An economic analysis of the Virginia corporation law

358 Pages·019.015 MB·English

by  MacDonald, Edmund F.

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Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
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m seo!?oisic auaj.ycis
OF THE
TIBQIIIIA COFi’ORATIOIl I AH
ty
WUGSD F. MACDOKAI-D
A Dissertation Presented to the Graduate Faculty
of the UniTOrsity of Virginia in Candidacy for
the Degree of Loctor of Philosophy.
1942
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
UMI Number: DP15048
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CGHT3STS
Preface i
Chapter I
Capital and Confusion 1
A. 3tatod Capital 3
B. Legal v. Economic Capital 9
C. Dae of the Term * Capital*' 12
B. The conception of Capital aa a Fund 15
£. Summary 20
Chapter XI
Issues of Stock and Policy 22
A* The Issue of stock at Lass .than Par Yalue 25
B. The Kiid. of Consideration Acceptable for
the Issue of 3tock 31
C. Valuation of Consideration 38
Chapter III
The Protection of Creditors 50
A. L iabilities of Stockholders to Creditors 50
B. Statutory Liability 52
C. In Virginia 54
Chapter IV
The Protection of Creditors (Continued) 66
A. Statutory Protection of Creditor Bights 66
5. The Reduction of Stated Capital 66
C. The Virginia Statutory Provision for the
Seduction of Stated Capital 72
1. Pethods of Seduction Prescribed by Statute 74
2. Limitations Imposed by the Statutes 78
3* The Liquidity Factor 83
4* Seduction of Stated Capital and Asset Valuation 84
D. The Seduction, of Stated Capital and the
Elimination of Operating D eficits 91
6. Seduction and Deception 92
F. Hemediea Available to Creditors in Event of
Violation of Statutory Provisions for
Reduction of Stated Capital and D istri-
Bution of the Capital Surplus 102
0. Roauao 106
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Chapter V
BedQT?.pt.ioQ of Preferred Stock 112
A* The K'aturs of Redemption Agreements 115
3. Limitations on the Uses of Redemption 116
C. Options1 Redemption Agreesants 120
P# Compulsory Redemption Agree tea nts 121
&• Virginia Statutory Provisions {and emissions)
Respecting Redemption, of Stock 126
1. Publicity for Redeemable Shares 128
2. I'undE Applicable to Radanptioa 13Q
3« Status of Redeemed Shares 132
4. Further Lack of Safeguards 139
a* Compulsory Redemption 139
b. The Solvency Requirement 140
o. Alteration of Redemption Provisions
by Charter Amendment 142
d. Reclassifying Hon-Callftble Preferred Stock 146
fn Resume 14g
Chapter 7T
Treasury stock 151
A. Porfer of a Corporation to Purchase ita Own Stock 153
1. American Rule 153
2. Minority Rule 154
3* tiestrictioaa on Power to Purchase Own Shares 156
3. The Power of Virginia Corporations to Purchase
Shares of Their Own stock 165
1* The Rule in Virginia 165
2* Restrictions Imposed on the "owar 168
3« The Availability of Genital Surplus for the
Purchase of Treasury Stock 173
4. The Availability of Revaluation Surplus 181
a. Revslast!on Surplus Created by
Reopprsissl of Tired peseta
183
b. Revaluation Surplus Resulting from
Reduction of Stated Capital 184
c« Sovaluation Surplus Resulting
from iSergers and Consolidations 188
C» Presenting Treasury Stock on the Salaries Sheet 191
1* Recording Trceoury Stock as an Asset 192
2. Showing Treasury Shares as e Redaction
from Stated Capital
199
3* Treasury Shares ae a Deduction froaa Saraed Surplus 200
3* Sale or Retirement of Treasury Cberss 202
le The Sale of Treasury Shares 202
2. The Retirement of Treasury Sheres 203
K. Conclusion 204
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Chapter VII
iiiTiuwluo 2G6
A * Assori can. Dividead Rules 206
1. The Aulvsacy Requirement 207
2. Tfaa C»pital Impairment Restriction 209
3® Tea Hat Profits Hula 214
4<, ?ho Current Profit Rule 218
5® Fb» Capital Impniraant last v. the Profits Test 220
3. fhe Virginia !>»w of Dividends ■ 227
!• Tbs Dividend Statute 228
2. The Datura of the Virginia statute 229
3® Hay Virginia Corporations Fey Dividends
Daepite a Deficit? 2J2
4. Dividends out of Peid-ia Surplus 242
4» The economic Distinction Between
Invested end Kerned Surplus 242
b. Lack of lim itation t?por> the Allocation
of the Subscriber’s Contribution
Between Stsfced Capital and Contributed
Surplus 245
a. Dividends from Contributed Surplus
Way be Paid on Any Share 247
d. Amount of Paid-in Surplus Contributed
bp £*>ub&icrIbor Disclosed. at Time of
Subscription 249
5® The Availability of Other Categories of
Capital Surplus 250
a. Surplus from the Acquisition of Treasury
Stock Held to bo Available for Dividends 251
b. Donated Treasury Shcree 254
c. Retirement of Preferred Shares end
Treasury Stock 257
6. Rsveluation Surplus Also Available for Dividends 259
?• The ,1Rat Assets" Provision in the Virginia Statute 260
a* Tin Pro Ola.?! of Treasury A-to ok 260
b» The Problem of Appreciation . 262
c. Concluding Note 268
Chapter VIII
Alteration of Pro'party Righto of Shareholders 271
A® "Iterations Tffeeted Through ths Issue of Shares 274
1. The Poser to Set the Consideration for Shares 274
2* The Valuation of Consideration for Shares 277
3. The Issue of Preferred Shares In Series 286
e« Variations in Dividend Rates 287
b* Variations Sn the Prieas and Terw® upon
which Preferred she re e m y b® Redeemed
and in the Amounts Payable in Case of
Dissolution 289
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c« Variations as to Provision for &
sinking Fund for the Purchase or
Redemption of Shares Issued In Soria# 292
d« Variations as to Sight# of Conversion 294
4*. Allocation of Part of the Consideration
Received for Share# to Paid-in Surplus 297
5* Options to Subscribe to Capital Steak 298
S* N ullification of the Preemptive Eight 302
&» Alterations Affoeted Through the Purchase of
Treasury stock SOS
C* Alterations Achieved by Means of Dividend Payssnts 307
i« fi» Pcsrer of Directors to withheld Earnings 308
2* Stock Dividends 309
B* Alterations of Property Eight# by Moans of
Charter Aacendmnt# 312
Chapter IX .
The Judgment 319
Bibliography 332
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