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Business Finance | by William Henry Lough



A practical study of financial management in private business concerns.

TitleBusiness Finance
AuthorWilliam Henry Lough
PublisherThe Ronald Press Company
Year1919
Copyright1917, The Ronald Press Company
AmazonBusiness Finance, A Practical Study of Financial Management in Private Business Concerns

By William H. Lough, President, Business Training Corporation, New York City; formerly Professor of Finance, New York University School of Commerce, Accounts and Finance; Author of "Corporation Finance," "Lectures on Panics and Depressions," "Banking Opportunities in South America," etc.

By William H Lough 1
-Preface
This book, as its name indicates, is concerned with the every-day financial problems of the private business concern. The point of view taken throughout is that of an organizer or financial manager of...
-Part I - Finance And Business Organization. Chapter I. Principles Of Financing. Scope Of Subject
In this volume is considered the subject of securing and handling money and credit for business enterprises. If these terms were used with strict accuracy, the statement might be shortened by leaving ...
-Unskilful Business Financing
Financing is, perhaps, the least understood subject in the field of business, not even excepting accounting. A great many men have proved themselves able and successful as producers, organizers, and s...
-Financing And Accounting
Poor financing is apt to be combined with poor accounting; and in that case the unfortunate owner cannot enjoy even the empty satisfaction of a post-mortem diagnosis. This brings up a question on w...
-Public Financing And Business Financing
Another cognate subject, which is, however, outside the scope of this book, is public financing, which deals with the securing and handling of money and credit for governments - national, state, and m...
-Simplicity Of Business Finance
It is popularly supposed that many difficulties are encountered in solving the problems of business finance. One writer even has defined the science of business finance as the modern black art, as i...
-Borrowing Money
All our greater businesses are conducted largely with borrowed money; and in this matter we may carry our analogy with the individual yet further. It is well to remember, however, that in borrowing fo...
-Permanent And Transient Investments
We can carry our analogy still further. All business assets belong in one or the other of two classes: those that are fixed and permanent, and those that are temporary and designed to be converted int...
-Application Of Income
Both the individual and the business concern possess a certain income from which living or supporting expenses must be drawn; therefore, to both the individual and the business concern comes the quest...
-Elementary Rules Of Financing
The following elementary rules of business finance apply alike to individuals and to the largest enterprises; the remainder of this work consists practically of the application of these general rules ...
-Chapter II. Forms Of Business Enterprises. Basic Types Of Business Organization
Throughout the world, wherever business enterprises are carried on, there are to be found three basic forms in which the ownership of these enterprises is held. 1. The individual owning outright hi...
-Sole Proprietorship
The first of the three basic forms of business organization - the sole proprietorship - is the simplest and is even yet the most numerous. Small shops, farms, professional activities, and the like, ar...
-The Partnership
Fundamentally, there is no essential difference between the sole proprietorship and the partnership, except that in the second case a group of owners take the place of the individual owner. There may ...
-Disadvantages Of The Partnership
Of the three disadvantages applicable to the individual proprietorship, only one does not apply to the partnership. There is very little difficulty under the partnership form in attracting high-priced...
-The Corporation
The corporation is quite distinct from the sole proprietorship and the partnership. The capital is supplied by a small or large group of people called shareholders, or stockholders. The business is us...
-Limited Partnerships
In an effort to overcome the disadvantages incident to the partnership relation, many enterprises, especially in Great Britain and the British colonies, have been organized as joint-stock companies,...
-Joint-Stock Companies
A joint-stock company is a partnership with its capital divided into transferable shares. Except in the State of New York, such a company may be formed simply by agreement. In New York special statute...
-Associations Under Deeds Of Trust
Various experiments have been tried at different times in the way of carrying on business through trustees. It was long ago decided in England that the actual owners of the property could not be held ...
-Business Organization Under The Latin Law
The principal forms of business associations in France are: (1) the ordinary partnership with a firm name (societe en nom collectif); (2) the limited partnership (societe en commandite); (3) the joint...
-Business Organization Under The German Law
There are various forms of associations under German law of which the stock company (Aktiengesellschaft), and the limited liability company (Gesellschaft mit beschrankter Haf-tung, usually abbreviated...
-Chapter III. The Corporation. Origin Of Corporations
The modern corporation did not suddenly spring into being as a device for overcoming the obstacles of previous forms of business enterprises. It has been slowly and painfully developing for centuries,...
-Fiction Of Corporate Entity
Both the Continental courts and the English courts have tended always to regard the corporation or company as if it were a group of individuals, while in this country the tendency has been to follow s...
-Grant Of Powers By The State
The powers of a corporation are derived from the charter granted it by the state and these powers are limited by the law in some respects. A corporation has no power to do anything not expressly menti...
-Special Charters
Special charters are still sometimes applied for and obtained, but they are not in high favor for several reasons. First, of all, it frequently requires political influence and pressure to secure them...
-Operation In Other Jurisdictions
After a corporation has obtained a charter, it must still face the question of ascertaining its rights and powers outside of its home state if it desires to do an interstate or an international busine...
-Internal Regulations And By-Laws
A corporation, having obtained its charter or fundamental constitution from the state, is expected to draw up and enforce its own internal regulations. It usually at once adopts written by-laws as its...
-Rights And Duties Of Shareholders
The men who took part in the early English joint-stock enterprises - such as trading expeditions to the Indies or Americas - were appropriately known as adventurers. The title would not be inappropr...
-The American Practice
In American practice the average shareholder, even of smaller corporations, unless he happens to be also a director or other officer, is not only helpless, but uninformed. He may be furnished, if it s...
-The English Practice
The English statutes provide for the auditing- of each company's accounts by an independent accountant elected by the shareholders. The auditor is responsible to the shareholders and not to the direct...
-Rights And Duties Of Directors
The board of directors has the final legislative and judicial authority within a corporation. The board elects officers, determines policies, authorizes contracts, passes on methods of financing, decl...
-Corporate Officers And Directors
At the other extreme is the small corporation which makes all its officers directors and allows its directors to make themselves officers. It is, of course, quite proper and customary that some of the...
-The "Clayton Bill"
The so-called Clayton Bill of October 15, 1914, now makes unlawful in the United States the practice of serving on the directorates of two or more banks, either of which has deposits, surplus, and u...
-"Ornamental Directors"
The report of the Interstate Commerce Commission in 1914 on the financial history and status of the New York, New Haven and Hartford Railroad, strongly condemns inactivity and ignorance on the part of...
-Compensation Of Directors
It has been suggested that one reason for the inefficiency and the light ethical standards of the directorates of some important corporations, is to be found not only in wrong practice in selecting th...
