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Part II.





The forms of industrial combinations have been shown to be dependent to so great a degree upon the corporation laws of the countries in which they are formed, that it has seemed best to present the leading principles of the corporation law of several countries, including soine of the English colonies.

To collect material that should be trustworthy and as complete as possible, a series of questions regarding corporation laws were prepared and sent through the State Department to representatives of the United States in the several countries under consideration, requesting them either themselves to make the proper digest of the laws, by answering the questions, or to send to the Industrial Commission the laws needed for such purpose. In connection with the report from each country, a note will indicate whether the digest was made in the country concerned, or whether the laws were sent from that country and the digest made under the supervision of the expert agent in the offices of the Industrial Commission.

The topics on which information was requested were as follows:
(a) Capitalization and methods of paying in capital.
(b) Methods of promoting and liability of promoters.
(c) Liability of stockholders.
(d) Duties and responsibilities of directors.
(e) Restrictions upon directors in dealing in stocks and otherwise.
(f) Regulations regarding prices of products.
(g) Regulations regarding profits and dividends.

(h) Regulations regarding ownership of stock in other corporations, or the combination of different corporations.

(i) Reports to be made to the Government.
(k) Reports to be made to the stockholders.

(1) Privileges of stockholders regarding examination of books and oversight of business.

(m) Methods of taxation of corporations.
(n) Special methods of control by the Government.

(o) Also special laws covering monopolies, especially those concerning the private capitalistic monopolies known as trusts.

Judging from the experience of the United States, it seemed that strict legislation, properly enforced, regarding capitalization, promotion, and the liability of directors, IC-VOL XVIII-01



stockholders, and officers might possibly prevent some abuses that seemed to have arisen in the United States, or that these regulations might determine to a considerable extent the form which industrial combinations would take in the various countries. Likewise, it seemed probable that the nature of the control of the Government over such corporations, the degree of publicity insisted upon in their operations, and other regulations, might materially affect such organizations. The study of these laws and of the experience of the countries, as found in Part I of this volume, shows that there is an intimate connection between the corporation laws and the organization of industrial combinations.

Inquiry was also made regarding laws restricting monopolies, or those directed toward either the prevention or the regulation of the modern industrial combinations.

Without attempting to analyze in detail the effects of the various provisions in the laws of the different countries in these particulars, as that would involve to a considerable degree a restatement of the facts in Part I, compared, point by point, with the laws digested in Part II, it will perhaps suffice to mention briefly the following general provisions of corporation laws, in several of the countries, that seem to have been of chief influence in determining the form of industrial combinations, or in preventing abuses of great corporations in the different countries, with a word as to the nature of this influence.

The English law attempts to restrict capitalization of corporations primarily by enforcing publicity. The articles of association are to be filed with the registrar of joint stock companies, and it is also required that copies of the contracts with vendors of separate establishments uniting into a single joint stock company be filed also. All shares are held to be issued as if for cash, and owners will be held liable on that basis unless such contracts are filed.

In other countries the appraisal of properties to be bought by the corporation in exchange for stock is under such careful regulations, with due inspection by the Governments, that stock watering is even more difficult.

It is of course true that where property is intangible in its nature, like patents, or where property is situated in foreign countries—as, for example, in the case of mining companies in the colonies—there is at times exploitation of the public through purely speculative means similar to those employed at times in the United States.

In practically all the foreign countries under consideration the promoter is held very strictly accountable for the representations and promises put forth in prospectuses, and the nature of the payment for his services must be so distinctly made clear to the stockholders that there is little likelihood of his making unreasonable gains. In many cases the pay of the promoter may be considered large, but it is not secret. Such delicate and difficult work often deserves large pay.

Directors of corporations in practically all European countries seem to be held considerably more strictly responsible for their operations than is usual in the United States, although in many cases the provisions of the law are not materially different.

One noteworthy factor in the laws of several countries is that instead of a small corps of officers elected by a body of directors, as in the United States, with practically all the active executive work left to one officer or a small corps of officers, we find a general executive committee, who manage the executive work as a body, and, associated with them, a supervisory body, with full powers of inspection and indirect control. The policy is one rather of executive boards than of single executives.

