Capitalization; A Book on Corporation Finance (Paperback)

Purchase of this book includes free trial access to www.million-books.com where you can read more than a million books for free. This is an OCR edition with typos. Excerpt from book: rv FINANCING AN EXPANSION Under the head of "Trading on the Equity" we discussed the general principles governing the capitalization of a corporation formed to engage in a new enterprise. We have not considered what provision the corporation might make to finance a possible future extension of the business, nor, when this possibility was not foreseen and provided for, how it might meet the emergency. After the corporation has established an earning power, it may wish to extend its business, build an addition to its plant, erect a new plant, lay its tracks farther, or do whatever other thing the nature of the enterprise may make necessary for expansion. Such an extension of operation requires financing of some kind. What can the corporation do ? It might issue and sell common stock. To do this it must either have some authorized stock still unissued or must get its charter amended to authorize more stock. It may be in place here to call to mind that the statutes governing incorporations regard capital stock as a fundamental matter, and require thecharter creating the corporation to limit to a definite amount the number of shares it may issue. Though these statutes may make many other regulations about a corporation's capital stock, it is not necessary to our purpose here to go into them. Organizers of the corporation may have considered the possibility of expansion and have provided for a much larger authorized capital stock than they expect immediately to issue. Through a misnomer this often goes by the name of "treasury" stock. But, of course, it is not an asset as that name implies. A more careful terminology calls it "authorized and unissued." If the corporation has not exhausted its authority to issue, it may finance by selling such stock. In case it has already pu...