-Legal Status Of Directors
As to the legal status and responsibilities of a director, it seems to be well settled that a director is a quasi-trustee on behalf of the body of shareholders. He is certainly not entitled, either le...
-Contracts With Directors
A question that frequently arises, relates to contracts between a corporation and a director, or between a corporation and another enterprise in which a director is interested. There are several views...
-Chapter IV. The Corporate Form - Advantages And Disadvantages. Corporations In Modern Business
The great commercial agencies of the United States list about 1,700,000 individuals, firms, and corporations as being in business. About 350,000 corporations in the United States made returns under th...
-The Number Of Small Corporations
Yet, the corporation is by no means confined in its usefulness to concerns doing an enormous business. On the contrary, it is becoming every year more and more frequent to organize even small enterpri...
-The Army Of Stockholders
Another point to consider here is the great number of persons interested in corporations as holders of their stocks and bonds. Recently, 195 companies have reported to the Wall Street Journal a total ...
-Types Of Business Corporations
Some reference has been made in Chapter III to the ancient religious and charitable corporations from which the idea of a distinct existence for the corporation, apart from the people who organize and...
-Close And Open Corporations
In the ordinary business corporation, an important practical distinction is to be made between close and open corporations (in England more frequently called private and public corporations). ...
-Holding Companies
A striking development of recent years has been the growing use and importance of companies which hold the stock of other corporations. There was originally no thought that corporations might be organ...
-The Illegal Combination
Another form of combination that has proven unsuccessful in this country - though it has worked to some extent abroad - is the pool or selling agency, which is an agreement to restrict production an...
-Combination Of Non-Competitive Companies
There are two other purposes for which one corporation may hold the stock of other corporations: one purpose is to-bring about a grouping or combination of concerns that are non-competitive; the other...
-The Use Of Subsidiary Corporations
The control of subsidiaries may be accomplished through the creation of a separate corporation to handle a distinct phase of the company's business, or through the purchase of interests in companies p...
-Advantages Of Subsidiary Corporations
The advantage of forming a distinct corporation rather than simply establishing another department of the business, is not always clear to the outsider, but may frequently be due to personal relations...
-Advantages Of Corporate Form
The underlying advantages of the corporate form for most business concerns, have already been indicated in pointing out the disadvantages of the individual proprietorship and partnership. They may be ...
-Advantage Of Partnership Incorporation
A somewhat similar instance arose in connection with the dissolution of a partnership due to disagreement and personal friction between the two partners. One partner, who owned a one-third interest in...
-Disadvantages Of The Corporate Form
There are certain minor disadvantages of the corporate form which may in some cases be of sufficient importance to prevent the adoption of this form. The first and most important is simply the obverse...
-Efficiency Of Corporate Organization
Adam Smith, the first and perhaps the greatest of economists, was extremely skeptical as to the usefulness of the large joint-stock companies which in his day were just beginning to play a prominent...
-Insolvency Of The Northern Pacific
During most of the period 1882-1892, Henry Villard was not only a director of the Northern Pacific Railroad Company, but was president of the company, and was generally regarded as its active and resp...
-Management Of The Colorado Fuel And Iron Company
Some interesting testimony along somewhat the same line was given in April, 1914, by John D. Rockefeller, Jr., who was called before a subcommittee of Congress and questioned as to his control over th...
-Avoidance Of Centralization
Another criticism frequently levelled against the efficiency of large corporate organizations, is based upon the alleged inability of the board of directors sitting at the head office to grasp and app...
-Duties Of Directors
On the whole, there seems to be reason for believing that-corporate organization is tending to increase in efficiency. Shareholders and the investing public are becoming more and more acquainted with ...
-Part II - Capital. Chapter V. Owned Capital. Owned And Borrowed Capital
The capital funds used in business enterprises fall into two classes, owned funds and borrowed funds. In an individual proprietorship or in a partnership the distinction is clear and easily made. ...
-Stocks And Shares
The title of this section is borrowed from an exceptionally readable book by Hartley Withers, to which reference is made below, At first glance the combination of words in the title seems to the Ameri...
-Transfer Of Stock
Shares of stock are ordinarily represented by certificates 'issued by the corporation, each one of which states on its face how many shares it represents, to whom it is issued, and the legal condition...
-A Corporation Dealing In Its Own Stock
A question which often arises is whether or not a corporation may acquire or deal in its own stock. Courts in New York, California, Wisconsin, and other jurisdictions have decided in recent years that...
-"Common Stock" Or "Ordinary Shares"
In the United States we speak of common stock; in England they use the term, ordinary shares. The two expressions are practically identical in meaning; both refer to shares which have no special p...
-Preferred Shares
Although preferred shares are entitled only to what is specifically granted to them, some customs have become fairly well established. In the United States nearly all industrial preferred shares bear ...
-Origin And Uses Of Preferred Shares
Preferred shares came into popularity in the United States chiefly on account of their influence in railroad reorganizations. It was, and is still, customary in severe reorganizations to cut down the ...
-Protection Of Preferred Shares
It has already been noted that in modern corporations the distinction between owned capital and borrowed capital is sometimes shadowy. Preferred shares, for instance, are sometimes protected and subje...
-Dividend Rights Of Preferred Shares
Unless otherwise expressly provided, preferred stock participates equally with the common stock in all dividends after both common and preferred have received an equal dividend. That is, if the prefer...
-Redemption Of Preferred Shares
There are a number of provisions concerning the redemption of preferred shares, that are worth noting. The General Asphalt Company has outstanding $14,000,000 5% cumulative preferred which is converti...
-General Characteristics Of Preferred Shares
From the various examples that have just been cited, the reader may construct a composite picture of preferred share issues. He will find that they range in their fixed dividend rate from as low as 4%...
-Special Forms Of Shares
There are many peculiar varieties of capital shares which do not come definitely within the two main classes, common and preferred, or which have notable features. In Great Britain it is a common prac...
-Certificates Of Stock
A certificate of stock and the stock itself are two different things. The certificate is in the nature of a receipt. It certifies that a given individual is the owner of so many shares, and usually gi...
-Par Value Of Shares
The par value of shares of stock may vary in any amount from as low as one cent to as high as thousands of dollars. In some states the minimum par value is fixed at $1, $5, or $10, as the case may be....
-Issue Of Shares - Full-Paid And Partly Paid Shares
The theory of the law is that all corporate securities are issued in exchange for cash, or other value, equivalent at least to the nominal value of the shares. If shares are issued without proper cons...
-Bonus Shares
A question which often arises is that of issuing common stock as a bonus in connection with bonds or with preferred stock. It is common practice, for example, to sell the bonds of industrial and publi...
-Watered Shares - Overcapitalization
While it may seem that the corporation laws almost without exception prohibit the issuance of full-paid shares for less than the equivalent of their par value, and that it would be impossible, therefo...
