§ Eel ztat The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924019249154 THE ORGANIZATION and MANAGEMENT OF A BUSINESS CORPORATION WITH SPECIAL REFERENCE TO THE LAWS OK NEW YORK, NEW JERSEY, DELAWARE, WEST VIRGINIA. Containing complete Forms for By-I,aws, Comparison of Cor- porations and Co-partnerships, and Provisions for the Protection of Minority Interests. BY THOMAS CONYNGTON OF THE NEW YORK BAR. Published by THE SONALD PRESS, 52 BROADWAY, NEW YORK. 1900. B 773 23 Copyright, 1900, By THE RONALD PRESS. TABI,F, OF CONTENTS. Chapter I. — Business Corporations. § 1. The Corporation. 2. Incorporation and Copartnership. 3. The Business Corporation. Chapter II. — The Charter. 4. The Charter. 5. Charter Powers. 6. Application for Charter. Chapter UL — Stock and Stockholders. § 7. Capital Stock. 8. Certificates of Stock. 9. Subscriptions to Stock. 10. Stockholders. Chapter IV. — By-Laws. ! 11. Nature of By-Laws. 12. Sources of Authority. 13. Irregularities. 14. Classification. 15. Short Form.of By-Laws. Ill TABLE OF CONTENTS. Chapter V. — By-Laws, (Continued.) § 16. Extended Form. Chapter VL — State Laws, (Introductory.) § 17. Corporation Law. 18. Classification. 19. Residence of Corporation. 20. Trusts. Chapter YO. — New York Corporation Laws. § 21. Introductory. 22. Charter Formalities. 23. Organization under Charter. 24. Stock. 25. Stockholders. 26. Directors. 27. Officers. 28. Reports. 29. General Regulations. 30. Foreign Corporations. 31. Expenses of Incorporation. Chapter VUL — New Jersey Corporation Laws. i 32. Introductory. 32. Charter Formalities. 34. Organization under Charter. 35. Stock. 36. Stockholders. 37. Directors. 38. Officers. 40. General Regulations. 41. Foreign Corporations. 42. Expenses of Incorporation. Chapter IX, — Delaware Corporation Laws. j 43. Introductory. 44. Charter Formalities. 45. Organization under Charter. 46. Stock. 47. Stockholders. TABLE OF CONTENTS. 48. Directors. 49. Officers. 50. Reports. 51. General Regulations. 52. Foreign Corporations. 53. Expenses of Incorporation. Chapter X. — West Virginia Corporation Laws. § 54. Introductory. 55. Charter Formalities. 56. Organization under Charter. 57. Stock. 58. Stockholders. 59. Directors. 60. Officers. 61. Reports. 62. General Regulations. 63. Foreign Corporations. 64. Expenses of Incorporation. Chapter XL— Where to Incorporate. § 65. Status of Foreign Corporations. 66. In which State to Incorporate. 67. Comparative Details of Organization. 68. Comparative Expenses of Incorporation. 69. Peculiarities of State Laws. Chapter XII. — Final Organization. § 70. The First Meeting. 71. Changing a Partnership to a Corporation. 72. Stock Issued for Speculative Properties. 73. Organizing a Trust. Chapter XIII. — Corporations and Partnerships Compared. j 74. Security. 75. Liability. 76. Permanence. 77. Investment. 78. Obtaining Additional Capital. 79. Facility of Operation. TABLE OF CONTENTS. Chapter XIV.— Protection of the Minority. -§ 80. Corporation Dangers. 81. Protective Measures. 82. Cumulative Voting. 83. Limitations in Charter. 84. Issuance of Non-Voting Stock. 86. The Voting Trust. Chapter XV.— The Future of Corporation Law. § 87. Past Forms of Association. 88. Present Status of Corporation Law. 98. The Demands of Business. ■ 90. The Future of the Corporation. INTRODUCTORY. The characteristic feature of modern business enter- prise is combination, — of capital, energy and skill. The methods of combination are themselves modern. The present volume treats of these methods whereby interests and forces in themselves -widely divergent are brought together and combined in one, easily handled, marvelously effective, legal entity — the Corporation. Formerly business combinations were effected almost entirely by the partnership. This was, and is, clumsy, un- certain and hazardous. Its liability is unlimited. The property of one is the property of all. Opportunities for fraud are numerous. For all the larger enterprises it has been practically superseded by the Corporation. The purpose of this work is to set forth the methods,, the advantages and the defects of the Corporation ; to contrast them with the similar features of the ordinary partnership; to show the ready adaptability of its methods for the smaller business enterprises ; to clearly outline its preliminary procedure, and finally to show how its advan- tages may best be utilized and its dangers avoided. A systematic outline of the essential features of the modern business corporation is followed by an abstract 7 INTRODUCTORY. of the corporation laws of those particular Eastern States where corporations are most commonly and most advan- tageously formed. The details of formation as to cost and procedure are gone into fully. A special chapter is devoted to the dangers of the Corporation and the pro- tection of minority interests. This is followed by a com- parison of Corporation methods and results with those of the ordinary partnership. It is not intended that this work shall replace the attorney in any phase of his work ; it does not advocate any such dangerous economy. It is merely a plain, non- technical presentation of the essential features of incor- poration and its procedure up to the point of complete organization ; to be used as a handy work of reference for- the lawyer, and a manual of information for the non-pro- fessional man. Particularly is it designed to facilitate and encourage the extension of the corporate advantages to those smaller enterprises now usually conducted under the cumbrous and dangerous system of partnership. Thomas Conyngton. New York, April 10, 1900. THE BUSINESS CORPORATION. CHAPTER I. BUSINESS CORPORATIONS. § i. The Corporation. A corporation is an association of individuals author- ized by law to act under a corporate name as a legal being. It is by far the most convenient and effective form of combination where a number of persons wish to unite their efforts, their resources, or any portion of either for some common purpose. Hence there are corporations of many kinds, business, municipal, religious, charitable, educational and others, each with features peculiar to itself. The business corporation and the usages relating to it, are of recent growth and were called into being to avoid the many and serious disadvantages of the common partnership. §3. Incorporation and Copartnership. Practically there are only two ways in which persons ■can associate themselves for business purposes, incorpora- 9 BUSINESS CORPORATIONS. tion and copartnership. The great advantages of incor- poration are: 1. The limited liability of stockholders in case of the insolvency of the corporation. 2. The ease and simplicity with which an interest in the business is acquired or disposed of by the pur- chase or sale of stock certificates. 3. Its permanence, notwithstanding the change, death or insolvency of its members. These and other advantages of the corporation as compared with the partnership are more fully discussed in a later chapter. § 3. The Business Corporation. A business corporation is one formed to carry on some manufacturing, mining or mercantile enterprise. In New York, transportation, banking and insurance companies are excluded from this classification and have laws and usages of their own. In most of the other states the same distinction exists, although not so sharply outlined. The restricted application of the term "business corporation" makes the laws relating to it comparatively well defined and easily understood. While details may vary in the different states, the general system is the same in all. The general characteristics of the business corpora- tion, or company, are as follows : 1. It is created by a charter granted by the state. It cannot be created by mere agreement among its members. Its peculiar advantages can only be had through a charter, and this charter is secured by following the forms prescribed by the state laws. From this charter the corporation gets its legal exist- ence, also its power of continued existence, no matter 10 BUSINESS CORPORATIONS. -what changes occur in its membership. Members may come and members may go, may die, may become in- solvent—but the corporation, literally and legally, goes on forever, unless restricted by a time limit in its charter or dissolved by legal proceedings. From this charter it also gets the power to carry on its particular business under a corporate name in the same manner as an individual. These charter powers will be more fully set forth later. 2. It has a stock capitalization divided into shares usually of like amount and evidenced by transferable cer- tificates of stock. These are issued to its members, who are hence termed stockholders. 3. The liability of the stockholders is limited to the amount of their subscriptions to its stock, and after this has once been paid, no further claim can be made upon them either by the corporation or its creditors. Some minor exceptions to this general rule are noted later. CHAPTER II. THE CHARTER. § 4. The Charter. A charter, or certificate of incorporation, (the terms are equivalent), authorized by the state is necessary to create a corporation. It is an instrument granting to certain specified persons and their successors the right of acting as a corporate being or corporation. Formerly such charters were granted by special action of the state legislature in each particular case. Now, in many of the states, to avoid the favoritism and grave abuses resulting from this method of incorporation, special charters are prohibited by the constitution. Even in those states where the legislature still retains this power it is rarely exercised. Instead, general laws have been enacted under which all applicants complying with the prescribed forms and requirements, may become incorporated for any of the usual business purposes. Under such laws the cer- tificate of incorporation is prepared by the incorporators and filed in the office of the Secretary of State, who issues a certified copy over his signature and the Great Seal of the State. This authorizes the incorporators to do busi- ness as a corporation. Most of the states rightly impose greater restrictions and make the requirements more severe when charters are taken out for railway, banking and insurance companies. The charter is the source of all corporate rights and 12 THE CHARTER. powers. Its importance is great. As a corporation is an artificial being created by the law it can only do those things that the law empowers it to do and which are embodied in its charter. An individual or a firm, may do anything not forbidden by the law, but a corporation has no such legal right. If it were incorporated to manu- facture bicycles, it could not lawfully, (unless its charter were amended), undertake the manufacture, say of motor carriages or typewriters. Should it do so, notwithstand- ing, the corporation would be liable to be dissolved at the suit of the state and, if loss resulted, the directors would be liable to the corporation. Any contracts it might so make in excess of its charter powers could not be enforced in the courts, and execution of the same might be prevented by injunction at the suit of any of its stockholders. While this doctrine, as to contracts beyond their powers, is literally true, corporations, as a matter of fact and ordinary practice, do go beyond their powers very frequently, and unless some stockholder or creditor of the company objects, the state alone has the right to inter- fere. Also of late years, and particularly within the states specially considered in this volume, so much latitude is allowed in specifying charter powers that almost any possible contract would be within the charter bounds. § 5. Charter Powers. A modern business corporation under a liberal charter will have all of the following powers : — 1. To have continuity of existence under its corporate name for the term stated in its charter. In some states the period may be made perpetual. Elsewhere, the charter is renewable at the end of its term. 13 THE CHARTER. 2. To litigate, to sue and be sued, in all respects as an individual. This is important, because otherwise every stock- holder would have to be named and made a party to the suit as is the case with a partnership. 3. To use a corporate seal. This was once a valued privilege, but much of its original significance has been lost. The seal is, however, still an important adjunct. It is used in the execution of all formal instruments and is impressed on every stock certificate. 4. To buy, sell and hold property, real and personal, as may be necessary or convenient in its business. This must be taken with some qualifications. In most of the States of the Union the ownership of land by a cor- poration is restricted. Generally, a corporation may not buj r or hold stock in another corporation, though in some of the states this power is broadly granted by statute. 5. To appoint directors, officers and agents to manage and conduct its affairs. Without this power the corporate body would be unwieldy and impossible as a business agency. The stock- holders elect directors ; the directors elect the officers and appoint agents and authorize them to transact the busi- ness of the jcorporation. This exact method of corporate action has crystallized into established law. The stock- holders themselves may not contract, but can only act through the directors and officers. A contract signed by every member of a corporation would be of no effect as against the corporation, unless also signed by its proper ■officers. 6. To make by-laws for the management of its affairs and the conduct of its business. This is an important power. The corporation, as 14 THE CHARTER. such, cannot act directly in business matters, but must act through its officers and agents. These latter are governed primarily by the provisions of the charter, but usually the details of management are embodied in the by-laws. These by-laws are binding upon directors, offi- cers, and upon the stockholders themselves, in their rela- tions to the corporation. In some states this power of making by-laws may be delegated to the directors by charter provision or by action of the stockholders. 7. To have a capital stock, divided into transferable shares usually of equal amount. Many corporations for social, religious, charitable and educational purposes have no capital stock and no member has any greater interest or right than another. All business corporations, without exception, have this feature. The amount of such capital stock is fixed by charter. The holders are the members of the company, and vote and share profits according to their holdings. 8. To dissolve itself. When a corporation has failed in its object or become unprofitable, or when its business has been sold and transferred to others, its dissolution may become desirable. This was formerly a difficult proceeding, but now many of the states have special laws, allowing some specified ma- jority of the stockholders by simple statute procedure to dissolve the corporation. 9. To carry on its special business. In the states specifically treated of in this volume, charter applications may be drawn so broadly that the corporation has not only power to do all things relating to its special object, but almost anything else desired. Under these statutes it would seem feasible to give a cor- poration virtually all the powers possessed by an individ- 15 THE CHARTER. tial or firm. This is an innovation on the earlier practice and is of doubtful public policy. From the standpoint of the incorporator, it has, however, many advantages. § 6. Application for Charter. The first step in organizing a business corporation is to prepare the formal application for incorporation. While the details of this vary in each state, the essential features are the same. The parties applying must be able to contract, hence they must be of full age and of sound mind. They must be natural persons, hence a corpora- tion, being an artificial person, could not join in an application to charter another corporation. Some states impose restrictions as to citizenship. In some states but three persons need join; in others five or more are required. The essential features of the application are as follows: i. The name of the corporation. This must sufficiently differ from the name of any other corporation in the state to prevent confusion or fraud. In some states it must begin with "The" and end with " Company." In all states this is the usual form, except in the incorporation of firms where the firm name is retained. In such cases it is usual to affix the word "incorporated " to the firm name. 2. The location of the principal office or place of business. This is usually required to be within the limits of the granting state. Under the laws of New Jersey and Delaware the busi- ness and offices of a company may be located outside of the state, but a nominal principal office must be main- tained within the state with an agent in charge. In West Virginia a resident agent of record must be 16 THE CHARTER. appointed to accept legal service and pay taxes, but a state office need not be maintained. 3. The object or objects of the corporation. This is usually set forth broadly and comprehensively in order to cover all contingencies. 4. The amount of the capital stock. This is regulated by statutes in the different states. (See chapters on state laws.) 5. The names and addresses of subscribers and amounts subscribed by each. In some states the amount of subscription need not be stated. 6. The duration of the charter. This is regulated by the state laws. In some states it may be perpetual. 7. Any special provisions. These must be in accordance with the- laws of the state in which the application is made'. Provisions that are contrary to law avail nothing; they are of no effect. It is essential to include in the charter any special provisions, permitted by the state laws, which are to be made part of the permanent policy of the company ; as for example the issuance of preferred stock, cumulative voting for directors, limitations as to incurring debt, etc. The application for incorporation having been pre- pared in due form is signed by the subscribers or incor- porators as may be prescribed by the state law and these signatures are acknowledged before a notary public or verified in such other way as the laws may provide. The application is then sent to the Secretary of State with the 17 THE CHARTER. proper fees. If allowed, it is filed in his office and a certi- fied copy issued which authorizes the corporation to act as a corporate body. This certified copy must usually be filed or recorded in the office of the clerk of the county in which the corporation has its principal office, and the company is then ready for its first meeting. CHAPTER III. STOCK AND STOCKHOLDERS. § 7. Capital Stock. The capital stock of a company is the amount, as estimated by the incorporators, required for the purposes of the business. Authorized and fixed by the charter, it can be changed only by amendment of that instrument. It is divided into shares, the face value of which is usually one hundred dollars, though the matter is discretional with the incorporators and other amounts are often chosen. Generally the state laws require that a certain minimum amount of the capital stock be subscribed, and in some states paid in, before the corporation may begin business; thereafter additional stock may be issued as required, up to the charter limit. Unissued stock is in itself a nullity ; it is merely the right to issue stock if subscribers can be found, and until so issued represents nothing. Unissued stock is not an asset of the company any more than an unissued promis- sory note is an asset of an individual. Issued and outstanding stock is that which has been subscribed for and the subscriptions accepted by the com- pany, and, usually, for which stock certificates have been duly made out and delivered to the subscribers. It is a liability of the company and the subscriptions or the cash or property received should be an equivalent asset. 19 STOCK AND STOCKHOLDERS. Full paid stock is that which has been subscribed, issued and fully paid. The words "Full-paid and Non- assessable" should always appear plainly printed upon the face of its certificates. The purchaser or holder of such stock is liable neither to the corporation nor to its creditors, except in a few states, referred to hereafter, where a special liability has been imposed by statute. Treasury stock, strictly speaking, is that which has been issued, paid for, usually in full, and then by gift or purchase has come back into possession of the com- pany. It may be taken in the name of the treasurer, or of a trustee, or may be held in the name of the corpora- tion itself. In either case it is accounted an asset of the company and may be held or sold at the discretion of the board of directors. When sold below par the purchaser incurs no liability for the stock if once full-paid remains so. So long as it is held by the company, it can neither vote nor participate in dividends, but remains lifeless and without rights or powers. It is issued stock but, being in the treasury, is not outstanding stock. This distinction does not, however, exempt such stock from the franchise taxes imposed under the laws of New Jersey and Delaware. The term "treasury stock" is very commonly but erroneously applied to unissued stock and even to stock subscribed but unpaid. Common stock is the general or ordinary stock, issued without special privileges or restrictions. Unless special stock of some kind is issued by the company all its stock is common stock. The owner of common stock has the right to attend, and vote at, all meetings of stockholders, to share in the profits of the business and, on the dissolu- tion of the company, to have his due proportion of the final assets. 20 STOCK AND STOCKHOLDERS. Preferred stock is issued under an agreement that it is to receive a stated dividend from the profits before anything is allotted to the common stock. It is some- times called guaranteed stock though this term is more properly applied to stock issued by one company with a certain dividend thereon guaranteed by another com- pany. Preferred stock should be plainly marked as such with the conditions of its issue and the rate of its annual dividend duly set'forth upon its face. Usually pre- ferred stock must be specifically provided for in the charter, though in some states and under some circum- stances it may be authorized by the by-laws. Its issue should conform accurately with the statute requirements of the state of incorporation. Preferred stock, unlike a bond, does not in any way represent a debt or liability of the corporation. It is merely an investment; its owners are but stockholders; its dividends, while payable before anything is given the common stock, may only be paid out of profits, and the failure of dividends gives no ground of action against the corporation. For these reasons preferred stock, if it can be sold, is much preferable to bonds as a means of raising money. Preferred stock may be issued under the following different forms : 1. Non-cumulative, which in the event of the failure in whole or in part of any dividend, loses the deficiency entirely, such loss not being made up later. This stock is seldom issued and would be very difficult to sell. Unless the non-cumulative nature of this stock is plainly set forth on the certificate, it would be held to be cumulative. 2. Cumulative, which does not lose passed dividends, these latter accumulating until there are profits, 21 STOCK AND STOCKHOLDERS. when they are a first claim until paid in full. If 6 per cent, cumulative, preferred stock received no dividend for foitr years, 24 per cent, would be then due and payable from the profits, before the com- mon stock received anything. 3. In either of the above forms, provision may be made that the preferred stock, after receiving its preferential dividend, shall participate with the common stock in any further dividend that may be declared. 4. It may otherwise be provided that any surplus profits, after the common stock has received a divi- dend equal to the preferential dividend, shall be participated in by both the preferred and common stock. 5. In any of these cases, the right to vote preferred stock may be denied or restricted, or special privi- leges may be given in the election of directors whereby the preferred stock is insured representa- tion on the board. (In Delaware the right to vote stock for directors may not be restricted.) Should the corporation become insolvent, usage as to preferred stock is not uniform. Under the laws of New Jersey, should the assets be sufficient, it is redeemed at its face value, after the debts are paid, and before the common stock receives anything. The same provision obtains in a number of states, while in others the whole matter is fixed by the charter, or the special provisions under which the preferred stock is issued. It is not unusual for a corporation to reserve the right to redeem, or buy in, preferred stock after a certain time, usually at a specified price, a sinking fund being estab- lished for its ultimate redemption. Sometimes provis- ion is made for its redemption in common stock upon specified terms. In short, the whole matter of preferred 22 STOCK AND STOCKHOLDERS. stock is one of contract, and at the time of incorpora- tion, or later by unanimous consent of all the stock- holders, any desired variations not contrary to law, may be adopted and will be sustained. Whatever provisions are made should be as clear and definite as possible and should appear plainly and fully upon the face of every cer- tificate of preferred stock. Watered stock is stock issued usually in the form of a stock dividend, without payment to the company. For instance, if a certain stock is paying annual dividends of 12 per cent., as much more stock might be issued and given to the stockholders as a stock dividend. Each stockholder would then have twice as many shares, but it would be 6 per cent, stock. Under such circumstances the two shares each paying 6 per cent, annual dividend -would probably sell for more than the one original share that paid 12 per cent., and the stockholders be benefited by the increased selling price. Again companies having municipal franchises for light- ing, water supply, street railways, transportation and. other semi-public functions, always, as a matter of policy, issue sufficient "fictitious" stock to keep their dividends down to an apparently low figure. Should profits be allotted on the basis of the actual investment, the divi- dend would, in many cases, be so excessive, and the stock would sell at such prices, that public attention would be excited and possibly legislative interference invoked or municipal ownership invited. In many other cases stock is judiciously "watered" to prevent rivals, or possible competitors, from knowing the real profits of the business. Generally there is no legal prohibition against the "watering" of stocks, provided no one is defrauded there- by. In many states, however, all such issues of "fictitious- 23 STOCK AND STOCKHOLDERS. ly paid-up" stock are prohibited. These statutes are fre- quently evaded, and many complicated legal questions arise in consequence. § 8. Certificates of Stock. The stock certificate is documentary evidence of own- ership of stock in the corporation issuing such certifi- cate. It certifies that the person named therein is the owner of record of a certain specified number of shares of the company's stock. Each certificate may represent a single share, or as many shares as belong to the indi- vidual holder. These certificates are numbered and, with stubs attached and correspondingly numbered, are usually bound in a substantial volume. This stock certificate book is held in the custody of the proper corporation officer, most commonly the secretary. Each certificate when ready for issue is duly filled in with the name of the owner, the number of shares and the date of issue. It is then signed by the president, or vice-president, also by the treasurer, or secretary, or both, as may be required by the •state laws or the by-laws of the corporation and impressed with the corporate seal. It is then ready for delivery to the owner. A complete record of the certificate is entered upon its stub, the certificate is detached and, when given to the subscriber, is unquestionable evidence of his stock ownership. For convenience in transferring these stock certificates, and thereby the stock represented by them, each bears on the reverse side a blank form, which when properly filled out transfers the ownership of the stock and authorizes the record of such transfer on the books of the corpora- tion. If this form is signed in blank by the owner of the certificate, with duly witnessed signature, it may be passed from hand to hand, or used as collateral, without further 24 STOCK AND STOCKHOLDERS. endorsement or formality, the ownership of the stock fol- lowing the certificate. When it comes into the hands of one who wishes to appear as the owner of record, his name is inserted in the proper place in the blank form, and on surrender of the same to the proper official of the company he is entitled to, and unless otherwise provided by charter or by-laws must be given, without charge, a new certifi- cate in his own name. His name is then entered on the •corporation books as the owner of the stock in question and, if voting stock, he is entitled to vote it at stock- holders' meetings and, according to the character of the stock, participate in any dividend that may be declared. The ownership of the stock goes with the certificate and its signed endorsement, but the ownership of record remains with the original holder until the transfer is made upon the books of the company. In the meantime, the original holder has power to exercise all the rights of a stockholder, including voting at stockholders' meetings and participation in dividends. For this reason transfers should be recorded without delay. Also, when the proper corporation officials record the transfer and deliver the •certificate in the new name such recognition by the com- pany acts as a guarantee of title to any subsequent bona fide purchaser. § 9. Subscriptions to Stock. A subscription to the stock of a corporation is an agreement on the part of the subscriber to take a specified number of its shares and, if unqualified, is held to mean at par and for cash. In such case the certificate for the sub- scribed stock is duly issued and, upon payment in cash of its full value, is delivered. The stock is then full-paid and non-assessable, and the owner of such stock is not liable for any calls, levies or assessments from the corporation, nor, in the event of the insolvency of the corporation, is he 25 STOCK AND STOCKHOLDERS. usually liable for any of the corporation debts. If the full face value of the stock is not paid either in cash, property or services, the amount actually paid should show on the face of the certificate, as the holder is liable for the unpaid balance in accordance with the terms of sub- scription, or at the call of the board of directors. Also, he is liable to the extent of this unpaid remainder for any debts of the corporation in the event of its insolvency. It often happens that stock is issued and the certificate marked "Full-paid and Non-assessable" when the full amount has not been paid. In this case : — 1. The original holder would not be liable to the cor- poration itself under any circumstances. 2. If the corporation became insolvent while the origi- nal owner held the stock he would, however, be responsible to creditors for the amount unpaid. 3. A purchaser in good faith from the original owner of record, relying upon the fact that it was marked full-paid, would be liable to neither the company nor its creditors. Stock subscriptions may be paid in property and, in most of the states, in labor or services when it has been so agreed. Stock may be issued in this way for mines, fac- tories, patent rights, the good will and other assets of a business, and for any other kind of property that might be purchased for cash. Very commonly the entire capital stock is thus issued in payment for property and the shares are held to be full-paid and free from further liability. Such transactions, when fairly carried out, are upheld in most of the States of the Union and by the Supreme Court of the United States. Particularly is this true in the states treated of in this book. If in the judgment of 26 STOCK AND STOCKHOLDERS. the directors the transaction is advisable and is duly and formally carried 6ut, it will not, unless there be palpable fraud in the matter, be disturbed by the courts. This priv- ilege of safely issuing stock for property is often of the greatest importance in the exploitation of mines, inven- tions and other speculative enterprises. It is, however, at times so greatly abused, that in some states it is most rigorously hedged about, and any over- valuation is made dangerous for both the officials of the company and the holders of its stock. After stock has been issued for properties or other values it is quite a common practice for the holders to give a certain portion back to the corporation to be held as a reserve, or to be forthwith sold to supply working capital. This is properly treasury stock and may be sold at the will of the board of directors. Having once been issued for value, it retains its character of full-paid stock and, even though it were sold below par, would involve the purchaser in no liability. § 10. Stockholders. The subscribers to the capital stock of a corporation are accounted stockholders even before the permanent organization of the company and the delivery of their stock, and have the right to participate in stockholders' meetings. Thereafter, all who come into rightful ownership of stock certificates of the company are stockholders, but they are not recognized by the corporation, nor accorded any of the rights of stockholders, until they have surrend- ered their old certificates and, with the issue of new certifi- cates in their own name, are entered upon the company books as " owners of record." The individual rights of holders of common stock may be summed up briefly as follows : — 27 STOCK AND STOCKHOLDERS. 1. To participate in stockholders' meetings, in person or by proxy, and to cast one vote for each share of stock held. 2. To participate, according to the amount of stock owned, in dividends. 3. In the event of the dissolution of the corporation, to participate, in due proportion, in any assets that may remain after paying the corporate debts. The individual rights of holders of preferred stock are governed by the conditions of issue, which should be in- scribed in full on the face of preferred stock certificates. In the absence of conditions, preferred stock carries all the rights of common stock, including participation in stock- holders' meetings and in general dividends after the common stock has received a dividend equal to the preferred dividend. The collective power of the stockholders applies to only a few matters. They have no power to participate directly in the management of the company or its business, but can act only through their directors and the officials elected by the directors. No matter how large his hold- ings, a stockholder, as such, has absolutely no voice in the management of the company beyond his individual stock vote on matters brought before the stockholders' meet- ings. The subjects upon which action can be taken at these meetings may be summed up as follows : i. Adoption or amendment of by-laws, and the passage of resolutions. 2. Election of directors. 3. Amendment of the charter. 4. Dissolution of the company. 5. Sale of the entire assets. 6. Any vital or radical action. 7. Exercise of any statutory or specially conferred charter powers. 28 CHAPTER IV. BY-UWS. § ii. Nature of By-laws. By-laws are the permanent rules of corporate action as distinguished from resolutions, which are but temporary in their effect and apply only to the particular occasions for which they are passed. The power to make by-laws is incident to the grant of a charter. It is a power that should be exercised with much discretion, for, as the by- laws are the working rules of the company under which its operations are conducted, a badly drawn set might be very prejudicial to its interests. Such a set might be en- tirely inadequate for the operations of the company, or might be so rigidly and minutely drawn as to interfere seriously with the official management of the company's business. The power to make by-laws belongs to the stock- holders, but of late years it is not unusual to delegate more or less of this power to the directors. In the case of a large corporation with many members widely scattered, such an arrangement may be of much advantage, as it obviates the expense and trouble involved in calling a stockholders' meeting to make or modify a by-law, and gives the directors the very desirable power of immediate action. In a small corporation, however, or in one where the stockholders are easily called together, it would seem 29 BY-LAWS. much better to reserve this power to the stockholders alone. Especially is this true where the majority of the stockholders elect the entire board of directors and give the minority no representation thereon. In such case to confer the power of making by-laws on the directors is to place the entire and unrestricted control of the company in their hands to the absolute exclusion of the minority, not only from the management, but even from the knowl- edge of what is being done or is in contemplation. The board in such event becomes a law unto itself to an extent •that it is, to say the least, unwise to permit. Where minority representation on the board is secured by cumulative voting or otherwise, the conditions are en- tirely different, and some power vested in the board to modify by-laws may give a wise freedom of action. By-laws must in their provisions be reasonable and equitable, otherwise they are of no effect. A by-law favoring particular members of a corporation would be illegal. A by-law purporting to deprive certain stock of its voting right would be void. A by-law restricting the free transfer of stock would have no force whatsoever. § 13. Sources of Authority. The general management of a corporation must, as a matter of course, conform to : — 1. The constitution and laws of the state of incorpor- ation. 2. The provisions of its charter. 