4. Right of a contpany to hold stock,' in other com England, one of the implied powers of every corporation is to hold stock of other similar Gerstenberg's "Materials of Corporation Finance, pp. 570-532.
companies. In the United States, the common law of corporations has been interpreted as not including this power among the implied powers of a corporation, ex cept in the case of insurance companies, savings banks and other institutions that exist for investment pur poses. Most states, by statute, have now given this power to corporations. In New York State the right of a company to ,hold stock in other companies must be claimed among the express powers set forth in the certificate of incorporation. In New Jersey, a law was passed in 1913 restricting the right to acquire and hold stock to such cases where the acquisition is neces sary for the corporation's business, but the word "necessary" has been interpreted by the courts to mean "expedient" and not "indispensable." 5. Dominion Act provides (Sec. 66) that. "a company shall not under any circum stances use any of its funds in the purchase of stock in any other corporation, unless or until the directors have been expressly authorized by a by-law passed by them for the purpose and sanctioned by a vote of not less than two-thirds in value of the capital stock represented at a general meeting of the company duly called for considering the subject of the by-law: pro vided that if the letters patent authorize such purchase it shall not be necessary to pass such by-laws." It is customary, therefore, in applying for a charter to include among the powers the right to use the com pany's funds for the purchase of stock of other com panies. When a company, without authority, ac quires stock of another company, the stockholders of the acquiring company may object, but the stockhold ers of the company whose stock is acquired are not permitted to do so.
As was stated above, these laws bear upon the right of the corporations involved to do the single act of ac quiring and holding stock. If such acquisition in volves as an incident, another act—the formation of a monopoly, which is illegal, the transaction will be condemned, as we shall see, as a violation of law. To
illustrate, it may not be illegal to shoot off a gun; if the gun is aimed in the direction of a human being and the shooting involves the killing of a human being, certainly no one -would seek to set up as a defense the fact that it is legal to fire a gun.
6. Ownership of majority of stock not necessary for are many reasons why the con trol of a subsidiary may be obtained by a parent com pany without an investment in fifty or more per cent of its stock.
(a) In the first place the controlling minority is usually closely organized, while the outside majority is scattered.
(b) The organized minority may be a majority of the shares actually voting. In the large corporations, only a small number of persons attend the meetings or send in their proxies. In the large railroad compa nies of the United States perhaps sixty per cent of the stock is a fair amount to be represented at a meeting.
It will be seen, therefore, that about thirty-one per cent is sufficient to control the meeting.
(c) The stockholders of a company usually receive in the same envelope with their notice of a meeting, a request to sign a proxy in favor of a committee nom inated by the board of directors, and a stamped en velope in which to return the executed proxy. It is said that at the annnal meeting of the New York, New Haven and Hartford Railroad Company on October 28, 1914, the president of the company exercised prox ies with respect to more than sixty per cent of the outstanding stock of the company, and more than ninety-eight per cent of that represented at the meet ing.
(d) There is a general disposition on the part of outside investors to cast their lot with the party in power. Investors represent the conservative clement of society, those who believe in things as they have been. It would be extremely difficult for an outsider to organize a hostile majority by making an appeal to the average stockholder.