as yet been made for the general distribution of the report, it would appear that our Congressmen do not agree with the members of the Commission in regard to the "urgent demand" for information on the trust question.

Yale University.

MAURICE H. ROBINSON.

The Proposed New York Business Companies' Act: 1900. The proposed Business Companies' Act, reported favorably by the Senate, although failing of passage by the Legislature, deserves more than a passing mention for two reasons:-(1) for its authorship, (2) for its contents. Governor Roosevelt took the first step by affirming, in his annual message, that "the corporation that manages its affairs honestly has a right to demand protection against the dishonest corporation. They (the corporations) should be relieved from (immaterial) burdens, but held to a rigid accountability for acts that mislead the upright investor or stockholder, or defraud the public." By thus taking a rational position, intermediate between the drastic anti-trust legislation of Texas and the corporationenticing statutes of Delaware and West Virginia, the Governor of the State was able to avail himself of the best economic, financial, and legal advice in drafting the act. Naturally, as chief architect of the act, Governor Roosevelt selected Professor Jenks of Cornell University, whose thorough training in both economics and government, together with his experience as expert agent of the Industrial Commission, admirably fitted him for the task. In this work Professor Jenks had the criticism and advice of financiers, lawyers, and business men whose experience with legitimate industrial corporations rendered their coöperation of the highest practical value. The act is thus notable as representing the combined experience of the successful man of affairs, the trained economist, the financier, and the corporation attorney.

In its contents the act is characterized by the following distinctive features:

First, it is strictly a business companies' act. It does not make the mistake of attempting to destroy monopoly and nurse competition on milk from the same bottle. It divides in order to conquer, and distinctly provides that "nothing in this act shall be construed to repeal any of the provisions of the existing laws of this State regarding monopolies or the formation of monopolies."

Second, the act provides for full publicity of the corporation's affairs, but this publicity, with the exception of certain reports to the State, is limited to the stockholders only. Publicity is granted to stockholders and not to the general public in order that small corporations engaged in strictly competitive business may guard their business affairs from their competitors. Corporations approaching the monopolistic position must generally have their stock scattered so widely that reports open to stockholders will be open to the world. The effect of this publicity will be, it is expected, (1) that excessive profits can not be concealed, competition will be invited and the consumers protected from exorbitant or unreasonable prices; and (2) wage earners will know when to resist a reduction of wages and when to demand an increase.

Third, it provides, so far as is possible by law, that every corporation organized under the act shall be a New York corporation, not in name only, but in fact. To this end it is provided (1) that all meetings of stockholders shall be held in the registered office in New York, where are to be kept the principal stock and transfer books, written up to date and open at all times to the inspection of bona fide stockholders; (2) that no foreign corporation except a national bank may hold any meetings of stockholders within the State of New York. The registered office, over which must be displayed the name of the company, where the officers may be addressed, notices given and papers served upon the company, must be regularly open during business hours in charge of a responsible agent, who in addition is required under heavy penalty to make a report annually, showing to what extent the law in this particular has been observed. In short, corporations organized under this act must not only maintain an office in New York, but such office must in fact be the principal office where the important books are kept and the meetings of the stockholders are regularly held.

Fourth, it aims to prevent over-capitalization not by prohibitory legislation but by publicity. James B. Dill, Esq., in an address before the Massachusetts Reform Club, March 9, 1900, explained the principle of the act in this point so clearly that a quotation from his paper may not be out of place here: "Capital stock may be issued for money or for any other consideration and practically irrespective of par value, but the certificate of stock itself must plainly and clearly state for what it is issued. . . . All stock shall be held subject to payment at its par value in cash unless before the issuance of the stock a contract shall be filed in the registered office of the company