3. The provisions of the common or general corpora- tion law. 4. The regulations of its by-laws. 5. The rules of parliamentary law so far as applicable. In the by-laws it is desirable to collate and repeat the provisions from these several sources that bear most 30 BY-LAWS. directly on the management and procedure of the corpor- ation. The arrangement of all these in one compact, orderly and systematic compilation saves trouble, mis- takes and in many cases costly litigation. ' § 13. Irregularities. Any stockholder or creditor of a corporation has the right to demand the regular and lawful conduct of its business, and hence any irregularities of procedure may lead to legal interference. One stockholder not properly notified may be able to overturn the entire proceedings of an important special meeting, and similarly any other irregularity may lead to serious trouble. To avoid such complications the best managed corporations em- body the entire working procedure in the by-laws, where it may be readily referred to, and be a constant reminder to those intrusted with the management of the company affairs. Many irregularities in corporation organization and procedure are passed over or legalized by the acquiescence or assent of all the parties concerned. For instance, if at the time of organization all the stockholders are will- ing to waive the legal formalities of the first meeting, as is quite usual, no one is injured, no one outside is concerned, and consequently no one has any legal right to object. Also, in small corporations where all are working together harmoniously, the formal regulations are quite commonly waived at convenience, and if there are no creditors to object and the members assent, no risk is involved in so doing. Under any other circumstances, however, disregard of any of the legal regulations is un- safe and the by-laws should be carried out to the letter. Penalties for violations of the by-laws are not usually provided. If the by-laws are not observed, important 31 BY-LAWS. corporate actions might thereby be rendered illegal and void and this is usually sufficient to ensure their observ- ance. Sometimes, however, direct penalties are provided. In New Jersey and Delaware such penalties are limited by the state laws to a fine of twenty dollars. When properly- imposed such fines may be collected by law or, prefer- ably, be deducted from any dividends or salaries due or to become due. Generally, reasonable penalties for viola- tion or non-observance of by-laws, properly inflicted, will be upheld by the courts. § 14. Classification. For convenience of reference by-laws may be grouped under the following heads : — I. Stock. V. Dividends and Finances. II. Stockholders. VI. Sundry Provisions. III. Directors. VII. Amendments. IV. Officers. This arrangement has been followed in the short set of by-laws which follows and also in the complete set given in the next chapter. These latter by-laws have been selected and collated from the by-laws of some of the best organized corporations in the Eastern States and, with suitable modifications, are adapted to the needs of any modern business corporation. They are specially arranged for use in New York, New Jersey, Delaware and West Virginia, and, where the statutes in any of the states mentioned clash with the text, such conflict is noted and the necessary changes indicated. The shorter set of by-laws is intended for the use of smaller corporations where such full provision is not essential. It contains all the more important require- ments and will be found an efficient working code. 32 § is- Short Form. BY-UWS OF THE ...COMPANY. Adopted Article I — Stock. 1. Certificates of stock must be issued in order by number from the stock certificate book, and each certifi- cate must be signed by the President and Treasurer and sealed by the Secretary, and a record thereof must be kept on the stub of the certificate book. 2. Transfers of stock must be made upon the books of the Company, and before a new certificate is issued the old certificate must be surrendered and canceled. Article II Stockholders. 1. The Annual Meeting of the stockholders of this Company shall be held in the office of the Company, at No St., on the in of each year at o'clock M. 2. Special Meetings of the stockholders may be called at the office of. the Company at any time by resolution of the Board of Directors, or upon written request of stock- holders representing one third of the outstanding stock. 3.^ Notice of Meetings, -written or printed, for every regular or special meeting of the stockholders, shall be prepared and mailed to the last known post office address of each stockholder not less than ten days before any such 33 BY-LAWS. meeting, and if for a special meeting, such notice shall state the object or objects thereof. 4. A Quorum at any meeting of the stockholders shall consist of a majority of the voting stock of the Company, represented in person or by proxy. 5. The Order of Business at the annual meeting and, as far as possible, at all other meetings of the stockholders shall be : — 1. Calling of Roll. 2. Proof of notice of Meeting. 3. Reading and disposal of unapproved Minutes. 4. Annual Reports of Officers and Directors. 5. Election of Directors. 6. Miscellaneous Business. 7. Adjournment. Article III Directors. 1. The Business and Property of the Company shall be managed by a Board of. Directors, who shall be stockholders and shall be elected annually by the stock- holders for the term of one year and shall serve until their successors are elected. Any vacancies may be filled by the Board for the unexpired term. Directors shall receive no compensation for their services. 2. The Regular Meetings of the Board of Directors shall be held in the office of the Company on the of each month at M. 3. Special Meetings of the Board of Directors may be called at any time by the President, or by any three mem- bers of the Board, or they may be held at, any time and place without notice by unanimous consent of all the members. 4. Notices of both regular and special meetings shall be mailed by the Secretary to each member of the Board • not less than days before such meeting, and notices of special meetings shall state the purposes thereof. 34 BY-LAWS. 5. A Quorum at any meeting shall consist of a major- ity of the entire membership of the Board. A majority of such quorum shall decide any question that may come before the meeting. 6. Officers of the Company shall be elected by ballot by the directors at their first meeting after the election of directors each year. If any office becomes vacant during the year, the directors shall fill the same for the unexpired term. The directors shall fix the compensation of the officers and agents of the Company. 7. The Order of Business at any regular or special meeting of the directors shall be : — 1. Reading and disposal of any unapproved Min- utes. 2. Reports of Officers and Committees. 3. Unfinished Business. 4. New Business. 5. Adjournment. Article IV..— Officers. 1. The Officers of the Company shall be a President, a Vice-president, a Secretary and a Treasurer, who shall be elected for one year and hold office until their successors are elected. The positions of Secretary and Treasurer may be united in one person. 2. The President shall preside at all meetings, shall have general supervision of the affairs of the Company, shall sign or countersign all certificates, contracts and other instruments of the Company, as authorized by the directors, shall make reports to the directors and stock- holders and perform all such other duties as are incident to his office or may be required by the Board of Directors. 3. The Vice-president shall keep himself familiar with the affairs of the Company and, in the absence or disability of the President, shall exercise all his functions. 4. The Secretary shall issue notices for all meetings, shall keep the minutes of all meetings, shall have charge 35 BY-LAWS. of the seal and the corporation books ; shall sign with the President such instruments as require such signa- ture, and shall make such reports and perform such other duties as are incident to his office or mav be required of him by the Board of Directors. S. The Treasurer shall have the custody of all moneys and securities of the Company, and shall keep regular books of accounts and balance the same each month. He shall sign or countersign such instruments as require his signature and shall perform all duties incident to his office or that may be required of him by the Board of Directors. Article V. — Dividends and Finance. 1. Dividends shall be declared only from the surplus profits at such times as the Board shall direct, and no dividend shall be declared that will impair the capital of the Company. 2. The Moneys of the Company shall be deposited in such bank or banks as the Board of Directors .shall designate, and be drawn out by checks signed by the Treasurer and countersigned by the President. Article VI Seal. 1. The Seal of the Company shall be as impressed on the margin hereof, and the same is hereby adopted. Article VII — Amendments. 1. These By-laws maybe amended, repealed or altered, in whole or in part, by a majority vote of the entire stock, at any regular meeting of the stockholders, or at any special meeting where such action has been announced in the call and notice for such meeting. The set of by-laws adopted by any corporation should be entered in full in the minute book, and a copy be given each stockholder. 36 § i6. Extended Form. BY-UWS OF THE COMPANY. Adopted Article I. — Stock. Sec. i.— Subscriptions. Subscriptions to the capital stock of the Company must be paid to the Treasurer at such times and places and in such instalments as the Board of Directors may by resolution require. If default be made in payments such default shall work forfeiture of the stock by the method prescribed in the statutes. If all the stock of the Company is to be issued for property this sec- tion may be omitted, or in any case the matter may be covered by resolution. Sec. a.— Certificates of Stock. Each stockholder of the Company shall be entitled to a certificate or certificates, showing the amount of stock of the Company owned by him. Each certificate shall bear the signature of the President and Treasurer and the seal of the Company, and be issued in numerical order from the stock certificate book. Certificates of stock, as issued, must be registered by number on the correspond- ing stub of the stock certificate book. Sec. 3.— Transfers of Stock. Transfers of stock shall be made upon the proper stock books of the Company and must be accompanied by the surrender of the duly endorsed certificate representing the 37 BY-LAWS. transferred stock. Surrendered certificates shall be can- celed and attached to the corresponding stubs in the stock certificate book and new certificates issued to the part- ies entitled thereto. The stock books shall be closed for transfers days before general elections and days before dividend days. In New York corporations, transfers must be allowed up to within ten days of general elections. In New Jersey and Delaware the twenty days next preceding general elections is the statutory period for closing stock books. In West Virginia no definite time is prescribed. Sec. 4.— Stock and Transfer Books. The books and records of the Company shall be kept in the office of the Company, No ., Street, in the City of. State of. , and the stock book shall be open, during business hours, to the inspection of any stockholder or judgment creditor of the Company. All corporations doing business in the State of New York are re- quired to keep a " stock book." For description of this stock book see Chapter VIII, § 24, A New Jersey corporation doing business in New York would use the following form : , The stock and transfer books of the Company shall be kept at its principal office, No , St., , New Jersey, and shall be open during business hours to the inspection of any stockholder of the Company. All other books and records of the Company shall be kept at the office of the Company, No , St., in the City of New York, including a stock book, which last shall be open, during business hours, to the inspection of any stock- holder or judgment creditor of the Company. A Delaware corporation doing business in New York would use the following form: The stock and transfer books of the Company, to- gether with all its other books and records, shall be kept in the office of the Company, No , St., in the City of New York, including a stock book, which last 38 BY-LAWS. shall be open, during business hours, to the inspection of any stockholder or judgment creditor of the Company. A transcript of the stock and transfer books shall be kept in the office of the Company, No , St., , Delaware, and shall be open during business hours, to the inspection of any stockholder. Sec. 5.— Preferred Stock. The capital stock of this Company shall consist of shares of the par value of. dollars each. Of this shares shall be preferred stock and shares shall be common stock. Said preferred stock shall receive from the net earnings of the Company a percent., annual, (non) cumula- tive dividend before any dividends are paid upon the common stock. In New York, New Jersey and Delaware preferred stock must be authorized in the certificate of incorporation, by a provision which may be incorporated in the by-laws if desired and if any special restrictions or privileges attach to such preferred stock it will be found advantageous to do so. In West Virginia preferred stock can only be created by by- law and all the details should be set forth fully therein. (See Preferred Stock in the chapters treating of State Laws.) Sec. 6.— Treasury Stock. All issued and outstanding stock of the Company that may be donated to, or purchased by, the Company shall be treasury stock and be held subject to disposal by action of the Board. Such stock shall neither vote nor partici- pate in dividends while held by the Company. Article II Stockholders. Sec. 1.— Annual Meetings. The regular annual meetings of the stockholders shall be held in the office of the Company at No , St., in the City of. , State of. , at o'clock M., on the (Monday) in each year. At this meeting shall be held the election of directors for the ensuing year, the officers of the Company shall present their annual reports, and the Secretary shall have on file 39 BY-LAWS. for inspection and reference an alphabetical list of the stockholders, giving the amount of stock held by each as shown by the stock books of the Company days before the date of such annual meeting. The number of days mentioned in connection with, list of stock- holders must correspond with the period for closing stock books prior to elections as fixed in Art. I, Sec. 3, of by-laws. In West Virginia and Delaware, annual meetings and elections 01 •directors may be held at any place, within or without the state of incor- poration, as fixed by the by-laws. Annual meetings and corporate elections must be held within the state in New York, New Jersey and the majority of the other states. Sec. 2.— Special Meetings. Special meetings of the stockholders may be held at any time at the office of the Company, pursuant to a resolution of the Board of Directors, or by a call signed by stockholders holding a majority of the voting stock of the Company. Calls for special meetings shall specify the object or objects thereof, and no other business than that specified in the call shall be considered at any such meet- ing. Sec. 3. — Notice of Meetings. A written or printed notice of every regular or special meeting of the stockholders, stating the time and place, and in the case of special meetings the objects thereof, shall be prepared and mailed, postage prepaid, by the Secretary, to the last known Post Office address of each stockholder, at least ten days before the date of any such meeting. Such notice is the most satisfactory that can be given. In default of such provision in the by-laws, the statutory notice is usually one of publication in a newspaper published in the county in which the corpor- ation has its principal office. This latter method is unsatisfactory and ineifective and should not be relied upon. In the case of a New York corporation notice of the time and place of holding the election of directors must be given by publication, in a newspaper published in the County, at least once a week for the two weeks preceding the election and iri such other manner as may be prescribed in the by-laws. This notice by publication is required by statute and should be in- corporated in the by-laws together with a provision for a more effective notice as indicated in the preceding by-law. 40 BY-LAWS. Sec. 4.— Voting. Only stockholders of record shall be entitled to vote at the regular and special meetings of stockholders. At such meetings each stockholder shall be entitled to one vote for every share of stock held in his name. In all elections for directors, each stockholder of record shall be entitled to cast for every share of stock held by him, as many votes as there are directors to be elected, and he may cast the whole number of such votes for one candidate, or distribute them among two or more candi- dates as he may prefer. It. New York and New Jersey this last provision concerning cumula- tive voting, if such voting is desired, must be inserted in the charter. In Delaware such provision would be void and of no effect. In West Virginia cumulative voting for directors is required by statute, and should be incorporated in the by-laws. In New York corporations, stockholders in default in the payment of stock subscriptions cannot vote the stock upon which they are in arrears. This limitation should be incorporated in the by-laws. Sec. 5.— Quorum. A majority of the stock, exclusive of treasury stock, shall be necessary to constitute a quorum at meetings of stockholders. When a quorum is present, a majority of the stock represented shall decide any questions brought before such meeting. In the absence of a quorum, those present may adjourn the meeting from day to day but until a quorum is secured may transact no busi- ness. Sec. 6.— Proxies. Any stockholder entitled to vote, may be represented at any regular or called meeting of stockholders by a duly executed proxy. Proxies shall be in writing and properly signed, but shall require no other attestation. No proxy shall be recognized unless executed within months of the date of such meeting. It is not unusual for the larger corporations to require proxies to ue executed before a notary. In West Virginia the statutes prohibit directors or officers from act- ing as proxies for the stockholders of their company. 41 BY-LAWS. Sec. 7.— Officers of Meetings. The President, if present, shall preside at all meetings of stockholders. In his absence, the next officer in due order who may be present, shall preside. For the pur- poses of these by-laws the due order of officers shall be as follows:— President, Vice-president, Treasurer and Sec- retary. The Secretary of the Company shall keep a faithful record of the proceedings of all stockholders' meetings. Sec. 8.— Order of Business. The order of business at the annual meeting, and so far as practicable at all other meetings of the stock- holders, shall be as follows: — 1. Calling of Roll. 2. Proof of due notice of Meeting. 3. Reading and disposal of any unapproved Minutes. 4. Annual Reports of Officers. 5. Election of Directors. 6. Unfinished Business. 7. New Business. 8. Adjournment. Article HI Directors. Sec. 1.— Number and Authority. A Board of. Directors shall be elected, who shall have entire charge of the property, interests, busi- ness and transactions of the Company, with full power and authority to manage and conduct the. same. Three is the minimum number of directors permitted in most states. In West Virginia the minimum number is five unless the by-laws provide otherwise. The directors can only legally act as a board, and the separate assent of the members to any measure would not bind the Company. Sec. 2.— Qualifications. No person shall be elected, nor shall be competent to act as a director of this Company, unless he holds in his own name at least shares of the stock of the Company. At least of the directors of 42 BY-LAWS. the Company must be residents of the State of. In Delaware each director must own at least three shares of stock, while in New York, New Jersey and West Virginia, the possession of one share is sufficient to satisfy the statute requirements. In New York corporations, two directors must be residents of the State. In New Jersey and Delaware corporations, one director must be a resident of the State of incorporation. In West Virginia the by-laws may provide that no director need be a resident of that State. In such case the last sentence of the above section should read: "No director of this Company need be a resident of the State of West Virginia " Sec. 3.— Elections. At the first meeting of the stockholders a Board of Directors shall be elected, who shall serve until their successors are duly elected. Thereafter, at each annual meeting of the stockholders of the Company, directors shall be elected, as provided in Art. 3, Sec. 5, of these by-laws who shall serve until their successors are -duly elected. All elections for directors shall be by ballot, and the candidates, to the number to be elected, receiving the highest number of votes shall be declared elected. If for any reason directors are not elected at the regu- lar annual meeting of stockholders, as provided in these by-laws, a special meeting shall be called for this purpose within thirty days thereafter, at which directors shall be elected in all respects as at the annual meeting. In New York the first board of directors is created by charter, the names of the members being set forth in that instrument; hence in a New York corporation the portion relating to the first meeting may be omitted. Inspectors of Election are required by statute in New York and New Jersey and should be provided for by adding the following clause to the foregoing section : "Two inspectors of election shall be elected at the annual meeting of the stockholders to conduct the elec- tion of directors for the ensuing year. Such inspectors shall be sworn to the faithful discharge of their duty, and in event of the absence, disability or refusal of either to serve, another inspector may be elected in his place." Sec. 4.— Vacancies. Any vacancy occurring in the Board of Directors may 43 BY-LAWS. be filled for the unexpired term by a majority vote of the remaining members. In event of the death or resignation of the entire mem- bership of the Board, a special meeting of the stockholders shall be called as provided in these by-laws, and a new Board elected thereat. In most of the states directors cannot be removed by action of the stockholders, unless such power be expressly reserved to them by the charter. In West Virginia, however, the statutes provide that the stockholders shall have this power of removal. Sec. 5.— Classification. At the first election of directors, one third of the entire Board shall be elected to serve until the next annual election ; one third to serve until the second annual elec- tion thereafter, and one third to serve until the third annual election thereafter. At eachannual election, suc- cessors shall be elected to the directors whose terms expire at that time, and the directors so elected shall serve for the term of three years and until their successors are duly elected. This section provides for three classes of directors. In Delaware this is the highest number allowed. New York allows four classes, and in New Jersey five classes are permitted. In West Virginia it would be useless to arrange for any classes as the entire board can be removed at any time by the stockholders. If a classification of directors is not desired, the foregoing section should be omitted and the clause in Sec. 3, Art. 3, providing for annual election of directors, changed to read as follows: "Thereafter, at each annual meeting of the stockholders of the Company, a full Board of Directors shall be elected, who shall serve for one year and until their successors are duly elected. " Sec. 6.— Regular Meetings. The regular meetings of the Board of Directors shall be held in the office of the Company, No , Street, in the City of. , State of , at M., on the (Monday) of each (month). Sec. 7.— Special Meetings. Special meetings of the Board of Directors may be held at any time in the office of the Company at No , Street, in the City of State of. , at the written request of the 44 BY-LAWS. President or of any members of the Board. Special meetings may be held at any time and place, and without special notice, by unanimous consent of the Board. Sec. 8.— Notice of Meetings. The Secretary shall notify each member of the Board of all regular or special meetings, by mailing to each mem- ber's last known address, postage prepaid, at least five days before any such meeting, a written or printed notice thereof, giving the time, place, and, in the case of special meetings, the objects thereof; and no other business shall be considered at any such special meeting than shall have been so notified to the members. Sec. 9.— Quorum. A majority of the Board of Directors shall constitute a quorum, and a majority vote of the members present at any Board meeting shall decide its action. A minority of the Board present at any regular or special meeting may, in the absence of a quorum, adjourn to a later date, but may not transact any business. Sec. 10.— flection of Officers. At the first meeting of the Board of Directors after the election of directors each year, they shall elect by ballot a President, a Vice-president, a Secretary and a Treasurer, (also a General Manager and Counsel) to serve for the ensuing year and until the election of their successors. Election shall be by ballot, and a majority of the votes cast shall be necessary to elect. If not detrimental to the business or the operation of the Company, any two offices may be conferred upon one person. The directors shall fix the compensation of officers, subject to the limita- tions of the Charter and the By-laws. Any vacancies that occur may be filled by the Board for the unexpired term. The Board shall have the right to remove any officer for cause by a (two-thirds) vote of the entire mem- bership of the Board. In West Virginia corporations, the president shall not receive any compensation unless expressly agreed to or authorized by the stock- holders. 45 BY-LAWS. Sec. ii.— Compensation of Directors. Each director shall receive the sum of. dollars as compensation for-his attendance at any regular or special meeting of the Board of Directors, and shall receive no other salary or compensation for his services as a director of the Company. Sec. 12.— Power to Pass By-laws. The Board of Directors shall have no power to amend, alter or repeal the by-laws, but may pass such additional by-laws in conformity with these present by-laws and with the laws of the State, as may facilitate the business of the Company. This section accords with the law relating to corporations in New York. In New Jersey and Delaware the directors are not authorized to pass by-laws, unless such power is specifically set forth in the certificate of incorporation. In West Virginia no such power of making by-laws may be given the board of directors. Sec. 13.— Executive Committee. The President, Vice-president and Treasurer (or Sec- retary) shall together constitute an Executive Commit- tee, which shall be a part of the permanent executive organization of the Company, and shall, in the interim between the meetings of the Board of Directors, exercise the powers of the Board in accordance with the general policy of the Company and the directions of the Board. Meetings of the Executive Committee shall be held on call of the President, or of any two members of the Com- mittee. All of the members of the Committee must be duly notified of meetings, and a majority of the members shall constitute a quorum. The Executive Committee shall keep due record of all meetings and actions of the Committee, and such records shall at all times be open to the inspection of any director. The nature of the company and the condition of its business deter- mine the expediency of having an executive committee. Such a commit- ' tee is not usually necessary in the smaller corporations. Sec. 14.— Corporation Offices. In addition to the principal office of the Company 46 BY-LAWS. within the State of. , other offices for the transaction of its business shall be maintained at such other places, in or outside of said State, as may be determined upon by the Board of Directors. Sec. 15.— Order of Business. The regular order of business at meetings of the Board of Directors shall be as follows : — 1. Reading and disposal of any unapproved Minutes. 2. Reports of Officers and Committees. 3. Unfinished Business. 4. New Business. 5. Adjournment. Article IV.— Officers. Sec. 1.— Enumeration, Election, Qualifications. The officers of the Company shall be a President, a Vice-president, a Treasurer and a Secretary, (also a Gen- eral Manager and Counsel). These officers shall be elected by the Board of Directors at the first regular meeting after the election of directors each year, and shall hold office for the term of one year and until their successors are duly elected and qualified. All elections of officers shall be by ballot, and a majority of all the votes cast shall be necessary to elect. Vacancies occurring among the offi- cers may be filled by the Board of Directors for the unex- pired time. Officers may be removed by the Board for cause before the expiration of their terms, but such re- moval shall require a (two-thirds) vote of the entire Board. The Presiden t and Vice-president must be elected from among the members of the Board of Directors. Sec. a.— The President. The President, when present, shall preside at all meet- ings of the stockholders and of the Board of Directors ; shall sign all certificates of stock ; shall sign, or counter- sign, as may be necessary, all such bills, notes, checks, contracts and other instruments as may pertain to the ordinary course of the Company's business; and sign, 47 BY-LAWS. when duly authorized thereto, all contracts, orders, deeds, liens, licenses and other instruments of a special nature. He may also, in the absence or disability of the Treas- urer, endorse checks, drafts and other negotiable instru- ments for deposit or collection, and shall sign the minutes of all meetings over which he may have presided, after the same have been duly approved. At the first regular meeting of the Board in January, he shall submit a complete report of the operations of the Company for the preceding year, together with a state- ment of the Company affairs as existing at the close of such year, and shall submit a similar report at the annual meeting of .stockholders ; also, he shall report to the Board of Directors, from time to time, all such matters coming within his notice and relating to the interests of the Company, as should be brought to the attention of the Board. He shall be, ex officio, a member of all standing com- mittees, and have such usual powers of supervision and management, as may pertain to the office of President, and perform such other duties as may be required of him by the Board of Directors. He shall have the general supervision and direction of the other officers of the Company and shall see that their duties are properly performed. He shall receive for his services such compensation, not exceeding $ per annum, as may be fixed by the Board of Directors. The provision giving the president supervision over the other offi- cers is frequently omitted, as is also the clause limiting the president's salary. In West Virginia corporations, the compensation of the president must be fixed by the stockholders. This by-law would not, however, be repugnant to the law. The form of official signature may, if desired, be incorporated in the by-laws, and in any event should be carefully observed. The usual form consists of the name of the company followed by the name of the signing officer in his official capacity, as below : "The Shawmut Iron Company, by Morris Ainsley, President." Sec. 3.— The Vice-president. The. Vice-president shall familiarize himself with the 48 BY-LAWS. affairs of the Company and, in the absence or disability of the President, shall possess all of the powers and perform all of the duties of that officer. Sec. 4.— The Secretary. The Secretary shall keep full records of all meetings of the stockholders and of the Board of Directors; shall have all such minutes read at*the proper subsequent meetings and, when approved, signed by himself and the President; shall issue all calls for meetings and notify all officers and directors of their election ; shall have charge of, and keep, the seal of the corporation and affix the same to certifi- cates of stock when such certificates are signed by the President and Treasurer, and he shall affix the seal, attested by his signature, upon such other instruments as may require the same. He shall keep the stock certificate book and the other usual corporation books, and shall prepare, record, trans- fer, issue, seal and cancel certificates of stock as required by the transactions of the Company and its stockholders. He shall also sign, with the President, all contracts, deeds, licenses and other instruments, except when otherwise ordered. • He shall make such reports to the Board of Directors as they may request and shall also prepare such reports and statements as are required by the State laws. He shall make out (twenty) days before any election of directors, a complete list of the stockholders entitled to vote at such election, arranged in alphabetical order and giving the number of shares of stock that may be voted by each, and shall keep the same open to inspection at the office of the Company until the time of, and during, the said election. He shall allow any stockholder, on appli- cation in business hours, to inspect the stock certificate book, the stock transfer book and the stock register. He shall attend to such correspondence and to such o^her duties, as may be incidental to his office or be as- signed him by the Board. He shall receive such salary, not exceeding $ per annum, as may be fixed by the Board of Directors. 49 BY-LAWS. Sec. 5.— The Treasurer. The Treasurer shall have the custody of, and be responsible for, all moneys and securities of the Company; shall keep regular books of accounts showing the trans- actions of the Company, its accounts, liabilities and financial condition, and shall see that all expenditures are duly authorized and are evidenced by proper receipts and vouchers. He shall deposit in some bank approved by the Directors, and in the name of the Company, all moneys that may come into his hands for the Company account. His books and accounts shall be open at all times during business hours to the inspection of any Director of the Company. The Treasurer shall also endorse for collection or de- posit, all bills, notes, checks and other negotiable instru- ments of the Company; shall pay out money as may be necessary in the transactions of the Company, either by special or general direction of the Board of Directors, and on checks signed by the President and himself, and shall generally, together with the President, have supervision of the finances of the Company. He shall also make a full report of the financial con- dition of the Company for the annual meeting* of stock- holders, and shall make such other reports and state- ments as may be required by the Board of Directors or by the laws of the State. He shall give bond for the faithful performance of his duties in the sum of $ , with sureties- satis- factory to the Board of Directors, and shall receive such salary, not exceeding $ per annum, as may be fixed by the Board. Sec. 6.— The General Manager. The General Manager shall, under the supervision of the Board of Directors, have charge of, and manage, the general business of the Company, outside the duties at the other Company officials as provided in these by-laws. He shall perform such further duties and make, such reports as may be required of him by the Board of Direc- 50 BY-LAWS. tors, and shall receive a salary not exceeding $.. per annum, as may be fixed by action of the Board. The duties of the general manager may be made more specific, ac- cording to the nature of the business conducted by the corporation and the part therein to be taken by the general manager. Sec. 7.— Counsel. Counsel of the Company shall prepare all such con- tracts and agreements required in the business of the Company as may be referred to him by its officials ; and shall inspect, and pass upon, all such instruments as may be presented to the Company and be of sufficient import- ance to justify such examination; also, he shall advise with the officers of the Company in all such legal matters pertaining to the affairs of the Company as may require his consideration. He shall receive such salary, not ex- ceeding $ per annum, as may be fixed by the Board of Directors. Payment of counsel is frequently made contingent on services ren- dered, or a retaining fee is given and his services thereafter paid for as required. Article V Dividends and Finances. Sec. 1.— Dividends. Dividends shall be declared at such times as the Board may direct, but no dividend shall be declared or paid save from surplus profits remaining after all current liabilities of the Company have been fully paid ; nor shall any divi- dend be declared that would impair the capital of the Company. Sec. 2.— Reserve Fund. No dividend to exceed ...-. per cent, per annum shall be declared by the Board of Directors until there shall have been accumulated from surplus profits a reserve fund of $ , such fund to be used for -the extension or enlargement of the business of the Company and the betterment of its plant, or for such other purposes, not connected with the ordinary operations of the business, as may be necessary or advisable. 51 BY-LAWS. Sec. 3.— Indebtedness. No indebtedness shall be incurred by the Company in excess of $ , unless the same shall be author- ized by a (two-thirds) vote of the entire Board of Direc- tors at a regular meeting, or at a special meeting called for the purpose. Sec. 4.— Bank Deposits. The Treasurer shall deposit the money of the Com- pany as the same may come into his hands, in such bank or banks as may be designated by the Board of Directors, and such deposits shall be made in the name of the Com- pany. Sec. 5.— Surplus. Any surplus funds accumulated above such average balance and reserve as may be necessary for the business of the Company, and in excess of dividends declared or to be declared for the current year, shall be invested in secur- ities approved by the Board of Directors. Article VI. — Sundry Provisions. Sec. 1.— Corporate Seal. The corporate seal of the Company shall consist of two concentric circles, between which is the name of the Company, and in the center shall be inscribed (Incorpor- ated 1900, New York.) and such seal, as impressed on the margin hereof, is hereby adopted as the corporate seal of the Company. Sec. 2.— Penalties. Any officer, director or stockholder who shall disobey or violate any of the provisions of these by-laws, shall be fined in an amount not to exceed twenty dollars, such fine to be imposed by the Board of Directors and, if not paid at the time, charged against the said person and deducted from the next payment of salary or dividend due said person. 52 BY-LAWS. Article VII.— Amendments. Sec. i.— Amendments. These by-laws may be amended, repealed or altered, in whole or in part, at any regular meeting of the stock- holders, or at any special meeting where such action has been announced in the call, provided that a majority of the entire voting stock of the Company shall vote for such amendment, repeal or alteration. In adapting the above set of by-laws to any of the other states of the Union, an examination of the statutes relating to corporations in such states would be abso- lutely essential to determine any necessary modifications or additions. CHAPTER VI. STATE LAWS.— INTRODUCTORY. § 17. Corporation Law. The Constitution of a state is its highest source of law and authority; next come the enactments of its legislature ; then the provisions of the common law. The broad, general principles of corporation law, forming a portion of the common law and prevailing all over our country except where expressly modified or repealed, have been given in the preceding jchapters. The statute law, superior to this common law and changing or displacing its provisions wherever a conflict occurs, is given in the chapters which follow. New York, New Jersey, Delaware and West Virginia are taken in turn, and the statute law affecting corporations, as found in the Constitution and legislative enactments of each state, is set forth in all its essential features. It must, however, be borne in mind that this statute law is built upon the broad foundations of the common law and that wherever the statute law is silent or deficient, the principles of the common law are still actively in force ; hence, in any com- prehensive view of the law of corporations, this common law must be given full consideration. § 18. Classification. In accordance with the general plan of this volume, 54 STATE LAWS. the laws of the different states herein presented have been uniformly classified as follows : — i. Introductory. 