In a few instances corporations have issued bonds only in the coupon form, but provided for detaching the coupons and leaving them in the possession of the corporation or its agent, and indorsing the name of the owner on the body of the bond and entering his name on the books of the company as the registered owner. The bond then becomes registered both as to principal and interest. By indorsing it as payable to bearer, so en tering it on the books of the company, and reattaching the sheet of coupons, the com pany can transform it back into a coupon bond. This requires practically no more trouble than simply registering as to princi pal, and is perfectly feasible for a corporation with a relatively small amount of bonds out standing. Bonds registerable as to principal only may regularly be retransformed into full coupon bonds by indorsing to bearer and entering them on the books of the company as bearer bonds.
Domicile, or place of payment : The bond form presented as a specimen makes both principal and interest payable at the office or agency of the company in the city of New York, or, at the option of the holder, in Lon don, Frankfort, Berlin, Amsterdam, France, Belgium, and Switzerland. Since the particu lar issue of bonds represented by the form was intended especially for the European market, it was made payable in rather more places than usual. If a bond is intended to be sold in England or in Europe, it is regularly made payable in London and, say, Berlin, as well as in New York. On account of the pos sibility of avoiding taxation, French invest ors rather like to have their income payable in London. Therefore it is not so important, in order to effect sales among the French in vesting class, to have the bonds payable in Paris.
Likewise, if it is intended that a bond be sold entirely in this country, it may have more than one place of payment. It may be that the bankers handling it expect to sell it mainly in the Middle West. In that case Chicago will be one of the places of payment named. Part of the issue, however, may be sold in the East, and in that case the bonds will also be made payable in New York.
Usually the place of payment is made more specific than simply stating the city. Ordin arily the bond states that it is payable at, say, the Columbia-Knickerbocker Trust Com pany, in the city of New York. It is then sometimes said to be "domiciled" at the Columbia-Knickerbocker Trust Company. In the case of most of the smaller issues, at any rate, the trustee is made fiscal agent for the purpose of paying interest, and the bonds therefore domiciled with the trustee. Larger issues may be domiciled with some institu tion other than the trust company acting as trustee. Those corporations having such large amounts of securities outstanding as alone to require the services of a whole staff, maintain their own fiscal office at their gen eral head office, and make the American domi cile of their bonds at that place.
Taxes: To discuss the taxation of securities would require a whole treatise to itself. Such
a provision as the sample form of bond con tains commonly appears in bonds. It has little or no actual present practical effect, and is valuable to the holder and contains some thing of a menace to the corporation in event of a change in the system of collecting taxes. No matter what the taxation provisions of a particular jurisdiction may be, bonds com monly sell at prices based on the assumption that the purchaser does not pay taxes on them. In event of any attempt being made by the Federal Government or any of the State Governments to collect an income tax after the English fashion "at the source," presum ably such a promise to pay interest without deduction for any tax which the railroad com pany may be required to retain therefrom would work to impose the burden of that tax ation, which might amount to 2 per cent, on the corporation and to relieve the bondholder. That would probably be so, at any rate so long as the railroad is its own fiscal agent for the payment of interest as in this bond.
Whether on the appointment of some finan cial institution as agent to pay interest, the collection of taxes at the source, that is, the requiring of the paying agency to deduct from the interest the amount of the tax and pay that amount over to the Government, would be a tax which the railroad company was re quired to retain therefrom, might be a matter of uncertainty, to be known only after ad judication. Our multiplicity of taxing juris dictions, however, combined with the wide scattering of the securities of any particular corporation, makes improbable any wide at tempt to collect any heavy taxation at the source. The State of Pennsylvania does col lect a small state tax from Pennsylvania cor porations on securities of the corporation known by the corporation to be in the hands of Pennsylvania investors. As matters stand, and as they seem likely to continue, such a tax provision as this in a bond seems not likely to have much effect.
Trust deed : Such a reference to the trust deed as this, "For the rights of the holders of the bonds, and the terms and con ditions in which the bonds are issued, refer ence is made to the said mortgage and deed of trust," definitely makes the provisions of that document part of the terms of the bond. American investors might well be more in sistent on looking up the stipulations of the trust deed. They might sometimes find there provisions giving a majority or even a minor ity of the bondholders a right to do things materially affecting the lien and encroaching on the regular rights of a security holder. The chapter on the "Instruments of Corporation Finance" emphasized the limitations on the shareholders' control which the trust deed might make in favor of the bondholders. Though that is the usual situation, a trust deed may, and sometimes does, place limita tions on the rights of the bondholder in favor of the shareholder.