-Shares Without Par Value
In view of what has just been said concerning the issuance of watered shares, it is clear that there is no necessary or even close relationship between the par value and the market value of the shares...
-Methods Of Voting
In the United States the well-established custom is to allow, for every share of voting stock, one vote in the election of directors and in the decision of other questions that come before shareholder...
-Cumulativevoting
The obvious injustice and danger of permitting the holders of a majority of the voting stock - or rather, in many cases, the officials and others who can most easily procure for themselves the right t...
-Stockholders' Meetings
The larger corporations in the United States make it their custom to send out notices of annual meetings to all stockholders, and to forward with these notices a printed proxy, which authorizes the se...
-Voting Trust
The voting trust has been growing in favor during recent years. It has already been mentioned that at one time, a generation or more ago, the favorite form of combination among competing concerns wa...
-Chapter VI. Short-Term Borrowed Capital. Advantages Of Borrowing
The habit of borrowing, says Hartley Withers, is a modern invention. There was formerly a custom among all well-ordered governments and business enterprises, of amassing treasure for use in emerge...
-Proportions Of Borrowed Capital
In England the distinction between preference shares and debenture shares or other forms of obligation, is so hazy that owned capital almost imperceptibly merges into borrowed capital. Partly for th...
-Forms Of Borrowing
All borrowing is of two general classes, short-term and long-term. This is by no means purely a verbal difference, for there are clear market distinctions between the principles that apply in thes...
-Trade Credit
The fact that all the trade credit which a business normally utilizes is in fact a method of borrowing capital, seems to be overlooked; yet it is the chief source of capital in many concerns which do ...
-Bank Credit
It has already been noted that it is customary in this country for merchandising firms to take advantage of cash discounts in paying for their purchases and to secure the funds with which to make imme...
-Bank Collateral
We have spoken in the preceding section of bank credit as if it were always obtained on the strength of a firm's general standing. This is, in fact, the case when a concern borrows simply by giving it...
-Stocks And Bonds Merchandise Bills And Accounts Receivable
The first of these three classes is the banker's favorite, at least in the United States. This is due to the fact that stocks and bonds are usually salable, so that in case of default on the part of t...
-Factors Considered By Banks In Making Loans
The underlying principles followed by the banker in extending credit have been touched upon in the two preceding sections. It is important to bear in mind particularly, first, that the commercial bank...
-Short-Term Notes Sold To The Public
The exact line of division between notes delivered to note brokers and by them sold to banks, and notes delivered to private banking houses and sold to the general public may seem somewhat hazy. As a ...
-Chapter VII. Long-Term Borrowed Capital. Bonds And Mortgages
There is a fundamental difference - as will be emphasized from time to time in this volume - between short-term borrowing and long-term borrowing. While they tend in certain isolated cases to merge in...
-Corporate Deeds Of Trust
The mortgage, separated from the bond, is more commonly known as a deed of trust. In ordinary practice, the trustee who holds title to the property mortgaged and is supposed to act on behalf of the ...
-Corporate Bonds
The larger an issue of corporate bonds - assuming of course that it is well secured - the greater will be the marketability, and consequently the value of each bond. It is clear that a local corporati...
-Mortgage Bonds
Bonds that are backed by a mortgage on real property are, in this country, the most popular type of bonds and will probably always remain so. In the United Kingdom it is customary to issue debenture b...
-Ratio Of Mortgage To Value
The question as to the correct percentage of obligations secured by mortgage to the appraised value of the mortgaged property is one of much practical interest. There are many surprising variations in...
-Equipment Trust Bonds
When a dealer sells a piano on the instalment plan, he does not ordinarily give his customer at once full title to the piano; instead he leases it at a rental equal to the amount of the instalment p...
-Collateral Trust Bonds
The use of marketable stocks and bonds as collateral for short-time loans has already been noticed in the chapter preceding. The issue of long-term obligations based on similar security is, however, c...
-Debenture Bonds
A debenture - to give its literal and also its technical legal meaning - may be defined as any acknowledgment of debt which, of course, implies a promise to repay the debt. In financial practice, howe...
-Twenty-Year Six Per Cent Debenture
The...............Company, a Corporation of the State of New York (hereinafter called the Company) is indebted and for value received promises to pay to the registered holder, the sum of One Thousand ...
-Income Bonds
Income bonds may be briefly described as almost the exact opposite of debentures. The debenture has primarily a claim on income, with little or no specific security for the repayment of the principal....
-Convertible And Participating Bonds
Most purchasers of the bonds of high grade companies are primarily interested in the safety of their principal plus a moderate rate of return. Most purchasers of shares, on the other hand, are primari...
-Sinking Funds
The sinking fund principle first came into prominence in the latter part of the eighteenth century, when it was advocated and applied by William Pitt as the best and easiest means of providing for the...
-A Novel Proposal
It may be of interest to readers in connection with the preceding review of sinking fund methods, and as showing how the principles that have been stated are applied in practice, to review briefly a s...
-Other Methods Of Safeguarding Bonds
The bond issues put out by mining companies, lumber companies, and other concerns, the chief property of which consists of wasting assets - that is, assets which in the ordinary course of business a...
-Chapter VIII. Basis Of Capitalization. Definitions
We have now considered the financial forms of organization of business enterprises and the various types of security issues which are exchanged for cash and other property acquired by the business. Th...
-Three Bases Of Capitalization
The question: What is the right basis of capitalization? is almost identical with the question: What is the best measure of wealth? To this latter question there are three possible answers. The mo...
-Investment As A Basis Of Capitalization
Small and close corporations are usually started through informal agreements among a few men who are personally acquainted with each other. Each one of these men subscribes to a certain amount of stoc...
-Capitalization Of Initial Expenses And Losses
A question which arises in the early history of most corporations, and which is of considerable practical importance, concerns the propriety of capitalizing initial losses and expenses. Every new corp...
-Capitalization Of Earning Power
We have already touched upon the fundamental reasons for regarding earning power as the proper basis of capitalization. This principle is generally accepted as correct in the United States, England, F...
-Estimates Of Earning Power
In what has been said in the preceding section as to adapting capitalization to earning power, it has been assumed that there will be no difficulty in determining earnings. If a company has been doing...
-Adjusting Capitalization To Assets
It is plain, from what has been said above that many corporations, either at the outset or at some later stage in their career, are faced with wide discrepancy between the actual value of all their as...
-Valuation Of Good-Will
The law assumes that the assets of a corporation are valued at cost and that, after the deduction of liabilities, the remaining equity in the assets is represented by capital stock. The truth of th...
-Recapitalization By Stock Dividends
In cases where surplus has accumulated with great rapidity, it is more and more customary for the corporation to recognize this accumulation by issuing new shares in the form of stock dividends. As ha...
