Purchase of this book includes free trial access to www.million-books.com where you can read more than a million books for free. This is an OCR edition with typos. Excerpt from book: PART TWO ORIGINAL COMPANIES CHAPTER III Amount Of Capitalization Permissible The applications of new companies constitute the simplest class of cases involving approval of security issues. Some of the cases included were not original in that the applicant had no outstanding capitalization, but the existing amounts of the latter were relatively small and in the principles involved such cases fall within this category. The principal questions considered have been the amount of capitalization which could properly be permitted, and the relative proportion of stock to bonds. The amount of capitalization can be but approximate because of the contingencies met with in construction work, and the fluctuating prices of materials. In fixing the proportion of stock to bonds the object is to control any tendency toward what is popularly known as 'wild-catting,' that is, the promotion of enterprises upon such meagre capital as to render them largely speculative. The object is also to compel promoters of an enterprise to furnish sufficient capital to provide a moral guaranty of their faith in its financial success. This is necessary for two reasons; to give conservative investors, that is prospective bondholders, a reasonable protection against the annoyance and loss attendant upon foreclosure proceedings, and, also, to save the consumers of public utility corporations from the interruptions of service consequent upon default of bond interest and change of control. To insure the practical execution of their policies the Commissions impose stringent requirements in the carrying out of the work involved, such as the auditing by the Commission's accountants of the vouchers for the various items of expenditure, frequent reports to the Commission by the corporation, inspections of ...