7. Officers. 2. Charter formalities. 8. Reports. 3. Organization. _ 9. General regulations. 4. Stock. 10. Foreign corporations. 5. Stockholders. 11. Expenses. 6. Directors. This classification is in harmony with that of the by- laws already given, the arrangement of the latter being still further extended to the subdivisions of the sections, rendering reference from any by-law to the state enact- ments on the same subject, quite simple. For instance, the subject of preferred stock found in the by-laws under the general, head of "Stock" will, in any of the given state laws, be found under the same heading and in the same relative position. The many forms for corporation instruments have not been included in the chapters on state laws on ac- count of the large amount of space required for adequate presentation. Blank forms arranged for any of the states herein considered, may be had in convenient form and at small cost at any first class law stationer's. In the use of these blanks, care must be taken that no provisions are inserted or allowed to remain that are not strictly neces- sary and beneficial. It is unwise and even dangerous to cumber a charter or other important instrument with verbiage that is not clearly needful, or the meaning and bearing of which is not fully understood. § 19. Residence of a Corporation. A corporation is said to have residence in the state from which its charter was secured. In that state it is a " domestic " corporation. In any other state it is a "for- eign" corporation. A corporation organized under the 55 STATE LAWS. laws of New Jersey would in that state be a domestic cor- poration, would have its citizenship and residence there and would be known as a New Jersey corporation. If such corporation did business in the State of New York it would there be a foreign corporation subject to all the laws regulating such outside organizations. In New Jersey, Delaware and West Virginia the re- quirements for incorporation have been greatly simplified and the laws so framed that companies formed thereun- der may do the larger part or all of their business in other states. This has been done with the express intention of attracting outside incorporators, a purpose in which these states have been remarkably successful. In New Jersey and Delaware, to further the same end and with the sanction of the state laws, Corporation Trust Com- panies have been organized under private management, to represent these "outside" domestic corporations and, as agents for the same, to comply with the statutory re- quirements. For a reasonable compensation these Trust Companies maintain an office for the corporations repre- sented, keep the proper corporate signs at the door there- of, file all reports, supply all needed conveniences for such meetings as must be held in the state, have suitable per- sons present at all times during business hours and, generally, maintain the legal status of the represented, companies within the state. In West Virginia no local office is required and the appointment of some reliable lawyer within the state to act as resident agent satisfies every statutory demand. So economical and convenient have the general ar- rangements in these three states been found that nearly all the larger corporations of recent years have organized under the laws of one or the other of them, with results very much to the benefit of the respective state treasuries 56 STATE LAWS. and entirely satisfactory to all the parties immediately concerned. § 20. Trusts. The laws of New Jersey and Delaware are peculiarly attractive to those extensive combinations of industrial enterprises known as "Trusts." Nearly all the other states of the Union have strict laws prohibiting trusts, trade combinations, or contracts and agreements in re- straint of trade, in many cases the formation or opera- tion of such being made a penal offense. In the states mentioned no such laws exist but, on the contrary, combinations of the kind are expressly recognized and allowed. In New Jersey the following is a portion of the General Corporation Law : — "Any corporation may purchase, hold, sell, assign, transfer, mortgage, pledge or otherwise dispose of, the shares of the capital stock of, or any bonds, securities or evidences of indebtedness created by any other corpora- tion or corporations of this or any other state, and while owner of said stock may exercise all the rights, powers and privileges of ownership, including the right to vote thereon." (§ 51, Gen. Corp. Law of N. J.) • In Delaware an almost literal transcription of this law has been enacted. (See § 133, Gen. Corp. Laws of Del.) As will be noted these laws are absolute in their terms and apply to all corporations chartered within these two states. In New York, corporations can obtain powers in rela- tion to the acquisition of stock in other companies quite as extensive as those granted by New Jersey, if proper pro- vision is made therefor in the certificate of incorporation. These are, however, of small avail as New York has strin- gent laws against trusts and trade combinations and in 57 STATE LAWS. addition thereto the state taxes are so excessive as, in the case of larger corporations, to be actually prohibitive. For instance, if the Federal Steel Company had incorpo- rated in New York, its organization fee would have amounted to $250,000 as against $40,000 in New Jersey and $20,000 in Delaware. West Virginia does not allow the formation of busi- ness corporations with over $5,000,000 capitalization. Most of the trusts being capitalized in excess of this amount are by this provision debarred from the state. (See " Trusts," § 73, Chap. XII.) CHAPTER VII. NEW YORK CORPORATION UWS. § 2i. Introductory. In the State of New York, as has been well said, the Courts have shown unusual liberality and intelligence in their treatment of corporation law, while the legislature, in the enactment thereof, has displayed exactly the oppo- site spirit. In consequence of this unfortunate legislation, nearly all the larger corporations that would naturally have organized in New York, have gone to other states where the laws are more liberal and the impositions lighter, doing business thereafter in the State of New York as foreign corporations. Of late years the New York enactments have been more lenient, but the taxes are still onerous, the regulations numerous and in many cases objectionable, and the larger corporations continue to cross the river to more friendly shores. The corpora- tions which are organized in the State of New York are mainly those with capitalizations not exceeding $50,000, together with such mining and manufacturing companies as expect to employ their capital within the state and are, therefore, exempt from the most burdensome taxes. In addition to the somewhat excessive expense of in- corporation in New York State and the heavy taxation incurred thereafter, the laws regulating this taxation are complex and vague, and the number and inquisitorial nature of the reports incidental thereto, are irksome and 59 NEW YORK CORPORATION LAWS. objectionable. Also, officers, directors, and stockholders are held to a strict accountability; limitations are im- posed as to the power of the corporation to borrow or to incur debt, and while these features are not in themselves objectionable, incorporators, other things being equal, usually prefer to resort to states where such limitations do not prevail. It should be noted, however, that the laws regulating foreign corporations doing business in the state, as to taxes, reports, etc., are similar to those by which domes- tic corporations are controlled and, if the business to be carried on lies mainly in the State of New York, incorpo- ration elsewhere would merely add additional fees and taxation to those necessarily incurred by the transaction of corporate business within the state limits. The sectional references in the present chapter are to the General Corporation Law, the Stock Corporation Law and the Business Corporation Law of New York, unless otherwise noted. § 23. Charter Formalities. Parties. A corporation may be formed under the laws of the State of New York by three or more natural per- sons of full age, one of whom must be a resident of the state, and two-thirds of whom must be citizens of the United States. (Bus. Corp. Law, § 2; Gen. Corp. Law, 8 4.) Purposes. A business corporation may be formed "for any lawful purpose or purposes other than a moneyed corporation, or a corporation provided for by the bank- ing, the insurance, the railroad and the transportation laws." (Bus. Corp. Law, § 2.) 60 NEW YORK CORPORATION LAWS. Powers. Such corporation has all the powers incident to the grant of a charter, (See Chap. 2, § 5, this work) and full powers for its specific purpose or purposes. (Gen. Corp. Law, § 11.) A New York corporation has also, without specifica- tion in the charter, unusual powers of acquiring and hold- ing stock in other corporations engaged in a similar or related business. This power may be extended to include the stock of corporations engaged in other businesses by inserting a provision to that effect in the certificate of in- corporation. (Stock Corp. Law, § 40.) Certificate of Incorporation. (Bus. Corp. Law, § 2.) This shall contain : — 1. The name of the proposed corporation. This must not be the same as, nor resemble, that of any existing domestic corporation, nor shall it have the word "bank, insurance, indemnit}', guarantee or benefit" as part of the name. (Gen. Corp. Law, § 6.) 2. The purpose or purposes for which it is to be formed. The desired purposes should be set forth in full detail. 3. The amount of the capital stock, and if any portion be preferred stock, the "preferences thereof." The capitalization may be for any amount not less than $500. If preferred stock is to be issued, it should be set forth and fully described. (See "Preferred Stock," Chapter III., § 7, and this Chapter, § 24.) 4. The number of shares of which the capital stock shall consist, each of which shall not be less than five nor more than one hundred dollars. The amount of capital -with which said corporation will begin business which must not be less than five hundred dollars. 61 NEW YORK CORPORATION LAWS. This capital with which the company will begin busi- ness must be stated definitely and until such amount is subscribed and paid in money or in property, the com- pany may not begin business nor incur debts. (Bus. Corp. Law, §3.) 5. The city, village or town in which its principal busi- ness office is to be located. 6. Its duration. Its period of existence must be stated and may be any number of years. 7. The number of directors, to be not less than three nor more than thirteen. 8. The names and post office addresses of directors for the first year. At least two of the directors must be residents of the state and all of them must be stockholders of the com- pany. (See § 25, this work.) 9. The names and post office addresses of the sub- scribers with a statement of the number of shares of stock in the corporation which each agrees to take. The subscribers must be at least three in number. No definite amount of stock need be subscribed for at the time of incorporation. If the subscribers each take one share the statute requirements are satisfied. 10. Any other provisions for the regulation of the busi- ness, and the conduct of the affairs of the corpora- tion, and any limitation upon its powers, and upon the powers of its directors and stockholders which does not exempt them from any obligation, or from the performance of any duty, imposed by law. This last paragraph does not contemplate any in- crease or extension of corporate powers, but only their regulation within the statutory limits. 62 NEW YORK CORPORATION LAWS. The following provisions, which may be varied to suit particular circumstances, are suggested : — 1. Limitation of the corporate indebtedness, or of the powers of the directors to contract such indebted- ness without special authorization from the stock- holders. 2. Limitations upon the voting powers of stock, or upon the powers of particular classes of stock. If desired, any class of stock may be deprived abso- lutely of the right to vote. 3. Cumulative voting, whereby the minority may be assured of due representation on the board of direc- tors in proportion to their holdings of capital stock. (See "Cumulative Voting," Chap. XIV, § 82, this work. ) 4. Classification of directors so that only one-half, one-third, or one-fourth are elected each year, thus guarding against any sudden change of policy that might occur if the entire board were elected an- nually. (Stock Corp. Law, § 20.) (See By-laws, Art. Ill, §5, this work.) 5. Limitations on the salaries of officers, whereby such salaries are restricted to a certain, fixed amount, or are limited to a certain proportion of the net profits or dividends declared. Such limitations may be arranged to go into effect after the first year, or to be in effect from the date thereof, unless otherwise ordered by a two-thirds, or three-fourths vote of the stockholders at any regular meeting. 6. Authorization of the corporation to "purchase, acquire, hold and dispose of the stocks, bonds and other evidences of indebtedness of any corporation, domestic or foreign, and issue in exchange therefor, its stock, bonds or other obligations." This pro- vision is expressly permitted by statute and adds an unusual corporate power. (Stock Corp. Law, §40.) 63 NEW YORK CORPORATION LAWS. The certificate of incorporation must be duly drawn, signed and acknowledged by all of the incorporators, and filed in the office of the Secretary of State. Also, a dupli- cate original, or a certified copy obtained from the Secre- tary of State, must be filed with the County Clerk of the county in which the corporation has its principal office. The organization tax and all fees must be paid before the certificate will be filed in the office of the Secretary of State. (Gen. Corp. Law, § 5.) The acknowledgment of the certificate may be taken before a Notary Public, 'Commissioner of Deeds or Justice of the Peace. If the principal office of the company is to be in an- other county from that in which the acknowledgment is taken, a certificate must be secured from the Clerk of the latter county stating that the officer taking such acknowl- edgment had authority so to do, and such certificate must accompany the certificate of incorporation when sent to the home county for filing. Such certificate of authority need not accompany the charter filed with the Secretary of State. § 23. Organization under Charter. Under the New York laws, the first board of directors is named in the certificate of incorporation. This board has authority to meet, pass necessary by-laws and elect officers forthwith ; hence, unless required for special pur- poses, a meeting of the stockholders is not necessary until the time of the regular annual meeting. It is, however, customary and more satisfactory to have a first meeting of the stockholders as soon as the charter has been filed, at which meeting by-laws are adopted and such other action taken as is needed for the interests of the company. (For the manner of calling and conducting this meeting 64 NEW YORK CORPORATION LAWS. and the subsequent meeting of directors, see Chap. XII,. §70, this work.) § 24. Stock. Subscriptions. These must be paid at such times and in such instalments as the directors may require. In case 1 of default in payment the directors may, after due notice to the subscriber, forfeit such stock and all payments already made thereon. This cannot be done until after sixty days from the service of notice of delinquency. In' case of forfeiture, no further action can be taken against such delinquent subscriber and the stock may be re-issued for value ; but if not re-issued or subscribed for within six months after such forfeiture, it must be canceled and 1 deducted from the capitalization of the corporation. (Stock Corp. Law, § 43.) If the whole capital stock shall not have been sub- scribed for at the time of incorporation, the directors may open subscriptions therefor, until the full amount is sub- scribed. No stock subscription that is payable in money shall be received without a cash payment of ten per cent, of the amount subscribed. (Stock Corp. Law, § 41.) Issuance at Par. "No corporation shall issue either stock or bonds except for money, labor done, or property actually received for the use and lawful purposes of such corporation. No such stock shall be issued for less than its par value." (Stock Corp. Law, § 42.) Issuance for Property. In the absence of fraud, or of such over-valuation as would imply fraud, the issuance of stock for property is upheld by the courts, and such stock is accounted full paid. Certificates of Stock. "The stock of every stock cor- poration shall be represented by certificates prepared by 65 NEW YORK CORPORATION LAWS. the directors and signed by the president or vice-president and secretary or treasurer, and sealed with the seal of the corporation." (Stock Corp. Law, § 40.) Transfer of Stock. " No share shall be transferable un- til all previous calls thereon shall have been fully paid in." (Stock Corp. Law, §40.) " If a stockholder shall be indebted to the corporation, the directors may refuse to consent to a transfer of his stock until such indebtedness is paid, provided a copy of this section is written or printed upon the certificate of stock." (Stock Corp. Law, § 26.) "No transfer of stock shall be valid as against the cor- poration, its stockholders or creditors for any purpose, except to render the transferee liable for the debts of the corporation" until it has been entered in the stock book "by an entry showing from and to whom transferred." (Stock Corp. Law, §29.) Transfer Books. The New York statutes do not pro- vide for the usual form of transfer book, but for one book called a " stock-book " which must be kept by all corpora- tions doing business in the state, whether domestic or foreign. The statute reads: "Every stock corporation shall keep at its office correct books of account of all its business and transactions, and a book to be known as the stock-book, containing: (1) the names, alphabetically arranged, of all persons who are stockholders of the cor- poration, (2) showing their places of residence, (3) the number of shares held by them respectively, (4) the time when they respectively became the owners thereof, (5) and the amount paid thereon. The stock-book of every such corporation shall be open daily during business hours, for the inspection of its stockholders and judgment creditors, who may make extracts therefrom." (Stock Corp. Law, §29.) 66 NEW YORK CORPORATION LAWS. Preferred Stock. Every corporation may issue one or more classes of preferred stock if [provision is made there- for in the certificate of incorporation, or if the same is created by unanimous agreement of the stockholders. By a two-third's vote of the directors, such preferred stock may be exchanged for common stock, share for share, or upon any other valuation fixed at the time of issuing said preferred stock. (Stock Corp. Law, § 47.) Treasury Stock. There are no statutory provisions in regard to treasury stock in New York. Such stock would be subject to the common law rules (See Chap. Ill, § 7, this work) and to the provisions of the by-laws. Stock of other Corporations maybe held. (See "Charter Formalities," this chapter.) Dividends. "No dividends shall be declared except from surplus profits, nor shall any part of the capital stock be withdrawn or impaired to pay dividends." (Stock Corp. Law, §23.) Sundry. One half of the capital stock of every corpo- ration shall be paid within one year from its incorpora- tion, or the corporation shall be dissolved. Certificate of such payment shall be made by the directors within thirty days after same is made and such certificate shall be filed in the office of the Secretary of State and of the Clerk of the County in which the principal office of the company is situated. (Bus. Corp. Law, § 5.) § 25. Stockholders. Annual Meeting. The by-laws shall prescribe the time and place of the annual meeting for the election of direc- tors. "No by-law adopted by the board of directors reg- ulating the election of directors or officers shall be valid unless published for at least once a week for two succes- sive weeks in a newspaper in the county where the elec- 67 NEW YORK CORPORATION LAWS. tion is to be held and at least thirty days before such election." (Gen. Corp. Law, § 11.) Inspectors of Elections are appointed in the manner prescribed in the by-laws, but the inspectors for the first election must be appointed by the directors. Each inspect- or must be duly sworn, is entitled to proper compensation for his services and must file a certified report of the elec- tion with his affidavit thereto in the office of the County Clerk. The inspectors have full authority to conduct the elections for which they are appointed. At least two in- spectors are required by the statutes. (Stock Corp. Law, § 28; Gen. Corp. Law, §§ 20, 22, 25.) Special Meetings. If the election of directors is not held on the day designated in the by-laws, the board shall forthwith call a meeting for the purpose, of which notice shall be given as for the regular annual meeting, if the board neglect to call such meeting or directors are not elected thereat, any member of the corporation may call a meeting, but must give notice as prescribed in the stat- utes. (Gen. Corp. Law, § 24.) There being no statutory provisions for special meet- ings of stockholders for other purposes than the election of directors, the by-laws should prescribe how such meet- ings may be called. Notice of Meetings. Notice of special meetings other than for the election of directors must be provided for in the by-laws. Notice of the time and place of holding any election of directors " shall be given by publication thereof at least once a week for two successive weeks immediately preceding such election, in a newspaper published in the county where such election is to be held, and in such other manner as maj be prescribed in the by-laws." (Stock Corp. Law, 8 20.) 68 NEW YORK CORPORATION LAWS. Voting. "At every election of directors and meeting of the members of the corporation, every member who is not in default in the payment of subscriptions upon his stock or disqualified by the by-laws, shall be entitled * * * * to one vote for every share of stock held by him for ten days immediately preceding the election or meet- ing." (Gen. Corp. Law, § 20.) Cumulative voting is allowed in New York if specified in the charter. (See transcript of New York law in Chap. XIV, §82.) Quorum. The by-laws may fix the amount of stock which must be represented at meetings of stockholders to constitute a quorum thereat. (Gen. Corp. Law, § 11.) Proxies. Every member of a corporation entitled to vote at any meeting thereof may be represented and vote at such meeting by proxy. "Every proxy must be executed in writing by the member himself, or by his duly authorized attornies. No proxy hereafter made shall be valid after the expiration of eleven months from the date of its execution, unless the member executing it shall have specified therein the length of time it is to continue in force, which shall be for some limited period. Every proxy shall be revocable at the pleasure of the person executing it." (Gen. Corp. Law, §21.) "No person shall vote or issue a proxy to vote at any meeting of the stockholders or bondholders, or both, of a stock corporation, upon any stock or bonds which have not been owned by him for at least ten days next preced- ing such meeting, notwithstanding such stock or bonds may stand in his name on the books of the corporation. No member of a corporation shall sell his vote or issue a proxy to vote to any person, for any sum of money or anything of value." (Gen. Corp. Law, § 20.) 69 NEW YORK CORPORATION LAWS. Liabilities. Stockholders of a corporation shall be lia- ble, as follows : — 1. To the amount of their unpaid subscriptions for stock. 2. Personally, jointly and severally to its creditors, to an amount equal to the amount of the stock held by them, respectively, for every debt of the corporation, until the whole amount of its capital stock, issued and outstanding at the time such debt was incurred, shall have been fully paid in. 3. Personally for all debts due and owing to any laborers, servants or employees, for services per- formed by them for the company. (Stock Corp. Law, § 54. ) Statement. Stockholders owning five per centum of the capital stock of any business corporation the capital- ization of which does not exceed one hundred thousand dollars, or three per centum thereof where it exceeds one hundred thousand dollars, may make a written request to the treasurer for a detailed statement of its affairs tinder oath, embracing a particular account of its assets and liabilities, and the treasurer shall comply with such request within thirty days and shall keep a copy of such statement on file for twelve months thereafter for the in- spection of any stockholder; but the treasurer shall not be required to make more than one such statement in a year. (Stock Corp. Law, § 52.) § 26. Directors. Number and Authority. The number of directors shall be not less than three and not more than thirteen. (Bus. Corp. Law, § 2.) "The affairs of every corporation shall be managed by its board of directors." 70 NEW YORK CORPORATION LAWS. "Subject to the by-laws, if any, adopted by the mem- bers of a corporation, the directors may make necessary by-laws of the corporation." (Gen. Corp. Law, § 29.) Qualifications. Each director must own at least one share of stock and two of the directors must be residents of the state. If a director ceases to be a stockholder his office becomes vacant. (Stock Corp. Law, § 20. Gen. Corp. Law, §29.) Elections. The by-laws should provide that elections be by ballot and should also definitely fix any other neces- sary details. ( " Stockholders," § 25, this chapter.) Classification. "At least one-fourth in number of the directors of every stock corporation shall be elected annu- ally." (Stock Corp. Law, § 20.) This permits the board, to be divided into four classes, of which one class is elected each year and each class serves four years. Three classes may be made or only two classes. A provision may be inserted in the certificate of incorporation to effect such classification, or it may be provided for in the by-laws. Meetings. There are no statutory provisions in regard to meetings of the directors, hence the by-laws should pro- vide for the time, place and notice of regular meetings and also for the calling and giving notice of any special meet- ings of the board. Quorum. " A majority of a board of directors of a cor- poration at a meeting duly assembled shall be necessary to constitute a quorum for the transaction of business, and the act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors." (Gen. Corp. Law, § 29.) Vacancies. Vacancies in the board of directors shall be filled in the manner prescribed in the by-laws. (Stock Corp. Law, §20.) 71 NEW YORK CORPORATION LAWS. Failure to elect directors at the regular annual meet- ing shall not dissolve the corporation, but every director shall continue to hold his office until his successor is elected. (Gen. Corp. Law, § 23.) Liabilities. Directors of a corporation make them- selves personally liable in the following cases : — 1. Declaring dividends, except from surplus profits; or dividing, withdrawing or paying out any part of the capital to any of the stockholders, except as authorized by law. (Stock Corp. Law, § 23.) 2. Creating such indebtedness that the total indebt- edness of the company unsecured by mortgage shall exceed the paid up capital stock. (Stock Corp. Law, §24.) 3. Issuing bonds or other obligations in excess of the amount allowed by law. (Stock Corp. Law, § 24.) 4. Making a loan of corporation money to any stock- holder, or discounting any note or evidence of debt, or receiving the same in payment of any instalment due on stock. (Stock Corp. Law, § 25.) 5. Making any certificate, report or public notice that shall be false in any material representation. (Stock Corp. Law, § 31.) 6. Failing to make and file the annual report during the month of January. (Stock Corp. Law, §.30.) 7. Making illegal transfers of property to officers or stockholders when the company is insolvent or in- solvency is threatened. (Stock Corp. Law, § 48.) 8. In case of dissolution, as trustees for all corpora- tion property that may come into their hands, they are personally liable to that extent to creditors and stockholders. (Gen. Corp. Law, § 30.) In most of the cases given above, individual directors who are blameless, may, by proper procedure, relieve themselves from liability. 72 NEW YORK CORPORATION LAWS. % 27. Officers. Enumeration, Election and Qualifications. " The direct- ors of a stock corporation may appoint from their num- ber a president, and may appoint a secretary, treasurer and other officers, agents and employees, who shall re- spectively have such powers and perform such duties in the management of the property and affairs of the corpo- ration, subject to the control of the directors, as may be prescribed by them or in the by-laws. The directors may require any such officer, agent or employee to give secur- ity for the faithful performance of his duties, and may re- move him at pleasure." (Stock Corp. Law, § 27.) The president is required to be a member of the board. If a vice-president is elected, as is usual, to act in the ab- sence of the president, he, too, should be a director. Liabilities. Officers of corporations are liable, as follows : — 1. For wilful neglect or refusal to make any proper entry in the books of the company, or neglect or refusal to exhibit the same to those entitled to in- spect them, an officer shall forfeit to the party injured a penalty of fifty dollars and shall pay all damages resulting from such neglect or refusal. (Stock Corp. Law, §29.) 2. For making any certificate, report or public notice that is false in any material feature, the officers and directors signing the same shall, if any loss or damage ensue therefrom, be personally liable to any person who becomes a creditor or stockholder upon the faith thereof. (Stock Corp. Law, § 31.) 3. For any loan of corporation money to a stock- holder, or for discounting any note or evidence of debt or receiving the same in payment of amounts due on stock, or for receiving or discounting the same to enable any stockholder to withdraw any 73 NEW YORK CORPORATION LAWS. money paid on account of stock, the officers and directors implicated shall be personally liable for all debts of the corporation to the full amount in- volved, until such amount shall be repaid with in- terest. (Stock Corp. Law, S 25.) In addition to the foregoing liabilities severe crimimal laws exist against official misbehavior or fraudulent con- duct. § 28. Reports. Annual Report. Every corporation doing business in the state shall make an annual report as of the first day of January, which shall state : — 1. The amount of its capital stock, and the propor- tion actually issued. 2. The amount of its debts or an amount which they do not then exceed. 3. The amount of its assets or an amount which its assets at least equal. This report must be made during the month of Jan- uary, or, if the company is transacting business outside the United States, before the first day of May. Blank forms may be obtained from the Secretary of State. Such report must be signed in duplicate by a majority of the directors and sworn to by the president or vice-presi- dent and the secretary or treasurer, and one copy filed in the office of the Secretary of State, the other in the office of the County Clerk of the county in which the prin- cipal office of the company is located. The County Clerk's fee for filing such report is six cents; there is no fee to the Secretary of State. If not made and filed, all the directors are personally liable for the indebtedness of the company, but any director may relieve himself from this liability by making a special report, duly veri- 74 NEW YORK CORPORATION LAWS. fied, to the Secretary of State. (Stock Corp. Law, § 30.) Comptroller's Report. On or before the 15th of Novem- ber of each year, a written report, duly verified by the affidavit of one of the officers of the company, shall be filed with the Comptroller of the State, setting forth the condition of the company at the close of its business on the 31st day of October preceding, and stating :— 1. Amount of its authorized capital stock and amount paid in. 2. The date and rate per cent, of each dividend for the preceding year. 3. The entire amount of the capital of such corpora- tion. 4. The capital employed in the state for the preceding year. 5. Such other data as the Comptroller may require. This report is to be filed by every corporation liable to pay a franchise tax. Forms are furnished by the Comptroller, which go much further into detail than the statute would indicate. If not satisfied with the report, the Comptroller may require supplemental reports, or send a commissioner to examine the corporation records, or may determine the taxes, etc., due the state, from any other information or data attainable. Failure to make this report entails a penalty upon the corporation of one hundred dollars, and ten dollars for every day that the de- fault continues. (Rev. Tax Law, §§ 189, 191, 192, 194.) Assessor's Report. The president or other proper offi- cer of every corporation, must deliver on or before June 15th of each year, to one of the assessors, of the tax dis- trict in which the principal office of the company is situ- ated, a written statement, duly verified, specifying:— 1. The real property owned by such company, the 75 NEW YORK CORPORATION LAWS. sums actually paid therefor and the tax district in which it is situated. 2. The capital stock actually paid in and secured to be paid in, after deducting therefrom the sums paid for real property, and the face value of any of its stock held by the state or by any incorporated literary or charitable institution. 3. The tax district where its principal office is located or where its business is conducted. If this report is not made within twenty days after the 15th of June, or is faulty, the assessors may compel a proper statement by mandamus. Failure to make this report within thirty days after the 15th day of June en- tails a penalty upon the corporation of two hundred and fifty dollars. (Rev. Tax Law, §§ 27, 28. ) Municipal Reports. If the corporation has its princi- pal office in a city, a report must be made to the taxing authorities according to forms furnished by them. In New York City this must show the condition of the cor- poration as it was on the second Monday of January of each year. * § 29. General Regulations. Power to Contract Debts. Every business corporation has power to borrow money and contract debts for any lawful purpose, and may issue and dispose of its obliga- tions for any amount so borrowed, and may mortgage its property and franchises to secure the payment thereof; but the amount of mortgage indebtedness at any one time, (exclusive of mortgages given for the purchase of real estate) "shall not exceed the amount of its paid-up capital stock, or an amount equal to two-thirds of the value of its corporate property in case such two-thirds value shall be more than the amount of such paid up capi- 76 NEW YORK CORPORATION LAWS. tal stock." No such mortgages may be issued except with' the consent duly evidenced, filed and recorded, of stock- holders owning at least two-thirds of the stock of the cor- poration. (Stock Corp. Law, § 2.) No business corporation may create any debt, where- by its total indebtedness, unsecured by mortgage, shall exceed the amount of its paid-up capital stock. (Stock Corp. Law, § 24.) From this it appears that a corporation may only contract mortgage indebtedness to the amount of its paid- up capital stock and unsecured indebtedness to the same amount, unless it has accumulated property to an amount more than half again as much as its paid-up stock, when the mortgage indebtedness may be increased to two- thirds of the value of such accumulated property. Anti=Trust Laws. Every person or corporation or any officer or agent thereof who is concerned in any contract, agreement or combination to create a monopoly, to re- strain competition, or to restrict the free pursuit of any lawful trade, business or occupation, shall be liable to a fine of five thousand dollars, and, if an individual, to im- prisonment for not longer than one year. (Laws of 1897, Ch. 383.) § 30. Foreign Corporations. Requirements. A foreign corporation doing business in the State of New York is required to : — 1. File a verified copy of its charter in the office of the Secretary of State, accompanied by a statement under its corporate seal, signed by its president or vice-president, setting forth particularly : — (a) The business or objects which it proposes to pursue in the state. (b) A place within the state which is to be its principal place of business. 77 NEW YORK CORPORATION LAWS. (c) The name of its president, secretary, treasurer or other person, having an office at the place where its principal place of business is to be, upon whom process against the company may be served. (Code Civil Procedure, § 432, Gen. Corp. Law, § 16.) 2. Procure a certificate from the Secretary of State showing that these formalities have been complied with and that its business is such as may be law- fully carried onintheState. (Gen. Corp. Law, § 15. ) (The fee for filing charter together with cost of certificate is $11, and to this must be added 15c. per folio for recording and copying the • charter.) 3. Keep a stock book open to inspection of stock- holders and judgment creditors, in all respects as provided for domestic corporations. (See § 24, this chapter. ) 4. File reports in all respects as do domestic corpora- tions. (See § 28, this chapter.) 