FINANCE WITHOUT FUNDS:
OR, HOW TO FLOAT A COMPANY.
Amongst the many social and legal anomalies for which England has long been celebrated throughout the civilised world, there are none more extraordinary than the rules and customs which have reference to all sorts of gambling and obtaining money by chance or by hazard. An example of this was given a short time ago in a French paper, in which a correspondent relates how he saw a constable take into custody three or four men who were quietly laying wagers amongst themselves and comparing notes on one of the great races. This happened a few yards from the Strand, under the colonnade of the Lyceum Theatre. Half an hour afterwards—so the writer states—he was passing the door of a large house close by where the above capture had been made, and saw the same constable keeping order amongst a number of cabs and vehicles waiting for their owners, whilst on the steps and at the door were a number of gentlemen talking and comparing notes. He asked the policeman what the place was, and whether any public meeting was going on. Considering what he had previously seen, he was more than a little surprised when the guardian of the law informed him that ‘This is the Victoria Club, the great betting club; and these gents are making up their books—the Two Thousand stakes will be run to-morrow.’ The writer goes on to say, that however excellent English law may be as a whole, it is evidently not the same for all classes of men, and that the social morals of the poor seem to be better looked after than those of the rich.
But if the anecdote here related astonished the foreigner, how much more amazed would he be at the rules and regulations, written and unwritten, of what may be called the art of making money by speculation, or gambling. All, or most of us, would regard with horror—supposing a similar thing were possible—the introduction of such an establishment as that of Monte Carlo into England, and yet we tolerate and even encourage that which creates far more wretchedness and ruins many more families than even the gaming-tables. Every day, in almost every paper we take up, we see the most plausible and seductive advertisements, persuading all sorts and conditions of men to apply for shares in this or that Joint-stock Company, with assurances—in which truth is at least economised—of a sure and certain fortune to be made in a few weeks. There are comparatively few of us who have the opportunities of knowing the enormous amount of harm done in this country by these continued and continual temptations, or who can estimate the misery that has been caused in our midst by them.
Twenty years ago, when the Overend and Gurney failure spread such ruin amongst the upper and middle classes, this system, of trying to make money without labour, received a shock which for a time crushed it. But in the last decade, it has again sprung into existence, and has now reached a point at which it cannot be allowed to remain, and when steps must be taken, if not to suppress, at least to regulate and place under proper control what threatens to become an evil of no small magnitude.
Let any one who doubts this, take the trouble, for even one or two weeks, to note the number of Joint-stock Companies which are advertised, the amount of capital they require, and above all, the inducements of gain which they hold out to the unwary. Recently, in one week, there were registered nine new Joint-stock Companies, of which seven came forth in the columns of the daily and weekly papers, offering to all who would join them the most magnificent return for money invested. The aggregate capital of these Companies amounts to no less than two millions one hundred thousand pounds, which a confiding public is asked to subscribe, and this at a time when money is exceptionally scarce, and when the general aspect of public affairs both at home and abroad is very much the reverse of assuring. Nor need it be thought that this number of enterprises was exceptionally large, for, on the contrary, the average weekly advertisements of similar concerns is much greater both as to actual number and capital. But even of the former total, who is there who could deem it possible or probable that such an amount would be subscribed even on the limited liability system? How is it, then, that men waste their time and money in proposing what common-sense, to say nothing of business experience, must tell them can only end in disappointment? In the answer to the question is contained the whole history of Joint-stock Company ‘promoting’ as at present practised. That some of these enterprises are bonâ fide, and may give those who join them a fair return for their money, is no doubt true; but these are decidedly the exception to the rule. The real working of the vast majority of these proposed Companies is known to but a comparative few outside the circle in which financial schemes, often of great magnitude, are worked without funds.
