30 BULLETIN 860, U. S. DEPARTMENT OF AGRICULTURE. 



conditions in the absence of the cooperative company, would seem 

 to be a better method. This might be followed by an attempt to 

 protect and maintain the company in operation by means of a special 

 contract arrangement. Companies that wish to incorporate into 

 their by-laws a substitute for the so-called penalty clause may pro- 

 vide therein that each member upon uniting with the association 

 shall sign and enter into a contract of the form presented in the 

 Appendix of this bulletin. (Form No. 8.) 



It is believed that such an agreement when signed by the members 

 will be much more effective and will withstand legal objections to a 

 mueh greater extent than will any liquidated damage or penalty 

 clause which can be devised and incorporated into the by-laws. 

 Unlike the usual penalty or liquidated damage clause, it does not 

 rest upon any assumption of damage, but upon a tangible and valu- 

 able service which is sold to the member for a charge. The rate 

 of charge varies with the kind of service rendered and is applied 

 to all grain marketed by a member, with the exception, that upon 

 grain sold to the association, the charge is included with the usual 

 buying margin and is not applied separately. 



EMERGENCY CAPITAL. 



The means whereby emergency capital is being provided by many 

 companies deserves some attention. Comparatively few organiza- 

 tions have sufficient capital to carry them over the periods of heavy 

 marketing without having to resort to loans. This is especially true 

 of the new company which has not had an opportunity to accumulate 

 surplus funds. The capital required at such times often exceeds 

 the corporate borrowing power. It is neither necessary nor always 

 desirable that an organization should have sufficient capital of its 

 own to meet these emergencies, but frequently directors are required 

 to pledge their own personal credit for these loans, which manifestly 

 is unfair. The directors in many cases are placed in the position of 

 having exceeded their corporate authority, and in the event of 

 financial difficulty might be placed in an embarrassing situation. 

 Sometimes the more prosperous members are prevailed upon to post- 

 pone grain settlements until after the period of heavy movement. 

 This is equally unfair, since they are then placed in the position of 

 unsecured creditors and are thereby required to assume individual 

 responsibilities and risks not shared by the membership as a whole. 

 Emergency capital is necessitated by the business in its entirety and 

 should be furnished by the entire membership. If each member can 

 be induced to give his accommodation note for a just proportion 

 of the emergency capital requirements, and such note be made avail- 

 able for the purpose of collateral security to support emergency loans 



