Subscriptions to Capital Stock The transfer department also receives subscriptions for the increase of capital stock of the corporations for which the bank acts as transfer agent. In most cases the subscriptions are pay able in instalments, and where payments are made they are noted on the back of instalment receipts which are issued to subscribers. A record is kept in a ledger showing the amount paid in for each account, also the total amount received each day. The aggregate amount of cash and checks received each day is proved against the subscription receipts and credited to the account on the in dividual ledger. The amount of detail work connected with some subscriptions is very great. In case shares are issued be fore they are fully paid, the certificate states that such and such instalments have been paid and the later payments are indorsed on the back.
Compensation of Transfer Agent The system of compensation by a corporation to its transfer agent or registrar varies greatly. Sometimes the contract drawn is for the purpose of paying a certain amount for each certificate registered and for each one transferred. The most common arrangement is a yearly contract by which for a fixed aggregate sum the transfer agent agrees to do the transfer work irrespective of the number of certificates presented, but with special fees for making a transfer and getting out the new certificate the same day and for each additional certificate issued in the same name, that is, when a holder of, say, a roo-share certificate asks for two so-share or ten ro-share certificates in exchange. The corpora tion bears the expense of engraving and providing new certifi cates. The total earnings are much increased where the unit of trading on the stock exchange is small, say, io-share lots as com pared with ioo-share lots. When certificates are sent to London they are first broken into ro-share certificates, for the unit of trading in London is io shares.
The sum charged, other than the extra fees just mentioned, for the year's services varies with the volume of the work, which in turn depends upon the following factors: the number and kinds of services undertaken, the number of shares and of stockholders, the activity of the shares, the frequency of dividends and whether the bank sends out the dividend checks, whether the corporation is a customer of the bank, etc. But whatever the amount agreed upon, it covers all services, postage, envelopes, etc. The transfer agent assumes greater responsibilities than does the registrar and his compensation is accordingly larger.
The Nature of a Paying or Fiscal Agency The large metropolitan banks and trust companies act as paying or fiscal agents for corporations, municipalities, etc. A paying agent is most useful if located in New York City, the money center of the country; but convenience is also served by having fiscal agents in several cities. The state in which the
corporation is chartered usually requires that a paying agency be maintained inside the state; and the stock exchanges, at the time of listing the securities of a corporation, sometimes insist that it maintain a paying agent in their respective cities.
The terms and conditions under which the bank undertakes to act as paying agent are various. In many instances, the money needed for the redemption and payment of bonds and interest coupons is deposited with the bank and a special account is opened against which only maturing bonds and coupons are charged. In all other cases the bank is authorized to charge the account of a correspondent; the signatures to all such in structions are closely verified and a record of the bank's balance is obtained.
The usual arrangement is for the bank to act on a commission basis. Sometimes, however, in case of big corporations and large payments, the bank accepts in lieu of a commission a de posit of the money needed to pay the maturing bonds or coupons, say, fifteen days before maturity, and the use of these funds is assumed to equal the regular commission charge. The commis sion and other terms are matters of contract between principal and agent.
When requested to handle a new issue, the bank requires a specimen bond or a detailed description of it, together with speci mens of the signatures appearing on the bond. If the issue is that of a corporation, it is necessary to know whether or not the bonds contain a provision to pay the interest in full, regardless of any federal or state tax which may be imposed. Interest on bonds with such a tax-free covenant clause, paid to citizens and residents of the United States (individuals and fiduciaries) not claiming personal exemption, to domestic and resident partner ships, to non-resident alien individuals or fiduciaries, to foreign partnerships, and to foreign corporations having no office or place of business in the United States, or in case the owner is unknown, is- subject to the normal income tax of 2 per cent, re quired to be withheld and paid at the source. Interest on bonds without the tax-free covenant clause, (I) if paid to a non-resident alien individual, or in case the owner is unknown, is subject to a normal tax of 8 per cent, required to be withheld and paid at the source, and (2) if paid to a foreign corporation having no office or place of business in the United States, is subject to a normal tax of ro per cent, required to be withheld and paid at the source. Interest on bonds with the tax-free covenant clause, paid to citizens and residents of the United States claiming personal exemption, is paid in full.