-Capitalization Of Public Service Companies
The assumption which has been made throughout this chapter that capitalization may be rightfully adjusted to whatever figure within reason the organizers or directors of a corporation may think proper...
-Part III - Securing Capital. Chapter IX. Sources Of Capital Funds. Capital Funds
The typical corporation starts in much the same way as the typical partnership - through an agreement on the part of two or more men who are acquainted with each other, to join forces in a business en...
-The Investing Public
The word public suggests a large crowd of individuals, and the term investing public may easily call up a vivid picture of thousands of staid and prosperous persons who personally tuck away their ...
-Banks And Institutions
First among the institutional investors, we find banks. Savings banks are enormous purchasers of the highest grade bonds. Under the laws of most states their purchases are clearly restricted to bonds ...
-Investment Associations
In other countries even those individual investors who in this country would buy securities direct are apt to efface themselves as individuals and join investment trusts or investment associations. Th...
-Speculative Public
The purchasers of speculative or even semi-investment securities are, with negligible exceptions, individuals. The term semi-investment in this connection is applied to such securities as high-grade...
-Wide Distribution Of Shares
A remarkable feature of the last ten or fifteen years in the United States has been the widening distribution of the shares of large corporations, indicating that a greater and greater number of peopl...
-Selling Shares Of Smaller Corporations
From this same source, the speculative public, must come the capital of small enterprises. After an enterprise has passed the stage in which the capital is furnished by those directly engaged in the e...
-Adaptation Of Securities To Market
In previous chapters the principal forms of security issues - common and ordinary shares, preferred shares, income bonds, debentures, collateral trust bonds, mortgage bonds, and the like - have been d...
-Earnings And Security Issues
Up to the present point in this chapter we have considered only the relations between security issues and the needs or notions of the prospective purchaser of these issues. It is, of course, clear tha...
-Effect Of Limitation To Common Stock
There are other corporations, however, the business of which is not profitable to so remarkable an extent, and which have actually caused unnecessary sacrifices to their stockholders by reason of a bl...
-Adequate Income For Common Stock Dividends
It would be useless to give illustrations at this point of corporations which have transgressed the limits of prudence in selling their own obligations to the public, for we shall be dealing with such...
-Assets And Security Issues
The assets of every business enterprise fall into three natural divisions: 1. Fixed tangible assets, which are essential to the proper conduct of the business. 2. Current assets, which consist o...
-Special Provisions And Forms Of Securities
As has been previously stated, there may be any number of forms of security issues. The more important types have been described in previous chapters, but a few examples may be cited here of instances...
-Incorporating A Partnership
Many puzzling problems arise in connection with the custom which has become common in recent years, of giving up the partnership form in establishing enterprises and substituting the corporate form of...
-Financial Plan For A Railroad
Another problem, which is of especial interest in illustrating some of the principles discussed, arose in connection with the proposition to finance the construction of a short railroad and the establ...
-Financing An Advertising Agency
At the other end of the scale from a railroad company is an enterprise, such as an advertising agency, which renders a service that is largely of a personal nature analogous to the service rendered by...
-Simplicity Desirable
The successful financial plan is not usually one that is highly involved and full of unusual and supposedly ingenious little expedients. It is more likely to be simple and to look beyond the needs of ...
-Chapter X. Promotion. Three Steps In Promotion
After a financial plan has been formed and agreed upon by all parties interested, the next step is to put it into operation. If the only persons who are to be identified with the new enterprise are th...
-Stages Of Investigation
The investigation of a proposed new enterprise may be divided into three stages: 1. A preliminary analysis and review of the field in which many approximate tests of the probable revenue and expend...
-Thoroughness In Investigation
Most promoters, however, have to do, not with entirely new enterprises, but with readjustments or combinations of old enterprises; consequently, some of the processes of investigation may be eliminate...
-Preliminary Analysis
The preliminary analysis and review of the underlying conditions has been best standardized, perhaps, in public utility fields. A great number of projects of this nature have been presented during the...
-Investing Upon An Uncertainty
By way of contrast with the care and the foresight exercised in estimating the possibilities of public utility propositions, as shown in the above quotation, take the experience of the Canadian Sardin...
-Scope Of Investigation
We cannot here enter into a discussion of the technical points and subjects which are covered in the investigations of many different projects, for their range is infinite. A well-known engineering fi...
-A Simple Example
A proposal which was brought up for criticism some time ago, was to form a new company which should build a modern ice cream plant, with the latest labor-saving devices and the best methods for the ma...
-A Complex Instance
A proposal of more complexity came from a southern state in which it was planned to build a railroad of less than 30 miles through three prosperous villages and opening up a rich agricultural and lumb...
-"Assembling" A Proposition
As an illustration of the casual way in which people sometimes take a hand in promoting new enterprises, a case was reported recently of a manufacturer, whom we will designate as A, who was desirous o...
-Protection Of Promoter
Much the same thing has happened over and over again in organizing combinations. A promoter may get the idea of bringing certain companies together and may start talking first with one manufacturer an...
-Purchase Outright
If the promoters and the financiers working with them are well supplied with cash, their problem may be much simplified. In the promotion of the Mount Vernon-Woodberry Cotton Duck Company in Baltimore...
-Preliminary Financing
As soon as the promoter starts to develop a new proposition, he begins to establish - if he has not previously done so - the banking connections that will be of greatest use in connection with the ent...
-Foresight In Providing Funds
One of the most common errors - and also one of the most dangerous - in organizing a new corporation is to start it off with insufficient capital to carry it through to success. The result is that the...
-Working Capital Required
One difficulty that often conies up at this point is that of estimating the amount of cash capital required. Among ama-teur promoters the strong tendency is to underestimate. Even where a new proposit...
-Chapter XI. The Promoter. Professional Promoters
As noted in the preceding chapter, the word promoter has come to be associated with Colonel Sellers and J. Rufus Wallingford, and consequently is commonly regarded as a term of reproach rather than ...
-Local Lawyers And Bankers Engineering Firms Business Executives
There is little to be said, if we are to speak in general terms, of the activities of local lawyers and bankers as promoters. It is enough to call attention to the fact that ordinarily they are natura...
-Engineering Firms As Promoters
It is well known that a few large engineering firms of high standing have organized and financed and now manage thousands of street railway and other public utility corporations, especially in the sma...
-Business Executives As Promoters
In forming combinations among competing manufacturing plants, it is not at all unusual to find the initiative coming from the manufacturers themselves. Sometimes they get together and, through a commi...
-The Promoter's Financial Plan
First of all, it is necessary that sufficient capital should be raised or authorized; yet, on the other hand, it is desirable, if the period of construction and development is to be lengthy, that the ...
