limit the lender to a specified rate of interest. ”

“ Except so far as the Secretary of Commerce may otherwise direct, existing rights and obligations of such companies shall remain in full force and effect, and there may be made, in due course, payments of dividends on stock, and of principal, interest, sinking funds, and all other distributions upon bonds, debentures, and other obligations, and expenditures may be made for other ordinary corporate or business purposes. ”