First Steps In Organizing

In the organization of the new bank, the first step is, of course, the promotion of the scheme. One or two persons conceive the idea that there is an opening. They succeed in inducing others with capital to join them. Let us follow the organizer through his proceedings as the builder of a new bank.

The Act says in Section 10: "The capital stock of " any bank hereafter incorporated shall be not less than " five hundred thousand dollars, and shall be divided " into shares of one hundred dollars each." Though the issue of stock at a discount is not forbidden in so many words, the inference is clearly to be seen that Parliament expects the shares to be issued at a price at least equal to par. And in any case a certain discretion is left with the Treasury Board at Ottawa in the matter of issuing a certificate or permit, to begin business as a chartered bank, to parties who have complied with the provisions of the Act. A project to start a bank with a capital of $500,000 in five thousand shares of $100 each, issued to subscribers as fully paid, at $50 per share, would undoubtedly be blocked by the Board, even if the promoters argued that the Bank Act contained nothing to prohibit it.

Qualities Of Directors

The organizer must, therefore, figure upon obtaining at least $500,000 in subscriptions. Before he can venture to place his proposition before the public he must win the support of at least five men of substance to act as directors, and to contribute the nucleus of the share capital. The stipulation as to the number of directors is that it "shall not be less than five," and each one must hold a respectable amount of the stock.

It is necessary to have men of wealth, prominence, and known integrity for directors; because, in the first place, they invest the project with the degree of respectability required to procure the favorable report of the Parliamentary Committee on Banking and Commerce, on the application for the charter of the new bank; and, in the second place, they are expected to take good-sized amounts of the stock, and, after the bank is opened, to do a good deal to influence business to it.

Before men of this class agree to become directors they must be more or less convinced as to the integrity and ability of the promoter and of the proposed general manager (one man may be both), and as to the existence of a promising field for the bank's operations. Their judgment on these points is sometimes obscured, especially if they be newly risen to prominence, by a too great anxiety to become known as bank directors. And with all men the fact that the offered place is, or may become, one of considerable dignity and honor, operates as a strong argument for acceptance.

Act Of Incorporation

Assuming that enough men of the requisite calibre have been secured, they select a name for their bank, settle the amount of authorized capital they wish to have, and apply to Parliament for a charter or Act of incorporation. Let us suppose they ask for the minimum authorized capital of $500,000. Their application goes before the Committee on Banking and Commerce, which goes thoroughly into such matters as the standing of the proposed directors, the suitability of the name - whether it infringes, or is too similar to that of an existing bank - and, to a limited extent, into the general question of the scope for new banks. Sometimes the Committee insists upon changes. If the application is approved it is reported to the House, and the Act of incorporation goes through.

The form of the incorporating Act, virtually the charter of the new bank, is as follows:" An Act To Incorporate The ---- Bank.

"Whereas the persons hereinafter named have by " their petition prayed that it be enacted as hereinafter " set forth, and it is expedient to grant the prayer of " the said petition; therefore, His Majesty, by and with " the advice and consent of the Senate and House of " Commons of Canada, enacts as follows:

"1. (Names of parties applying for incorporation), " together with such persons as become shareholders in " the corporation by this Act created, are incorporated " under the name of................, hereinafter called "'the Bank.'

"2. The persons named in Section 1 of this Act " shall be the provisional directors of the Bank.

"3. The capital stock of the Bank shall be........ "dollars.

"4. The chief office of the Bank shall be at........

"5. This Act shall, subject to the provisions of " Section 16 of the Bank Act, remain in force until the " the first day of July, in the year one thousand nine " hundred and twenty-three."

Having obtained the charter and a provisional board of directors, subscriptions for stock are invited in various localities. The inducements offered to investors are the probability of a fair return on the investment. Sometimes promises are made that branches will be established in the neighborhood or locality furnishing subscriptions to a certain amount of stock.