-Promoters' Legal Status
Legally the promoter is in a somewhat anomalous situation inasmuch as he is acting as representative of an enterprise which is, perhaps, not yet formed, or which, even if incorporated, is wholly a pro...
-Promotion Risks
At the beginning of this chapter the case was mentioned of Seymour Scott who, having carried through two successful promotions, lost everything that he had made on both of them in an unsuccessful beet...
-Promoters' Profits
Earlier in the chapter some indication has been given of the customary method by which the promoter acquires his profits. The fundamental principle is that he is entitled to whatever remains of the ca...
-Illustrative Instances
We may select from Dewing a few instances in corporate practice which will show just how promoters have secured their profits. In the case of the Mount Vernon-Woodberry Cotton Duck Company, the pro...
-Chapter XII. Promoting Combinations. Development Of Industrial Combinations
Among the fields for promotive activities probably the one that has attracted the most public attention is the formation of combinations of previously existing companies. Most concerns are developed a...
-Fields For Combinations
We have spoken above chiefly of combinations among manufacturing concerns; and this is probably the field in which the tendency has in recent years been strongest. However, it should not be forgotten ...
-Difficulties In Forming A Combination
Under the most favorable circumstances, the promoter does not lead an easy life. In investigating whatever proposition he has in mind, he must expend both money and time freely and it is quite likely ...
-Preliminary Investigation
Among the questions that should be fully and clearly answered before any combination of going concerns is attempted, are the following: 1. What is the financial history of each concern that is to b...
-Basis Of Combination
In the promotion of the United States Leather Company, in 1893, the initiative was taken by certain manufacturers who mutually agreed upon the necessity of forming a combination and who carried throug...
-Typical English Combinations
A noteworthy English combination, effected in 1914, was the acquirement of A. & F. Pears, Limited, manufacturers of Pears Soap, by Lever Brothers, Limited, manufacturers of Sunlight and other well-k...
-Consolidations
Sometimes two or more formerly independent corporations are not joined under one control by an exchange of securities, but are actually consolidated or merged. The two words just quoted are someti...
-Analysis Of A Small Combination
In order to illustrate the principles treated in the chapters on promotion in a collected form, and to show how they may be applied in practice, it may be well to review briefly the facts as to a smal...
-Forming A Combination To Secure Control
It sometimes happens that the promoters of a combination have in mind, not so much the immediate cash profits which they may realize from combining and recapitalizing certain properties, as the ultima...
-Cash Investment
Required $16,000,000 to $17,000,000 Necessary for Control $27,000,000 Preferred of the Rock Island Company (of New Jersey) Capital Shares Common $96,000,000 Preferred $54,000,000 Thi...
-Making Combinations Successful
It may be remarked, in closing this chapter, that the history of many of the large industrial and of some of the large railroad combinations does not support the notion prevalent some years ago that c...
-Chapter XIII. Selling Securities Direct. Four Methods Of Selling Securities
When a corporation is organized, and usually from time to time during its life, it is necessary to dispose of some of its securities. The initial capital must, of course, be raised by the sale of secu...
-Establishing Cordial Relations With Shareholders
Corporations already established and going ahead successfully which require fresh capital from time to time for expansion of their activities, find it highly profitable to spend some thought and energ...
-Establishing Cordial Relations With Customers And Employees
In discussing this subject of relations with shareholders, it is convenient - although it might logically come a little later - to treat the subject of relations with employees and with customers. The...
-Grant Of Subscription Privileges Or "Rights"
Corporations are not authorized, except under unusual circumstances, to sell shares of stock below par. There is, however, no legal objection - again with minor exceptions - to selling shares which ma...
-Objections To Subscription Privileges
The basic objection to the granting of subscription privileges is the same objection which applies to all special dividends or bonuses - they inevitably give a speculative character to stock which mig...
-Figuring The Value Of A "Right"
If a corporation has a million dollars par value of stock outstanding, with a market value of, say, $150 per share, and determines to issue $500,000 more of the same class of stock, with a subscriptio...
-Making Use Of A "Right"
A stockholder who receives a valuable subscription privilege may make use of it, according to his own circumstances and judgment, in any one of the following ways: 1. He may actually purchase his s...
-Selling At Auction
We may next take up the case of a corporation which desires to raise a considerable amount of new capital either at its organization or at some later stage in its development, and which cannot count o...
-Finding Prospective Buyers
At the best, however, the auction and tender method above described is not applicable to the great majority of corporations which are not sufficiently well known or well established to secure offers t...
-The Prospectus
For the same reason that the seller of most commodities needs either a sample or a catalogue, the seller of securities needs a prospectus. Its essential characteristic is that it is a written statemen...
-Limitations Of Direct Sale
One advantage of selling securities direct rather than through bankers and brokers is the belief commonly held by the purchasers that in this way they avoid contributing anything to the expense of mak...
-Chapter XIV. Selling Securities Through Dealers. Classes Of Security Merchants
The general classes of security dealers correspond to the classes of dealers in merchandise, as follows: 1. Wholesalers. 2. General retailers. 3. Retail specialists. It will quickly appear...
-Handling An Issue
A brokerage house in good standing which undertakes to sell a bond or a stock issue will first of all wish to inform itself fully and accurately as to the soundness of the issue. It will carry on a pr...
-Obligation Of The Brokerage House
A question that is bound to arise whenever a bond or brokerage house recommends a security which afterward turns out to be a poor purchase, concerns the extent of the obligation which the house should...
-Limitation Of Sale Through Security Merchants
It was pointed out in the preceding chapter that issues below $200,000 to $500,000 are too small to bear the expense of thorough investigation on the part of security dealers and must, therefore, ordi...
-Requirements Of The Security Merchant
As a partial illustration of some of the principles which have been set forth above, it will be of interest to review an actual proposition recently presented to a number of banking and brokerage hous...
-Stock Exchange Methods
Earlier in this chapter it was remarked that when security issues of great size are to be floated, it is generally advisable to have them at once listed on the stock exchange and to effect at least a ...
-Importance Of Speculative Dealings
It is doubtless well known to the readers of this volume that the great mass of transactions on most of the exchanges have a speculative character. A great many securities, to be sure, are actually ta...
-Making A Market
In disposing of securities through stock exchange operations, it is essential, first of all, that public interest should be aroused and that the volume of transactions should be of sufficient size to ...
-Limitations Of Sale Through Stock Exchanges
On the basis of the brief descriptions above given, it is apparent that floating new issues exclusively through stock exchange operations is a somewhat uncertain process, and moreover is suitable only...
-Chapter XV. Underwriting. Origin Of Underwriting
The practice of underwriting security issues has been referred to from time to time in previous chapters. It has been assumed that, every reader is acquainted in a general way with the meaning of the ...
