§ 801.] THE LAW OF PltlVATE CORPORATIONS. [CHAP. XV. in the number of shares into which the capital is divided. 1 For instance, some years ago, when the stock of the Rock Island Railroad was selling at more than double its par value, the corporation issued to every shareholder an additional share for each share of stock already held by him. The object ac- complished was the halving of the market- value of the shares. But by this action no part of the capital or accumulated profits of the corporation was distributed among the shareholders. Take, for another instance, the present condition of the Chemical Bank of New York City. The par value of its shares, in number three thousand, is one hundred dollars ; but their market value, at the present time, is about four thousand dol- lars. Should the Chemical Bank issue another share of stock to each shareholder for every share already held by him, it would not distribute one cent. Where, before such issue or "stock dividend," if one so choose to call it, the holder of one share owns one three-thousandth of the entire property, after such issue he will own two six-thousandths. 2 1 "After a stock dividend a cor- poration has just as much property as it had before. It is just as sol- vent and just as capable of meeting all demands upon it. After such a dividend the aggregate of the stock- holders own no more interest in the corporation than before. The whole number of shares before the stock dividend represented the whole prop- erty of the corporation, and after the dividend they represent that and no more. A stock dividend does not distribute property, but simply dilutes the shares as they existed before." Williams ». West. Un. Tel. Co., 93 N. Y. 162, 189; Mills v. Brit- ton, 64 Conn. 4. And compare Com- monwealth v. Pittsburgh, etc., Ry. Co., 74 Pa. St. 83; Gilkey v. Paine, 80 Maine, 319; Allegheny?;. Railway Co., 179 Pa. St. 424. 2 See Terry v. Eagle Lock Co., 47 Conn. 141, Ki4; §568, and Williams v. Western Union Telegraph Com- pany. 93 X. Y. 162, 189, supra; also 788 Osborne v. Osborne, 24 Gratt. (Va. ) 392. New shares representing the surplus property of a corporation are principal and not income. Peti- tion of Brown, Administrator, 14 R. I. 371. By noticing the rights of creditors, it will become still more apparent that a stock dividend is no dividend at all. As against creditors a corpo- ration, which has no surplus earn- ings, has no right to declare a cash dividend, and in that way distribute its capital among the shareholders. But it might declare " stock divi- dends" ad infinitum, and no creditor be any the worse, or any share- holder have a cent more in his pocket. To be sure, "stock divi- dends" may become very material in view of outside considerations; as where a corporation is restricted from paying more than a certain percentage of dividends. By issu- ing further stock it might (if the issue were not declared void) keep
