CAPITALIZATION (MASSACHUSETTS) Though originally the board had no control over capitalization, it was not slow in making clear that a power of regulation was desirable. As a result it has to-day a most effective con trol. From the first the board made it evident that it would consider as capital, upon which dividends were to be earned, only an amount equal to the actual cash paid in. This is shown in the following statement: Over-capitalization (watered stock) is a per petual and unjust burden on the consumers. The stockholders are entitled only to a fair and rea sonable dividend on the actual amount of cash paid in. The money used in the extension of plant, if paid out of surplus, should not be cap italized, but should be for the benefit of the con sumers by reducing the price of gas.
What annoyed the board was the compan ies' practice of capitalizing surplus earnings by issuing stock and scrip dividends upon them. This practice, with the board's views concerning it, is illustrated in the case of the Springfield petition of 1893. The Springfield Gas Company had been incorporated with a capital of $50,000, subsequently increased to $500,000, mainly through the issue of stock dividends, which in nearly every case had been equaled in value by additions to the company's plant. In discussing this situa tion, the board said in part: - The consumer is in duty bound to pay three charges: (1) the fair cost of gas; (2) fair dividends on a reasonable amount of capital; (3) such excess as will give the company suffi cient surplus to meet extraordinary acci dents and to conduct its business with the highest economy.
If he pays more, and the company converts the excess into new capital, increasing it to a figure beyond the fair amount demanded for the busi ness, he is burdened with too high a price for the gas and a dividend charge upon his contributions.
As a result of continual agitation on the part of the board, the following law, prohibit ing the issue of stock and scrip dividends, was passed: No company shall declare any stock or scrip dividends or divide the proceeds of any sale of stock or scrip among its stockholders, nor shall any company create any additional new stock or issue certificates thereof to any person, unless the par value of the shares so issued is first paid in cash to its treasury.
After the passage of this law, the board still lacked the complete control over capital ization it desired. So it secured the passage of stock and bond laws in 1894 and 1896 to the effect that: — A gas or electric company shall issue only such amounts of stocks and bonds as the board may from time to time vote. The board shall render a decision upon application for such issue within thirty days after final hearing. The board shall make out a certificate of its decision, including a statement of the purposes to which the proceeds of the issue are to be put, a copy of the certificate going to the company, which shall use the pro ceeds for no other purposes than those described.
If when the board approves an issue of stocks and bonds, it determines that the fair structural value of the company's plant is less than the out standing stock, it may prescribe conditions and requirements it considers best adapted to make good these impairments of capital stock, or before allowing an increase it may require the capital stock to be reduced to an amount not exceeding the amount of such impairment. In case of an authorized increase of capital stock, the shares shall be offered proportionally to the shareholders, at not less than the market value thereof at the time of in crease. This value is to be determined by the board.
If the increase does not exceed 4 per cent of the existing stock, without offering the same to the stockholders, and in other cases, if after the time allowed to the shareholders any shares remain unsubscribed for, the directors may sell them at auction to the highest bidder at not less than par to be paid in cash.