There exists in the city of London a somewhat numerous class of men, who were formerly called ‘Promoters of Companies,’ but who have of late years assumed the more sounding title of Financial Agents. Let us suppose that to one of these gentlemen there occurs the happy thought of starting a ‘Fiji Islands Tramway Company.’ He loses no time in putting his scheme into shape; and the following may be taken as a fair example of how he carries out his intentions. His first work is to get together a Board of Directors; and this, supposing he has had a fair business experience, is not so difficult as might at first be supposed.
Together with the Financial Agent, another class of men has been called into existence by the great extension of the Joint-stock Company system. The gentlemen who help with their names the floating of such enterprises form a distinct class of themselves, and are termed ‘guinea-pigs,’ most probably from the fact of each ordinary director receiving a guinea for each meeting he attends. In order to be considered of any value as Director of a Company, a guinea-pig ought to have a handle to his name. A Lord, a Baronet, or even a Knight is looked upon as unexceptionable, and may almost command his own price; for it is not to be supposed that a director is to work for nothing. His value, like most other things, varies with the quality of the article. A peer who has a seat in the Upper House will probably not allow his name to appear on a prospectus under three hundred to four hundred pounds a year, besides some fifty or a hundred fully paid-up shares. And he is worth the money. The Financial Agents are well aware that when a peer of the realm is secured and heads the list of directors, the most difficult part of their task is accomplished. What remains will follow as a matter of course.
The next step is to write, or to get some one to write—for the promoter has generally a soul above literary composition—that portion of the prospectus beginning: ‘The object for which this Company is formed,’ and so on. This is quickly accomplished. There are certain gentlemen who describe themselves as connected with the press whose speciality is to compose these prospectuses. The charge for such a document varies from two to five guineas, and they are cheap even at the latter price. There is perhaps no kind of writing which requires more care or skill than this. In the case of the ‘Fiji Tramway Company,’ the writer must make it appear that no undertaking so purely philanthropical, or so sure to cause so much prosperity to Fiji, has ever been proposed either by government or by private enterprise; while at the same time he must, as it were, allow to escape from his pen the fact that a Tramway Company in the Fiji islands is certain to be exceedingly lucrative to all concerned. To repeat the old French joke, he must not lie in what he writes, but he must economise the truth. The prospectus written, and the officials, such as secretary, solicitors, bankers, &c., chosen, an expensive step comes next—namely, very long advertisements in the leading daily papers and elsewhere. But here also modern enterprise comes to the help of the promoter, and sees him over the difficulty, which to an outsider might seem almost insurmountable.
There are in London a number of advertising agents whose special business it is to undertake jobs of this kind on credit, their conditions being that they are to be paid out of the first moneys received from applicants for shares. If the applications are not sufficient, the promoter stands the loss; but it more frequently happens that the advertising agent receives something like fifty per cent. or more on what he has disbursed. It is in some respects risky, but it generally pays; and when it does so, the advertising agent makes an uncommonly good thing of it; and from one point of view, he deserves to do so. Without his aid, the Company would have probably proved a fiasco.
Once the prospectus is published, and applicants for shares commence to send in their one pound apiece, the promoter begins to recoup himself. Presently, the allotment of shares begins, and the simple-minded public have to pay one pound on each share. The prospectus distinctly affirms that a tramway in the Fiji islands is sure to be remunerative, and what true-born Briton would dispute a statement which a peer of the realm, a baronet, an M.P., and sundry military officers of high rank tacitly confirm by lending their names to it? There are 150,000 shares in the Company, of which not more than 10,000 have been applied for. But this is better than nothing. Even if a few thousand pounds are received from the would-be shareholders, the promoter is not to be pitied. With a matter of three to four thousand pounds, he can satisfy all claims, even to paying directors’ fees for the few times they have sat at the Board. The whole affair is then allowed to die a natural death; unless, indeed, as sometimes happens, some disappointed creditor petitions the Court that the Company shall be wound up. By some mysterious means, the promoter or his nominee is named liquidator; a solicitor, who, as a matter of course, does not get the berth for nothing, takes the matter in hand; and so long as there is any money left to divide, all those concerned work together, and once more matters are made pleasant all round.