This section is from the "Practical Banking" book, by Albert S. Bolles.
A party of gentlemen, for instance, organize a company to build a railroad which shall run through several States. They cannot among themselves raise the necessary capital. They are willing to risk a reasonable amount of money in the project, if the amount required to complete the road can be secured after their own investment shall have been expended. They find, among wealthy capitalists, persons who are willing to advance the funds, but they do not wish to assume any risks as stockholders. They prefer to loan the money at a fair rate of interest. If the scheme is successful the projectors can pay the money back and own the property, thus derive all the advantages accruing from their wisdom and risks.
The following is the form of a receipt and transfer voucher:
When the promoters of the project visit a loan and trust company, they lay the facts before the officers of the company. They are told that when they have constructed a certain amount of road the trust company will undertake to place their loan on the market. First, the mortgage securing the loan must be recorded in every county of each State through which the road is to run. Satisfactory evidences that the mortgage is so recorded must be in the possession of the trust company. Arrangements can then be made to the effect that, as certain sections of the road are constructed, a certain number of bonds will be issued. The amount to be issued will depend on the cost per mile of constructing the road. Purchasers of the bonds rely on the loan and trust company to see that there is never an over-issue of bonds.
* The title of the corporation printed in full.
Suppose the understanding between the purchasers of the bonds and the railroad officials provides that for the completion of each ten miles of road there are to be issued bonds to the amount of fifty thousand dollars. It becomes the duty of the trust company to know that this amount is not exceeded. Any excess in issue would depreciate the value of the security. It is seen in this how the trust company serves the interests of both borrowers and lenders.
For explanation of Forms, see closing paragraph of this chapter.
Right hand page.
Register of Certificates of Stock. Countersigned by the
Date of Surrendered Certificate Canceled.
No. of Ctf.
No. of Shares.
In Name of
The trust company not only attends to the business of the railroad company in securing funds, but guarantees to purchasers of its securities that there is no wrongful or over-issue. The part taken by the trust company is one, then, not only to transact the business for the corporation, but to supplement this service by aiding in securing the faith and confidence of investors that the securities they take are in every case what they are represented to be. Another important service is rendered by loan and trust companies to corporations. That is, issuing certificates of stock, and, in case of sale from one person to another, making transfers of same. Many corporations leave the business connected with stock operations almost entirely in the hands of some loan and trust company. The purchase and sale of stocks of corporations, especially those whose stocks are on the market, is made mostly in some of the important financial centers of the country. Here too, is where the loan and trust companies are located. It is a special advantage to holders of stocks to be able to have the necessary record made on the books of the company, showing that they are the holders, without having to forward the certificates to some remote place for that purpose.
Left hand page.
Date of New Ctf.
No. of Ctf.
No. of Shares.
In Name of
By an arrangement between the loan and trust company and the corporation, the former becomes the custodian of the transfer books. When an election of officers of the corporation takes place the transfer and stock books must be in the hands of the inspectors of the election. To meet this requirement the books are forwarded or handed over to the officers of the corporation by the loan and trust company.