Page:Harvard Law Review Volume 32.djvu/525

489 UPSET PRICES IN CORPORATE REORGANIZATION 489 UPSET PRICES IN CORPORATE REORGANIZATION 'TpHE uncertainties, delay, and heavy expense involved in cor- -*- porate reorganization, particularly where dissension arises among the security holders, would seem to indicate a defect in our law of corporations. The right of the majority of the stockholders of a corporation to control the corporate policy is, obviously, one of the salient reasons for the wide adoption of the corporate form in business; yet, conveniences of financing have brought about a change in the organization of corporations to which the law has not yet adjusted itself. The theory of the law is that the owner- ship of a corporation is vested in its stockholders; the truth is that to-day the substantial ownership of most large corporations, par- ticularly public, service corporations, because of the lower cost of financing through the sale of bonds, is held not by the stockholders but by the bondholders. Most public utility bonds, as well as the secured obligations of many private corporations, are issued with- out any intent of being repaid; the money obtained therefrom is considered part of the capital invested.^ Bondholders, imlike stockholders, stand in the position of tenants in common; in theory the consent of all the bondholders, not merely of a majority, is re- quired before any action can be taken. So, whenever a corpora- tion encounters difficulties, and the control of the corporation passes out of the hands of the stockholders, whose equity in the property has faded away, into the hands of the owners of the property, the bondholders, there is no convenient or facile proce- dure — no means of majority control — whereby the interests of the bondholders, or of other creditors, can be adjusted. Hence the confusion and Htigation which accompanies a hostile reor- ganization. Indeed, a corporate reorganization is looked upon commonly as a catastrophe; few recognize it as a natural phase of corporate growth. It has been estimated that fifty per cent of our Ameri- can corporations have passed through some form of reorganization » See Wilds v. St. Louis, etc. R., 7 N. E. 290, 293, 102 N. Y. 410 (1886).