5. Pay taxes, as follows : — (a) License tax of one-eight of one per cent, on its capital stock employed within the state during the first year. This license tax is to be paid to the state treasurer within thirteen months after beginning business within the state. (Rev. Tax Law, §181.) (b) Franchise tax, annually as for domestic cor- porations, but computed on the basis of the capital employed within the state. (Rev. Tax Law, § 182. ) Foreign corporations are entitled to the same exemptions as domestic corpora- tions, for mining or manufacturing carried on in the state. (Rev. Tax Law, § 183.) (c) Taxes on the capital invested in its business, (as personal property) at the place where such business is carried on and to the same extent 78 NEW YORK CORPORATION LAWS. as if such corporation were a resident of the state. (Rev. Tax Law, § 7.) Liabilities. The officers, directors and stockholders of foreign corporations shall be liable in the same manner and to the same extent as are the officers, directors and stockholders of a domestic corporation. (Stock Corp. Law, §60.) General. Foreign corporations doing business in New York without procuring the proper certificate from the Secretary of State may not maintain any action in the state courts. This penalty might be avoided by bringing suit in the United States courts; but as the corporation in any event is subject to all the regulations as to taxes, re- ports, penalties, etc., nothing is gained by a refusal to com- ply with the state requirements, and on all accounts the proper certificate should be secured. In case of suits against a foreign corporation a war- rant of attachment is usually issued at once and may be levied on any property, claim or demand such corporation may own in the state. Where such action, if taken, would seriously etnbarass the corporation, an arrangement is usually made in advance with some guaranty company to furnish immediate bond should the occasion rise. If the business of the company lies entirely outside of New York and only an office is needed in the state in which to keep books, hold corporate meetings and direct the business, the corporation will not be considered as doing business in the state. " The basis of taxation of a foreign corporation is the portion of its capital employed in the state"; hence, "if it doe's not employ any of its capital stock here there is no basis for taxation." NEW YORK CORPORATION LAWS. § 53. Expenses of Incorporation in the State of New York. Capital Stock. Organiza- tion Fee. Filing Fee. Sundry Fees. U. S. Rev. Stamps. Total. An. Taxes on 6 per ct. Dividend. $ 2,000 5,000 $2.50 6.25 $10.00 10.00 $5.00 5.00 $ 1.00 2.50 $ 18.50 23.75 $ 3.00 7.50 10,000 25,000 12.50 31.25 10.00 10.00 5.00 5.00 5.00 12.50 32.50 58.75 15.00 37.50 50,000 100,000 62.50 125.00 10.00 10.00 5.00 5.00 25.00 50.00 102.50 190.00 75.00 ' 150.00 500,000 1,000,000 5,000,000 625.00 1,250.00 6,250.00 10.00 10.00 10.00 5.00 5.00 5.00 250.00 500.00 2,500.00 890.00 1,765.00 8,765.00 750.00 1,500.00 7,500.00 The first column gives the most common company- capitalizations. The second column gives the organization fee, which is one-eighth of one per cent, of the capitalization. This must be sent direct to the State Treasurer (not to the State Secretary), at Albany, either in cash, certified check, draft on New York, or post office or express order. (Laws 1896, Ch, 908, § 180.) The State Treasurer notifies the Secretary of State of such payment as soon as same is re- ceived. The third column gives the filing fee which must be sent with the certificate of incorporation, duly executed, to the Secretary of State at Albanv. (Laws 1892, Ch. 683, §26.) The fourth column allows approximately for the smaller fees for filing, recording, acknowledgments, etc. The fifth column gives the United States revenue tax • which must be paid by stamps affixed to all stock certifi- cates issued. If only a part of the stock is issued, the tax would be reduced proportionately. The rate is five cents on original issues and two cents on re-issues for each hundred dollars of par value, or fraction thereof. The sixth column gives the total amount of taxes and fees if all the stock is issued. 80 NEW YORK CORPORATION LAWS. The seventh column gives the annual state franchise tax, if the entire capital is employed in the state and a six per cent, dividend is paid. This tax is reckoned on the capital stock employed in the state and is .00025 for each one per cent, of dividend declared if the dividend is six per cent, or above six per cent. (Rev. Tax Law, § 182.) If less than six per cent, dividend is paid the tax is com- puted on another basis. It is reckoned upon such part of the capital stock as would equal the proportion of its assets employed in the state. The rate is .0015. (Rev. Tax Law, §182.) If no dividend is declared, yet another basis is taken. It is reckoned on the appraised assets employed in the state and the rate is .0015. (Rev. Tax Law, § 182.) Mining Corporations wholly engaged in mining ores in the state are exempt from these annual franchise taxes. Manufacturing corporations are exempt from franchise taxes on the capital actually employed in manufacturing in the state and in the sale of such manufactured articles. (Rev. Tax Law, 8 183.) The owner or holder of stock in an incorporated com- pany liable to taxation on its capital, shall not be taxed as an individual for such stock. (Rev. Tax Law, § 4.) The assessment for general taxation shall be the actual (not face) value of the capital stock together with any surplus funds (above the amount often per cent, of capital stock) less the assessed value of its real estate. This shall be assessed in the tax district in which the corporation has its principal office or place of business. (Rev. Tax Law, § 31.) CHAPTER VIII. NEW JERSEY CORPORATION UWS. § 32. Introductory. More corporations are formed under the laws of the State of New Jersey than under those of any other state in the Union. For the fiscal year ending September 29, 1899, over 2,000 corporations were chartered in the State with a combined capitalization of over $3,500,000,000. Over 15,000 companies now hold New Jersey charters. The corporation laws of the State are simpler, more liberal and less burdensome than are found in any other portion of the Union, and, following the lines of least resistance, most of the larger corporate enterprises of the country have taken advantage of their provisions. Among these New Jersey corporations are most of the immense industrial combinations or trusts that have, by adverse judicial decisions against every other form of combina- tion, been driven to organize as heavily capitalized cor- porations. The Federal Steel Company, the American Sugar Refining Company, the American Tobacco Com- pany and many other well-known consolidations, are neither more nor less than New Jersey corporations, using the same general laws and the same corporate organiza- tions as are herein described. Sectional references in this chapter are to the General Corporation Laws of New Jersey unless otherwise noted. 82 NEW JERSEY CORPORATION LAWS. § 33. Charter Formalities. Parties. — Three or more natural persons of full age may incorporate under the New Jersey laws. None of these need be residents of the State, though as a resident director is required, it is usual to have one resident incor- porator who is afterward elected to the board of direc- tors. (86.) Purposes. — Under the general laws a corporation may be formed for all lawful businesses and purposes other than banking, insurance, safe deposit and trust companies, and companies desiring the power of taking and con- demning land. These excepted purposes are provided for by special laws. Corporations are not limited to one purpose or business, but may incorporate for such "pur- poses" as they see fit. (§ 6.) Powers. — All the usual powers are conferred by a New Jersey charter, (See § 5, this work) and in addition full powers for the specified objects of the corporation. Also, New Jersey corporations have full powers to buy, hold, sell, or otherwise dispose of the stock of other corpora- tions. (See Chap. VI, §20, this work.) Remarkably ex- tensive powers may be obtained by inserting special pro- visions in the certificate of incorporation. (§§ 1, 2, 8, 51.) The Certificate of Incorporation (§8.) shall set forth : — 1. The name of the corporation. "No name shall be assumed already in use by another existing corporation of this state, or so nearly similar thereto as to lead to uncertainty or confusion." (§ 8.) The words, "insurance," or "safe deposit," or "trust company," or "bank," must not be used as part of the name. (§ 251.) 2. The location of its principal office, (which must be within the state) giving street and number. 83 NEW JERSEY CORPORATION LAWS. Also the name of the agent in charge upon whom process against the corporation may be served. 3. The object or objects for which the corporation is formed. The objects of the corporation are usually set forth as broadly and comprehensively as possible, in order to provide for all contingencies. 4. The capital stock of the company, which shall not be less than two thousand dollars. The number of shares into which it is divided and the par value of each share. The amount of subscribed stock with which it will begin business, which must not be less than one thousand dollars. The different classes of stock created, if there be more than one, with full description of each. The capital stock may be made as large as desired. Up to $125,000 the minimum organization fee is $25.00; hence there is no economy in any smaller capitalization. The round sum of $100,000 is very commonly taken. Only a part of the authorized capital stock need be issued. The par value of shares may be placed at any amount, though one hundred dollars is the usual maximum. The amount with which the company will begin busi- ness is usually the amount for which it has stock sub- scriptions. These subscriptions need not be paid at once, but, as required, may be called for by the board of direc- tors, who may also permit payment in property instead of cash. Additional stock, up to the authorized limit, may be issued as needed. Until stock is issued it is not subject to taxation. Preferred stock or any special class of stock must be fully described, setting forth, particularly, preferences as to dividends or assets, voting privileges or restrictions, rate 84 NEW JERSEY CORPORATION LAWS. of dividend not exceeding 8 per cent, per annum, terms of redemption and all other details. (See § 35, this Chapter.) 5. The names and post office addresses of the incorpo- rators and the number of shares subscribed for by each. The aggregate of such subscriptions is the amount of capital stock with which the company will begin business, and must be at least one thou- sand dollars. This provision does not call for the residences or home addresses of the incorporators. The address of the prin- cipal office in the state may be given as the post office address of each incorporator. The object of this is to avoid giving information to the tax officials of other states. 6. The duration of the corporation. If no period is mentioned the existence of the corporation is per- petual. 7. Any special or general provisions desired by the in- corporators for the regulation of the business and the conduct of the affairs of the corporation may be inserted in the certificate of incorporation; also any provisions creating, defining, limiting and regulating the powers of the corporation, the directors and the stockholders, or any class or classes of stockholders ; providing the same be not inconsistent with the general corporation law of the state. This privilege of inserting special provisions in the certificate of incorporation gives wide scope for enlarging and controlling the powers of the corporation, and renders possible the introduction of regulations tending greatly to the advantage of the future conduct and welfare of the company. The following examples are intended to be merely suggestive : — (a) Directors may be given power, limited or unlim- ited, to make and amend by-laws. (§ 11.) 85 NEW JERSEY CORPORATION LAWS. (b) Directors may be required to be owners of record of some substantial amount of stock of the com- pany, thereby excluding "dummy " directors. (c) The board of directors may be classified so that but one-half, one-third, one-fourth or one-fifth is elected each year, thus preventing any sudden change of management which otherwise might occur. (§ 12.) (d) Stock may be so classified that any certain class shall elect the entire board of directors or any desired proportion thereof. (§18.) (e) Provision may be made that the sale of the entire property of the company shall only require the approval or vote of two-thirds, or some other proportion, of the stockholders, instead of the unanimous vote required otherwise under the law. In event of combination with another cor- poration, and in some other cases, this provision might be important. (f) Any of the special provisions set forth under the New York law may be inserted, though the authorization to purchase and hold stock in other companies is superfluous, the state laws giving ample corporate powers in this direction. (g) A special clause should always be inserted to em- power the corporation to do business outside the state. The following conforms to the statute : — (S7.) "This corporation shall have power to conduct business in other states or in foreign countries and to have one or more offices out of this state, and to hold, purchase, mortgage and convey real and personal property in any state or territory of the United States and in any foreign country." (h) Regulations fixing the voting power of stock as, for example, that each stockholder shall have one vote for each share of stock held, up to ten shares; 86 NEW JERSEY CORPORATION LAWS. that on stock in excess of this amount he shall have one vote for each five shares up to one hun- dred shares, and that on all stock held in ex- cess of the one hundred and ten shares provided for above, he shall have one vote for each ten shares. This is the voting provision of the English Companies Act which is not only permissible and legal under the New Jersey laws, but is susceptible of any desired variation. (§ 8, If vii. ) The certificate of incorporation must be personally signed and sealed by all subscribers to the capital stock who are named in the instrument and is then acknowl- edged by them before any officer qualified under the New Jersey laws to take acknowledgments for deeds of real estate. (§§8,9.) Within the State of New Jersey, the acknowledgment may be taken by the Chancellor, a Justice of the Supreme Court, a Master in Chancery, a Judge of any Court of Common Pleas, a Commissioner of Deeds, a Clerk of the Court of Common Pleas, a Deputy County Clerk, a Sur- rogate, Deputy Surrogate or a Register of Deeds, but not before a Notary Public, who in New Jersey has no authority to take acknowledgments. If the acknowledgment is taken out of the state, it may be taken by a Foreign Commissioner of Deeds for New Jersey or by a Master in Chancery for the State of New Jersey. If such officials are not available it may be taken before a Notary Public or other officer authorized to take acknowledgments to deeds, but in such a case a certificate by the County Clerk, or other officer of a Court of Record, proving the authorization and the identity of the Notary Public, must be attached. After being properly acknowledged, the certificate of incorporation must be recorded in the office of the Clerk of the County in which the principal office of the company 87 NEW JERSEY CORPORATION LAWS. is to be located. After this is done the charter must be filed in the office of the Secretary of State. The corporate existence begins from the date of such filing. (§§ 9, 10.) If it should be in any case desirable, the laws of New- Jersey permit the substitution of an amended charter be- fore any part of the capital stock is paid in. Such amend- ed charter, duly and formally executed, takes the place of the original charter, and is deemed to be of the same date as the original, If the capital stock is the same as in the original charter, the fee for filing is $20. The usual fees are required for any increase of capital over the original charter. Such amendment will not affect any pending legal proceedings. (§26a.) § 34. Organisation Under Charter. The First Meeting must be held in the State at the principal office of the company and may be called as fol- lows : — 1. By notice signed by a majority of the incorpora- tors, designating the time, place and purposes of the meeting, and published at least two weeks prior to such meeting in a newspaper of the county wherein the principal office of the company is located. 2. By a like notice personally served on all the incor- porators two days before the time of such meeting. 3. By unanimous written waiver of notice, fixing time and place. This must be signed by all the incorpo- rators and is the method usually pursued. (§16.) For the proper proceedings at this first meeting to perfect the organization of the company, see Chapter XII, § 70, this book. § 35. Stock. Subscriptions and Assessments. The directors may from time to time make assessments upon stock subscribed 88 NEW JERSEY CORPORATION LAWS. for, such assessments not exceeding in the aggregate the par value thereof. The sums so assessed shall be paid to the treasurer at such times and in such installments as the directors shall require. Thirty day's notice of such call shall be given either personally, by mail, or by publica- tion in a newspaper of the vicinage. (§ 22.) If the owner of any shares shall neglect to pay any assessment for thirty days after the time for such pay- ment, the treasurer on order of the board, shall sell at public auction, such numbers of the shares of the delin- quent owner as will pay all assessments with interest and charges. (§ 23.) The treasurer shall give notice of the time and place of any such sale and of the sum due on each share, by adver- tising the same once a week for three weeks successively in some newspaper of the vicinage, and mailing a notice thereof to the delinquent stockholder. (8 24.) Payment for Stock. Stock may be issued for either money or property and in the absence of actual fraud the judgment of the directors as to value received therefor is conclusive. (§49.) Construction companies are allowed to take stock or bonds of any company for which they may be building, constructing or repairing, and pay for same in property, work, labor, services performed or materials furnished. (§50.) Other corporations are not authorized to take labor or services in payment for stock, but the courts would probably sustain such a contract if fairly carried out. Certificates of Stock. Every stockholder shall have a certificate signed by the president and treasurer, certify- ing the number of shares owned by him. (§ 19.) Transfers. Shares of stock shall be transferable on the books of the corporation in such manner and under 89 NEW JERSEY CORPORATION LAWS. such regulations as the by-laws may provide. When any transfer is made for purposes of collateral security, the entry of transfer shall state such fact. (§ 20.) Transfer Books. The stock and transfer books of any corporation shall be kept at the principal office in the state and shall at all times during business hours be open to the inspection of every stockholder of such company. The directors shall cause to be made at least ten days be- fore each election an alphabetical list of stockholders en- titled to vote, with the residence and number of shares held by each, which list shall be kept at the principal office until the time of such election, open to examination during business hours. Refusal to permit examination of books and list as aforesaid on demand of any stockholder shall subject the officer guilty thereof to a forfeiture of $200. These books and, in case of discrepancy between them, the transfer book, shall control and determine who are entitled to vote. The directors shall produce the books and alphabetical list at the election, there to remain dur- ing the election, and their neglect or refusal to do so, shall render them ineligible to any office at such election. (§§33 40.) Inspection of Books. As stated above, a stockholder has the right to inspect the stock and transfer books of the company, but the general common law right to inspect the books of account may be exercised only under special circumstances, and, usually, if objected to, has to be enforced by legal procedure. Preferred Stock. " Every corporation shall have the power to create two or more kinds of stock of such classes, with such designations, preferences and voting powers or restrictions or qualification thereof, as shall be stated and expressed in the certificate of incorporation." The total amount of preferred stock issued shall at 90 NEW JERSEY CORPORATION LAWS. no time exceed two-thirds of the actual capital which has been paid for in cash or property. Such preferred stock may be subject to redemption at not less than par at a fixed time and price which must be printed on the certificate thereof. The holders of such stock shall be entitled to receive a fixed yearly dividend to be printed on the certificate, not exceeding eight "per cent., payable quarterly, half-yearly or yearly, before any dividend shall be set apart or paid on the common stock and such dividends may be made cumulative. In no event shall a holder of preferred stock be person- ally liable for the debts of the corporation ; but in case of its insolvency, debts or other liabilities shall be paid before anything is paid to the preferred stock. "Unless its original certificate of incorporation shall otherwise provide, no corporation shall create preferred stock except by authority given to the board of directors by a vote of at least two-thirds of the stock, voted at a meeting of the common stockholders duly called for that purpose." (§18.) In the event of insolvency, after all debts are paid, if there be any remaining assets, they shall be applied to the redemption of the preferred stock before anything is paid lo the holders of common stock. (§ 86.) Treasury Stock. Shares belonging to a corporation shall not be voted upon directly or indirectly. (§ 38.) Stock of other Companies. Any corporation may hold stock and bonds of other corporations. (§ 51.) (Also see "Trusts " Chapter VI, § 20, this work.) Full Payment of Subscriptions. Upon full payment of the capital stock authorized by the certificate of incorpo- ration, or of any increase thereof, a certificate giving the amount and whether paid in cash or property shall be 91 NEW JERSEY CORPORATION LAWS. filed in the office of the Secretary of State within ten days of such full payment. (§ 25.) (See directions under head of "Officers.") § 36. Stockholders. Meetings. All stockholders' meetings must be held at the registered office of the company in the' state. ( § 44. ) "Whenever for any reason a legal meeting of the stockholders cannot otherwise be called, three or more stockholders, having voting powers, may call such meet- ing by publishing ten days' notice of the time, place and purposes of such meeting in a newspaper published in the county in which its principal office in this State is located and mailing such notice to all stockholders whose address is known or can be ascertained ; a meeting called as afore- said shall be a legal meeting." (§ 46.) All elections of directors must be by ballot unless other- wise expressly provided in the certificate of incorporation. The polls must be opened between the hours of 9 A. M. and 5 P.M.; must remain open for at least an hour, un- less all votes are cast sooner, and must close before 9 P. M. (S34.) Voting powers. All stockholders are entitled to eertifi- cates signed by the president and treasurer showing the number of shares owned by them, but the right to vote does not depend upon the possession of this certificate. (S19.) Unless otherwise provided in the certificate of incorpo- ration, every .stockholder is entitled to one vote, either in person or by proxy, at all stockholder's meetings for each share of stock held in his name. (§ 36.) No share of stock shall be voted on at any election which has been transferred on the books of the corpora- 92 NEW JERSEY CORPORATION LAWS. tion within twenty days next preceding such election. (§36.) Cumulative voting may only be had by special provis- ion in the certificate of incorporation. (§ 36.) Quorum. In no case shall more than a majority of the voting stock be required to constitute a quorum and if no provision has been made in the charter or by-laws as to what shall constitute the same, a majority in interest, represented in person or by proxy, shall be considered a quorum. (§ 17.) Proxies. Absent members may vote at all meetings by written proxies. No proxy shall be voted on after three years from its date. (§36.) Inspectors. The inspectors of election shall refer to the stock books to ascertain who are the stockholders. (§40.) The law does not expressly call for inspectors, but it is the usual method of conducting elections in New Jersey corporations. The by-laws should contain a provision, about as follows : — "All elections of directors shall be con- ducted by two disinterested inspectors to be appointed by the presiding officer, who shall be duly sworn to the faith- ful discharge of their duty and who shall in writing cer- tify to the returns." Liabilities. Stockholders are liable to the company or its creditors for the amount of their unpaid subscrip- tions to the capital stock. (§21.) Stockholders are liable to creditors in case of insol- vency of the corporation, for the amount of any dividends received by them that may have been paid out of the capital of the company. § 37. Directors. Number and qualifications. The business of every cor- 93 NEW JERSEY CORPORATION LAWS. poration shall be managed by its board of directors which must consist of not less than three stockholders, one of whom must be a resident of the state. The amount of stock to be held by each may be fixed in the by-laws, otherwise the possession of one share is sufficient qualifi- cation. Any director ceasing to be a bona fide stock- holder shall cease to be a director. (§§12, 39.) In this last case it would be proper for the board to pass a resolution declaring that the place was vacant. Vacancies. Vacancies shall be filled by the board of directors, unless the by-laws prescribe some other method. (§15.) Meetings. The board of directors may hold their meetings and have an office and keep the books, except the transfer and stock books, outside the state, if the by- laws or certificate of incorporation so provide. (§ 44.) Quorum. A majority of the directors constitute a quorum and, when convened, a majority of such quorum may do any act within the powers of the board of direct- ors, unless otherwise provided in the charter or by-laws. Duties. The duties of the board of directors specially prescribed by the statutes, in addition to the general man- agement of the business of the corporation, are to declare dividends from the surplus or net profits, and to have a list of stockholders prepared and exhibited ten days before any election of directors. (For details of these duties, see u Dividends" and "Transfer Books" this chapter.) Liabilities. Directors make themselves personally re- sponsible for the debts of the company under the follow- ing circumstances : — 1. If thev loan the company's funds to a stockholder. (§48.) 2. If they declare dividends except from net profits. (§ 30.) 94 NEW JERSEY CORPORATION LAWS. 3. If they issue false certificates or notices. (§ 52.) 4. If they fail to give due notice of decrease of capital stock. (§29.) Directors are also liable to a fine of two hundred dol- lars if the company name is not properly displayed at the principal office in the state. (§45.) If the directors do not produce the stock and transfer books and alphabetical list of stockholders at the annual meeting, they render themselves ineligible for re-election. (§33.) If a candidate for the office of director shall act as judge, inspector or clerk at the election of directors, he shall thereby, if elected, render such election void and make himself ineligible as a director for twelve months there- after. This does not apply, however, to the organizing 1 election at the first meeting of stockholders. (§ 35.) §38. Officers. Enumeration and qualifications. Every corporation shall have a president, secretary and treasurer, chosen by the directors or stockholders as the by-laws may direct, who shall hold office until their successors are chosen and qualified. (§13.) The President shall be chosen from among the direc- tors. (§13.) The Secretary must be sworn to the faithful discharge of his duties. (§13.) The Treasurer must give bond as may be required by the by-laws. (§13.) Vacancies. Any vacancy shall be filled by the board of directors unless otherwise provided in the charter or by-laws. (§15.) Duties. The president and secretary must file! a cer- 95 NEW JERSEY CORPORATION LAWS. tificate of the fall payment of the capital stock of the company when made, or of any increase of the same, and in default thereof for thirty days after written notice to file such a certificate has been given by any stockholder or creditor, either of the said officers shall be liable to pay all of the company indebtedness contracted during such de- fault. (S§ 25, 26.) The Treasurer shall attend to all details of the sale of stock forfeited for non-payment of assessments. ( § 24. ) Liabilities. Any officer refusing inspection of the stock or transfer books to any stockholder shall forfeit two hundred dollars. (§33.) No loan shall be made by the company to any stock- holder or officer of the company. If made, the officer who makes or assents thereto, shall, until such loan is repaid, be liable to that extent for the debts of the corporation. (§48.) If any certificate or public notice be false, the officer or officers signing the same shall be personally liable for all debts contracted by the corporation while they remain officers or stockholders thereof. (§ 52.) The annual report to the assessors shall be signed by the president, treasurer or secretary, and if any false state- ments be made therein they shall be deemed guilty of per- jury. (§202.) § 39. Reports. The Annual Report. Within thirty days after every annual election, the president and secretary shall make out and file in the office of the Secretary of State a state- ment setting forth : — 1. The names and addresses of the directors and officers elected; which addresses may be that of the principal office of the corporation in New Jersey. 96 NEW JERSEY CORPORATION LAWS. 2. Date of election of directors and officers and terms for which same are elected. 3. The location of the principal office with street and number. 4. Name of agent in charge of such office. Every corporation failing to file such report shall for- feit to the state the sum of two hundred dollars. (§§ 43, 43a. ) The fee for filing such report is one dollar. Assessor's Report. An annual return must be made to the State Board of Assessors giving such information as may be required by said board to carry out the pro- visions of the act imposing franchise taxes. The State Board of Assessors has power to require such return and may require the production of the company books and may swear and examine witnesses in relation thereto. Should any company fail to make such return or report, the State Board of Assessors may determine the amount of the annual license fee in such manner as they may deem most practicable, and the amount so fixed shall stand. (S§202, 203, 204.) Registered Office. The location of the principal office of the company, giving city, or town, street and number, if there be a number, together with the name of the agent in charge thereof, shall be included in and made a part of every report required of the company. (§ 43a.) § 40. General Regulations. State Office. A state office with agent in charge must be maintained and the name of the corporation must be conspicuously displayed at the entrance thereof. (§ 45.) Such office shall be deemed the office (and post office address) of the corporation, its officers, directors and stockholders, and any notices required by law to be sent 97 NEW JERSEY CORPORATION LAWS. to the corporation, its officers, directors or stockholders may be sent by mail or otherwise to such office and such notice so given shall be deemed sufficient notice. When- ever the address of any incorporator, stockholder, director or other officer is required to be set forth, it shall be a suf- ficient compliance to give the post office address of the registered office. (§43a.) Merger. Any two or more corporations under the New Jersey law may by statutory process readily merge if two-thirds of the stockholders of each company favor such merger. Any dissenting stockholder may have his stock appraised and the consolidated corporation must buy the same. (§§ 104, 105, 106, 107, 108.) Corporation Trust Companies. (See Chap. VI, § 19.) Dividends. In January of each year the directors shall, after reserving for working capital such sum as may have been fixed by the stockholders, divide as divi- dends the whole of the accumulated profits of the com- pany unless the certificate of incorporation or the by-laws provide otherwise. (§ 47.) Under this law the directors are allowed no discretion, but must pay out all profits as dividends without reser- vation of any kind, unless there is a charter provision or a by-law fixing some definite amount to be retained as working capital, or authorizing the directors to reserve such amount as they may deem best. (See "Reserve Fund," Art. V, § 2, By-laws.) § 41. Foreign Corporations. Filing Charter. Every foreign business corporation shall, before transacting any business in the state, file in the office of the Secretary of State, a copy of its charter, duly attested by its president and secretary and under its 98 NEW JERSEY CORPORATION LAWS. corporate seal, and a statement attested in like manner, setting forth : — 1. The amount of its authorized capital stock. 2. The amount of capital stock actually issued. 3. The character of the business which it is to trans- act in the state. 4. The location of its principal office in the state. 5. The agent upon whom process against the com- pany may be served. 6. The place of abode of such agent. Upon the filing of such copy of the charter and such statement, the Secretary of State shall issue to such cor- poration a certificate, stating that its business is lawful and that it is authorized to transact business in the state. (§97.) _ Until such certificate is obtained a foreign corporation shall not maintain any action in any of the state courts. (§98.) Any foreign corporation transacting any business whatsoever within the state, without having obtained such certificate of authorization, shall forfeit to the state two hundred dollars for each offense. (8 100.) The agent appointed to represent such corporation in the state shall be a domestic corporation or a natural person of full age, actually resident in the state, and if the agent so appointed shall die, another shall be appointed within thirty days thereafter. (§§ 97, 99.) A foreign corporation may acquire, hold, mortgage, lease and convey real estate within the state, convenient for the prosecution of its business or to secure payment of debts due such corporation. (§95.) Foreign corporations doing business in this state, shall be subject to the provisions of the General Corpora- 99 NEW JERSEY CORPORATION LAWS. tion Law of New Jersey, so far as the same can be applied to foreign corporations. (§ 96.) Under this provision, foreign corporations are subject to the same taxes, and are required to make the same annual reports of elections and the same statements for purposes of taxation, as domestic corporations and are entitled to the same exemptions if engaged in manufactur- ing or mining within the state. The usual fees paid by foreign corporations are : — For filing charter and statement and issu- ance of certificate of authority by Secre- tary of State ". $10.00. For filing annual report 1.00 (For annual franchise taxes, see Table of Expenses; next page. ) Retaliatory Taxes, Etc. "When by the laws of any other state or nation, any other or greater taxes, fees, licenses, etc., or obligations, or requirements are imposed upon corporations of this state doing business in such other state or nation than are imposed by the laws of this state on foreign corporations, then the corporations of such other state or nation shall pay the same greater taxes, fees, licenses, etc., and submit to the same obliga- tions and requirements in this state." (§101.) NEW JERSEY CORPORATION LAWS. § 42. Expenses of Incorporation in the State of New Jersey. Capital Stock. Organiza- tion Fee. Sundry Fees. U. S. Rev. Stamps. Total. Annual Tax. N. J. Office Cor. T. Co. $ 2,000 5,000 $25.00 25.00 $10.00 10.00 $ 1.00 2.50 $ 36.00$ 2.00 37.50 5.00 $50.00 50.00 10,000 25,000 25.00 25.00 10.00 10.00 5.00 12.50 40.00 47.50 10.00 25.00 50.00 50.00 50,000 100,000 25.00 25.00 10.00 10.00 25.00 50.00 60.00 85.00 50.00 100.00 50.00 50.00 500,000 1,000,000 5,000,000 100.00 200.00 1,000.00 10.00 10.00 10.00 250.00 500.00 2,500.00 360.00 500.00 710.00 1,000.00 3,510.00 4,000.00 50.00 50.00 50.00 Thefi rst colui tin giv es the most common company capitalizations. The second column gives the organization fee, which is twenty cents for each thousand dollars of capitaliza- tion, but in no case less than $25.00. This makes the organization fee $25.00 for any capitalization up to $125,000. (SH4.) The third column provides approximately for the smaller fees, etc. The fourth column gives the United States revenue tax which must be paid by stamps affixed to all stock certifi- cates issued. If only a part of the stock is issued, the tax would be reduced proportionately. The rate is five cents on original issues and two cents on re-issues for each hundred dollars of par value, or fraction thereof. The fifth column gives the amount of the total taxes and fees if all the stock is issued. The sixth column gives the annual franchise or license tax to the state if the entire amount of stock has been issued. The rate is one-tenth of one per cent, per annum, on all amounts of capital stock issued and outstanding up to and including the amount of $3,000,000. On all stock issued and outstanding in excess of $3,000,000 and 101 NEW JERSEY CORPORATION LAWS. not exceeding $5,000,000, the rate of tax is one twentieth of one per cent, per annum. On all stock issued and out- standing in excess of $5,000,000, the rate of said tax is fifty dollars per annum on each million dollars or part thereof. (§ 4, "Franchise Tax.") The seventh column gives the annual cost of keeping up an office in the state through one of the corporation trust companies. This is paid in advance, and, unless some other agency is employed for the maintenance of a state office, must be added to the expenses of incorpora- tion, and to the annual taxes thereafter, in order to cor- rectly estimate the entire expense of incorporation in New Jersey. This only applies to corporations whose business lies outside of New Jersey, as a corporation doing busi- ness in the state would naturally maintain its own office. Manufacturing and mining corporations employing one-half of their capital within the state are exempt from the annual tax. Such companies having less than fifty per cent, of their capital invested in the state, shall be en- titled to have the assessed value of their real and personal property within the state deducted from their outstand- ing stock, before estimating the annual tax. (§ 203.) Any corporation in arrears with its taxes for three months may be enjoined at the suit of the Attorney Gen- eral, on five days' notice to said corporation, from exercis- ing any franchise or doing any business within the State of New Jersey until such taxes and all costs are paid up. (§206.) If any corporation neglect or refuse to pay any of its state taxes for two consecutive years, the charter of such corporation shall be cancelled, and all its powers become inoperative and void. (§208.) Property in the State. "All real and personal property of every corporation shall be taxed the same as the real and personal property of an individual." (§ 110.) 102 CHAPTER IX. DELAWARE CORPORATION I,AWS. § 43. Introductory. The corporation laws of Delaware have been modeled after those of other states, and more particularly those of New Jersey, with the avowed purpose of attracting out- side incorporators. In some respects the Delaware laws are an improvement upon the models but in others the good and the bad together have been broadly copied. From the standpoint of the incorporator, some decided advantages are found in the laws of Delaware. The more important of these are as follows : — 1. For the larger capitalizations the cost of organiza- tion is less. 2. The annual tax is only half that of New Jersey. 3. All meetings, except the first meeting of stockhold- ers, may be held outside the state. 4. Provided duplicate books are kept in the Delaware office, the original stock and transfer books may be kept wherever desired. 