Much care is very generally taken to have the auditors entirely independent of the boards of directors, both as regards their appointment and pay and as regards their methods of work. The accounts also are, generally speaking, to be made public in considerably more detail than is required in the United States, the law itself frequently prescribing special methods in which the books shall be kept or special principles to be followed in preparing the balance sheet.

While the laws in most of the countries do not directly restrict directors or managers of corporations from speculating in their stocks, indirectly the responsibility of

directors is such that private speculation under such circumstances seems to be very seldom found.

Generally speaking, especially in the German countries, the Government requires very detailed reports to be made regarding the condition of business, partly, evidently, for the sake of keeping the stockholders and the public informed regarding the nature of the business of the corporations, but also for the purpose of taxation. In some of the countries the rate of taxation on corporations is high and is in the nature of an income tax, so that it becomes necessary that the Government be informed regarding even the details of the business.

Generally speaking, the European countries have no laws regarding monopolies that are especially restrictive, with the possible exception of France; but the rigidity of the corporation laws render several of the abuses which seem common in the United States almost impossible, and the liberality of the Governments in promoting agreements regarding output and prices has perhaps prevented the combinations from taking so unified a form that the Governments would feel called upon to impose any special restrictions. As has been explained in Part I, laws giving somewhat more careful supervision of the affairs of industrial combinations in the future are under contemplution in some of the States.




Sec. 1. Business may begin before capital has been paid. -A company may commence business before the whole amount of its capital has been subscribed.

SEC. 2. Reduction of capital. -A company may by resolution reduce its capital, "but no such resolution for reducing the capital of any company shall come into operation until an order of the courtis registered by the registrar of joint stock companies."' 2

SEC. 3. Increase of capital.The directors may, with the sanction of a special resolution of the company previously given in general meeting, increase its capital by the issue of new shares, such aggregate increase to be of such amount, and to be divided into shares of such respective amounts, as the company in general meeting directs, or, if no direction is given, as the directors think expedient.

Sec. 4. Manner in which shares are to be issued and held.Every share shall be deemed and taken to have been issued and to be held subject to the payment of the whole amount thereof in cash, unless the same shall have been otherwise determined by a contract duly made in writing and filed with the registrar of joint stock companies * at or before the issue of such shares.5


SEC. 5. List of directors to be presented at time of registration.—On the application for registration of the memorandum and articles of association of a company the applicant shall deliver to the registrar a list of the persons who have consented to be directors of the company, and if this list contains the name of any person who has not so consented the applicant shall be liable to a fine not exceeding £50.6

Sec. 6. Special requirements as to particulars of prospectus.—Every prospectus issued by or on behalf of a company, or any person engaged or interested in the formation of the company, must state (a) the contents of the memorandum of association, with the names, descriptions, and addresses of the signatories, and the number of shares subscribed for by them, respectively; and the number of founder's or management shares, if any, and the nature and extent of the interest of the holders in the property and profits of the company; and (b) the number of shares, if any, fixed by the articles of association as the qualification of a director, and any provisions in the articles of association as to the remuneration of directors; and (c) the names, descriptions and addresses of the directors or proposed directors; and (d) the minimum subscription on which the directors may proceed to allotment and the amount payable on application and allotment on each share, and in the case of a second or subsequent offer of shares the amount offered for subscription on each previous allotment, and the amount actually allotted, and the amount, if any, actually paid on such shares; and (e) the number and amount of shares and debentures issued, or agreed to be issued, as fully or partly paid up, otherwise than in cash, and in the latter case the extent to which they are so paid up, and in either case the consideration for which such shares or debentures have been issued or are proposed or intended to be issued; and (f) the names and addresses of the vendors of any property purchased or acquired by the company, or proposed to be so acquired, which is to be paid for wholly or partly out of the proceeds of the issue offered for subscription by the prospectus, or the purchase or acquisition of which has not been com

1 The digests of the corporation laws of England and the English colonies were made by Herbert A. Heminway. 2 See sec. 64 post (Companies act, 1867, sec. 9). 3 See secs. 41 and 43 post (Companies act, 1862, Table A, art. 26). 4 See sec. 64 post. 5 Companies act, 1867, sec. 25. 6 Companies act, 1900, sec. 2, subd. 2.

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