CONCERNING CORPORATION LAW. 325 



Besides the defects in the corporation law of the United States 

 which originate in its formless heterogeneity, there are other spe- 

 cific evils quite generally present, which it seems not impossible 

 to lessen. It is the purpose of this rJaper to present suggestions, 

 drawn from the experience of this and other countries, regarding 

 four points that seem to be of strategic importance in the reform 

 of corporation law : 



1. The prevention of "frauds in founding" (Grundungs- 

 schwindeln). It is a suggestive fact that we have in English no 

 recognized equivalent of the German word here parenthetically 

 introduced. Neither is the English term " promoters " commonly 

 used by American writers. Our examination of the problems of 

 corporate management has been so superficial that we must make 

 or borrow a nomenclature when we wish to discuss the evils con- 

 nected immediately with the creation of companies. Yet a large 

 portion of the evils connected with the existence of corporations 

 originate at just this point. Men organize companies, at times, 

 for the sole purpose of unloading upon them an unprofitable busi- 

 ness. Let the experience of Eastern capitalists with Western 

 mining stocks be put in evidence, and no one will question this 

 statement. Mining companies with a nominal capital of fifty 

 million dollars that have never declared a dividend are not un- 

 common ; and very frequently the stock of mammoth companies 

 sells at one cent on the dollar for some time before it becomes 

 worthless. But the experience in mining is only an extreme case 

 of what takes place in many departments of industry. 



In England, turning thither solely because the facts have 

 there been made accessible and have not in this country, it is 

 found that certain men make a business of acting as " promoters." 

 They are skilled in the writing of prospectuses of companies, and 

 know all the arts by which stock can be sold. They devote their 

 energies especially to small companies and small investors. For 

 a time their activity was turned largely to organizing " single- 

 ship companies," the shares of which could be placed among 

 country parsons, serving- women, and other classes of small in- 

 vestors likely to know very little about commerce, and therefore 

 likely to believe anything a well-printed " prospectus " might tell 

 them. Many of these small companies never went so far as to 

 build even a single ship, but enough ships were built by them to 

 materially increase the number of " ocean tramps," and to call for 

 much adverse criticism from the committee appointed "to in- 

 vestigate the loss of life at sea." The " commission appointed to 

 inquire into the depression of trade " also had much to say of the 

 influence of the creation of such great numbers of limited liability 

 companies, of the direct loss to investors, and of the general de- 

 moralization of trade resulting from it. In fact, many English 