5. The law specifies that stock may be issued for "labor and services" as well as for money and property. 6. The certificate of incorporation and the annual reports give a minimum of information to the out- side public. 103 DELAWARE CORPORATION LAWS. On the other hand the corporations laws of Delaware are ill-arranged and badly framed and have not been passed upon by the. courts to the same extent as have the laws of New York and New Jersey. Also the laws are affected by two provisions found in the Constitution of the state that conflict quite seriously with modern ideas of liberal corporation laws. The first of these constitu- tional provisions does not permit any restrictions or modification of the voting power of either preferred or common stock in the election of directors, thereby pre- venting cumulative voting. The second prohibits the issuance of stock for labor or property at any greater price than the actual value of the same at the time of purchase. The dangerous feature of this provision is that mines, inventions and other speculative properties may be purchased with stock and then later prove to have been worth less than the face value of the stock issued therefor. In this case the holders of such stock might be held liable for the difference between its face value and the real value of the property purchased. There are also minor ambiguities in the Delaware cor- poration laws that will doubtless be corrected at an early date. Taken as a whole, however, the laws have many points of excellence and will doubtless secure for the state its full share of the incorporating business. The sectional references in this chapter are to the Gen- eral Corporation Law of Delaware, except where other- wise noted. § 44. Charter Formalities. Parties. Three or more natural persons of full age may incorporate under the Delaware laws. None of these need be residents of the state, but as one of the directors 104 DELAWARE CORPORATION LAWS. must be a resident, it is convenient to have one resident incorporator, who may afterward be elected to the board of directors. (§ 1.) Purposes. Under the general provisions of the corpo- ration law, a corporation may be formed "for the trans- action of any lawful business, or to promote or conduct any legitimate object or purpose," excepting banking and railroading, which may be organized only under special provisions. (§ 1.) Powers. A Delaware corporation has all the usual powers, (see § 5, this volume) and, in addition thereto, full powers for its specified business. (§2.) Also it has full power to acquire, hold, sell or other- wise dispose of, the stock and bonds of other corpora- tions. (See Ch. VI, § 20, | this volume.) (§ 133.) Very extensive powers may be obtained by inserting special provisions in the certificate of incorporation. (§8.) Certificate of Incorporation. (§ 7.) This shall set forth : — 1. The name of the corporation, which shall be such as to distinguish it from any other corporation en- gaged in the same business. 2. The name of the city or town, county, or place within the county, in which its principal office or place of business in the state is to be located. 3. The nature of its business, objects or purposes. This is usually stated as broadly as possible in order to cover every contingency. 4. The amount of the total authorized capital stock of the corporation which shall not be less than two thousand dollars. The number of shares into which the same is to be divided and the par value of each share. 105 DELAWARE CORPORATION LAWS. The amount of subscribed stock with which it will begin business, which shall not be less than one thousand dollars. The different classes of stock, if there be more than one, with full description of each. The capitalization of a Delaware corporation may be as high as desired. Inasmuch as the expense of incorpo- ration is the same ($20.) on any capitalization up to $133,000 there is no saving of fees in incorporating for a less amount. Largely on this account $100,000 and $125,000 are very common capitalizations. The amount with which the corporation will begin business must not exceed the amount actually subscribed. This need not be paid in, but, as required, may be called for by the board of directors, who also have authority to permit it to be paid in labor, or services, or property instead of cash. Further issues of stock, up to the authorized capital, may be made as required by the business. Until stock is issued, it is not subject to taxation. The par value of the shares may be placed at any de- sired amount, though one hundred dollars is the usual maximum. Preferred or other special stock must be fully de- scribed, with preferences, unusual privileges, or restric- tions, rate of dividend, (not to exceed 8 per cent.) time of payment, terms of redemption, etc., fully set forth. (§ 137.) 5. The name and place of residence of each of the original subscribers to the capital stock. There is some ambiguity in the Delaware laws in this matter, and, as a measure of precaution, the certificate of incorporation should state that the addresses given are those of all "the original corporators." 106 DELAWARE CORPORATION LAWS. 6. The duration of the company, which may be per- petual. The usual plan is to state that the duration of the corporation is to be perpetual. 7. By what officers or persons the affairs of the cor- poration are to be conducted and the time and place at which they are to be elected. As the Delaware statutes provide that the affairs of every corporation shall be managed by a board of not less than three directors, (§20) this paragraph should be filled out in accordance therewith. The requirement as to time and place of election, necessitates a definite date and location for the annual meeting of the stockholders. 8. The maximum value of real and personal property, which the corporation shall be empowered to ac- quire. This should be fixed at a figure high enough to cover all possible requirements of the future. 9. The maximum indebtedness or liability which the corporation is authorized to incur. This may be fixed so high as to give the corporation practically unlimited scope or, instead, the opportunity may be taken to fix a restraining limit. 10. Whether the private property of the stockholders shall be subject to the payment of corporate debts beyond the amount of their subscriptions. Under this head it should be stated explicitly that the stockholders are subject to no liability beyond the usual payments of their subscriptions to the capital stock. 11. "Any provisions for the regulation of the busi- ness and for the conduct of the affairs of the cor- poration, and any provisions creating, defining, limiting and regulating the powers of the corpora- tion, the directors, and the stockholders or any 107 DELAWARE CORPORATION LAWS. classes of stockholders, providing such provisions are not contrary to the laws of the state." This clause is copied from the similar provision in the laws of New Jersey and gives nearly the same opportunity for extending and amplifying the powers of the corpora- tion. Under this head may be brought in any of the pro- visions mentioned, in connection with the similar sections in the New York and New Jersey laws, except that on account of the constitutional prohibitions in Delaware, no restrictions may be placed on the rights of stock, or of any class of stock, to vote in election of directors. The provision granting to the corporation the right to conduct business in other states and countries, and to have offices, hold property, etc., out of the state, must be inserted in the certificate, otherwise the right will not exist. (§6.) "The certificate shall be signed and sealed by the original corporators, or a majority of them, and shall be acknowledged before any officer authorized by the laws of this state to take acknowledgments of deeds, to be the act and deed of the signers, respectively, and that the facts therein stated are truly set forth." (§ 9.) It is advisable that all of the original corporators be named in the certificate and that all join in the signing and acknowledgment thereof. The seal may be a scroll. The acknowledgment may be taken within the state, before any Judge or Notary Public. Outside of Delaware, it may be taken before a Commissioner of Deeds for Dela- ware, a Notary Public of any state or territory, or before any Judge of a Court of Record. The certificate shall then be filed in the office of -the Secretary of State, who shall furnish a certified copy of the same under his hand and seal of office, and the certified copy shall be recorded in the office of the Recorder of Deeds 108 DELAWARE CORPORATION LAWS. of the county where the principal office of the company is to be located. (§9.) If all fees have been paid, and the certificate duly filed in the Secretary of State's office, and the certified copy thereof entered in the county records, the corporation ex- ists from date of filing. ( § 12. ) The signers of certificate of incorporation have full charge of the company affairs until the election of directors, and may proceed to obtain further stock subscriptions. § 45. Organization Under Charter. The First Meeting. " In all cases where it is not other- wise provided by the by-laws, the meetings of the stock- holders of every corporation in this state shall be held at its principal office in this state." (§ 136.) Under a strict interpretation of this law the first meet- ing must be held at the office of the company in Delaware. At that meeting by-laws may be adopted providing for subsequent meetings both of stockholders and directors outside the state. The first meeting may be called in three ways : — 1. By a notice signed by a majority of the incorpora- tors named in the certificate of incorporation, de- signating the time, place and purpose of the meeting and published at least two weeks before the time of any such meeting, three times in some newspaper of the county where the corporation may . be established. 2. By like notice, personally served on all the parties named in the certificate of incorporation, two days before the time of such meeting. 3. By a unanimous written waiver of notice, fixing time and place and signed by all the incorporators named in the certificate. (§25.) 109 DELAWARE CORPORATION LAWS. This last is the plan usually adopted. The meeting must be held pursuant to the notice and a majority of the stock originally subscribed must be represented in person or by proxy. It is well to have all of the incorporators present at this first meeting. (See "First Meeting," Ch. XII. this volume. ) § 46. Stock. Issuance for Property. "No corporation shall issue stock, except for money paid, labor done, or personal property, or real estate, or leases thereof, actually ac- quired by such corporation ; and neither labor nor prop- erty shall be received in payment of stock at a greater price than the actual value at the time the said labor was done, or property delivered, or title acquired." (State Constitution, Art. IX, Sec. 3.) "When any corporation shall issue stock for labor done, or personal property, or real estate, or leases there- of, in the absence of fraud in the transaction, the judgment of the directors as to the value of such labor, property, real estate or leases shall be conclusive. (§ 137.) The first paragraph is from the State Constitution; the second from the General Corporation Law. The two provisions are not in accord. In event of the matter com- ing before the courts for adjudication, the provision of the Constitution would undoubtedly prevail, hence stock paid for with property is not safely paid-up, unless the prop- erty's "actual value at the time of purchase" was equal to the face value of the stock for which it was given. Subscriptions. "The capital stock shall be paid in such amounts and at such times as the directors may require." (§ 13.) Subscriptions for stock " shall be made payable to the corporation, and shall be payable in such instalments arid at such time or times as shall be determined by the directors or managers." (§16.) 110 DELAWARE CORPORATION LAWS. " The directors * * * * may from time to time, assess upon each share of stock not fully paid up, such sum of money as two-thirds of the stockholders in interest shall direct, not exceeding in the whole, the balance remaining unpaid." (§29.) From these three laws it would seem that the direct- ors must be authorized by a resolution, passed by a two- thirds vote of the stockholders in interest, at a duly assembled stockholders' meeting, before they can safely make calls upon unpaid subscriptions. If such calls are to be enforced, every prescribed detail must be exactly observed. Forfeiture, Sale, Etc. If, after due notice, any subscri- ber to stock fails to pay the amounts upon his subscrip- tion, lawfully called for, the corporation may by statutory proceedings, carefully followed, sell sufficient of such sub- scribed stock to pay the amount due and charges ; or if such stock cannot be sold when offered, may forfeit the same, or if on sale the stock fails to yield sufficient to pay the amount due, may have an action at law against the delinquent subscriber. (§§ 13, 14, 16, 29, 30.) Certificates of Stock. " Every stockholder shall have a ■certificate under the seal of the corporation, signed by the president and treasurer, certifying the number of shares •owned by him." (§27.) Transfers. "The shares of stock shall be deemed per- sonal property and transferable on the books of the com- pany in the manner provided in the by-laws." (§ 16. ) Transfer Books. The original or duplicate books in which the transfers of stock are registered and in which the names and addresses of the stockholders and the number of shares held by each are recorded, shall at all times during business hours be open at the principal office or place of business of the company within the state, to 111 DELAWARE CORPORATION LAWS. the examination of stockholders of record. The stock ledger, or, in its absence, the • transfer books of the com- pany, shall be the only evidence as to who are the stock- holders of record. (§ 17.) List of Stockholders. It shall be the duty of the officer having charge of the transfer books to prepare at least ten days before every election, a complete alphabetical list of the stockholders entitled to vote thereat. Such list shall be kept open to inspection at the principal office of the company until the time of such election, and be then produced and kept at the place of election during its pro- gress, for the inspection of stockholders. ( § 17. ) Inspection of Stock Books, Etc. A stockholder has at any time within business hours, the right to inspect and examine the stock and transfer books and list of stock- holders mentioned in the preceding paragraphs, but can- not exercise his common law right to inspect the books of account, if such inspection is objected to, except under special circumstances, and then, usually, only by order of court. Preferred Stock. A corporation may provide in its certificate of incorporation for one or more classes of pre- ferred stock, under the following limitations : — 1. The power of such stock to vote for directors can- not be restricted. "In all elections for directors * * * each shareholder shall be entitled to one vote for each share of stock he may hold." (Con- stitution, Art. IX., § 6.) 2. At no time shall the total amount of preferred stock exceed two-thirds of the actual capital paid for in cash or property. 3. The annual, preferential dividend shall not exceed eight per cent., may be cumulative and payable quarterly, half-yearly or yearly. (§137.) 112 DELAWARE CORPORATION LAWS. Preferred stock may be made subject to redemption at not less than par, at a fixed time and place, to be set forth in the certificates thereof. ( § 137. ) If preferred stock is not provided for in the certificate of incorporation, it may be issued by the board of direc- tors, if authorized thereto by a two-thirds vote of the entire outstanding stock, cast at a stockholders' meeting duly called for that purpose. ( § 137.) Treasury Stock. "Shares of stock of the corporation belonging to the corporation shall not be voted upon directly or indirectly." (§24.) "No corporation shall take as security for any debts a lien upon any part of its capital stock, or be the holder or purchaser of any part thereof, unless such lien or pur- chase shall be necessary to prevent loss upon a debt pre- viously contracted." (§ 15.) The language of this last section is unfortunate and ■would seem to prohibit the holding of treasury stock in the usual manner. Such stock may be held in the name of a trustee, subject to the directions of the board of directors. Stock of other Corporations. Delaware corporations have unlimited power in acquiring, holding, or dealing in the stock of other corporations. (See Ch. VI., § 20, this volume.) (§133.) Dividends. No dividends shall be declared except from net profits or surplus funds, nor shall any part of the cap- ital stock be withdrawn, divided among, or in any way paid to the stockholders. (§ 18.) Increase of Stock. The stock of any company may be increased from time to time up to the total amount authorized by the charter, by resolution adopted at a stockholders' meeting called for the purpose. Such meet- 113 DELAWARE CORPORATION LAWS. ing must be called by notice similar to that required for the first meeting. (§ 27. ) If more capital stock than is authorized should be re- quired, or if the capital stock is to be reduced, it may be effected by statutory proceedings. (§§ 28, 33.) Certificate of Payment of Stock. Upon full payment of each instalment of capital stock, or of any increase there- of, a certificate giving, the amount of same, and whether paid in cash or property, and stating also the total amount, if any, previously paid and reported, shall be filed in the office of the Secretary of State, within thirty days of the making of such full payment. (§ 31.) (See "Liabilities of Directors" and "Duties of Officers.") § 47. Stockholders. Meetings. The annual meeting of the stockholders shall be held on the day and at the place named in the by- laws, and such date and place shall not be changed within sixty days preceding any election of directors. If the date and place of annual meeting are changed, each stockholder shall be notified thereof twenty days before the next fol- lowing election of directors. If any election of directors is not held on the day specified in the by-laws, a special meeting for the purpose shall be called within thirty days thereafter, of which due notice shall be given by the secre- tary to each stockholder in person or by letter, (§ 20.) The First Meeting. This must be held at the office of the company in the state, and if future meetings are to be held outside the state, by-laws should be adopted at this meeting, making provision for the same. (S 136.) If elections of directors outside of the state are desired, this should be set forth in the certificate of incorporation with time and place of same ; then at the first meeting 114 DELAWARE CORPORATION LAWS. of the stockholders in Delaware, by-laws should be adopted, designating a time and place for election of directors in accordance with the certificate of incorpora- tion. These by-laws authorizing meetings outside of the state having been passed, the stockholders may adjourn to meet for the election of directors at the designated place. The provisions of the Delaware law governing the election of directors, are as follows : — "All elections for directors shall be by ballot and shall be held in this state, unless the bv-laws otherwise pro- vide." (§ 20.) "In the first instance the directors shall be elected at a meeting held before the corporation is authorized to commence business." (§20.) These different provisions relating to the first meeting and the election of directors are not clear, and seemingly conflict. For this reason it would be prudent to have all of the stockholders ratify any action at such meeting by a unanimous resolution, or by signing and agreeing to the minutes of the meeting at which the first election of directors is held. Voting Powers. A stockholder shall be entitled to one vote at any meeting for the election of directors for each share of stock held by him. As noticed elsewhere in this chapter, cumulative voting is not allowed in Delaware. (§20.) No stock shall be voted at any election of directors, that has been transferred on the books of the company within twenty days of the date of such election. (§ 17.) Stockholders whose stock is held by others as collat- eral security, shall be entitled to vote the same at all meetings of stockholders, unless they have empowered the 115 DELAWARE CORPORATION LAWS. pledgee to vote. Trustees shall be entitled to vote on the stock held in trust by them. (§ 23.) Quorum. The statutes make no provision as to a quorum at stockholders' meetings, hence the by-laws should fix the proportion of stock necessary therefor. Proxies. An absent stockholder may vote at any meeting by proxy, such proxy to be in writing and signed and attested by him in such manner as the by-laws may prescribe. (§ 20.) Inspectors. The Delaware statutes do not require in- spectors of election. Liabilities. Unless otherwise expressly provided in the certificate of incorporation, stockholders are only liable to creditors of the corporation for amounts due and unpaid on their stock subscriptions. (§§ 13, 14.) By-laws. The power to make and alter by-laws shall be in the stockholders alone, unless the certificate of incor- poration shall confer this power upon the directors also. By-laws made by the directors, under such power, shall be subject to alteration or repeal by the directors or stock- holders. (S 26.) § 48. Directors. Number and Qualifications. The board of directors must be composed of at least three members, ' each of whom must own not less than three shares of stock, and of whom one at least must be a resident of the state. (§20.) Vacancies. Unless otherwise provided in the by-laws, any vacancy occurring among the directors shall be filled by the board. (§22.) Meeting. If the by-laws or the certificate of incorpo- ration so provide, the directors may hold their meetings and have an office or offices outside of the state. (§ 136.) 116 DELAWARE CORPORATION LAWS. Quorum. A majority of the directors shall constitute a quorum for the transaction of business. ( § 20. ) Liabilities. The directors shall be jointly and sever- ally liable in the following cases : — 1. If they give out, assent to, or cause to be published any written statement or report of the condition or business of the corporation, false in any mate- rial respect. ( § 19. ) 2. If they fail to cause the certificate of full payment of capital stock to be filed (when such full payment is made) within thirty days after written notice to do so is received from any creditor or stockholder. In case of such failure the directors shall be liable for all debts contracted after the full payment of capital stock and until such certificate is filed. (§32.) 3. If dividends are declared in any way except from surplus or net profits. In such event the directors shall be liable at any time within six years, should the company become insolvent, to the full amount of such illegal dividend. ( § 18. ) A director dissenting from action of the board declar- ing illegal dividends, may avoid liability by causing his dissent to be entered on the minutes and by formal publi- cation of same within two weeks thereafter in a news- paper of the vicinage. (§ 18.) Should the directors neglect or refuse to produce the alphabetical list of stockholders at the annual election, as required by law, they shall be ineligible to any office at such election. ( § 17. ) Classification. The directors of any corporation may by action of the stockholders, be divided into one, two or three classes, the terms of those of the first class expiring in one year, of the second class in two years and the third class in three years. ( § 20. ) 117 DELAWARE CORPORATION LAWS. While the statute allows this classification to be made by a vote of the stockholders, it would, preferably, be pro- vided for in the certificate of incorporation. ( § 8. ) § 49. Officers. Enumeration and Qualifications. Every corporation shall have a president, secretary and treasurer,, to be chosen either by the stockholders or directors as the by- laws may direct, who shall hold their offices until their successors are chosen and qualified. The president shall be chosen from among the directors. The secretary shall be sworn to the faithful discharge of his duty. The treas- urer may be required to give bond. The secretary and treasurer may be the same person. (§ 21.) Vacancies. Any vacancy occurring among the officers shall be filled by the directors, unless otherwise provided in the by-laws. (§22.) Duties. " The president and the secretary or treasurer shall sign and swear to, the certificate of full payment of stock and shall file the same in the office of the Secretary of State within thirty days after the making of such pay- ment." (§31.) The president, treasurer or other proper officer shall make an annual report to the Secretary of State before the first Tuesday of January. (Franchise Tax, § 4.) (See § 50, "Reports," this chapter.) Liabilities. Officers shall be liable individually for any loss or damage resulting from any written statement or report, published or given out by them, that is false in any material respect. ( § 19 . ) If any officer shall make any false statement in the an- nual report, he shall be deemed guilty of perjury. (Fran- chise Tax, § 3.) 118 DELAWARE CORPORATION LAWS. §50. Reports. Annual Report. An annual report must be made to the Secretary of State on or before the first Tuesday in January of each year, by the president or treasurer, set- ting forth : — 1. The location of the principal office in the State of Delaware and the name of the agent in charge thereof. 2. The names and addresses of the president, vice- president and treasurer of the corporation and the name of the resident director. 3. The number and par value of shares of the capital stock issued and outstanding. (Franchise Tax,, §4.) § 51. General Regulations. State Office. Every corporation shall maintain a prin- cipal office within the state and shall have a sign thereon, and an agent in charge to represent the company and re- ceive notices and legal process. (§ 136.) The word "Incorporated" shall appear immediately under the name of every corporation on all signs, station- ery and advertising matter, under penalty of not less than $100 and not more than $500. (§64.) Merger. Any two or more corporations organized under the Delaware law may by statutory process readily merge, if two-thirds of the stockholders of each company favor such action. Any dissenting stockholder may have his stock appraised, and the consolidated corporation must buy the same. (§§54,55,56.) Forfeiture. Any corporation shall forfeit its charter rights if it fail to commence its business within two years from the date of its organization. (§ 62.) Corporation Trust Companies. These companies are 119 DELAWARE CORPORATION LAWS. recognized by the Delaware laws as legitimate agencies for the maintenance of state offices and the general legal status of corporations, organized in Delaware, but carry- ing on their business outside the state. § 52. Foreign Corporations. A foreign corporation desiring to do business in the State of Delaware must file in the office of the Secretary of State a certified copy of its charter, and the name or names of its authorized agent or agents in the state, together with a sworn statement of its assets and liabili- ties. It shall upon such filing, pay the Secretary of the State fifty dollars and the usual fees for a certificate there- of, which certificate shall be prima facie evidence of the company's right to do business in the state. No foreign corporation shall be allowed to do any banking business in the State of Delaware. Any person, agent, officer or employee of any foreign corporation who shall transact any business for such corporation without compliance with the foregoing provisions shall, upon conviction, be fined not exceeding one thousand dollars at the dis- cretion of the court. (Laws of Delaware, Ch. 703, Vol. 19.) In addition to the above requirements, a foreign cor- poration must, before doing business in the state, file a cer- tificate under its corporate seal and the hand of its presi- dent or head officer, attested by its secretary, in the office of the prothonotary of the superior court of the State of Delaware, in each of the counties of the state, designating the name and residence of some person or agent within the state, upon whom service of process may be made. Each prothonotary shall receive a fee of one dollar. Any corporation doing business in the state without complying with the provisions of the above act, is liable 120 DELAWARE CORPORATION LAWS. -to a fine of not less than two hundred dollars and not more than five hundred dollars for each offense. Any agent of a corporation doing business in this state before the corporation shall have complied with the provisions of the act, is liable to a fine of not less than one hundred and not more than five hundred dollars. (Laws 1897, Act 4.) There is also in Delaware a provision for retaliatory taxation on foreign corporations, which is an exact copy of the similar law of New Jersey, given in the chapter on that state. (Franchise Tax, § 9.) DELAWARE CORPORATION LAWS. § 53. Expenses of Incorporation in the State of Delaware. Capital Stock. $ 2,000 5,000 10,000 25,000 50,000 100,000 500,000 1,000,000 5,000,000 Organiza- tion Fee. Sundry Fees. U. S. Rev. Stamps. Total. Annual Tax. $20.00 20.00 $15.00 15.00 $ 1.00 2.50 $ 36.00 37.50 $ 1.00 2.50 20.00 20.00 15.00 15.00 , 5.00 12.50 40.00 47.50 5.00 12.50 20.00 20.00 15.00 15.00 25.00 50.00 60.00 85.00 25.00 50.00 75.00 150.00 750.00 15.00 15.00 15.00 250.00 500.00 2,500.00 340.00 665.00 3,265.00 250.00 500.00 2,000.00 Del. Office Cor. T. Co. $50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 The first column gives the most common company capitalizations. The second column gives the organization fee, which is fifteen cents for each thousand dollars of capitaliza- tion, but in no case less than $20.00. This makes the organization fee $20.00 for any capitalization up to $133,000. (§127.) The third column provides approximately for the smaller fees for filing, recording, acknowledgments, etc. The fourth column gives the United States revenue tax which must be paid by stamps affixed to all stock certifi- cates issued. If only a part of the stock is issued, the tax would be reduced proportionately. The rate is five cents on original issues and two cents on re-issues for each hundred dollars of par value, or fraction thereof. The fifth column gives the amount of the total taxes and fees if all the stock is issued. The sixth column gives the amount of annual franchise tax to the state if the entire amount of stock has been issued. The rate is one-twentieth of one per cent, per annum, on all amounts of capital stock issued and out- standing up to and including the amount of $3,000,000. Above that, and up to $5,000,000, the rate is one-fortieth 122 DELAWARE CORPORATION LAWS. of one per cent. Above $5,000,000 the rate is thirty dol- lars per annum on each million. (Franchise Tax, § 4.) The seventh column gives the annual fee for keeping up an office in the state through a corporation trust com- pany. This is paid in advance, and unless the state office is kept up through some other agency and this expense thereby avoided, must be added to the other expenses of incorporation and to the annual taxes thereafter, in order to correctly estimate the entire expenses of incorporation in Delaware. This only applies to companies whose busi- ness lies entirely outside the state. Manufacturing and mining companies, fifty per centum of whose capital stock, issued and outstanding, is invested in manufacturing and mining in the State of Delaware, are exempt from the annual tax. If they have less than fifty per cent, so invested, they are entitled to deduct the value of the property thus engaged from the amount of their ■capital stock issued and outstanding, before their annual tax is estimated. If any tax shall remain in arrears for three months, the Attorney General may apply to the Court of Chancery for an injunction to restrain such cor- poration from exercising any franchise or doing any busi- ness in the state until such tax is paid. (Franchise Tax, §4.) Failure to pay taxes for two consecutive years renders the charter void and of no effect. (Franchise Tax, § 10.) CHAPTER X. WEST VIRGINIA CORPORATION UWS. §54. Introductory. Incorporation in West Virginia is easier and simpler than in any other state of the Union. The license fee, and the annual tax as well, are fixed at the round sum of fifty dollars ; neither incorporators nor directors are required to be residents ; no meetings need ever be held in the state, and no reports are required nor tax paid beyond the an- nual tax, unless property is owned within the state. The capital stock maybe any sum not exceeding $5,000,000, and the shares may be any amount from one dollar to one hundred dollars or over. Subscriptions made prior to in- corporation need have but ten per cent, paid on them; hence five citizens of California say, might charter a corpo- ration in West Virginia with a capitalization of five mil- lion dollars by subscribing for five one- dollar shares, plac- ing fifty cents in the treasury of the company as a ten per cent, payment, and in addition thereto, paying the very moderate license and filing fees required by the state. Min- ing companies are allowed the utmost latitude in trading stock for property. No restraint or supervision is im- posed upon corporations by the state, and no demands are made upon them beyond the payment of the annual tax and the maintenance of a resident agent. The only statute liability imposed on either stockholders, directors or officers by the corporation laws, is for paying or receiv- ing dividends that impair the capital stock. 124 WEST VIRGINIA CORPORATION LAW 3. In consequence of the somewhat excessive liberality of this system of incorporation, wild-cat ventures of all kinds, and mining schemes in particular, naturally gravi- tate to West Virginia for charters". To such an extent has this been the case that the whole status of West Virginia corporations has thereby been lowered. On the other hand, many of the most substantial en- terprises in the country are working under West Virginia charters, and in every instance where these companies have come into court, the validity of their incorporation and of corporate action thereunder has been upheld. This removes all possibility of doubt as to the legality and safety of West Virginia charters, and it is further true that some of the best features of modern corporation law are embodied in the West Virginia statutes. It is very much to be regretted that the legislature of West Virginia has not added to the present corporation laws of the state a few evident improvements and limita- tions, whereby irresponsible concerns would be excluded and the general reputation of the state as an incorporat- ing power raised to the position it should occupy. The sectional references of this chapter are to the West Virginia Code except where otherwise noted. § 55. Formation of a Corporation. Parties. A corporation may be formed under the laws of West Virginia by five or more natural persons of full age. None need be residents of the state. (Ch. 54, 8 6.) Purposes. Companies may be incorporated for manu- facturing and for any other lawful purpose or business, except buying and selling land. (Ch. 54, §8 2, 3.) Powers. Corporations have all the powers usually in- cident to the grant of a charter, (See § 5, this volume) 125 WEST VIRGINIA CORPORATION LAWS. and full powers for the specific purpose for which they are formed. (Ch. 52, § 1.) Certificate of . Incorporation. An agreement shall be drawn up in the following form : — " The undersigned agree to become a corporation by the name of [here insert the name by which it is intended the corporation shall be known] for the purpose of [here describe fully and particularly the purpose for which the corporation is to be formed, and the kind of business in- tended to be carried on by it] which corporation shall keep its principal office or place of business at [here insert location of principal office which may be outside the state], in the county of , and is to expire on the day of And for the purpose of forming the said corporation, we have subscribed the sum of dollars to the capital thereof, and have paid in on said subscription the sum of dollars; and desire the privilege of increasing the said capital, by the sale of additional shares from time to time, to dollars in all. The capital so subscribed is divided into shares of dollars each, which are held by the undersigned, respec- tively, as follows, that is to say: By [here insert the name of each incorporator, with his residence and the number of shares held by him]. And the capital to be hereafter sold is to be divided into shares of the like amount. Given under our hands this day of " (Ch. 54, § 6.) Charter Details. 1. No name shall be adopted which is being used at the time by another corporation of the state. (Ch. 53, § 11.) 126 WEST VIRGINIA CORPORATION LAWS. 2. Companies for banking, insurance, railway and other purposes, usually excluded in other states, can here be incorporated under the general laws. (Ch. 54, §2.) 3. The principal office of the company may be kept in any state or territory or in the District of Colum- bia. (Ch. 54, § 23.) 4. The term of corporate existence is limited to fifty years. (Ch. 54, §11.) 5. The total authorized capital must not exceed five millions of dollars, except for canal and railroad purposes. (Ch. 54, § 5.) This capital may be di- vided into shares of any desired amount, but all shares must be of equal face value. (Ch. 53, § 15.) The amount subscribed is the amount with which the company intends to begin business. 6. There must be five incorporators, who must sub- scribe for at least one share each and pay ten cent, on their subscription. (Ch. 54, §§ 6, 7.) No opportunity is afforded for the insertion of special provisions in a West Virginia charter; but most of the objects usually attained thereby are secured by statute provisions or may be obtained by insertion of the proper provisions in the by-laws. The incorporators must all sign the agreement and all acknowledge the same before a justice, notary or judge. Two of the incorporators must make affidavit to the agreement, stating that the required ten per cent, of sub- scriptions has been paid in good faith and without any intention of withdrawal until the termination of the cor- poration. (Ch. 54, §8.) The agreement duly signed, acknowledged and with proper affidavits affixed, must be delivered together with the required fees to the Secretary of State, who thereupon issues to the incorporators a formally executed certificate 127 WEST VIRGINIA CORPORATION LAWS. of incorporation, under the great seal of the state. (Ch. 54, §9.) Within three months after issue this certificate must be recorded with the Clerk of the Court of the county in which the principal office or place of business of the com- pany is maintained, under penalty of a fine of one thous- and dollars. (Ch. 54, §20.) This section does not seem to refer to corporations which have their "principal office or place of business" outside the state, and is not observed by such "outside" corporations. Within thirty days after organization, every corpora- tion having its principal office or place of business outside of the state, shall, by power of attorney duly executed, ap- point some person residing in the state to be its legal repre- sentative upon whom service may be had of any process or notice and who shall make return of its property in the state for taxation. The said power of attorney must be recorded in the office of the Clerk of the Court in the county in which the said attorney resides, and must also be filed and recorded in the office of the Secretary of State. (Ch. 54, § 24.) § 56. Organisation under Charter. Corporate Existence shall begin from the date of the issuance of the charter by the Secretary of State. (Ch. 54, §10.) The corporation must be organized and commence its corporate business within one year from the date of the issue of its charter, otherwise such charter will be of no effect. (Ch. 53, §6.) If a corporation shall suspend business for two years continuously, its corporate rights and privileges shall cease. (Ch. 53, § 7.) 