FIZBO-For Sale By Owner- Cartoons & Master Plan

Watered Shares Overcapitalization While it may seem that the corporation laws almost without exception prohibit the issuance of full-paid shares for less than the equivalent of their par value, and that it would be impossible, therefore, for a corporation to start out with a capitalization higher than the actual market value of its property, it is well known that in actual practice this law is frequently ignored. The capitalization of many corporations does not correspond, or even tend to correspond, closely to the value of their assets. How is it possible to introduce this overcapitalization or "water," as it is sometimes called without acting directly in opposition to the law? The answer is to be found in the process of placing a valuation on the property or services acquired by the corporation. It is, of course, impossible to place an overvaluation on cash payments for stock. It is difficult to place an excessive overvaluation, even if it should be desired to do so, on tangible property that is accepted in payment for stock; such property is for the most part of fairly stable and easily ascertainable value. But in the valuation of intangible property good-will, patents, trade-marks, copyrights, organization, and the like and in the valuation of special services, there is every opportunity to fix any figure that may be desired by the organizers of the corporation. It is not necessary to assume a wilful falsification of values in every instance in which a corporation is later shown to have been overcapitalized. Organizers are likely to be sanguine men who sincerely believe, at least for the time being, that the property they are acquiring has a remarkable potential value....