-Importance Of Underwriting In Present-Day Financing
The advantages of this arrangement to a corporation are well worth a considerable sum of money. In the first place, an issue once underwritten is an assured success. The corporation may at once procee...
-The Underwriting Syndicate
We have seen that originally underwriting consisted in the distribution of the risk among several different merchants. This remains a characteristic feature of present-day financial underwriting. I...
-Community Of Interest Among Underwriting Houses
If one banking house closes a good contract with an excellent chance of profits, others are usually invited to come in as members of the underwriting syndicate to handle the contract. In this way all ...
-Syndicate Agreements
There are four distinct types of agreements between an underwriting syndicate and the corporation which puts out the underwritten issue. Possibly other variations from these basic types could be found...
-Speculative Underwriting
Most of the preceding remarks in this chapter refer to the underwriting of high-grade bond and preferred stock issues by financial houses of the highest standing. However, this is by no means the only...
-Part IV - Internal Financial Management. Chapter XVI. Investment Of Capital Funds. Estimating Capital Requirements
Having organized a corporation, issued the proper securities, carried through the process of promotion, and disposed of the securities, what is to be done with the capital that has thus been secured? ...
-Fixed Capital And Working Capital
The distinction between fixed capital and working capital is often not clearly understood. There would be much less confusion if it were possible to drop the adjective working, which in this connect...
-Necessity For Adequate Working Capital
The history of the Westinghouse Electric and Manufacturing Company offers some of the clearest and most striking illustrations of the necessity of using care in the investment of capital funds, and es...
-Some Factors That Affect Working Capital
How is it possible to calculate in advance how much working capital will be required, and thus keep on the safe side in providing capital funds? It is not possible to give an exact formula for answeri...
-Figuring Fixed Capital Requirements
It has been noted above that it is comparatively easy to calculate, before an enterprise is started, how much of an investment will be required in order to provide plant, machinery, and other fixed ca...
-Investing Capital In Extensions
One of the most curious instances on record of a disastrous investment on the part of a corporation in extending its own business, is that of the Assets Realization Company. This company was organized...
-Calculating The Extension Of Capital For A Bank
The previous discussion in this chapter has been related chiefly to manufacturing and trading establishments. The same principles, however, apply to all lines of business. Not long ago the president o...
-Investing Capital In Betterments
One of the frequent causes of embarrassment to corporations which take over going concerns, or which are formed in order to combine previously existing concerns, is the discovery that the supposed net...
-Investing Capital In Side Lines
As has been remarked, the managers of a corporation that has proved successful are seldom willing to stop. They wish to go ahead and enlarge their profits. This statement applies notably to the busine...
-Investing Capital In Securities
Under this head we have to consider not the questions that arise in connection with the establishment or purchase of partly subsidiary enterprises, but those that arise in connection with using the su...
-Relative Amounts Of Fixed And Working Capital
This chapter has been devoted, in part, to emphasizing the necessity for providing adequate working capital. The result may be to restrict the investment in fixed forms and thus to limit the output an...
-Chapter XVII. Calculating Requirements For Working Capital. Factors To Be Considered
In the preceding chapter the necessity for adequate working capital in most lines of business has been emphasized. The question as to what is to be considered adequate in any given case, however, ha...
-Length Of Period Of Manufacture
A company turning out a product which requires a long period of manufacture will be compelled to purchase raw materials, pay for labor and other expenses incident to manufacture, and wait for a long p...
-Turnover Of Working Capital
A closely related factor is the rapidity of turnover of working capital. Although the word turnover has come to be highly popular, there is a remarkable absence of clear-cut, authoritative definitio...
-Terms Of Purchase
If an enterprise is paying cash for everything it buys and is selling on credit, it will obviously need a working capital sufficient to purchase outright its entire stock of goods, including everythin...
-Terms Of Sale
Looking now at dealings in raw materials and merchandise from the seller's point of view, let us consider the effect upon working capital of the customary or average terms of sale. We shall give parti...
-Financing Instalment Sales
Another highly important departure in American business practice which involves difficulties of financing and calls for some special consideration, is the growth in the custom of making retail sales o...
-Working Capital Requirements For Instalment Selling
Coming back now to the financial problem of carrying on an instalment business, let us take the hypothetical case of a product which sells at a retail price of $100. We will say that the cost to the m...
-Converting Working Assets Into Cash
The distinction between quick assets and working assets has already been noted (Chapter XVI). We can go a step farther and make a like distinction between cash and other quick assets; under the la...
-An Unusual Problem
The special problem that we have just been considering - the problem of converting current assets into cash - comes up in nearly all lines of business, and in many different forms. While it is not nec...
-Working Capital To Provide For Seasonal Variations
A great many companies work under the handicap of extreme variations in the amount or the character of their business from one season to another. This was formerly true, for example, in the automobile...
-Month-By-Month Calculations
It was remarked at the beginning of this chapter that it would be impracticable to attempt to draw up any invariable formula for calculating the amount of working capital required in any given concern...
-Chapter XVIII. Determination Of Net Income. Formula For Income
The chapters preceding have dealt with such subjects as the financial forms of business enterprises, the various types of shares and of obligations that may be issued, the selection of securities that...
-Honesty In Stating Gross Earnings
In connection with the preceding paragraph, it must be admitted, however, that the conception of the word income as referring only to net cash receipts, has the advantage of being much simpler than th...
-Operating Expenses And Deductions
There is usually little question as to the actual outgo for raw materials or other purchases, labor, selling expenses, salaries of officers and other administrative overhead, etc., all of which are di...
-Reserves
Nearly all well-managed corporations charge against the profits of each year an estimated sum, or a number of distinct estimated sums, which are intended to provide for losses and expenses that will p...
-Operating Expenses And Betterments
We have spoken above of charges for repairs, renewals, maintenance, and depreciation as being properly included in operating expenses or in deductions from gross income, and have emphasized the necess...
-Is Concealment Of Betterment Expenditures Advisable?
The management in the Lehigh Valley case, and in many other similar cases, took the attitude that they were the ones best acquainted with the needs of the corporation and were better entitled than wer...
-Two Classes Of Betterments
Before leaving this subject, it may be well to call attention to the two different classes of betterment expenses which are generally regarded as being properly financed in two different ways. One cla...
-Chapter XIX. Dividends. Net Income And Dividends
After the amount of a corporation's net income has been determined, it is in order for the directors to consider how it shall be distributed. As was indicated in the preceding chapter, net income is d...
-Average Rates Of Dividends
A valuable compilation showing the amount of railway-stock in the United States which pays dividends, the percentage of this dividend-paying stock to all outstanding stock, and the average rates of di...
-Percentages Of Earnings Devoted To Dividends
An instructive tabulation of the income statements of about 900 English companies for the year ended July 31, 1914, shows the following distribution of profits: Net Profits ...