128 WEST VIRGINIA CORPORATION LAWS. First Meeting. The corporators named in the agree- ment, or a majority of them, shall appoint the time and place for holding a a general meeting of the stockholders. The time appointed for such first meeting shall not be less than twenty-one nor more than ninety days from the date of the certificate of incorporation. At least two weeks' notice of such meeting shall be given by advertising the same once each week in some newspaper of general circu- lation, published near the principal office or place of busi- ness of the company. (Ch. 54, § 15.) § 57. Stock. Issuance. After incorporation of the company, and be- fore a board of directors has been elected or qualified, ad- ditional shares of stock may be disposed of under the directions of the corporators or of those holding a maj ority of the stock. (Ch. 54, § 15.) After organization the board of directors shall have control of any further issue or sale of stock. (Ch. 53, §23.) Issuance at Par. In no case shall stock issued in order to increase the capital of any corporation be sold or dis- posed of at less than par. (Ch. 53, § 24.) Issuance for Property. Mining corporations may issue stock and bonds for real and personal property at such prices and upon such terms as may be agreed upon. (Ch. 53, §24.) The statutes of West Virginia do not either forbid or allow corporations, other than mining companies, to issue stock for property. Under the decisions of the courts, however, such transactions are recognized and will un- doubtedly be sustained in all cases where fraud does not appear. Subscriptions. At least ten per cent, of the par value of each share shall be paid at the time of subscription, and 129 WEST VIRGINIA CORPORATION LAWS. the residue must be paid as required by the board of direc- tors. (Ch. 53, §25.) "No stock shall be regarded as taken, or the person subscribing therefor considered entitled to the same, until the first instalment is paid thereon." (Ch. 53, § 26.) Non-payment. If any stockholder fails to pay an in- stalment on stock subscription when required, the corpo- ration may recover from him the sum due with interest at ten per cent, per annum. (Ch. 53, § 28.) Or the shares of such stockholder may by order of the board, after four weeks notice by publication, be sold at public auction for cash, and after paying all expenses and the balance due on such stock the residue shall be paid over to the delinquent stockholder. (Ch. 53. § 39.) Forfeiture. Satisfactory security may by by-law be re- quired for the due payment of unpaid stock subscriptions, and if the stockholder fail to furnish the same, the corpor- ation may recover from him the whole unpaid residue, or may declare the stock to be forfeited to the corporation. (Ch. 53, §§31, 32, 33.) Certificates of Stock. The board of directors may have issued to any stockholder of record, a stock certificate under the corporate seal and signed by the president and such other officer, if any, as the board may direct; which certificate shall show the amount paid on each share. (Ch. 53, §35.) If, as suggested here, the board issue certificates of stock before the stock is fully paid, it would be difficult, if not impossible, thereafter to sell or forfeit the same for non-payment of any unpaid remainder. Transfers. Stock shall not be transferred after certifi- cate is issued, without surrender to the corporation of the said certificate, unless the same be lost, destroyed or good cause be shown why it cannot be produced. (Ch. 53, § 36.) 130 WEST VIRGINIA CORPORATION LAWS. No share shall be transferred without the consent of the directors unless the same is fully paid up, or satisfac- tory security given for such payment. (Ch. 53, § 22.) Transfer Books. A transfer book shall be kept in which shares of stock when presented therefor shall be trans- ferred under the regulations prescribed in the by-laws. (Ch. 53, §21.) The statutes do not provide for closing the transfer books before annual elections. Such provision should be embodied in the by-laws. List of Stockholders. " A list of stockholders, showing the number of shares and votes to which each is entitled, shall for one month before every annual meeting, be hung up in the most public room at the principal office or place of business of the company." (Ch. 53, § 43.) Inspection. The books, papers and property of corpo- rations are subject to inspection by agents or committees appointed by the legislature. ( Ch. 53 , § 60. ) The property, funds, books, conespondence and papers of any corporation shall at all times be subject to the in- spection of the board of directors or to that of a commit- tee duly appointed for the purpose by the board or the stockholders. (Ch. 53, § 47.) The minutes of the board shall for thirty days before the annual meeting be open to the inspection of any stock- holder and if required shall be produced at the general meeting. (Ch. 53, §47.) Preferred Stock. The stockholders may by resolution or by-law, authorize the issue of preferred stock on such terms and conditions as they may deem best ; provided, however, that the maximum capital authorized by the charter shall not be exceeded by such issue of preferred stock and that notice be first published once a week for four weeks successively in some newspaper of the vicinage, 131 WEST VIRGINIA CORPORATION LAWS. of the intention to offer such resolution or by-law. (Ch. 53, §16.) Treasury Stock. If the corporation acquires shares of its own stock, it may either extinguish or sell the same. If extinguished, the capital stock shall be reduced to that extent. Treasury stock shall not vote. (Ch. 53, § 18.) Stock of other Corporations. No corporation shall sub- scribe for or purchase the stocks, bonds or securities of any other joint stock company, or become surety or guar- antor for the debt or default of such company. (Ch. 52, §3.) A corporation may, however, take real estat^ stock, bonds and securities in payment of a bona fide uebt, or as security therefor, or may purchase the same to secure or obtain payment of such debt, and may manage, use or dispose of what has been so obtained as a natural person might. (Ch. 52, §4.) Also, "any manufacturing company may with the assent of the holders of two-thirds of its stock, had by a vote of a stockholders' meeting, subscribe for or purchase the stock, bonds or securities of any corporation formed for the purpose of manufacturing or producing any arti- cles or materials used in the business of such joint stock company, or dealing in any articles or materials manufac- tured or produced by such joint stock company, or con- structing a railroad, or other work of internal improve- ment, through or into the county in which the principal place of business of such joint stock company may be, or operating a railroad or other work of internal improve- ment so constructed, and may, with the like assent, be- come surety for or guarantee the debts of such corpora- tion, or in any manner aid it in carrying on its business." (Ch. 52, §4; Ch. 53, §3.) Dividends. The board may declare such dividends 132 WEST VIRGINIA CORPORATION LAWS. from the net profits as it may deem prudent. (Ch. 53, §39.) §58. Stockholders. Meetings. The stockholders or directors may hold meetings, including the first general meeting for the pur- pose of organization, out of the state, "But no meeting shall be held out of the state without the concurrence of persons holding a majority in value of the stock of the ■company, nor without reasonable notice." (Ch. 54, § 23.) All meetings of the stockholders within the state shall be held at the principal office, unless the by-laws pre- scribe otherwise. (Ch. 53, § 48.) If the by-laws do not prescribe a time for' the annual meeting, it shall be held on the fourth Tuesday of January of each year. A general meeting may be called at any time by the board of directors or by stockholders holding one-tenth of the capital stock. Notice of the annual or of any general meeting shall be given as prescribed in the by-laws, or if there be no such provision, by advertising the same once a week for two weeks in some newspaper of the vicinage. (Ch. 53, § 41.) Voting Powers. In all elections for directors, each stockholder shall have the right in person or by proxy to one vote for each director to be elected for every share of stock owned by him, and may cumulate his votes if he desires. (Ch. 53, §44.) On all other questions he shall have one vote for each share of stock held by him. (Ch. 53, § 44.) The laws of West Virginia do not prohibit stock transferred within a certain number of days before an election from voting thereat. Quorum. If there be no by-law regulating the amount 133 WEST VIRGINIA CORPORATION LAWS. of stock necessary to constitute a quorum, a majority of the stock must be represented at any meeting of stock- holders to constitute a quorum. (Ch. 53, § 42.) Proxies. At any election or meeting of stockholders, every stockholder shall have the right to vote in person or by proxy. (Ch. 53, §44.) No officer or director of a corporation shall vote as the proxy of a stockholder thereof. (Ch. 53, § 45.) Liabilities. Stockholders are liable : — 1. For the amount of their unpaid stock subscrip- tions. (Constitution, Art. XI, § 2.) 2. For the amount of any dividend received that impairs the capital of the corporation. (Ch. 53, §40.) § 59. Directors. Number and Qualifications. Unless the by-laws pre- scribe otherwise, there shall be five directors, all of whom must be stockholders, and residents of the state. (Ch. 53, §49.) Under this regulation the by-laws must definitely state that directors need not be residents, if it be so desired. Vacancies. The stockholders may remove or replace any director, but any vacancy not caused by such removal may be filled by the board. (Ch. 53, § 49.) " If the number of the board be reduced at any time so as to interrupt the proper and efficient management of the business of the corporation, a general meeting of the stockholders may be called to elect new directors, or to take such order in the premises as they may deem proper." (Ch. 53, §49.) Meetings. "The board shall hold meetings at such time as they see fit, or the president shall require. They 134 WEST VIRGINIA CORPORATION LAWS. may, by resolution, prescribe when and where their regu- lar meetings shall be held, how special meetings shall be called, and what notice of their meetings shall be given." (Ch. 53, § 51.) Directors may hold meetings out of the state, but no such meeting shall be held without the concurrence of per- sons holding a majority in value of the stock of the com- pany, nor without reasonable notice. (Ch, 54, § 23.) The most convenient method of complying with this law where director's meetings outside the state are desir- able is to have a by-law passed by a majority in value of the stock of the company, authorizing such meetings out- side the state. Quorum. Unless the by-laws provide otherwise, a majority of the board shall constitute a quorum. (Ch. 53, §49.) Duties. The board shall be subject to such by-laws, not inconsistent with the laws of the state, as may be passed by the stockholders. (Ch. 53, § 55.) It shall cause regular books of account to be kept, and balanced at least every six months. (Ch. 53, § 54.) It shall keep a record of the proceedings of the board, which shall be verified by the signature of the presiding officer. (Ch. 53, §52.) It shall at the annual meeting make a report to the stockholders showing the condition of the corporation for the preceding year. (Ch. 53, § 46.) (See Reports, § 61, this chapter. ) Liabilities. If a dividend be declared impairing the capital of the company, all of the directors present at the meeting where such action is taken and who do not for- mally dissent therefrom, shall be liable to the creditors of the company to the extent that the capital is thereby im- paired. (Ch. 53, §40.) 135 WEST VIRGINIA CORPORATION LAWS. Sundry. "No member of the board shall vote on a question in which he is interested, otherwise than as a stockholder, except the election of a president, or be pres- ent at the board while the same is being considered ; but if his retiring reduce the number present below the quo- rum, the question may nevertheless be decided by those who remain. On any question the names of those voting each way shall be entered on the record of their proceed- ings, if any member at the time require it." (Ch. 53, § 52.) § 60. Officers. Enumeration and Qualifications. "As soon as maybe after the election the board of directors shall choose one of their own body president of the corporation who shall act as such until his successor is qualified, without ceas- ing, however, to be a member of the board." (Ch. 53, §50.) The board of directors shall appoint such officers and agents as they may deem proper. "The officers and agents so appointed, shall hold their places during the pleasure of the board; and, if required by the board or the by-laws, shall give bonds payable to the corporation, in such penalties and with such conditions and security as the board may approve." (Ch. 53, § 53.) Vacancies. The West Virginia statutes make no pro- vision for filling vacancies among the officers excepting the general power of appointment vested in the board of directors. Duties. Beyond the verification of the minutes by the president no duties of officers are prescribed by the stat- utes. Liabilities. No special liabilities are imposed on offi- cers by the statutes. General authority is given to corporations to pre- 136 WEST VIRGINIA CORPORATION LAWS. scribe the powers, duties and liabilities of officers and agents. (Ch. 52, § 1.) § 61. Reports. Legislature. "Every corporation subject to this chap- ter shall exhibit its books, papers and property, to such agents or committees as the legislature may from time to time appoint to examine the same ; and when required by the legislature, shall report thereto a full, fair and detailed exhibit of its property, liabilities and condition, verified by the oath of the president and of the secretary or prin- cipal book-keeper." (Ch. 53, § 60.) Stockholders. The board of directors shall submit a report to the stockholders at each annual meeting, of the condition of the corporation for the preceding year, .showing : — 1. The property and funds belonging to the corpora- tion and the estimated value thereof. 2. Debts due the corporation, the good being distin- guished from the doubtful. 3. The debts and liabilities of the corporation. 4. The amount of capital paid in. 5. The estimated surplus or deficiency as the case may be. 6. The amount of dividends declared and profits ac- cruing or losses incurred. A copy of this report, together with a list of the stock- holders and their residences, shall be furnished to any stockholder demanding same. (Ch. 53, § 46.) § 62. General Regulations. Minimum Membership. "There shall not be less than five stockholders. If the number be reduced below five 137 WEST VIRGINIA CORPORATION LAWS. and so remain for six months the corporation shall be dissolved." (Ch. 53, § 17.) § 63. Foreign Corporations. Requirements. Any foreign corporation complying with the following requirements may hold property and transact business in the state and shall have the same rights, powers and privileges and be subject to the same regulations, restrictions and liabilities as domestic corpo- rations. 1. A copy of its charter and of the law and authority under which it is incorporated shall be filed with the Secretary of State. As copies of the corporation laws of the different states are already on file with the Secretary of State in West Virginia, it is not necessary to file anything more than the charter. 2. Such corporation shall secure from the Secretary of State a certificate of the fact of its having so filed its charter, etc., for which the corporation shall pay him a fee of five dollars. 3. Such certificate shall be filed and recorded in the office of the Clerk of the County Court, in a county in which its business is conducted, and such corpo- ration shall also file therewith a copy of its charter. (Ch. 54, §30.) Penalties. Any corporation doing business in the state without having complied with these provisions shall be guilty of a misdemeanor, and upon conviction thereof shall be fined not less than five hundred dollars nor more than one thousand dollars for each month such failure continues. (Ch. 54, § 30.) Attachments. In all actions at law or equity for 138 WEST VIRGINIA CORPORATION LAWS. claim, debt or damage, an attachment may be had if the defendant is a foreign corporation. (Ch. 106, § 1.) Resident Attorney. Foreign corporations are required to appoint a resident attorney as set forth in Section 55, this chapter. (Ch. 54, § 24.) WEST VIRGINIA CORPORATION LAWS. § 64. Expenses of Incorporation in the State of West Virginia. Capitalization. Organization License Tax. Sundry Fees. U. S. Rev. Tax. Total. Annual License Tax. $ 2,000 5,000 $50.00 50.00 $15.00 15.00 $ 1.00 '2.50 $ 66.00 67.50 $50.00 50.00 10,000 25,000 50.00 50.00 15.00 15.00 5.00 12.50 70.00 77.50 50.00 50.00 50,000 100,000 50.00 50.00 15.00 15.00 25.00 50.00 90.00 115.00 50.00 50.00 500,000 1,000,000 5,000,000 50.00 50.00 50.00 15.00 15.00 15.00 250.00 500.00 2,500.00 315.00 565.00 2,565.00 50.00 50.00 50.00 The first column contains the most common company capitalizations. The second column gives the license tax for corpora- tions having their principal place of business outside the state. This is payable upon incorporation and on the first day of May thereafter, which is the beginning of the corporation year in West Virginia ; hence a company or- ganized on April 1st, would have to pay fifty dollars again at the end of the month. For corporations doing business within the state the license fee on organization and annually thereafter, is only ten dollars. (Ch. 32, §§86,87.) The third column includes the fee of $6.00 to the Sec- retary of State; fee of $6.25 to County Clerk for record- ing power of attornev, and allows approximately for the smaller fees. (Ch. 54, § 18.) The fourth column gives the United States revenue tax on the stock issued. If only a portion of the stock is issued, this tax will be reduced proportionately. The rate is five cents on original issues and two cents on re-issues for each hundred dollars or fraction thereof. The fifth column gives the total expense for incorpo- ration. 140 WEST VIRGINIA CORPORATION LAWS. The sixth column gives the annual license tax which must be paid on or before the first day of May in each year, and is the same for all outside corporations without regard to their capitalization. For corporations having their principal office within the state this annual tax is but ten dollars. (Ch. 32, § 87.) It is necessary to appoint a, resident agent or attorney in the state, the usual expense of which is ten dollars per annum. (Ch. 54, § 24.) If the annual tax remains unpaid the charter of the corporation may be forfeited to the state. (Ch. 32, §88.) CHAPTER XI. WHERE TO INCORPORATE § 65. Status of Foreign Corporations. In legal phraseology, a company organized under the laws of a certain state is, within the limits of that state, a " domestic " corporation with all the rights and powers conferred by its charter. In other states it is. a "foreign corporation" without corporate rights or powers, save by courtesy, beyond those of a partnership or unincor- porated association. These other states have full power to restrict, regulate or absolutely prohibit the exercise of foreign corporate rights within their limits if they so desire. In practice, however, inter-state courtesy or "comity" grants to a corporation of one state legal recognition and standing in another state. Usually the foreign corporation is required to submit to the same regulations and restrictions as are imposed on domestic corporations, and is not permitted to do such things as are forbidden to domestic corporations or that are con- trary to the policy of the state. There is but one limitation to the absolute power of a state over foreign corporations. The Government of the United States has the exclusive right to regulate com- merce among the states ; hence no state can impose any tax, limitation or prohibition upon inter-state commerce. In consequence of this, any manufacturing or mercantile corporation may solicit orders, employ traveling sales- 142 WHERE TO INCORPORATE. men, ship in goods and collect bills in any state of the Union, without let or hindrance. If, however, a corporation desires to hold or lease real estate, to open a store or place of business, to open or develope mines or to operate mills, factories, etc., in an outside state, it must conform to the local laws regu- lating foreign corporations. These usually require the registry or filing of a duly certified copy of the foreign charter with the Secretary of State, the payment of pre- scribed fees, the maintenance of a state office, the making of certain reports and the due payment of taxes. This being done, the foreign corporation is usually placed on exactly the same footing for the transaction of business as is a domestic corporation. § 66. In which State to Incorporate. To decide upon the most advantageous state for in- corporation is often a nice question of law and business policy. The following points must be taken into consider- ation : — 1. Nature of the business to be undertaken. 2. Location of offices and works. 3. Residence of subscribers. 4. Capitalization of the company. 5. Special privileges desired. Having all these in mind, the advantages and disad- vantages of the laws of the different states must then be considered. If the business to be undertaken requires but a single plant or establishment, incorporation in the state where this is situated will usually be best. This would, how- ever, be inexpedient if the establishment were in some remote state or country, as is the case with many mining enterprises, and in that event the residence of the incor- 143 WHERE TO INCORPORATE. porators, and the advantage, convenience and economy of organizing or conducting the company, would become the leading factors. If plants are to be maintained in several states, this again may affect the decision, and in any case so many important considerations have to be weighed and bal- anced as to make definite rules impossible. It may be said, however, that, with some few exceptions, any min- ing enterprise operating in remote parts of the Union or in foreign countries should be incorporated in West Vir- ginia ; that a business requiring large capitalization, with factories and places of business in many states, should incorporate in New Jersey or Delaware ; and that any business with a capitalization not exceeding fifty thous- and dollars should incorporate in the state in which it is to carry on its business. In New York the corporation laws are strict, and the fees and taxes are high ; but if the proposed business is to be conducted within the state these cannot be avoided. A foreign corporation doing business in New- York is subject to all these impositions as well as the corporation expenses of its own state, and quite fre- quently such outside incorporation merely involves pay- ment of a double set of fees and taxes without any material advantage. (See § 68, this chapter.) Enterprises of a general nature that do not require the investment of more than a limited portion of capital in any particular state, are the only ones free to choose a place of incorporation solely from considerations of economy and simplicity of organization and management. In such cases, the laws of New Jersey and Delaware, or in some instances, the laws of West Virginia are to be preferred. Where a company is formed to exploit an untried invention, and where the whole stock is to be 144 WHERE TO INCORPORATE. issued foil-paid and non-assessable, in payment therefor, the laws of New Jersey will probably be found the safest and most satisfactory. Each particular case must, how- ever, be taken by itself, the different elements of the enter- prise considered and the laws of the several states care- fully scrutinized. The important details of organization in New York, New Jersey, Delaware and West Virginia are given in comparative form in the next section. § 67. Comparative Details of Organisation. CAPITAL STOCK. New York. — Minimum capitalization $500. No max- imum limit. At least $500 must be subscribed and paid in before commencing business. One half of the whole capital stock must be paid in before the end of the first year. Shares must not be less than $5 nor more than $100. New Jersey and Delaware. — Minimum capitalization $2,000. No maximum limit. At least $1,000 must be subscribed, (but need not be paid in) before commencing business. No restrictions as to face value of shares. West Virginia. — Maximum capitalization $5,000,000. No minimum prescribed. Five shares must be subscribed for and ten per cent, of the face value paid in before charter will be granted. Shares may be of any amount desired. INCORPORATORS. New York. — Three or more natural persons, of whom one must be a resident of the state and two-thirds must be citizens of the United States. New Jersey and Delaware. — Three or more natural per- sons. None need be residents of the state, but for 145 WHERE TO INCORPORATE. convenience in forming board of directors, one resident is usually taken. One director must be a resident and a stockholder. West Virginia. — Five or more natural persons, none of whom need be residents of the state. MEETINGS AND PRINCIPAL OFFICE. New York. — All meetings of stockholders and directors must be held in the state, and the principal office must be within the state. New Jersey. — All stockholders' meetings must be held in the state at the principal office of the company. Directors' meetings may be held out of the state if the charter or by-laws so prescribe. An office with agent in charge must be kept up within the state. Delaware. — The first meeting of the stockholders must be held in the state at the principal office of the company. All subsequent meetings of stockholders and directors may be held out of the state, if the by-laws so prescribe. An office with agent in charge must be maintained within the state. West Virginia. — All meetings may be held out of the state, with the concurrence of a majority of the stockholders. No office need be kept up in the state, but a resident agent must be appointed. DIRECTORS. New York. — Three to thirteen directors, of whom each must own at least one share of stock in the com- pany and two must be residents of the state. New Jersey. — Three or more directors, of whom each must own at least one share of stock in the com- pany and one must be a resident of the state. Delaware. — Three or more directors, of whom each must own at least three shares of stock in the company and one must be a resident of the state. 146 WHERE TO INCORPORATE. West Virginia. — Five directors, unless a different num- ber be fixed by the by-laws. All must be stock- holders of the company and residents of the state, unless the by-laws prescribe otherwise. STOCK FOR PROPERTY. New York. — Stock may be paid for in property or labor, and the transaction will be upheld unless there is fraud or such over-valuation as to imply fraud. New Jersey. — Stock may be paid for in property, and in the absence of fraud the transaction will be sus- tained. Delaware. — Stock may be paid for in property or ser- vices at the actual value of such consideration at the time of payment. West Virginia. — Stock may be paid for in property at a fair valuation. Mining companies are allowed to exchange stock for property on any agreed terms. SPECIAL POWERS. New York. — Power to acquire and hold the stock and bonds of other corporations may be had by char- ter provision. New Jersey and Delaware. — Stocks and bonds of other corporations may be acquired and held without special charter provisions. Very extensive powers may be secured by proper charter provisions. West Virginia. — Stock and bonds may be acquired in other companies engaged in any connected busi- ness. PURPOSES. Any legitimate business may be incorporated under the laws of the four states herein considered. 147 WHERE TO INCORPORATE. § 68. Comparative Expenses of Incorporation. M cS «H *-i CI) a s s «0 § tu 6 io to io io io io oo oo oo oo o C3 to 3 cu B * g <« «!H o o o o oo o OfflOfflOOO ri« idoi irici d H NU3 to o o o o d d o o in o S p ro a; boft OH oo oo oo o qo oo qo q id id id id id id d coco co co coco ai o o o o 10 IO CD CO rH I- CB CO 3 • 5= d a C w — V p! N O S5 tuoa >- x Ota oo oo oo o oq oo oo o oi tri d id d d d HOI ooo th m oo oo oo o qo oo q q q io uT to io io io d co co co co co co th o o o o d d eg o ( 53 to =S q-» 5 * C « <,io" s» 2 M 0/ cu (U '-J'" ,Q +j 'ffi 41 l. e 5 ""s,s:2 <» ■ ST3 O o cu p> : ft K cy H O 2 "3 _b-r! U U u u * ft^.2 i— >g _, .. x* " z$T£ ftO btd-rco-'-T-i*" ffi JJ u R, ^25+3^4^0 ■a y "-P co .5 O +J ft p-, J; c o s ° a cS.S cu a 5 ° 8t-n s sS-a^ S a Kr"Tl 5 O „ .^- cu oi CS c3 is ftaj Mcci b!e S ^ -3 +3o.; a „ o o o o S-s6oi tH .ti' - 'a | - | s M o cu 0, - .. -a a o > •a ft; S o-o ft ccj bij c bo a -lb WHERE TO INCORPORATE. § 69. Peculiarities of State I^aws. The general features of corporation law are the same in all of the states but each has its own peculiarities. The following are a few of the more striking diversities: — Maine was a favorite state for incorporation until recently, when her Supreme Court decided that stock- holders of a company in which the stock is paid for with property are, in case the property has been over-valued, liable for the difference. Connecticut, contrary to her former liberal policy toward corporations, has now very strict impositions. Twenty per cent, of the capital stock must be paid into the treasury in cash before the company may begin busi- ness, and the secretary and treasurer and a majority of the directors must be residents of the state. Also a tax of one and one-half per cent, is imposed upon the value of all stock held by non-residents. Ohio and some other states, require in case of insol- vency, that each stockholder shall be held liable for the indebtedness of the corporation to an amount equal to his stock holding. This results in a double loss if the com- pany fails in its business. California, in event of the insolvency of the corpora- tion, makes each stockholder liable in the proportion of his stock holding. That is, if he holds one-tenth of the company's stock he would, if the corporation failed, not only lose the amount invested in its stock, but in addition thereto would have to pay one-tenth of the total indebt- edness of the corporation no matter what the amount. The many peculiarities and marked differences exist- ing in the corporation laws of the various states render the uniformity so desirable in corporation law very diffi- cult of attainment. 149 CHAPTER XII. FINAI, ORGANISATION. § 70. The First Meeting. When the charter has been properly filed and recorded and the corporate existence thereby authorized, the first meeting of stockholders is in order. In each state the formal calling of these meetings, whether by publication for a designated time, by personal notice, or by other means, is provided for by statute. Usually, however, such formalities are dispensed with, and the first meeting is held under a written call stating the time and place of meeting, and waiving all statutory requirements as to notice. To be legally effective, this call and waiver must be signed by all the incorporators and may be in form as follows : — We the undersigned, being all the incorporators and subscribers to the capital stock of the Company, incorporated under the laws of the State of. , do hereby call the first meeting of the stockholders of said Company for the purpose of perfecting its organization, said meeting to be held at (10 A. M.) on (Wednesday, January 31st, 1900), at the office of. (No Broadway, New York City), and we hereby waive all statutory requirements as to notice of said meeting and consent to the transaction of any and all business that may come before said meeting. In testimony whereof we have hereunto affixed our signatures this day of. , 1900., (Signed by incorporators.) 150 FINAL ORGANIZATION. If any of those entitled to participate in this meeting cannot be personally present, they should be represented by proxy. The form of proxy may be as follows : — Know All Men that I, , a subscriber to shares of the capital stock of the Company, do hereby constitute and appoint my true and lawful attorney to vote upon the said stock in my name, place and stead at the stockholders' meeting of the said Com- pany, to be held at on and at all adjourned meetings therefrom, and I hereby authorize and empower the said to act for me and in my place and stead to cast such votes as I would be entitled to cast, in any elections or other business that may come before such meeting, and to represent me therein, and to act for me as fully as I could do if personally present, and I hereby ratify and confirm all that my said attorney may do in the said meeting in my name, place and stead. In Witness Whereof, I have hereunto affixed my hand and seal this day of. , 1900. (Signature.) (L. S.) Attest: (Signature of Witness. ) Upon the assembling of the subscribers at the desig- nated time and place, any one entitled to participate may call the meeting to order and should suggest the election of a temporary chairman. This may be by viva voce vote, and the chairman so elected should at once take the chair and suggest the election of a temporary secretary. This election may also be by viva voce vote, and as soon as the secretary is installed the meeting is ready for busi- ness. It is needless to say that all these preliminary details should be pre-arranged so that the proper persons may conduct such meeting. 151 FINAL ORGANIZATION. The order of business for this first meeting should be about as follows : — i. Reading- of call for meeting and waiver of notice. a. Calling of roll and presentation of any proxies. The minutes of the first meeting should show the call and waiver of notice in full, also the stock represented and any proxies filed with the secretary. 3. Presentation and reading of charter. A motion should follow that the same be received as read, and entered in the minute book. 4. Presentation and reading of by-laws. These should be read section by section, and each as read should be adopted by duly carried motion. After this is done the by-laws should be adopted as a whole and the secretary instructed to enter the same in full in the book of minutes. In case the by-laws have not been prepared prior to the meeting, a committee should be ap- pointed to prepare the same and report at some fixed future meeting. 5. A resolution authorizing directors to increase the issue of capital stock from the amount subscribed to the full amount authorized by its charter, or such proportion thereof as may be desired. Such resolution would only be necessary in the case of New Jersey and Delaware corporations. In the case of a Delaware corporation, this action should be mentioned in the call as one of the purposes of the meeting. 6. Election of directors in accordance with by-laws. In New York, directors are named in the charter, and the first meeting of stockholders, though customary, is not essential. In New Jersey, Delaware and West Virginia, directors are elected at the first meeting of stockholders. 152 FINAL ORGANIZATION. In New Jersey inspectors of election should be appointed and sworn. 7. Designation of registered office and agent in the state. This applies only to corporations of New Jersey and Delaware maintaining nominal offices in the state of in- corporation. West Virginia corporations should appoint a resident agent for that state. 8. Authorization of directors to effect the purchase of any partnership business, invention, or other property required for the purposes of the company. 9. Waiver by the stockholders of notice of calls on sub- scriptions, and a resolution authorizing the directors to make calls, as required, for amounts unpaid on subscribed stock. This last provision is necessary where the corporation is depending upon payment of stock subscriptions for operating funds. 10. Adjournment. This first meeting of stockholders is a formal com- pliance with the requirements of the statutory law and has the effect of placing the corporation in a position to legally conduct its regular business thereafter. It is not uncommon to have the entire minutes of such a meeting written in advance, with the assent of all those entitled to participate, the meeting being conducted in accord- ance with the minutes. The advantage of such an ar- rangement is the prevention thereby of omissions and irregularities that might otherwise occur. After the adjournment of the stockholders' meeting, the newly elected directors should assemble for the first board meeting. This may be postponed if desired ; but, as the company is still unprovided with officers, and as the company interests usually demand prompt action, the 153 FINAL ORGANIZATION. first meeting of directors is generally held immediately upon the adjournment of the stockholders' meeting. The call and waiver for such directors' meeting, which must be signed by the entire board, may be as follows : — We, the undersigned, being all the directors of the Company, hereby call a special meeting of the Board of Directors of said Company, to be held in the office of (Wilson & Jones, No Broad St., Newark, N. J.), (at 2 P. M., Wednesday, January 31st, 1900), for the purpose of electing officers to serve for the remainder of the current year, and to authorize and direct the issue of shares of the stock of this Company for the purchase of ( a certain invention known as the Brown Heater, etc. ) and for such other action as is required to facilitate the business of the said Company, and we hereby waive all by-law' and statute requirements as to notice of the said meeting. (Signature of directors.) At the appointed time and place the directors, or a majority of them, being assembled, the meeting is called to order by any member of the board, and a president and secretary chosen pro tempore. The order of business will then be about as follows : — i. Reading of the call and waiver. This call and the waiver must be entered in full on the minutes. 2. Roll Call. The names of the members present should appear in the minutes of the meeting. 3. Election of officers. This must be conducted in accordance with the by- laws. The president and secretary elect should take charge of and conduct the meeting as soon as the result of the election is announced. 154 FINAL ORGANIZATION. 4. Any business specified in call for meeting. Formal resolutions authorizing the purchase of any desired property and directing the President and other proper officers to issue stock therefor, are in order at this point. 