SYNDICATES 63 organization, in a word, provides the means of con centrating control.
7. Rules governing administration of The syndicate is usually governed by a manager whose powers are practically unlimited. Certain rules, how ever, are generally laid down in the agreement, or are set forth in a separate document. These rules prescribe the general method of operation of the syndi cate. For syndicates formed to underwrite the sale of corporate securities, the Investment Bankers' As sociation of America has outlined a set of rules the important features of which may be noted.
The prices at which securities shall be sold are stipu lated, these prices to be changed only by the con sent of a majority of the syndicate members.
When the members of the syndicate help to sell the securities, they are usually given a commission, which is considered part of the expense of the syndicate.
The right of each member to sell securities is re stricted to certain territories. This prevents the par ticipants from coming into competition with one an other, and also forestalls unnecessary duplication of effort.
The duration of the syndicate is usually agreed to be such a period as is necessary to consummate the venture—i.e., to sell the securities—tho provision is made that if they are not sold within a specified time, e.g., a year, the securities remaining at the expiration of that time shall be divided among the members in proportion to their respective shares in the enterprise.
8. Liabilities of syndicate agreements usually stipulate that the members shall not be partners, that they shall be liable for the obliga tions of the syndicate only to the syndicate manager in proportion to the amounts of their subscriptions, and that the agreement "shall bind and benefit ratably not only the parties to it but their respective successors, survivors, assigns and personal representatives." As was hinted in a previous section, the law on this subject is somewhat hazy. This much, however, is fairly well settled: When the agreement provides that the participants shall be liable only to the mana gers, and then only to the extent of their several subscriptions or participations, that provision will be binding on the syndicate and on all persons dealing with the syndicate who have a knowledge of the pro visions of the agreement.
One dealing with a syndicate carrying on a joint adven ture would apparently be held to a more intimate knowledge of the syndicate agreement than one dealing with a partner ship need have of the agreement of the partnership, as to the precise scope of the partnership business.'
9. Putting thru a deal.—Those who plan a deal usually contemplate the purchase of property and the sale of the property. Money has to be raised, or credit obtained, to get the property, and some effort has to be made to sell it; if these efforts are unsuccessful the syndicate must divide what is left among the members, thus closing out the deal. Sometimes property is taken under option only, and the title is transferred before the option expires. Such a transaction gen erally requires just enough money to bind the option. The syndicate makes its profit with practically no in vestment. In other agreements, the property is grad ually acquired and paid for, and the members con tribute the sum needed in proportion to the amount of their participations. The amounts of these con tributions are computed by the manager, who issues a "call." Very frequently these calls are given on very short notice, so that even tho the member may not have much money invested at any time he will have to be ready to contribute the entire amount of his participation whenever it is demanded.
The following letters, taken from the Armstrong Report Exhibits, were sent by a manager to a par ticipant of an underwriting syndicate, and show clearly how a transaction is actually put thru : The agreement sometimes provides—and this form is perbaps more frequently used in England than in this country—that the manager shall have the right to borrow money on the strength of the underwriting agreement. With such a clause in the contract, the manager would borrow sufficient money from a bank to acquire the property, and then pledge the property and the credit of the syndicate members, in proportion to their participations, to the bank to insure repay ment of the loan. As the property is sold the loan is reduced, and if the loan is not wiped out at the ex piration of the stipulated time, the subscribers COD tribute the amount remaining, in sums usually in pro portion to their respective interests in the undertaking. The way the property not disposed of is usually di vided among the syndicate members is described in the next section.