The list should also clearly describe the stock issue to which it refers, and briefly the purpose of the corporation. No statement should be with held the omission of which might afterward justify a suspicion of fraud or sharp dealing. If, for in stance, the list states that the company is being formed to manufacture automobiles, whereas, in fact, it is chartered to make both automobiles and bicycles, the omission of this fact from the list might en able subscribers to resist effectively the collection of the amount subscribed. Subscriptions cannot be suc cessfully resisted, as a rule, unless they have been ob tained by fraud or material misrepresentation on the part of the company or its authorized representative. If the misrepresentation is not of consequence, or is made by one who is not acting authoritatively in re ceiving subscriptions for the company, or is a mere statement of opinion or a prediction, no court will relieve the subscriber of his contract to take the shares.
4. Advantages of using several lists are employed, oftentimes a number of them are cir culated in order that the proposition may be placed before many prospective subscribers without delay. Even in small companies, several lists are some times used, one for large subscribers, another for sub scribers of moderate amounts, and still others for smaller subscribers. It would be a mistake to pre sent to a possible subscriber for a large amount a list upon which had been entered a large number of small subscriptions. It would in turn discourage the small subscriber in many cases if a list were presented to him containing a number of very large subscriptions and no smaller ones.
It is customary to head each list with the subscrip tion of some well-known and highly respected citizen, whose signature will lend confidence to the enterprise and serve to induce others to subscribe.
5. Paying for capital stock.—Sometimes payments upon stock subscriptions must be made before the corporation is actually chartered. The State of Penn sylvania, for instance, before a charter is granted, requires a certificate to the effect that ten per cent of the authorized capitalization has been paid. In this case, funds are deposited in the bank to the credit of some one who acts as trustee for them until the cor poration has been chartered and officers duly elected. If payments are made from this fund before the cor poration is chartered, the trustee is liable for the amount personally, unless the corporation subse quently ratifies the expenditures.
Sometimes, the actual requirement of the law is avoided by borrowing funds from the bank, and leav ing them there on deposit long enough to file a certifi cate that ten per cent has been paid in; after that the loan is repaid by checking the funds back to the bank.
This, of course, leaves the incorporators responsible, but avoids tying up the cash until required by the cor poration. The bank protects itself by making the loan on a demand note to the incorporators, with the verbal agreement that the funds will not be checked out. If a check against the fund should be presented, contrary to the agreement, the bank will at once call the loan and return the check unpaid. Such subter fuges should be avoided.
After the corporation has once been chartered, the payments upon stock subscriptions of course go di rectly into the treasury of the company, and may be paid out only by officers, and for corporate purposes, in the usual manner. Once the corporation is formed, subscribers are liable to the amount of the par value of the shares they have subscribed for, or if no par value has been assigned to the shares, as is often the case in New York State, they are liable for the amount they have agreed to pay for the stock, at a stated price per share.
Subscriptions may be paid up at once or by instal ments, according to the terms of the contract or the calls of the directors, but in any case certificates marked "full paid" cannot be legally issued until the par value, or stated price per share, has been paid to the corporation. The joker in this legal provision appears in the fact that stock need not be paid for in cash, but in most states may be settled for in other property, or in services, at the option of the directors, who assign their own value to such services or prop erty. Obviously, the placing of an exorbitant value upon them has the practical effect of selling shares at less than par, altho marked "fully paid and non assessable." 6. Assessable stock.—When capital stock has been paid for at par in cash, or in services or property ac ceptable to the directors, it is known as "fully paid and non-assessable stock," and this information is printed upon the stock certificate.
It sometimes happens, however, that the corpora tion does not need its new capital all at one time. This is often the case with mining companies, whose capital requirements depend largely upon the unseen and uncertain deposits of nature, and therefore can not be accurately forecasted. The capital required and the time when it will be needed cannot be defi nitely predicted, and yet the company may desire to have its capital all subscribed in advance to insure against the uncertainties of future financing. If the highest estimates are accepted, the task of financing is correspondingly greater, and, in this case, if the shares are issued fully paid, the company may find that re quirements have been overestimated and that it has more capital on hand than it can productively employ.