Stock dividends

Bibliographic data

Monograph

Identifikator:: 175754061X

URN:: urn:nbn:de:zbw-retromon-136496

Document type:: Monograph

Title:: Stock dividends

Place of publication:: Washington

Publisher:: U.S. Gov. Print. Off.

Year of publication:: 1927

Scope:: vii, 273 S.

Digitisation:: 2021

Collection:: Economics Books

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Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: [Appendix]

Collection:: Economics Books

28 STOCK DIVIDENDS the contrary, his interest pertains not to any part, divisible or indivisible, but to the entire assets, business, and affairs of the company. Nor is it the interest of an owner in the assets themselves, sinee the corporation has full title, legal and equitable, to the whole. The stockholder has the right to have the assets employed in the enterprise, with the incidental rights mentioned; but, as stoek- holder, he has no right to withdraw, only the right to persist, subject to the risks of the enterprise, and looking only to dividends for his return. If he desires to dissociate himself from the company he can do so only by disposing of his stock. For bookkeeping purposes, the company acknowledges a liability in form to the stoekholders-equivalent to the aggregate par value of their stock, evidenced by a “capital-stock account.” If profits have been made and not divided they create additional bookkeeping liabilities under the head of “profit and loss,” “undivided profits,” “surplus account,” or the like. None of these, however, gives to the stockholders as a body, much less to any one of them, either a claim against the going concern for any particular sum of money, or a right to any particular portion of the assets or any share in them unless or until the directors conclude that dividends shall be made and a part of the company’s assets segre- gated from the common fund for the purpose. The dividend normally is pay- able in money, under exceptional circumstances in some other divisible prop- erty; and when so paid, then only (excluding, of course, a possible advantageous sale of his stock or winding up of the company) does the stockholder realize a profit or gain which becomes his separate property, and thus derive income from the capital that he or his predecessor has invested. In the present case the corporation had surplus and undivided profits invested in plant property and business, and required for the purposes of the corporation, amounting to about $45,000,000, in addition to outstanding capital stock of $50,000,000. In this the case is not extraordinary, The profits of a corpora- tion, as they appear upon the balance sheet at the end of the year, need not be in the form of money on hand in excess of what is required to meet current liabilities and finance current operations of the company. Often, especially in a growing business, only a part, sometimes a small part, of the year’s profits is in the property capable of division; the remainder having been absorbed in the acquisition of increased plant, equipment, stock in trade, or accounts re- ceivable, or in decrease of outstanding liabilities. When only a part is avail- able for dividends, the balance of the year’s profits is earried to the credit of undivided profits, or surplus, or some other account having like significance, If thereafter the company finds itself in funds beyond current needs it may declare dividends out of sueh surplus or undivided profits; otherwise it may go on for years conducting a suecessful business, but requiring more and more working eapital because of the extension of its operations, and therefore unable to declare dividends approximating the amount of its profits. Thus the sur- plus may increase until it equals or even exceeds the par value of the outstanding capital stock. This may be adjusted upon the books in the mode adopted in the case at bar—by declaring a “stock dividend.” This, however, is no more than a book adjustment, in essence not a dividend but rather the opposite; no part of the assets of the company is separated from the common fund, noth- ing distributed exeept paper certificates that evidence an antededent increase in the value of the stockholder’s capital interest resulting from an accumulation of profits by the company, but profits so far absorbed in the business as to render it impracticable to separate them for withdrawal and distribution. In order to make the adjustment, a charge is made against surplus account with corresponding credit to capital-stock account, equal to the proposed ““divi- dend”; the new stock is issued against this and the certificates delivered to the existing stockholders in proportion to their previous holdings. This, however, is merely bookkeeping that does not affect the aggregate assets of the corpora- tion or its outstanding liabilities; it affects only the form, not the essence, of the ‘liability’ acknowledged by the corporation to its own shareholders, and this through a readjustment of accounts on one side of the balance sheet. only, increasing ‘capital stock” at the expense of “surplus”; it does not alter the preexisting proportionate interest of any stockholder or increase the intrinsic value of his holding or of the aggregate holdings of the other stockholders as they stood before. The new certificates simply increase the number of the shares, with consequent dilution of the value of each share. A “stock dividend” shows that the company’s accumulated profits have been capitalized, instead of distributed to the stockholders or retained as Surplus available for distribution in money or in kind should opportunity offer. ar from being a realization of profits of the stockholder, it tends rather to postpone

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