which shall truly and fully disclose in detail the consideration for which the stock was issued. . . . All stock issued for any consideration except for cash shall have stamped across the face of it a statement that it is issued other than for cash, and stating where the contract is filed which discloses truly the consideration of the stock. The contract shall absolutely and truly disclose the consideration for the stock and from whom it proceeds, and in every annual and other report concerning the stock of the company it shall be truly described. . . This done. . . the judgment of the board of directors as to the par value of consideration other than for cash shall be final and conclusive, provided the provisions as to publicity are fully carried out." The New York Journal of Commerce questions the expediency of the above provision on the ground that "It is a sound and universal principle of corporate law that if any shareholder takes from a corporation a share of stock of the par value of $100, and pays for it only $75, that shareholder can be compelled to pay to any creditor of the corporation the remaining $25 if the corporation owes the creditor that much and is unable to pay it itself. It is so provided by the existing law of this and other States, and it is so provided by the act now before us as to all stock issued for cash. The reason of the rule is this: The corporation, and the stockholder through it, have been enabled to use and enjoy a credit of $100 founded upon assets of only three-fourths of that amount. If the actual assets are at any time found insufficient to pay the debts of the company, the courts have always held it to be equity that the stockholders should be compelled to make its actual assets equal to the fictitious assets upon which its credit is founded." The criticism of the Journal of Commerce is not, it seems to us, well taken. The prime object of the act is to disclose to the public, including the creditors, the real assets of the company. To do this, legislation should not place a penalty upon such disclosure, nor a premium upon actual misrepresentation. If the law holds the investor responsible for debts equal to the face value of the stock, when that value in itself is speculative in its nature, the investor has an object to gain if he can so deceive the public, including the creditors, as to secure that amount of credit. So long as the advantages of the increased credit due to over-capitalization outweighs the disadvantages due to increased liability for debts, fictitious capitalization will continue. The act simply proposes to make known to the public the real value of the property, and so far as it succeeds it takes away the chief incentive to inflation

of capital stock. Under these conditions the reason for the rule falls to the ground. No corporation whose real assets are fully known will be able to obtain additional credit simply because it calls a share worth only $75, one hundred dollars. The act recognizes the fact that a share in corporate property represents simply a fractional part of that property, not an absolute value. The recognition of this fact by legislators and the public would eliminate much false logic from trust literature and many unwise laws from our statutes. If further argument were needed to support the act at this point, it might be added that the inevitable result of obliging the directors to swear that all property for which stock has been issued has been taken at its true value, as under the Massachusetts law for instance, is "to keep the most conscientious business men off from the board of directors and to fill their places with less scrupulous ones who are willing to make an oath with a mental reservation."

Fifth, the act recognizes the promoter as a legitimate factor in modern business development, requires him to work in the light of day and proposes to hold him legally responsible for his acts. The author of the bill evidently does not believe that evil can be eliminated from the world simply by ignoring it. Every prospectus or other advertisement, issued with a view of inviting public subscription to stocks or bonds, must specify the proposed directors and promoters with their interests in the same and their consideration for their work, the property acquired or proposed to be acquired, with the consideration for it, the amount of the commission paid or proposed to be paid to the underwriters, together with all such detailed information as may be necessary in forming an opinion as to the real worth of shares so offered. To secure the observance of the above requirements it is enacted (1) that a prospectus which does not comply with the law shall be deemed fraudulent on the part of the directors or proposed directors, managers or promoters knowingly issuing the same; (2) that every person taking shares on the faith of such prospectus, unless he had actual notice of the particulars omitted from the prospectus, shall in addition to any other remedy he may have been entitled to, sue for rescission of his contract to take shares; (3) that every person aggrieved may sue for and obtain a money compensation for his loss.

In addition to the attempt to secure honest promotion a provision is added intended to secure adequate legal responsibility on the part of companies acting as transfer agents for the corporation through

the following clause: "Any corporation or individual countersigning the stock or bonds either as transfer agent or as registrar shall be deemed to guarantee the legality and regularity of the transfer unless the countersign shall give notice to the contrary." In regard to the efficacy of these provisions Mr. Dill says: "The law relating to promotions contained in the proposed act will put an end to improper promotion and to unwise financiering, and it is because these chapters are the foundation of the act that it is safe to allow the issuance of stock upon the terms already indicated."

Sixth, the act provides for an auditor or auditors, to which office directors are ineligible, chosen by the stockholders to protect the general interests of the company against the narrower interests of the board of directors. It is perhaps worthy of note that in this provision corporation law is adopting a device which the modern constitutional state has made large use of to protect the common interests against those of the government. The auditors of the larger corporations must furnish bonds in the sum of $50,000, guaranteed by some authorized surety company, to which extent they may be held liable in damages for negligence in performing their duties. They are required to inspect the shareholders' balance sheet and report upon its legality and character, show wherein it is defective, if such is the fact, and in general give the stockholders all material information which they have gathered "with regard to the books, accounts, securities, vouchers, papers, writings, and documents examined by them." In order to do this effectively the president and the directors must furnish the private balance sheet giving details and "any information they may need." The shareholders' balance sheet furnished by the directors, together with the report of the auditors, must be read before the company in general meeting.

Seventh, the remedies provided by the act for non-compliance with its terms are in general so far as possible automatic and instantaneous in their action. If a director or other officer fails to call the annual meeting of the stockholders at the proper time, salaries of officers and directors cease from the time it ought to have been held until it is actually held; and in general the act provides that "in case of violation of the law as to publicity or otherwise, the director at fault instantly by the very act goes out of office and loses all his right to salaries, emoluments or other returns from his official position."