There is another class of corporations, which are formed by the consolidation of several corporations into one. The method of forming such a consolidated corporation is to have the stockholders of two or more existing corporations vote to consolidate. This gives birth to a new corporation. The old corporations are merged into the new, and although the new corporation may take the name of one of the old corporations, it nevertheless bears the same relation to all of them. The new corporation issues capital stock to the stockholders of the consolidated corporations, sometimes share for share, sometimes upon an increased capitalization. The new corporation is liable for all the debts and obligations of each of the consolidated corporations, and succeeds to all the property, credits and effects which belonged to each at the time of the consolidation. Notice must be given to the Secretary of State of the action of the corporations in consolidating, and they must record the proceedings resulting in the consolidation, with the Secretary of State, and usually in the county where the principal office of the corporation is maintained.

Industrial corporations are those which are engaged in the manufacture of the great utilities of life, such as steam engines, harvesting machines, electrical apparatus, steel or oil. By combining these into a virtual monopoly, the waste and expense incident to competition, such as numerous traveling salesmen, advertising and office expenses are saved and thus the net profits are greatly increased. Owing to the ability of the combine to earn net profits greater than the total profits of the different concerns, under the competitive system, the combine may be capitalized for a much larger amount than the total capitalization of the individual concerns. Most of the large companies in the United States are financed in "New York, owing to the superior facilities there for such transactions on account of its greatness as a financial center. Suppose there are a dozen companies engaged in the same line of business with a total capital, say, of $30,000,000. After looking the field over carefully, and acquainting themselves with the present and prospective earnings of the various properties, the promoters conclude to combine these into a single corporation with a capitalization of $100,000,000. A corporation is organized with a hundred millions capital, thirty millions of which is to be preferred,* and seventy millions common stock. A suitable name, suggestive of the business and comprehensive in scope, is chosen. Arrangements are made by the promoters with several bankers in Wall Street to take portions of this preferred stock and pay cash for it. A block of the common stock goes along with each sale of preferred stock as a bonus, together with the privilege of naming a member of the board of directors of the new company. Each of the old concerns is now

•Instead of preferred stock, bonds may be issued, and these would be preferable in case the company expected to retire them.

Financing Industrials bought up by the new company, payment being made in common or preferred stock, or cash, or a combination of all of these, as the parties may have previously agreed.* The new company takes over all assets and assumes all liabilities of the old companies and provides a working capital out of the sale of the preferred stock. This done, the combination is effected and the operation of the several properties continues uninterrupted under the management of the new board of directors and officers.

Having completed the combination as outlined above, the promoters find still left in their hands a handsome block of the common and perhaps some of the preferred stock as their compensation for putting the deal through. After the combination is made the Wall Street bankers first place their preferred stock on the market, and as the business of the new company is known to be prosperous, the stock sells readily. Next the common stock is offered and disposed of, its sale being aided by that of the preferred stock.

The business of promotion is a species of agency especially devoted to the organization of companies and the floating of stocks and bonds. The promoter is one who has a financial acquaintance and knows where money for various classes of investments may be secured. It is almost necessary, however, in order to finance a large company that a bank or trust company should be enlisted in the operation, so that the sale of securities will be effected without any delay. The bank or trust company acting in this capacity is known as an "underwriter," since it insures, or underwrites, the sale or disposition of the securities, taking itself such as it does not dispose of to other bankers by a given time. In this capacity a prominent New York banking house* has achieved a world-wide reputation, besides reaping immense wealth from its operations. Sometimes the promoters enter into contracts with one or more bankers to the effect that the bank will buy a quantity of bonds upon the property of the new company at a given price. These contracts are then deposited with a trust company as collateral for a loan sufficient to buy up the properties (the promoters having previously secured options on each property). After the properties are bought, the bonds are issued and delivered and the loan is repaid.

♦In estimating the values of the several plants, the common method is to base the value upon the average earnings for a period of five years past, as shown by the books. Thus suppose it is agreed that the property shall be valued on a 10 per cent, basis, and the net earnings for five years average $30,000, the plant would be worth $300,000, due consideration being given, of course, to the condition of the property.

Promotion

Underwriting