-Regularity Of Dividends Desirable
The principle of greatest practical importance is that regularity in the dividend rate is highly desirable. This principle must be regarded as almost a discovery of the last generation or two. Formerl...
-Variability Of Profits
In sharp contrast to the desired regularity of dividend payments is the wide fluctuation in profits that is characteristic of the majority of corporations. Business does not move on a regular and even...
-Rule For Maintaining Regularity Of Dividend Rate
There is obviously only one satisfactory answer - dividends must not be allowed to rise, even in the most prosperous periods, above a conservative estimate of the minimum earnings of the company. Thos...
-Policies Of Important Companies
Taking a few examples first of regularity of dividends, we have such records as that of the American Express Company, which paid regular dividends every year from 1882 to 1901 of 6%; from 1901 to 1906...
-Paying Dividends From Accumulated Surplus
Frequently the question arises whether dividends which have not been earned during a given period should nevertheless be paid and charged against the surplus that has been accumulated in previous peri...
-Cash Requirements For Dividends
In discussing the payment of dividends so far in this chapter, our attention has been concentrated, as is usually the case, on the relation between dividends and profits. It has been assumed that adeq...
-Paying Dividends With Borrowed Cash
Sometimes circumstances arise which justify the directors of a corporation, in their opinion, in borrowing the money with which to pay dividends. This is, in fact, quite frequently the case with compa...
-Effects Of Lack Of Prudence In Paying Dividends
It seems almost superfluous, after what has been said above, to cite examples of financial difficulties which are traceable to the payment of dividends which were not earned or which could not be met ...
-Scrip Dividends
Scrip dividends are those which are issued in the form of promises to pay on the part of the corporation. These promises may or may not bear interest. They usually mature at some definite date, but ma...
-Stock Dividends
A form of dividend payment which appears to be growing in popularity is the issuance of stock representing profits not otherwise distributed. Stock dividends are issued for any of three reasons: 1....
-Legal Rules Affecting Dividends
It would be inadvisable to close this chapter without calling attention to some well-established legal principles which should always be kept in view. Perhaps the most important of these principles is...
-Chapter XX. Surplus. Surplus Reserve And Surplus Fund
The final item in our formula for income consists of balance carried to the permanent surplus account. It is sometimes labeled surplus for the period, but, inasmuch as this phrase is applied also ...
-Five Sources Of Surplus
We have spoken of surplus in the preceding chapter as if it were always derived from earnings. Ordinarily this is so but surplus may result from other causes as well. Five possible sources of surplus ...
-Accumulating Surplus
In discussing the desirability of establishing and maintaining a regular rate of dividends it has been suggested that the only safe principle to follow is to fix the dividend rate below the estimated ...
-Policies Of Various Companies
In connection with the preceding section, the Hendee Manufacturing Company may be cited as a typical example of American practice; this is a relatively small but prosperous, rapidly growing, and evide...
-Surplus As A Source Of Capital
In this country the accumulation of surplus out of earnings is conceived almost wholly as a source of fresh capital. As such it is to be contrasted with the policy of paying out all, or nearly all, th...
-Hidden Surpluses
The remarks in one of the earlier sections of this chapter as to the various sources of surplus may properly be taken to indicate reasons for questioning the validity of the surplus accounts which app...
-Chapter XXI. Budgets. Nature And Types Of Budgets
In handling governmental business in nearly all civilized countries, it is customary for the executive power to submit to the legislative power a detailed estimate of the prospective revenue and outgo...
-Objections To The Use Of Budgets
A constantly recurring objection, not only to formal budgets, but to all attempts to make advance estimates, is that the volume of sales of most corporations is not under control, nor can it be forese...
-Necessity For Continual Revision
The objections above cited are all based on the assumption that a budget once adopted is an absolutely inflexible and unchangeable strait-jacket from which no relief can be obtained until after the ex...
-Income Basis Vs. Cash Basis
A practical question that must be answered before the budget can be prepared is whether it should be based upon income and expenditures or upon cash receipts and cash disbursements. Income and expendi...
-Income Budgets
Taking up now in more detail the procedure in forming a budget, first on the income and expenditure basis, and second on the receipts and disbursements basis, we have to consider the extent of the inc...
-Cash Budgets
The receipts and disbursements budget may be arranged in three divisions to correspond; or it may be necessary to base it wholly upon the estimate of possible earnings. In those lines of business, how...
-Chapter XXII. Financial Standards. Need For Standards
A man who keeps all his property in the form of cash and government bonds has comparatively little to worry or think about; but, on the other hand, he is not using his resources productively. As the s...
-Relation Of Working Capital To Total Capital
Following are the percentages of working capital to total capital as shown in recently published balance sheets of a considerable number of prominent American industrial corporations, which have been ...
-Cash And Cash Resources
Closely related standards and tests apply to the proportions of cash and resources immediately convertible into cash (principally securities held for sale) to total capital, to gross volume of busines...
-Turnover
The definition of the term and the reasons for laying great importance upon quick turnover have previously been discussed. The additional point that belongs in this chapter is a statement as to the ra...
-Operating Ratios
One of the most important standards or tests of efficiency in all lines of business is the percentage of total expense of running the business, including manufacturing, selling, and administration, to...
-Stock And Bond Issues In Relation To Gross Earnings
Assuming that the operating ratio of a company is not far from normal in its line, a fairly definite relation may be sometimes established between gross earnings and stock and bond issues. In the chap...
-Analysis Based On Financial Standards
Bankers, credit men, investors, and others who are not intimately acquainted with a given business, are frequently called upon to form tentative judgments as to the financial efficiency of a business,...
-Part V - Financial Abuses And Involvements. Chapter XXIII. Exploitation By Officers. Exploitation Differs From Fraud
Exploitation differs from simple fraud in that it is more subtle, more difficult to trace and expose, and ordinarily gives no grounds for legal action to obtain redress. In its study there is no one a...
-The Corporate Form Favors Exploitation
The general adoption of the corporate form of organizing business enterprises has opened up new and previously un-thought-of fields and methods of exploitation. The corporate form is singularly well a...
-Petty Abuses By Subordinate Officers
In a corporation which is conducted by able business men who are single-mindedly devoted to the upbuilding of the corporation, it is probable that nearly all subordinate officers will be of the same t...
-Exorbitant Salaries
In a small corporation which has come into the control of one faction and is being exploited to the detriment of the general body of stockholders, the simplest and most common method is through paymen...
-Contracts That Benefit Officers
The history of the Standard Rope and Twine Company, which was formed in 1895 to take over the assets of the insolvent United States Cordage Company, illustrates some of the possible methods of exploit...
-Divergence Of Business To Other Companies
A more ingenious and more insidious form of exploitation for the advantage of officers consists in diverting profitable business from the corporation which the officers are serving to another corporat...
