1. Modes Of Raising The Capital

"Before a bank can be legally organized, there must be preliminary action to find out who will subscribe for the stock, act as trustees or directors, or do whatever may be needful to insure its future existence and operation. How, then, is this knowledge ascertained? There are three ways of finding out.

"The first mode is through the influence of one or more persons who have the confidence of others, and who expect to manage the institution if formed. The capital of many of the banks in the country has been drawn together through the influence of two or three persons who afterward became its active officers (such as president, cashier, etc.). Not infrequently it happens that some person, who has been a successful business man, solicits his friends to join him in a banking enterprise. They have confidence in his integrity and capacity, and through his solicitations are persuaded to promise him that they will take some of its stock. When he has succeeded in getting enough taken he is ready to advance a step in organizing the bank."1

"Another way is through the influence of a person called a promoter. This is a more modern method of raising the capital of a bank. It so happens that there are such persons who command the confidence of others and are able to persuade them to undertake business enterprises. Promoters or promoting companies have a firm footing in the modern business world. Bunks, insurance companies, railway companies, manufacturing companies, and other enterprises are started through their magical influence. Generally, they are men of much tact and often of considerable resource, but above all are master of the art of persuading men and of securing their assistance. Sometimes their assistance is solicited by those who have undertaken to form companies with out them and have only partly succeeded, to complete their work.

1 Bolles, Practical Banking, 11th edition, page 2r.

"The remuneration to be paid to a promoter is often a large sum, conditioned on his success. It is a personal contract between him and the persons who employ him, and should they forget their promises, or for any reasons fail to respond, he has no claim on the bank or other company organized through his efforts, His assistance may have been very valuable; the institution may never have come into existence without him; yet only the individuals who employ him are liable, the corporation is not, unless it consents to assume the contract made by his employers; and even then a question might be raised. What consideration does the bank receive tor assuming this promise or engagement? It is very questionable whether it could be held responsible to pay if any of the members objected to the assuming of the contract. The reason for not holding the corporation is that it has not received any benefit for which it has promised to pay.

"Another way of forming banks is through the action of several persons in a community. Suppose a village has multiplied in numbers until the more active ones believe that a bank should be organized for the advantage and benefit of all. Well knowing what a bank can do for them, the subject is mentioned from day to day, and goes the rounds like any other topic in a village community, until the interest in the proposed undertaking becomes general. When it is thus learned that a bank is desirable, a paper is prepared which it is expected persons will sign, stating the amount of capital that it is desirable to raise, and the number and amount of shares. This paper usually is very brief and may read something like the following: -

"We, the undersigned, desirous of establishing a bank in this village, of the capital of $50,000, to be composed of 500 hundred shares, of $100 each, hereby promise to take the number of shares set opposite to our names.

"The paper is circulated until the requisite amount is subscribed. Such a paper is valid among the signers as soon as the bank is organized, but until then 'the subscription,' says the court in a recent case, 'is a mere proposition or offer, which may be withdrawn, like any other unacceptable offer.'"1