5. Any other necessary business. If under the laws of the state of incorporation any special reports are required, the proper officers should be directed to prepare and file the same, and at this point any further action should be taken necessary to begin the operations of the company business. The secretary or treasurer might be authorized to purchase books, station- ery, etc.; also to take action in regard to the renting, preparation and furnishing of offices. 6. Adjournment. This may be without any fixed date for re-assembling; but if reports are to be received and acted upon, or busi- ness requiring further action is on hand, the adjournment may be to some certain day. In this event such after meeting is legally a part of the meeting from which it was adjourned and, therefore, notice of the time and place or any other preliminary formalities are not essential. It is, however, customary and advisable to notify the members of the board of the approach of any adjourned meeting. With the adjournment of the directors' meeting the organization of the company should be complete, and the proceedings thenceforth be governed by the state stat- utes, the charter, the by-laws and the resolutions of the directors. § 71. Changing a Partnership to a Corporation. The conversion of an active partnership into a cor- poration is a simple matter. Should the firm membership 155 FINAL ORGANIZATION. not contain the number necessary for incorporation, the deficiency may be supplied by friends, relatives or em- ployees, such additional incorporators subscribing for, or being given, one or two shares of stock in the new com- pany. A non-resident firm proposing to incorporate in New Jersey or Delaware must provide a, resident stock- holder who may later be elected a director, the law in both these states requiring at least one resident stock- holder and director. If the incorporation is effected through the corporation trust companies found in both the states mentioned, such resident member will be sup- plied by the trust company ; otherwise the services of friends or employees must be enlisted. Frequently a por- tion of the stock of the new company is taken out in the names of the incorporators' wives. If the firm and the members thereof are solvent at the time the incorporation is effected, such an arrangement is perfectly legal and has many advantages. Future creditors of the husband can- not interfere with such stock, and in the event of the hus- band's death the stock will be in the proper hands with- out the intervention of the surrogate's court. The change of the partnership to a corporation is in its simplest form where the partners take the same pro- portionate interest in the new corporation that they pre- viously held in the firm. In such cases the individual interests of the partners are usually ascertained from the firm books, and, without any formal agreement, the capi- talization of the new company is assigned in accordance therewith. The certificate of incorporation is then drawn up and the names of the partners inserted as incorpora- tors, with the interest of each evidenced by the amount of his subscription. For example, if the business be estima- ted to be worth $15,000 and there are but two partners with equal interests, the corporation might be capitalized 156 FINAL ORGANIZATION. for a similar amount and the respective interests set forth in the charter as given below, two additional names being introduced to supply the requisite number of incorpora- tors : — A $7,400 B, 7,400 A's Nominee, 100 B's Nominee, 100 $15,000 If only one additional incorporator were desired, one of the partners might allot one share from his interest, the interest of the second partner remaining intact. In such case it would be possible for the party receiving this one share to combine with the second partner and, the two 1 holding a majority of the stock, to control thereby the corporation to the prejudice of the first partner from whom the one share was received. To avoid such danger, the certificate representing the share of stock allotted to the third party, and held in his name, is sometimes assign- ed in blank and turned back to the first partner from whom it was received. This leaves the ownership of record with the third party ; but if the powers connected with such ownership were improperly used, the first part- ner could, at any time, surrender the assigned certificate, have it re-issued to some more trustworthy person, and thus preserve his own proper status in the corporation affairs. After the certificate of incorporation is duly executed, filed and recorded, the first meeting of stockholders is in order at which a board of directors would be elected. After such election a resolution is proper authorizing the directors to take over the entire business, good-will and stock in trade of the firm of A. & B., giving in payment therefor the entire capital stock of the company, full-paid and non-assessable. 157 FINAL ORGANIZATION. The directors, in their turn, would, at the first board meeting, instruct the proper officers to issue the stock in accordance with the resolution of the stockholders' meet- ing, taking in payment therefor transfers and bills of sale covering the entire business. The officers would then, as soon as the proper conveyances were executed, issue cer- tificates for the entire capital stock of the company, full- paid and non-assessable, and deliver the same to the proper persons in exchange for the duly executed convey- ances of the business, the delivery of stock being, as a matter of course, made in accordance with the charter subscriptions. Where necessary, the officers would then certify to the Secretary of State that the entire capital stock of the company was paid in full, and the business would go on about as before, except that the signature of the concern would be changed to, " The A. & B. Co., by A., President," or "The A. & B. Co., by B., Treasurer." Should the partners desire a larger full-paid capitali- zation, the good- will may be estimated at any reasonable figure and the capital stock increased to correspond. If one partner has a greater interest in the business of the firm than his associate, he will naturally receive a proportionately greater stock interest in the new corpor- ation. In such event, the minority partner may insist upon such charter provisions for the future management of the company as will assure him proper representation therein and the due protection of his interests. The char- ter is a contract, not only between the corporation and the granting state, but between the stockholders them- selves and, in addition thereto, between the stockholders and the corporation; therefore, any such provisions in- corporated in the charter become a portion of that con- tract, not to be changed without the consent of the minority interest and affording an effectual protection for 158 FINAL ORGANIZATION. the future. Without such precaution the majority inter- est would be in almost absolute control of the corpora- tion, its business and the interests of the minority. The protection of minority interests is more fully considered in a later chapter. In the incorporation of a firm consisting of a number of members, the procedure is practically the same as already outlined, except that outside parties would not be needed to make up the statutory number of incorpora- tors and the adjustment of interests among the partners would be more complex. In case, at the time of organiza- tion, outside parties are taken into the new corporation, their stock subscriptions would probably be paid in cash, and in such event the amount of stock issued for the part- nership business would be diminished by the amount of these cash subscriptions. § 72. Stock Issued for Speculative Properties. Corporations are quite commonly formed for the pur- pose of exploiting mines, inventions, or other speculative properties. Such corporations usually resort to one of the states where the statutes governing the issuance of stock for property are liberal ; the charter subscriptions are placed at the lowest legal limit and are generally taken in the name of " dummies." This latter precaution is for the purpose of concealing the names of the real promoters of the enterprise until such time as they are ready to be known. In many cases, were the names of the parties actually interested prematurely made public, the acquisition of desired properties, or the consumma- tion of necessary arrangements might be interfered with or entirely prevented. At the first meeting of such corporation, the officers are authorized to issue all the capital stock, or such part thereof as may be necessary, as 159 FINAL ORGANIZATION. the consideration for the formal transfer of the desired property to the company. The owner of the property thereupon receives the stock consideration, full-paid and non-assessable, at the same time transferring his own property to the company. Generally, by previous agree- ment, he then returns or donates to the company a cer- tain proportion of this full-paid stock to be used for the purposes of the business. Such stock is treasury stock and is usually sold to provide a working fund for the operations of the company. Being already full-paid and non-assessable, it may be sold at less than its face value without danger of involving purchasers in any liability for the unpaid difference. The organization of such a corporation should be undertaken only in those states which recognize fully the entire validity and force of the issue of stock for property. Should a corporation of this nature become insolvent, the courts in many states would order an investigation of the original transaction by which its property was acquired, and should the property be found less in value than the face value of the stock issued therefor, such stock would be accounted unpaid and the holders be held liable for the unpaid balance required to make up the full face value. In New York such transfers of property for stock will be held good unless there be such over-valuation as to be fraudulent. In New Jersey the judgment of the directors as to the value of property so acquired will not be dis- turbed unless fraud is clearly shown. In Delaware the courts have not yet passed upon this matter but presum- ably, at a fair valuation and in the absence, of fraud, the transaction would be sustained. In West Virginia in the case of mining corporations, almost any properly effected purchase of property with stock is authorized by the 160 FINAL ORGANIZATION. statute. In other corporations such transactions would probably be sustained in the absence of fraud. It should be noted in this connection that a purchase of property with stock, made in accordance with the laws of the state of incorporation, cannot be interfered with or made the subject of judicial investigation in another state ; also, that under no circumstances would purchas- ers in good faith of the treasury stock of a corporation, the certificates being marked "full-paid and non-assess- able," be liable either to the corporation or its creditors. § 73. Organising- a Trust. The modern industrial trust is merely a large corpo- ration composed of a number of smaller corporations or enterprises previously separate and, usually, under inde- pendent management. To bring these together and com- bine the varying interests into one harmonious whole, is a complicated and difficult matter, calling for much practical business ability and' the most skilful counsel. The usual procedure is, briefly, as follows : — 1. A preliminary understanding as to the general plan of consolidation is arranged among those controlling the most important plants and interests in the particular line of business. A committee is then appointed to con- fer with counsel and with the financiers to be interested, and in accordance with the results of such conference a more definite basis of consolidation is prepared. * 2. The general plan, the approximate capitalization, and the basis upon which the more important interests will enter the consolidation having been settled, an examination of the books of account for some certain number of years preceding, and the inspection and ap- praisal of properties and plants, will then follow. In this way the value of the various properties is accurately esti- mated and the necessary capitalization is finally deter- 161 FINAL ORGANIZATION. mined. Other interests in the same line of business are given an opportunity to come in on the agreed basis. A common plan is to give preferred stock in the trust to the full value of the particular property in question and, in addition, to give common stock to an equal amount as a bonus. Special terms may be offered to secure unusually desirable properties, or the agreed basis may be varied to meet individual requirements. 3. Cash options are secured upon any desirable prop- erties the owners of which refuse to enter the consolida- tion on other terms. If any prices are too high such properties are left out of the organization. 4. If a sufficient number of consolidation agreements and optioned properties are secured, the enterprise is usually underwritten by some syndicate of capitalists, or some well known trust company. Unless everything has been arranged on a thoroughly sound and conservative basis, this is the difficult feature of the entire proceeding. If the capitalization is excessive or the option prices too high, the incipient trust will probably terminate at this point. The over-capitalization of trusts within the last few years has made capital exceedingly cautious. 5. If the underwriting is satisfactorily arranged, the charter is taken out, the organization perfected and stock issued as agreed upon for the different properties. Sufficient cash for operating capital and for the purchase of optioned properties is next obtained from the sale of stock, or is advanced by the underwriters, and the trust is fairly under way. Its ultimate success rests almost en- tirely on the ability and integrity of the men in control. The highest order of business and executive ability are absolutely essential. If these are secured, the great econ- omies and the operating advantages possible under trust management are sufficient to insure success, but other- wise failure is almost inevitable. The above is but a bare outline of the procedure in the formation of a trust and would be widely varied to meet 162 FINAL ORGANIZATION. the conditions of each trust to be formed. Such opera- tions should only be attempted with the support and as- sistance of business men of standing, wide experience and proved ability, and under the guidance of skilled counsel, familiar with the methods to be employed. CHAPTER XIII. CORPORATIONS AND PARTNERSHIPS COMPARED. § 74. Security. A business enterprise is upon a safer basis under cor- poration management than when conducted by a part- nership. Corporate officers have power only to a limited extent and in certain well defined directions. Important matters are decided, and action thereon authorized, only after deliberation and consideration by a board of direc- tors. As individuals, the directors have no power to bind the corporation, and the officers can only act within the clearly indicated scope of their powers. In a partnership, on the contrary, each partner, no matter how small his interest, is an authorized agent of the firm. There is no limit to his power in the business of the partnership ; he may contract as he will and the firm is bound. At times a corporation loses in promptness of action by the checks and limitations on its management; but that it thereby gains in the safe conduct of its business is not to be disputed. § 75. Inability. A corporation is not liable under any circumstances for the debts or financial involvements of its stockholders, nor is it affected in any way thereby. Its members may become bankrupt and may have judgments against them, but this cannot injure the corporation or its business. 164 CORPORATIONS AND PARTNERSHIPS COMPARED. The stock held by the members may be levied upon and sold away from them, but the corporation itself is not involved ; shares are transferred upon its books, new- stockholders take the place of the old, and, as far as the corporation is concerned, that is all. A partnership is dissolved by the insolvency of any member. A partner's interest in the firm, should he be- come insolvent, is directly liable for his debts, and the part- nership in such case is necessarily dissolved and, if the business is to be continued, must be reorganized. The misfortune of the one member may, and often does, drag down the entire firm. At the best, the insolvent partner's interest in the firm must be withdrawn without regard to the financial situation or the condition of the partnership affairs, and the firm thereby crippled as to capital and injured as to credit, — often hopelessly so. Even under the most favorable conditions the firm is inevitably and seri- ously discredited and embarrassed. A corporation is not thus affected because it is an entity in itself, separate and distinct, and the troubles of its members are not its troubles. Neither are stockholders liable for the debts of the cor- poration. Should their stock not be fully paid they are liable for the unpaid remainder as they would be on any other indebtedness, but for nothing further. Should the enterprise fail entirely, should the officials of the corpora- tion be dishonest or incompetent, should unforeseen hap- penings ruin the business, the stockholder may lose his investment, but nothing more. His private property and his other business interests cannot be touched. This is the great inducement to corporate investment. The pos- sibility of loss is, in advance, definitely known and cannot be exceeded. Members of a partnership are liable for its debts. No 165 CORPORATIONS AND PARTNERSHIPS COMPARED. matter how small his interest, any member is liable to the uttermost farthing of the partnership indebtedness. If the firm fails, recourse is had to the private means of the partners, and nothing can be withheld until the last cred- itor is paid in full. An interest of but a few thousand dollars may involve liability of hundreds of thousands - T there is no limit save the entire indebtedness of the firm. Any one partner has absolute power to bind the firm to any extent, and all his associates are personally liable. The fraud, mistake or mismanagement of one partner may easily, absolutely and hopelessly wreck the fortunes of all his associates. § 76. Permanence. A corporation is more permanent than a partnership. This is due to its charter power of succession whereby, though its members may change, the corporation con- tinues unaffected. The death, disability, lunacy, insol- vency or retirement of its members does not ordinarily affect its name, its business or its property, and its exist- ence is not interrupted ; also, an interest in a corporation is permanent and may be handed down to heirs and legatees. A partnership may be dissolved at the pleasure of any member. A partner cannot be held in the firm against his will. A difference of opinion may at any time, and at the most awkward juncture, break up a partnership. On the other hand, the policy or action of a corporation is- decided in certain definite ways familiar to all. If a stockholder is dissatisfied, he may sell his stock and withdraw, without affecting the corporation. In a partnership such a withdrawal would of itself, dissolve the firm. Also the death, lunacy, insolvency or other disability of a partner dissolves the firm whether the 166 CORPORATIONS AND PARTNERSHIPS COMPARED. other members -wish it or not. The corporation is never dissolved except by the action of a specified majority of its members, by the termination of its charter, or by man- date of the courts. The corporate form also offers, through its perman- ence, a desirable means of preserving the goodwill, the reputation and the connection, that may have been built up by a life-time of application to business. Such a busi- ness, incorporated, is in the best possible form to be handed down to the founder's family for preservation and continuance. His death does not interfere with, nor inter- rupt, its course. It can be managed and administered without re-adjustment or serious disturbance. His execu- tors take possession of his stock holdings, as may have been directed by himself, until the estate is settled; and his interests are in the most convenient shape possible, either for apportionment among his heirs or to be held together for a stated term in the hands of trustees. No partnership interest could possibly be so preserved. No matter how well arranged the partnership, the death or disability of a partner causes its dissolution and the effectual interruption and disturbance of the whole busi- ness. His heirs cannot enter the firm and carry on their inherited interests unless with the consent of all the mem- bers of the firm, and after a troublesome and delicate adjustment of the mutual interests and relations of all those concerned. § 77. Investment. The capital stock of a corporation, divided into shares, and represented by transferable certificates, whereby each member's interest in the business and the results thereof, is certainly and conveniently shown, is a most admirable arrangement. Any number of persons may invest as 167 CORPORATIONS AND PARTNERSHIPS COMPARED. many different amounts, yet the interest of each is exactly apportioned and evidenced. When they receive their cer- tificates, they have in hand an evidence of their investment so tangible that it can be used as collateral, or sold, or left to heirs. Their property is invested and yet in hand. As a business mechanism the system is strikingly simple and effective. From the standpoint of the company it is also most facile and convenient. Each member's interest is exactly defined; each member's share of the profits is readily ascertained. Old members go out ; new members come in ; all is done with a few strokes of the pen and with no interruption to business or capital. The partnership investment is quite different. Each member's investment is merged in the whole ; stock must be taken and books balanced to ascertain the value of his interest. It cannot be used as collateral, be divided, or sold ; cannot be left to legatees, nor be conveniently with- drawn ; a purchaser or legatee would only acquire the right to have the firm dissolved and his interest appor- tioned. As a system of investing money the arrange- ment is unsafe, awkward and unmanageable. § 78. Obtaining Additional Capital. A corporation can secure money when a partner- ship cannot. The risk to the investor is a definite one and is strictly limited to the amount of investment. There is no unknown and unlimited liability beyond. Every feature is clearly cut and defined. Also, there are many different ways in which the corporation can render money advanced or invested, secure, whereby the risk is varied to suit the wishes of the investor. First, the corporation has the power of issuing its original stock for subscriptions, or it can have treasury 168 CORPORATIONS AND PARTNERSHIPS COMPARED. stock that may be sold below par, if need be. Secondly, if greater inducements are necessary, preferred stock may be issued, giving the holders the first profits of the enterprise. Again, if greater security be demanded, a mortgage may be placed upon the entire property of the company, bonds issued thereunder, and sold to a great number of people; all of whom have equal security, and to all of whom the entire assets of the company are equally pledged. Further, under any of these arrangements, or by an ordinary loan, a corporation may obtain money from its members, and they will have the same security, and the same legal status, as an outside creditor. To state the matter briefly, a corporation offers, in exact terms, inducements to capital, suited to the tempera- ment of the investor. To those who seek speculative returns, the common stock offers the greatest possibilities. The preferred stock, limited as to amount and first in profits, appeals to those who would take less risk and be content with possibly smaller, but more certain returns ; while, finally, to those who wish still greater safety, the bonds of the company, secured by absolute pledge of all its property, almost eliminate the possibility of loss. It may be said, in general, that a corporation may rely upon obtaining all the capital to which its enterprise, management and business prospects entitle it, and that these claims to credit can be presented in the forms that appeal most strongly to investors. A partnership cannot offer such inducements to capi- tal. An investment in a partnership may be dangerous either to the investor or the firm. The investor in a part- nership who participates in the profits, is considered a member of the firm and is liable for all its debts. On the other hand, should the reputation of the investor be bad, the firm suffers in its own reputation and standing, and is 169 CORPORATIONS AND PARTNERSHIPS COMPARED. always liable for any contracts or obligations made by him for the firm account. Again, a loan by a partner is, in the eyes of the law, merely an investment, and all other creditors of the firm must be paid in full before the partner's loan will be re- paid. Neither can a partnership issue anything in the • nature of preferred or common stock, nor can it, under any usual circumstances, issue bonds. Nor, on a direct loan, has the partnership any material advantage over the cor- poration, though all the members of the firm are person- ally liable for the repayment of such a debt. § 79. Facility of Operation. The facility of operation found in the management of a corporate business cannot be attained in the mutual relations of a partnership. The methods and details of corporation management are prescribed and set forth in code and statutes. The form of operation, with charter, by-laws, meetings, elections, directors and executive offi- cers, has been evolved and worked out by many minds through many years and, properly used, is, especially where many are concerned, the most effective known method of conducting an enterprise. The system has flex- ibility enough to adapt itself to the requirements of the "close" corporation with the entire stock in the hands of a few men and but the minimum of formality required; and to serve equally well for the needs of the modem, gigantic, so-called "trust" with its thousands of share- holders, millions of capital, and complex and formal ad- ministration. The general regulations governing the corporation are laid out in the laws of the state ; the details of man- agement in its own charter and by-laws. Its annual meetings give opportunity to every stockholder to inform 170 CORPORATIONS AND PARTNERSHIPS COMPARED. himself as to the condition and details of the business, and to indicate by his vote his preference as to its further ad- ministration. Being an enterprise for gain, founded on subscribed capital, the natural basis for suffrage is the amount invested by the individual. Those having the most at stake have the largest number of votes, and self- interest would naturally lead to the election of the most capable. The directors, so elected, choose the immediate officers and agents, who are to manage the business and make the profits, and then by frequent meetings and con- sultations, keep in touch with them and with their doings, and supervise the conduct of the -whole organization. Where latitude might be dangerous, there are restrictions; where action is needed, there are ample powers. Partnership management, as compared with this systematic procedure, is loose and ill-regulated. It is a legal maxim that every partner is the agent of all the others. There are no limits as to what any partner may do. Partners may assign particular powers to particular members of the firm, but there is no way of enforcing any such agreement. If other members choose to exercise the same powers they cannot be restrained, and their action is binding. Neither does the law require that partners shall consult before action, or that a majority shall agree upon what is to be done. The minority sometime suffer under corporate management, but in a partnership the danger is even greater, and there are no means of protec- tion save the dissolution of the firm.' Also, in a partner- ship, the majority may be the parties injured as they have no protection beyond the same destructive procedure. Nor, should one partner act in defiance of the firm interests, is there any orderly and peaceful method of righting mat- ters. The whole system is haphazard and uncertain. 171 CHAPTER XIV. PROTECTION OF THE MINORITY. § 80. Corporation Dangers. The dangers to which a business corporation and its stockholders are most liable may be roughly classified as follows : — 1. Incompetent management. 2. Dishonest management. 3. " Freezing out " of minority. 4. The ' ' wrecking ' ' process. Of these, mismanagement, even though accompanied with entire honesty of purpose, is probably the most dan- gerous. There is no magic in the corporate name to pre- vail against incompetency, and if the management of the corporation is incapable and cannot be changed, a speedy withdrawal from its affairs is the only wise course for the stockholders. A dishonest management is but little better, though the business may be yielding all that is possible or was expected. In such case, the profits are consumed in salaries or other expenditures benefiting only those in con- trol, or the business of the corporation is made subservient to other enterprises in which the management is inter- ested. Where the controlling majority is shrewd as well as unscrupulous, dividends are frequently paid sufficient to maintain appearances and allay suspicion while the bulk of the profits are diverted to the private interests of the parties in control. 172 PROTECTION OF THE MINORITY. Sometimes the affairs of a corporation are wilfully mismanaged, its earnings reduced or squandered and debts accumulated, all for the express purpose of discour- aging and driving out the minority stockholders. This is the process generally known as "freezing out." Fre- quently this too common knavery is accompanied with juggled figures and reports apparently portending bank- ruptcy. Naturally the value of the company's stock is forced down and usually the minority holders are glad to sell at any price. Such minority stock is then quietly bought in at a nominal figure by those on the inside, and forthwith the whole system of management undergoes a change. Business is pushed ; expenses are reduced ; debts are paid ; plants and equipments are overhauled, repaired and put in condition ; dividends are earned ; the price of stock advances,— and the minority has been safely and suc- cessfully "frozen out." A more revolutionary method of accomplishing the same end, which is resorted to where the minority is ob- durate and refuses to part with its interests at nominal figures because of passed dividends and discouraging re- ports, or where there is a majority that may be hood- winked, is to "wreck" the corporation by mismanage- ment, debt and litigation until it is sold out under execu- tion. At such forced sale, the assets of the company are bought in at the lowest possible price, the company is left destitute or with judgments against it, and a new corpo- ration is formed owning all of the old property, but with only the wreckers in control. The business of the new company is then pushed on to the success that should have been attained with the old organization. In some instances, a corporation is "wrecked" in the interests, or at the instigation of a business competitor. The management of the corporation is "interested," or 173 PROTECTION OF THE MINORITY. control of the company's stock is acquired by purchase or other means ; then the company's business is systemati- cally and deliberately ruined or destroyed, until what assets remain are forced to a judicial sale. The unscrupu- lous rival then acquires these remaining assets at a nomi- nal price and proceeds with the business. Sometimes even a majority are plundered by ingenious wrecking schemes. Owners of inventions of value or other properties are induced to enter into the organization of a company to own and handle the same. The safety of the former owners is apparently secured by their retention of a controlling interest in the compam . The organiza- tion being perfected, a corporation loan is suggested as a convenient method of tiding matters along until treasury stock can be sold for a fair price and the business put upon a sound basis. This loan once effected, no stock is sold. Notes presently fall due, and, unless the ma- jority interests are able to raise the ready money to clear off the company indebtedness, suit is brought, judgment and execution follow, and the mines, patents or other properties are bought in at a fraction of their value by the wreckers. Usually under such circumstances the owners, plundered of their property and with nothing to show save a quantity of worthless stock certificates* imagine that the system of incorporation is responsible for their troubles, forgetting that the difficulty arose from associa- tion with thieves, and that their property would have been sequestered with even greater ease and facility under the conditions of an ordinary partnership. With regard to all these possible dangers, a modi- cum of precaution is of more avail than any amount of subsequent litigation. Legal redress may be had under some circumstances for some of these wrongs; but legal proceedings are costly, uncertain and unfavor- 174 PROTECTION OF THE MINORITY. able to the successful prosecution of business, and should always be a last resort. Some of the simpler and more effective precautions are given hereinafter. In their appli- cation, the assistance of competent legal talent should, as a matter of course, be secured. §81. Protective Measures. Under the ordinary forms of corporate organization, the ownership or control of but one share above 50 per cent, of the company's stock gives command of the enter- prise in its entirety. Assets, income and management are all in the hands of the majority, and the minority, though owning 49 per cent, of the entire stock, may be shut out absolutely from any participation in the company busi- ness. This is based on the theory that the majority, hav- ingthe largest investment, will, as a matter of self-interest, manage the enterprise to the best possible advantage for all concerned. In most cases this is true, and the greater number of successful corporations are operated with fair- ness and honesty, paying reasonable salaries to the offi- cers and fair dividends to the stockholders. In many cases the majority stockholders, from a natural sense of justice, give representation to the minority on the board of directors and a due proportion of the salaried positions. This, however, is a matter of grace, not of right, and may at any time be changed. It is obvious that this feature of corporation law is at variance with common justice. A bare majority may elect the entire board of directors, elect all the officers from among themselves, determine their own salaries and exclude the minority stockholders so entirely from even a knowledge of what is being done, that the protection of their interests becomes impossible. Such an arrangement is contrary to every principle of jus- tice and business policy and is responsible for the worst 175 PROTECTION OF THE MINORITY. abuses of the corporate system. It cannot be defended. The majority properly controls, but the minority stock- holders should be insured such proper representation as will enable them to protect their interests in the corpora- tion. They are entitled to know what is being done, or is to be done, with their own property and have a right to such corporate recognition that the improper or illegal disposition or management of such property may be checked or averted. If the majority should rightfully have control of the board of directors, the minority interests should with equal right have such representation thereon as will enable them to watch, to advise, to protest or to invoke the law if necessary. §82. Cumulative Voting. The cumulative system of voting is based on the theory that representation on the board of directors enables the minority to keep in touch with the manage- ment of company affairs and protect its interests therein. So effective and so highly esteemed is the system for this purpose that in some states it is, by constitutional pro- vision, made a right of every stockholder. In a majority of the states the use or adoption of the system is optional. The following enactments respecting cumulative voting give a fair idea of the plan. The New York law, which is merely permissive, states that the certificate of incorporation may provide : — " That at all elections of directors of such corporation, each stockholder shall be entitled to as many votes as shall equal the number of his shares of stock, multiplied hy the number of directors to be elected, and that he may cast all of such votes for a single director or may distribute them among the number to be voted for, or any two or 176 PROTECTION OF THE MINORITY. more of them as he may see fit, which right when exer- cised shall be termed cumulative voting." The Constitution of West Virginia says : — "Every stockholder shall have the right to vote in person or by proxy for the number of shares of stock owned by him, for as many persons as there are directors or managers to be elected, or to cumulate said shares and give one candidate as many votes as the num- ber of directors multiplied by his shares of stock, shall equal, or to distribute them on the same principle among as many candidates as he shall see fit." With greater brevity, the Constitution of Pennsylva- nia says : — " In all elections for directors or managers of a corpo- ration, each member or shareholder may cast the whole number of his votes for one candidate or distribute thein upon two or more candidates as he may prefer." To explain the cumulative system more clearly let us suppose a corporation with one hundred shares of issued stock and five directors to be elected. Under the ordi- nary plan each share of voting stock would have one vote for each of the directors to be elected or five votes in all. These five votes must, however, be cast as stated, one for each director. In the cumulative system, instead of compelling this distribution of the five votes belonging to each share, such votes may be distributed among the directoral candidates in any way the owner of the share sees fit ; all five votes for one candidate, three for one and two for another, or in any other way desired. The five votes go with the share and can be voted at the pleasure of the holder. In the company instanced, with one hun- dred shares and five directors, any stockholder owning or controlling twenty shares of stock would have one hun- 177 PROTECTION OF THE MINORITY. dred votes and hence could elect one member of the board. No matter how the other eighty shares were voted, his candidate, having one hundred votes, would be among the five candidates receiving the highest number of votes and .would necessarily be elected. Similarly, anyone holding forty shares in such a company could elect two directors. In this last case the persons controlling the other sixty shares could elect three directors, which would give them •a majority in the board, but the minority would always have their due representation; could be present at all meetings ; take part in all business and debates ; know all that was being done, and prevent most of the schemes whereby the rights of the minority are trampled upon by an unopposed majority. If twenty shares in the supposed corporation were not held in any one name, a combination could easily be ar- ranged among the smaller stockholders that would inevit- ably elect one or more representatives on the board. The majority would control, but the minority could not be ex- cluded; and this mere representation on the board has been found a most valuable and efficient aid in the protec- tion of minority interests. In the State of Delaware, through an unfortunate pro- 'vision in the State Constitution, it is doubtful whether cumulative voting would be legal in corporations organ- ized under the state law. § 83. limitations in Charter. In New York, New Jersey and Delaware, special pro- visions relating to the future management of the com- pany may be inserted in the certificate of incorporation. These provisions cannot be changed except with the con- currence of a large majority, or all, of the stockholders and with much formality and publicity. For this reason 178 PROTECTION OF THE MINORITY. the introduction of the proper stipulations or provisions in the charter becomes a most efficient minority protec- tion. In West Virginia and other states where such char- ter provisions are not permitted, the same ends may be attained through by-laws unanimously passed at the first meeting of stockholders. Such by-law provisions should contain the stipulation that they may only be repealed by unanimous vote, and if made as a condition of stock subscriptions, or if stock is purchased in reliance on same, or if they constitute an essential feature of the incorpora- tion, they will be sustained by the courts. It should be noted that charter and by-law provisions for the protection of minority interests both depend in the first place upon the assent or agreement of all the parties in interest. Usually this can be secured at the inception of an enterprise, but if unanimous assent cannot be had, such means of protection are not available. In such case,, unless compelled by dire necessity, prudence would dictate the withdrawal of the minority stockholders. The following are examples of different provisions having for their object the protection of the minority in- terests and -would be varied to meet the needs of the par- ticular case: — 1. "It is hereby provided that it shall require a ma- jority of seventy-five per cent, of the outstanding voting stock to amend the charter, to amend the by-laws, or to elect directors in this company." This is taken from the certificate of incorporation of the American Tobacco Company incorporated under the laws of New Jersey. Under such provision, a minority controlling over twenty-five per cent, of the voting stock of the company would be in a most effective position for the protection of its interests. At the first election when harmony usually prevails, a representative board with 179 PROTECTION OF THE MINORITY. proper recognition of the minority could undoubtedly be secured, as without the minority co-operation the election of directors would be impossible. With a satisfactory board once installed the future course is plain. A new board could not be elected without the concurrence of the minority, and if trouble arose, the minorfty, by mere non- attendance, could cause a dead-lock. In such event the old board with its full minority representation would hold over until some adjustment of the difficulty were reached. As long as the minority controlled over twenty- five per cent, of the voting stock no change could be made in the board, neither could the charter be amended, nor any advantageous provision of the by-laws changed, ex- cept with the consent of the minority. Experience has shown that, under such circumstances, the minority inter- ests judiciously handled are fully capable of self-protection. It should be noted, however, that this provision as well as those which follow are not allowable under the laws of all of the states, and the statutes of the state of incorpo- ration should be carefully consulted before any'such pro- visions are embodied in the charter or by-laws. 2. The stock of this company shall be divided into two classes, to be known and designated as "Class A" and "Class B," and the certificates thereof shall be marked accordingly. There shall be shares of stock in "Class A" and shares in "Class B," and at all elections of directors the holders of certificates marked " Class A " shall be entitled to elect directors, the holders of the certificates marked " Class B " shall be entitled to elect directors, and the votes of each class shall be cast and counted sepa- rately. In no other respect shall there be any dis- tinction between said two classes of stock. This arrangement assumes that at the time of organ- 180 PROTECTION OP THE MINORITY. ization the minority secure or are allotted a sufficient quantity of the stock in one of these classes to control the same and elect the full number of directors pertaining to such class. The general plan is simple and effective, and can be varied in many ways to meet the changing condi- tions of different organizations. Should, however, the majority secure control of both classes of stock under such an arrangement it would be as though there were no classes, and the minority interests would be as completely at the mercy of the controlling interest as under the usual arrangement. Properly managed, however, the arrange- ment is an efficient protection and is available to secure minority representation on the board in states like Dela- ware where cumulative voting is not possible under the law. If desirable, the arrangement may be extended to a greater number of classes with a certain number or pro- portion of directors to each, whereby the possibility of the control of all the classes passing into the hands of the majority is much diminished and the safety of the minor- ity correspondingly increased. 