-"Unloading" And Securing Control
A somewhat different case arises when the officers of a corporation are financially interested in another company which has proved to be a money loser or which needs assistance. If the business in whi...
-Misuse Of Inside Information
Another common method of exploitation is through the misuse by officers or directors of information which comes to them on the inside but which is unknown to other stockholders and perhaps unknown t...
-Is Exploitation A Common Evil?
As has been intimated at the beginning of this chapter, exploitation as a factor in business transactions is perhaps a more common evil than it was in the days when business organizations were simpler...
-Chapter XXIV. Exploitation By Directors And Majority Shareholders. Enlarging The Circle Of "Insiders"
The preceding chapter disclosed some of the methods by which the active officers of a corporation may use their positions to carry through transactions which are primarily in their own interests and a...
-Juggling Accounts
Corporate accounts and statements are juggled for various reasons. One of the most common of these is to make a good showing for the administration in power. Sometimes misleading statements are put ou...
-"Squeezing" The Minority Stockholders
As has been indicated before, exploitation is not confined to officers and directors as such. It may be an operation performed by or on behalf of the majority shareholders and directed against the min...
-Preventives Of Exploitation
Fundamentally exploitation, even though it may take a form which is to some extent sanctioned by common usage, is a dishonest process. Men who are thoroughly fair and honorable in all their dealings w...
-Minority Protection By Charter Provision
Writing in the American Economic Review, Mr. Mulvey, Assistant Secretary of State, Ottawa, Canada, first discusses the four methods named below of tiring out the minority stockholders and leading them...
-Publicity As A Means Of Minority Protection
A shareholder in a corporation, large or small, who feels that he and his associates are being defrauded, who has a clear case and who is willing, with his eyes open, to enter into a long and gruellin...
-Chapter XXV. Insolvency And Receivership. Percentage Of Failures
The number of business concerns which become insolvent each year averages a little below 1 % of the total number. Following is the record for the last ten years. No. of Failures...
-Economic Insolvency
This condition of being unable so to conduct a business that its net earnings will be more than sufficient to cover operating expenses and fixed charges, may be termed economic insolvency. If the in...
-Technical Or Financial Insolvency
A second type of insolvency is that which exists when an enterprise that possesses a greater total of assets than of liabilities is unable to meet its obligations. This type is sometimes called techn...
-Causes Of Insolvency
The causes of failures, as summarized by the commercial agencies, may be grouped in the following two main classes, viz., causes for which the management of the failing concern may be held responsible...
-Lack Of Working Capital
According to the mercantile agencies, the cause of a little more than one-third of the legal insolvencies in the United States is lack of capital., This is rather a vague phrase which in the great m...
-Anxiety To Pay Dividends
A frequent cause of technical insolvency among industrial combinations has been excessive anxiety on the part of directors to pay dividends. It has previously been pointed out that many industrial com...
-Unfavorable Market Conditions
Another immediate cause of technical insolvency, which is quite frequent among railroad corporations, is inability to meet maturing obligations by reason of market conditions. A company may be reasona...
-Methods Of Procedure In Case Of Insolvency
When a business enterprise is unable to meet its debts and is known to be insolvent, four courses of action are open: 1. The owners of the bonds and other obligations and their creditors may agree ...
-Readjustment Of Claims
The first of these remedies is unusual, except among the creditors of small corporations. It requires a degree of harmonious action that is almost impossible to bring about among a great number of peo...
-Origin And Nature Of Receivership
A far wiser and less wasteful method than bankruptcy proceedings for handling the condition of insolvency in most large corporate enterprises, consists of addressing a petition to a court of equity fo...
-Conflicting Receiverships
An application for a receivership may be addressed to any court, either federal or state, which has jurisdiction over any part of the business of the corporation. As a result it has often happened tha...
-Dissolution Of Insolvent Corporations
The dissolution of an insolvent corporation and the distribution of the assets is an uncommon proceeding. It requires the consent both of creditors who must trust to the good faith of the officers of ...
-Voluntary Dissolution
Dissolutions are not always due to insolvency, but may come as the result of pressure of other kinds or as the result of a conviction on the part of a majority of the shareholders that the corporation...
-Instances Of Voluntary Dissolution
Ordinarily there is no special financial skill required in order to handle the process of liquidation, which consists simply of gradually closing down the business, disposing of the assets, and distri...
-Origin And Nature Of Bankruptcy
In the early English law an individual was declared bankrupt for the purpose of enabling his creditors to seize upon and distribute his assets. In case the assets did not prove sufficient to meet his ...
-Two Kinds Of Bankruptcy
Bankruptcy is of two general kinds, voluntary and involuntary. The benefits of bankruptcy are open, not only to natural persons, with a few exceptions, but also to business corporations except those e...
-Receivers' Powers And Duties
The purpose for which a receiver in equity is appointed, is usually quite different from the purpose of a receiver or trustee in bankruptcy. The latter aims first to take possession of all the propert...
-Customary Results Of Receivership
It is frequently the case that a corporation which becomes insolvent has for several years been running downhill, either because of incompetence or exploitation on the part of the management, or becau...
-Chapter XXVI. Reorganization. Purpose Of Reorganization
In England the term reconstruction is used to describe the process that we ordinarily call reorganization. The English word is better chosen as it embodies the idea which underlies the whole proce...
-Conflicts Of Interests In Reorganization
The various interests which are concerned in a financial reorganization may ordinarily be classified in three groups, as follows: 1. The creditors, including both the holders of floating debt and t...
-Formation Of Committees
In present-day practice one of the immediate results of the announcement of insolvency of an important corporation is the formation of a number of security holders' committees, each one representing a...
-Procedure In Reorganization
The first step in a reorganization after some person or group of persons - receiver, banking house, reorganization committee, or some one else - has been permitted to take charge of the process is to ...
-Raising Fresh Capital
Usually the most urgent problem in a reorganization is to bring in fresh capital, either for the purpose of making additions and betterments in the fixed assets, or more commonly for the purpose of pr...
-Reducing Fixed Charges
In the majority of cases of insolvency the trouble has arisen primarily because the company had a larger load of fixed charges than its income would permit it to carry. That being the case, the only s...
-Effect On Financial Structure
One customary result of reorganization is an increase in capitalization. At first glance this may seem surprising, but it is the necessary result of the policy of compensating the old security holders...
-Reorganizations For Special Purposes
An extremely simple reorganization which did not in any way affect the financial structure of the company was that of the American Woolen Company of New Jersey in August, 1915. This reorganization is ...
-Reorganization To Secure Control
A manufacturing corporation in a small eastern city had been built up over a long period of years by its president and general manager. It was originally owned by the president as an individual but la...









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