Besides the defects in the corporation law of the United States which originate in its formless heterogeneity, there are other specific evils quite generally present, which it seems not impossible to lessen. It is the purpose of this paper 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" (Grundungsschwindeln). 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 connected 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 business. 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 uncommon; 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 investors 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 investigate 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 demoralization of trade resulting from it. In fact, many English