3. No person shall be eligible as a director of this com- pany unless he be the owner of record of at least shares of its stock. The object of such provision is, primarily, to prevent the election of "dummy" directors, qualified for their posi- tions by the possession of a single share of stock given them for the purpose. Under the usual operations of the provision the minority are benefited only by the selection of directors who are really and substantially interested in the welfare of the company, provided the number of shares to be held by each director be moderate. The number of shares might, however, be fixed so high as to compel the election of one or more of the minority because the requi- 181 PROTECTION OF THE MINORITY. site number of eligible members could not be secured with- out them. 4. The directors and officers of this company shall have no authority or power to enter into or exe- cute any contract, obligation or indebtedness that shall involve the company in a total outstanding indebtedness of more than $ unless specially authorized thereto by a two-thirds, vote of the entire voting stock of the company, duly cast at a meeting of the stockholders. 5. The directors and officers of this company shall under no circumstances incur obligations and in- debtedness on its behalf to exceed two-thirds of the appraised value of the actual assets of the com- pany, unless authorized thereto by a two-thirds vote of the entire stock of the company, cast at a duly assembled meeting of the stockholders. 6. It is hereby provided that after the second year of corporate existence of this company, the salaries and office expenses of the company for any year shall not exceed (one-half) the amount of dividends declared for the preceding year, unless such excess shall be authorized by a (two-thirds) vote of the stock of the entire company, duly cast at a meet- ing of the stockholders. 7. Any stockholder owning, controlling or holding proxies for (one-fifth) of the entire voting stock of the company may inspect the books, records and accounts of the company and take transcripts thereof, and such stockholder may be accompanied and assisted by counsel and an expert accountant. But it is provided that such inspection shall not be allowed within six months from any previous ! inspection by the same stock interests, and, if de- i sired by the officers having charge of such books, records and accounts, shall be conducted after bus- iness hours, and the expense thereof shall be borne by the stockholder making such inspection. 182 PROTECTION OF THE MINORITY. These limitations maybe varied indefinitely. ^Vnere representation of the minority on the board has been arranged for by cumulative voting or otherwise, they are not of the same importance, but may still be used to ad- vantage. § 84. Issuance of Non-voting Stock. Under the laws of most states of the Union, stock, or certain classes of stock, may be issued without voting right, but in all other respects with the same powers and privileges as the ordinary stock. This arrangement may, under some conditions, be employed as a very efficient protection for the minority interests. For example, a partnership composed of three members with respective interests of $50,000, $20,000 and $15,000 may contem- plate incorporation. From a legal standpoint, the rights of 'the partners are equal in the partnership, and each is entitled to full participation in the management. If, however, a corporation were formed with the same total capital, and stock given to each partner in propor- tion to his interest, the partner receiving $50,000 of stock would ordinarily, should he so desire, have absolute con- trol of the corporation, to the exclusion of his associates. Under such circumstances, any agreed proportion of the capital stock given to the partner holding the $50,000 interest, might be made non-voting, so that his total vot- ing stock would only equal that held by either of his associates, or else would equal that held by both his associates together. In the former case he would be out voted by a combination of his associates; in the latter case, the combination of his associates' interests would equal his, and neither interest would predominate. Such special non-voting stock might be made preferred stock 183 PROTECTION OF THE MINORITY. with its preferential dividend limited to the legal rate of interest, or it might be merely deprived of its voting power and left otherwise unaffected, to participate in the profits of the business, as would the stock in the hands of his associates. § 85. Contract as to Management. When a corporation is about to be formed, and par- ticularly where a partnership is to be changed to a corpo- ration, a contract is very commonly entered into between the organizers whereby a certain number of directors is to be named by each and the disposition of the salaried offices agreed upon. Such contracts are of little force. They would probably hold between the original parties thereto, so long as they retained ownership of all the stock issued, though even then specific performance could not be enforced. If there were other stockholders not par- ties to such contract, it would be held to be in fraud of their rights from the first and would not be enforced by the courts ; also, if any of the parties to such a contract sold any portion of their stock, that action of itself would terminate the agreement. Even the sale of treasury stock would bring in new parties with rights antagonistic to such a contract. The only possible way to make such an agreement effective, supposing its terms to be lawful, would be its in- corporation in the charter or the by-laws of the company upon organization. If this were done and stock sub- scribed for under the charter or by-law terms, these terms could not be changed without the consenf of such stock. Any contract of this kind should, however, be drawn with much care as, unless obviously fair and equitable in its terms, it would, in case of litigation, be scrutinized with much severity. 184 PROTECTION OF THE MINORITY. § 86. The Voting Trust. Another method of protecting the rights of the minor- ity, or of particular interests, is to place sufficient stock of the company to control elections, in the hands of a trustee, or trustees, with a declaration as to the exact dis- position of its voting powers. Such trusteeships are known as voting trusts or voting pools. For example, should two-thirds of the stockholders in interest in any corporation place their stock in the name of a trustee, with an agreement that such ^tock should be voted in a certain manner and that any dividends received should be apportioned among the original holders in proportion to their holdings, such agreement would create a voting trust, and the contract itself would be a pooling agree- ment. This arrangement, while common, is not in good re- pute with the courts, as it has been generally used to effect combinations adverse to the interests of the minority or to form a "trust" in its modern sense of a monopoly. Because of the unlawful or undesirable ends for which voting trusts have been generally formed, they are re- garded with disfavor by the courts and have, in most cases, been pronounced illegal. If any of the parties to such agreements wished to withdraw their stock in defi- ance of agreement, the courts have generally permitted such withdrawal and in many cases have granted peti- tions for the dissolution of the " pool." While all this is true, the ground for these decisions has been the illegality of the objects for which such trusts were formed, and in numerous dicta the courts have inti- mated that a voting trust for proper objects would be up- held. Under these circumstances it is reasonable to sup- pose that a voting trust, having for its object the due 185 PROTECTION OF THE MINORITY. representation of the minority and the fair administra- tion of the company in the interests of all its stockholders, would, if properly drawn, be upheld. The declaration of such a trust should be made to three or more trustees, or, preferably, to a regular trust company. Sufficient stock should be included to control all elections, and the period should be limited to, say five, ten or twenty years. Trust certificates should be issued to the parties participating, showing their respective inter- ests in the trust. The consideration for the agreement, to be stated therein, should be the subscription to, or purchase of the original corporation stock. The declara- tion of trust should provide for the exercise of the balance of power in such manner as would not only protect the parties immediately concerned, but would give to all the stockholders of the company fair and just representation on the board and efficient protection of their interests. Such agreement should also provide for the proper dis- tribution to certificate holders of all dividends received on the trusteed stock. It should be borne in mind that the courts do not favor combinations or arrangements for restraining either the free voting power or the sale of stock, and that any contracts having both these objects in view, as is the case in a voting trust, must have a real and bona fide consid- eration. It is also a legal axiom that a proxy, though irrevocable in its terms, may, unless coupled with an in- terest in the thing itself, be revoked at the will of the maker. Hence, it is suggested that the money or other consideration for the purchase of the stock should be placed in the hands of the trustees and the trust certifi- cates issued against it. Then the instrument declaring the trust should direct the trustees to secure such, desig- 186 PROTECTION OF THE MINORITY. nated stocks in their names as trustees, and thereafter to continue to hold and vote the same according to the instructions of the trust agreement. It should be emphasized that the preparation of any agreement for a voting trust that will be sustained in the courts requires the best legal assistance, and that, in gen- eral, any arrangement for the protection of the minority demands the aid of competent counsel familiar with all the circumstances of the particular case and with the state laws under which it is proposed to operate. CHAPTER XV. THE FUTURE OF CORPORATION UW. § 87. Past Forms of Association. The partnership is the primitive form of business association. Crude and simple, adapted to the needs of a rude age and to elemental forms of business, its un- changed survival is most singular. The customs and methods of business have changed greatly, but the harsh rigors of partnership law remain almost as they were in the middle ages. The corporation is also ancient, though, unlike the partnership, its form has been greatly modified to meet the changing demands. The old trade guilds, the city, monastic and ecclesiastical corporations, though differing so greatly from the modern corporation, were the same thing in primal form. The distinguishing feature of these old corporations was the enjoyment of charters which, obtained from the sovereign by purchase, fear or favor, conferred special exemptions and privileges, greatly prized in that age of oppression. The business corporations that followed, likewise came by royal favor and usually enjoyed some form of monopoly, as in the case of the East India and Hudson Bay Companies. Still later, a charter almost invaria- bly carried with it some special grant or concession, such 188 THE FUTURE OF CORPORATION LAW. as the erection of a toll bridge, the establishment of a ferry, or a franchise involving the right of eminent do- main ; something in every case that made its possession a favor rather than a right. For these reasons corporations have always been associated with the ideas of favoritism, special privileges, dangerous powers and the savor of monopoly. The laws by which they are controlled have ever been framed upon this theory, and as a consequence, to this day corpora- tions are hedged about in every direction with special regulations, fees, taxes, restrictions and obstructions and are looked upon with jealousy and fear. § 88. Present Status of Corporation I,aw. The corporation law of the present day shows in its unreasonable enactments the influence of the old preju- dices against corporate organization. These fears and prejudices may have some foundation in the case of corpo- rations controlling public franchises, but when applied to the ordinary business corporation are unquestionably unjust and unjustifiable. Such corporations are neither asking nor receiving favors from the state. All their members desire is permission to conduct the company bus- iness in a simpler, safer and more convenient manner than is possible under the harsh rules of partnership. This may be a privilege, but certainly not one to be paid for. In a few states, more advanced than their neighbors,, the old-time rigors of corporation law have been relaxed, but the results only accentuate the absurdity of the usual regulations. Why should citizens of New York wishing to operate a mine in the Klondike, have to pay West Vir- ginia $50 per annum for the privilege? Why should citizens all over the country pay thousands of dollars 189 THE FUTURE OF CORPORATION LAW. annually to the States of New Jersey and Delaware for permission to do business in the corporate form ? Why should anything be paid anywhere for merely the privilege of doing business somewhere else ? If citizens of New York form a million dollar company for the purpose of mining coal in the Indian Territory, they may pay the State of New York $1,250 for a char- ter, or they can get one just as good, or for their purpose better, from the State of West Virginia for $50. As no business is to be done in either state, and nothing has been received beyond the bare permission to do business under the corporate form, the reason for any payment anywhere is not apparent. It must be conceded that a state may reasonably and very properly insist on the open and honest management of corporations and corporate business within its borders, but anything beyond this savors of extortion and injus- tice. Why should the state needlessly obstruct, harass or burden those whose only guilt is enterprise ? Should they not rather be encouraged ? But when a state goes still further and actually drives its own citizens to pay another state for permission to do business at home, the limit of legislative imbecility seems to have been reached. Business corporations should unquestionably pay taxes upon their plants and properties just as individuals and firms do, but should not be made to pay more. They have received neither favor nor concession, and when they pay the usual imposts taxation should cease. § 89. The Demands of Business. Business men should be allowed to make any such arrangements for the conduct of their business as may be found fair, simple and to the advancement of trade and enterprise. They should further be encouraged to do so 190 THE FUTURE OF CORPORATION LAW. by plain, uniform laws, with only such fees as may be necessary for the service of public registry. Full records in each state and county where a corporation transacts business should show the character and capitalization of the company, subscriptions to stock, amount and charac- ter of payments thereon and such other details as would •enable those doing business with it to know just what ba- sis exists for confidence and credit. For these records rea- sonable fees should be charged, as is done in the registra- tion of land titles and liens. Beyond these proper charges, all special taxes, license fees, etc., are oppressive and unjust. If stock is exchanged for property, the transaction should be set forth particularly in the records. The pub- lic has a right to know the real consideration paid, upon which the value of stock depends, but legislation be- yond this would seem to be unwise. If a corporation sees fit to exchange its entire capital stock for a patent mouse trap, or an undeveloped mine on "Oonalaska's shores," and the transaction is properly entered on the public records, nobody is wronged, no deception is practiced and no valid objection to the transaction would seem to exist. The supposition that the State is in any way responsible for the maintenance of stock values is as absurd as to hold the State responsible for the value of horses, or mer- chandise, or any other commodity offered for sale. The face of stocks and bonds is merely a convenient basis for the estimation of values and dividends, and the market price thereof may be more or less, without injury to the public welfare. § 90. The Future of the Corporation. The future will probably see the extension of corpo- rate law along the lines indicated. Uniformity in the 191 THE FUTURE OF CORPORATION LAW, different states will be approximated, as in the law of negotiable instruments, and the absurdity of "outside" incorporation will disappear. Different forms of corpo- rate organization, simplified and cheapened, will be the rule for small enterprises as well as great. The partner- ship will disappear, except where its peculiar liability is imposed on officers or directors as a penalty for corporate fraud or wrong-doing. Public records of corporations and corporate doings will be amplified and extended so that the character and standing of a corporation may be readily judged from the records. The restrictions and obstructions now so apparent in corporation law and its application will disappear. Possibly the old prejudices may be more quickly overcome by a change of name, as in Pennsylvania, where in the provisions for so-called "Partnership Associations" are found some of the best devised corporation laws in the country. Certainly the more civilized, the more humanized a people become, the more perfectly can they work together, and the more closely -will they unite their interests and the better work out their joint ends. Union gives strength, power and control of circumstances. It is the trend of the age which can neither be checked nor diverted, but will work on to closer and better forms of coalition and co- operation. We may, however, be sure that whateverform of combination the future activities of mankind may take, the ultimate results will inevitably be expressed in some more highly evolved type of that ancient, time-honored and ever-adaptable institution, the corporation. GENERAI, INDEX. (Numbers refer to pages.) A. Acknowledgment of Charter, N. Y., 64; N. J, 87; Del., 108; W. Va., 127. Adjournment, 153, 155. Agents, appointment of, 14, 153. resident, N. J. and Del., 153. Application for Charter; see Charter, formalities of. Attorney, resident, W. Va., 128. Amendment ; see By-Laws, also Charter. Annual elections ; see Annual meetings. Annual meetings, by-laws, 33, 39, 42; N. Y., 67; N. J., 92; Del., 114; W. Va., 133. reports, N. Y., 72, 73, 74, 75, 76; N. J., 96; Del., 118, 119; W. Va., 135, 137. Assessments, N. Y., 65; N. J., 88; Del., 110, 111; W. Va., 130. Assets, 28. Authentication of acknowledgment, N. Y., 64; N. J., 87. B. Board of directors; see Directors. Bonds of officers, W. Va., 136. see Treasurer. of corporation, N. Y., 72. Books, entries, failure to make, N. Y., 72. inspection of, N. Y., 66; N. J., 90, 96; Del., Ill, 112; W. Va., 131. of account,. 50; N. Y.,66; N.J., 90; W. Va., 135. of minutes, 35,36, 42, 49. 193 GENERAL INDEX. (Numbers refer to pages.) stock, N. Y., 66. transfer, 38; N. Y., 66; N.J., 90; Del., Ill; W. Va.. 131 Borrowing money ; see Debt. Business corporations, 9, 10. of corporation to be stated, 17. order of; see Order of business. By-Laws, 29, 33, 37; N. Y., 71; Del., 109, 115; W. Va., 135. amendments of, 28, 36, 53. classification, 32. extended form, 37. penalties, 31, 32, 52. power to make, 14, 29, 30, 46, 152; N. Y., 71; N. J., 85; Del. 116. short form, 33. Called meetings ; see Directors ; also, Stockholders, Special meet- ings of. Call for meeting, first, 150, 154; N. J., 88; Del., 109, 114; W. Va., 129. stockholders, 33,40; N. Y., 68; N.J., 92; Del., 114 r^ W. Va., 133. directors, 34, 44; N. Y., 71 ; W. Va., 135. Calls, for subscriptions ; see Assessments. California, laws, 149. Capital, amount to begin business with, N. Y., 61 ; N. J., 84; Del., 106; W. Va., 127. Capitalization, 17, 19; N. Y., 61; N. J., 84; Del., 105; W. Va., 127. Capital stock, 11, 15, 19. amount of; see Capitalization. certificate of full payment, N. Y., 67 ; N. J., 91, 95 ; Del., 114, 117. comparison of state laws, 145. increase of, N. J., 152; Del., 113, 152. must not be impaired, N. Y., 69; N. J., 94; Del., 113, 117; W. Va., 134,135. payment, N. Y., 65, 67; N. J., 89; Del., 110; W. Va., 129. payment in property, etc., 157, 158, 159 ; N. Y., 65 ; N.J., 89; Del., 106,110; W. Va., 129; Maine, 149. comparison of state laws. 147. 194 GENERAL INDEX. (Numbers refer to pages.) Certificate of incorporation, 10, 12, 16, 152; N. Y., 61; N. J., 83; Del., 105; W. Va., 126. (see Charter.) Certificates of stock, 24, 33, 37; N. Y., 65; N. J., 89, 92; Del., Ill; W. Va., 130. false, N. Y., 72; N.J. 95. Charter ; see Certificate of incorporation, amendment, 28; N. J., 88. application for ; see Formalities of. forfeiture of, N. Y., 67; N. J., 102; Del., 119, 123; W. Va., 128, 137.. formalities of, 16, 17, 18, 31; N. Y., 60; N. J., 83; Del., 104; W. Va., 125. limitations, 12, 30, 178; N. Y., 62, 63; N. J., 85, 86; Del., 107, 108. Citizenship, of corporations; see Domicile. of parties; see Incorporators. Classification ; see Directors, Laws, Stock. Combinations; see Trusts. Commencement of corporate existence, N. Y., 62; N. J., 88; Del., 109; W. Va., 128. of business ; see Capital, amount to begin business with. Common stock ; see Stock. Comparison of state corporation laws, 145, 146, 147. Compensation ; see Directors, President, Secretary, Treasurer, Counsel. Connecticut, laws of, 149. Consolidation ; see Merger. Constitutional provisions, 30, 54, 177; Del., 110, 112; U. S., 142. Corporate existence ; see Commencement of. liability, 164. powers, 13, 14. 15, 30; N. Y., 61, 62, 63; N. J., 83, 85; Del., 105; W. Va., 125. powers, special, 17; N. Y., 61, 62, 63; N. J., 83, 85; Del., 105, 107. Corporation bonds, N. Y., 72. dangers, 172. definition, 9. domestic, 55. foreign, 55, 142 et seq; N. Y., 77, 78, 79; N. J., 9S, 99, 100; Del., 120, 121; W. Va., 138, 139. 195 GENERAL INDEX. t (Numbers refer to pages.) Corporation forms, 55. law, 30, 54; N. Y., 59; N. J., 82; Del., 103; W. Va., 124. classification, 54 et seq. future of, 188 et seq. liability, 164 et seq. management, 172 et seq. loans; see Debt. illegal, N. Y., 72, 73 ; N. J., 94, 96. name, 16; N. Y., 61; N. J., 83; Del., 105; W. Va., 126. Corporations and partnerships, compared, 164 et seq. Cumulative voting ; see Voting. Debts, 52; N. Y., 63, 72, 76; Del., 107. power to contract, N. Y., 76. Definitions, by-laws, 29. corporation, 9. Delaware, state laws, 103 et seq. Directors, N. Y., 62, 70 et seq. ; N. J., 93 et seq. ; Del., 107, 116 et seq. ; W. Va., 134 et seq. by-laws, 34, 42 et seq. classification, 44; N. Y., 63, 71; N. J., 86; Del., 117, 118. comparison of state laws, 146. compensation, 46. duties, N. Y„ 70; N. J., 94; W. Va., 135, 136. election, 28, 33, 34, 39, 41, 43, 152; N. Y., 71; N. J., 92; Del., 112, 114, 115; W. Va., 133. failure to elect, N. Y., 72. liabilities, N. Y., 72; N. J., 94, 95; Del., 117; W. Va. 135. meetings, 34, 35, 44, 47 154; N. Y., 71; N. J., 94; Del., 116; W. Va., 134. outside state, N. J., 94; Del., 109 110; W. Va., 135. special, 34, 44, 154. number, N. Y., 62, 70 ; N. J., 93 ; Del., 107, 116 ; W. Va., 134. powers, 34, 42, 46 ; N. Y., 70, 71 ; N. J., 85, 93 ; Del., 153. qualifications, 181; N. Y., 62, 71; N. J., 86, 93; Del., 116; W. Va., 134. quorum, N. Y., 71 ; N.J., 94; Del., 117; W. Va., 135. removal, W. Va., 134. 196 GENERAL INDEX. (Numbers refer to pages.) Directors, (Continued) residence, N. Y., 71; N. J., 93; Del., 116; W. Va., 134. vacancies, 43; N. Y., 71; N. J., 94; Del., 116; W. Va., 134. Dissolution, 15, 26 ; N. Y., 72. Dividends, declaration of, 36, 51; N. Y., 67; N. J., 94, 98; Del., 113; W. Va., 132. illegal, N. Y., 72; N. J., 93, 94; Del., 112. on preferred stock, 21, 22; N. J., 84; Del., 112. Domicile, 16, 55. Duration of corporation, 13, 17; N. Y., 62; N. J., 85; Del., 107; W. Va., 127. Elections, by ballot, 43 ; N. Y., 71; N.J., 92; Del., 115. see Annual meetings, First meetings, Inspectors, Treasury stock, Voting, Directors, Officers, Proxies, Quorum. Executive Committee, by-laws, 46. Expenses of incorporation, N. Y., 80, 81; N. J., 101, 102; Del., 122, 123; W. Va., 140,141. comparison of state laws, 148. see Taxation. Exemption from taxation ; see Taxation. Existence of corporation; see Commencement of corporation. F. Fees ; see Taxation. Filing; see Recording. First meeting, 150 et seq., N. Y., 64; N. J., 88; Del., 109, 114; W. .Va., 129. of directors, 153, 154. Foreign corporations, 55, 56, 142 et seq ; N. Y., 77, 78, 79; N. J,, 98, 99, 100; Del., 120, 121; W. Va., 138, 139. Finance, 36, 51, 52. •Forfeiture of charter; see Charter. Formalities of charter ; see Charter. Forms, 55. Franchise taxes ; see Taxation. Fraud ; see Certificates, Notices, Reports, Statements, making false. G. General manager, 50. General regulations, N. Y., 76; N.J., 97; Del., 119; W. Va., 137. ■Guaranteed stock ; see Stock. 197 GENERAL INDEX. (Numbers refer to pages.) H. Home office ; see Domicile ; also, Office. L Incorporators, 16,17; N. Y., 60, 62; N. J., 83, 85; Del., 104, 106, 109 r W. Va., 125, 127. comparison of state laws, J.45. residence of, N.Y., 60; N. J., 83; Del., 104; W.Va.,125. Incorporation ; see Certificate. advantages of, 10. and co-partnership, 9, 164 et seq. comparison of state laws, 142 et seq. Inspection of books ; see Books. Inspectors of election, 43; N. Y., 68; N. J., 93; Del., 116. Insolvency, 22; N. J., 91. transfers in contemplation of, N. Y., 72. J- Judgment of directors as to value of property, N. J., 89; Del., 110. L. Land, power to hold, 14. Law of corporations, 30, 54. classification of, 30, 54. of states, 54; N. Y., 59; N. J., 82; Del., 103; W- Va., 124. comparison of, 142 et seq. Liability ; see Directors, Officers, Stockholders. License; see Taxation. List of stockholders ; see Stockholders. Loans ; see Debt. Location ; see Domicile ; also Office. M. Maine, laws of, 140. Managers ; see Directors ; also. General Manager. Merger, N. J., 98; Del., 119. Meetings; see Annual, First, Directors, Stockholders, Call,. Notice, Quorum, Proxies, Voting. 198 GENERAL INDEX. (Numbers refer to pages.) Minority, protection of, 172 et seq. Minutes ; see Book of. Money, 36, 51, 52. N. Name ; see Corporation. New Jersey state laws, 82 er; seq. New York state laws, 59 et seq. Notice of meetings, 33, 34, 40, 45; N. Y., 68; N. J., 88, 92; Del.. 109, 114; W. Va., 129, 133. Notices, publishing false, N. Y., 72, 73; N. J., 96; Del., 117, 118. Number ; see Directors, Incorporators. O. Objects ; see Purposes. Office, principal, 16, 55, 153; N. Y., 62; N. J., 83, 97; Del., 105, 119; W. Va., 127. comparison of state laws, 146. out of state, 46; N.J.,86; Del., 108, 116 ; W. Va., 127. Officers, 35, 45, 47 et seq.; N. Y., 73; N. J., 95; Del., 118; W. Va., 136. duties, 35; N. Y., 73; N. J., 95; Del., 118; W. Va., 136. election, 35, 45, 154; N. Y., 73; N. J., 95; Del., 118; W. Va., 136. liabilities, N. Y., 73; N. J., 96; Del., 118; W. Va., 136. power to appoint, 14. qualifications, N. Y., 73; N. J., 95; Del., 118; W. Va., 136. vacancies, 45, 47; N. J., 95; Del., 118; W. Va., 136. see President, Vice-President, Secretary, Treasurer, Gen- eral Manager, Counsel, Agents, Attorney. Ohio, laws of, 149. Order of business, 34, 35, 42, 47, 152, 154. Organization, final, 150 et seq. of trust, 161 et seq. under charter, N. Y., 64 ; N. J., S8 ; Del., 109 ; W. Va., 128. Parties ; see Incorporators. 199 GENERAL INDEX. (Numbers refer to pages.) Partnership, 9. and corporations compared, 164 et seq. changed to a corporation, 155 et seq. liability, 164 et seq. Payment ; see Capital stock. in property ; see Capital stock, certificate of; " " comparison of state laws, 147. Penalties for infraction of by-laws, 31, 32, 52. Personal property, power to buy and hold, 14. Place of business; see Office. Pool, voting; see Voting trust. Powers of corporation, 13, 14, 15, 29, 30; N. Y., 61; N. J., 83, 85.; Del., 105; W. Va., 125. comparison of state laws, 147. foreign corporation, 142 et seq. special, 17; N. Y., 61, 62; N. J., 83, 85; Del., 105, 107. Preferred stock; see Stock. President, 35, 47; N. Y., 73; N. J., 95, 96; Del., 118; W. Va., 136. Principal office ; see Office. Property of corporation, 14; N. Y., 81; N. J., 102; Del., 107. for stock ; see Capital stock. Protection of minority, 172 et seq. Proxies, 41; N. Y., 69; N. J., 93; Del., 116; W. Va., 134, 151. Protective measures, 175. Publication ; see Notice. Purposes, 17; N. Y., 60, 61; N. J., 83, 84; Del., 105; W. Va., 125, 127. comparison of state laws, 147. Qualifications; see Directors, Incorporators, Officers, Stock- holders. Quorum, stockholders' meetings, 34, 41; N. Y., 69; N. J., 93: Del., 116; W. Va., 133. directors' meetings, 35, 45; N. Y., 71; N. J., 94; Del., 117. R. Real estate, power to hold and convey, 14. 200 GENERAL INDEX. (Numbers refer to pages.) Recording and filing certificate of incorporation, N. Y., 64; N. J., 87 ; Del., 108; W. Va., 127, 128. Records; see Book of minutes. Reports, N. Y., 74, 75, 76; N. J., 96; Del., 119; W. Va., 137. annual, N. Y., 72, 74; N. J., 96; Del., 118, 119; W.'Va., 137. assessors' N. Y., 75 ; N. J., 97. comptroller's, N. Y., 75. municipal, N. Y., 76. making false, N. Y., 72, 73; N. J., 96; Del., 117, 118. Reserve fund, 51, 52 ; N. J., 98. Residence of corporation ; see Domicile ; also, Office. see Incorporators ; also, Directors. Salaries; see Ddxectors, President, Secretary, Treasurer and Counsel. limitations on, N. Y., 63. Sale of entire assets. N. J., 86. of delinquent stock, N. Y., 65 ; N. J., 89 ; Del., Ill ; W. Va., 130. Seal, 14, 36, 52. Secretary, duties, 35, 42, 49; Del., 118.] election, 35, 45. liabilities, N. Y., 73 ; N. J., 96 ; Del., 118. Secretary, N. Y., 73 ; N. J., 95 ; Del., 118. compensation, 49. Statements, N. Y., 70. making false, N. Y., 72, 73; N. J., 96; Dei., 117, 118. Stock, amount to begin business with, N. Y., 61; N. J., 84; Del., 106; W. Va., 127. books ; see Books. certificates, 24, 33, 37; N. Y., 65; N. J., 89, 92; Del., Ill; W. Va., 130. certificate book, 24. classification, 19, 20; N. Y., 61; N. J., 84, 86; Del., 106, 180, common, 20. full paid, 20, 26; N. Y., 65; N.J.,89; W. Va., 129. guaranteed, 21. increase of, N. J., 152; Del., 113, 152. issued and outstanding, 19, 20. issued for property; see Capital stock payment. 201 GENERAL INDEX. (Numbers refer to pages.) of other corporations, N. Y., 63, 67; N. J., 91; Del., 105, 113; W. Va., 132. preferred, 21, 22, 39; N. Y., 67; N. J., 90; Del., 106, 112, 113; W. Va., 131. redemption of, 22. shares of, 15, 19; N. Y., 61; N. J., 84; Del., 105; W. Va., 127. transfers of, 24, 25, 27, 33, 37; N. Y., 66; N. J., 89; Del., Ill; W. Va., 130. treasury, 20, 27, 39 ; N. Y., 67 ; N. J., 91 ; Del., 113 ; W. Va., 132. unissued stock, 19, 20. watered, 23. Stockholders, 27, 28, 33, 39; N. Y., 67; N. J., 92; Del., 114; W. Va., 133. comparison of state laws, 146. liabilities of, 11, 26; N. Y., 70; N. J., 93; Del., 116; W. Va., 134. list of, N. Y., 66; N. J., 94; Del., 112, 117; W.Va., 131. meetings, 33, 39; N. Y., 67; N. J., 92; Del., 114; W. • Va., 133. special, 33, 34. 40, 42, 44; N. Y., 68; N. J., 92; Del., 114. powers of, 28. right to vote, 28; N. Y., 69; N. J., 92; Del., 115; W. Va., 133. Special meetings ; see Directors ; also, Stockholders. powers; see Powers. Subscribers, 17 ; also, see Incorporators. Subscriptions, 25, 26; N. Y., 65; N. J„ 88; Del., 110, 116; W. Va., 129, 130, 134. also, see Assessments. Surplus, 51, 52 ; N. J., 98. T. Taxation, N. Y., 80, 81; N. J., 101, 102; Del., 122, 123; W. Va., 140, 141. comparison of state laws, 148. exemptions from, N. Y., 81 ; N. J., 102; Del., 123. franchise, N. Y., 80, 81; N. J., 101; Del., 122. license, N. Y., 80, 81; N. J., 101; Del., 122; W. Va., 140. organization, N. Y., 80, 81; N. J., 101; Del., 122; W. Va., 140. 202 GENERAL INDEX. (Numbers refer to pages.) property, N. Y., 81 ; N. J., 102. Transfers, 24, 25, 27, 33, 37; N. Y., 66; N. J., 89; Del., Ill; W. Ya., 130. Transfer books ; see Books, Treasurer, bond, N. Y., 73; N. J., 95; Del., 118. compensation, 50. duties, 36, 50; N. V., 73; N. J., 96; Del., 118. election, 36, 45; N. Y.,73; N. J., 95; Del., 118. liabilities, N. Y., 73; N. J., 96; Del., 118. Treasury stock, 20, 27, 39; N.Y., 67; N. J., 91; Del., 113; W.Va.,132. see Stock. Trusts, 57, 58, 161 et seq. anti-trust laws, N. Y., 77. Trustees voting stock, Del., 116. U. Ultra vires, 12 et seq. Vacancies ; see Directors ; also, Officers. Vice-President, 35, 46; N. Y., 73. see President. Voting, 28, 41; N. Y., 69; N. J., 86, 92; Del., 115; W. Va., 133. cumulative, 41, 176 et seq.; N. Y., 63, 69; N. J., 93; Del., 115 178; W.Ya., 133. limitations, N. Y., 63; N. J., 86; Del., 108, 115, 178; W. Va., 179. pledged stock, Del., 115. preferred stock, 22, 28 ; Del., 112. qualifications, 41 ; N. Y.,69; N. J., 92; Del., 115. treasury stock ; see Treasury stock, pool or trust, 185 et seq. w. Waiver of notice, stockholders' meeting, 150; N. J., 88; Del., 109. directors' meeting, 154. West Virginia state laws, 124 et seq. Working capital; see Reserve fund. 203 IMPORTANT^ .* To all those interested in Corporations^ ANNOTATED BUSINESS CORPORATION LAWS OF ALL THE STATES In 4 Vols., Price, f — ^ By GUMMING, GILBERT & WOODWARD Assistants to the N. Y. Statutory Revision Commissfon It gives, generally, the Business Corporation Laws of every- State in the Union to January 1, 1900. Each section is copiously annotated and gives every case construing it or bearing on its- subject. The work includes the law of all the States affecting business, corporations, including laws relating to their organization,, management and dissolution, suits by and against them, the prohibition of trusts and monopolies, the employment and pro- tection of workmen, and the powers and obligations of foreign corporations. THE LAWYERS' CO-OPERATIVE PUBLISHING CO. ROCHESTER, N. Y. 79 Nassau Street, Rand-McNally Bldg„ New York City. Chicago.