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The Columbia University Libraries reserve the right to refuse to accept a copying order if, in its judgement, fulfillment of the order would involve violation of the copyright law. Author: Frost, Thomas Gold Title: A treatise on the incorporation and Place: Boston Date: 1906 MASTER NEOATIVE # COLUMBIA UNIVERSITY LIBRARIES PRESERVATION DIVISION BIBLIOGRAPHIC MICROFORM TARGET ORIGINAL MATERIAL AS FILMED - EXISTING BIBLIOGRAPHIC RECORD ^92;: Frost, Thomas Gold. A treatise on the incorporation and organization 6f cor- porations created nnder the business corporation acts'' of the several states and territories of the United States, by Thomas Gtold Frost ... Boston, Little, Brown, and company, 1906. 3 p. 1., ix-xv, 685 p. 24^*". This volume is only a portion of a complete handbook of the law of or- ganization and incofporation of corporations, cf. Ptd>lislM»y note. Library of Congress Copy2L . 7-20912 (Copyright 1907 A 1^79) RESTRICTIONS ON USE: FILM SIZE: ^'^^tnft^ TECHNICAL MICROFORM DATA REDUCTION RATIO: IMAGE PLACEMENT : lA ^a) IB IIB DATE FILMED: V^^-^ TRACKING # : INITIALS FILMED BY PRESERVATION RESOURCES. BETHLEHEM, PA. BIBLIOGRAPHIC IRREGULARITIES MAIN ENTRY: Frost. Thomas Gold A treatise on the incorporation and... Bibliographic Irregularities in the Original Document: List all volumes and pages affected; include name of institution if filming borrowed text. Page(s) missing/not available:^ Volume(s) missing/not available: Illegible and/or damaged page(s):^ Page(s) or volume(s) misnumberedi. Bound out of sequence:^ X Page(s) or volume(s) filmed from copy borrowed from: State University of New York. Buffalo - pages X - XIV X Other: irregular pagination - pages 210-^63 : TRACKING#: MSH01882 FILMED IN WHOLE OR PART FROM A COPY BORROWED FROM: STATE UNIVERSITY OF NEW YORK, BUFFALO CO cn 3 3 Q> Is OOM o CJl 3 > w o m CD CD 00 ^ o o X < M X M O O Ul o 3 3 2: 8 3 3 Oi K is 1.0 mm 1.5 mm 2.0 mm ABCDEFGHUKLMNOFQRSTUVWXYZ ■ltc(MkMjMmnopqratuwii«yzI234S67890 ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdellitiiHilmnopqrstiJWWxyzl23456789^ ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdef gh i j k I m n opq rstuvwxyz 1234567890 ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijktmnopqrstuvwxyz 2.5 mm 1234567«90 V fa 4. o o ■o m "o OLIti I TI ^ ^ O 00 m 3D O -0^ 4 CJl 3 o 3 3 cr O J, I? i 4 mttieCitpofieetDSorb LIB&ARY School of Business 1 1 i' -ON THE INCORPORATION MD ORGAIOZATION OF COKPORATIOIsrS CBEATED UNDER THE "BUSINESS CORPORATION ACTS" OF TH£ SEVERAL STATES AND TSBBirOSISS OF THE UNITED STATES BY THOMAS GOLD FROST, LL.D., Ph.D. OF THB JfBW YORK BAM Axmmm om **TBaATisB mr Gvabaiitt Ihsitxavob,'' "Tm FsnrcB ComxiTunov ow 1793^" m. BOSTON LITTLE, BROWN, AND COMPANY im I ChpyrigU, Jflfli, tM* ^» M rigkt ttttr we d . 7. 0 — y- V 3 3 aa^ IBB UHIVKBSITT PBB88, OAMBBIDOB, U.i. A. V TO JOHN B. BROWN, £s<|. OF THB ILLINOIS BAB THIS WOBK IB DSM0ATB9 BT HIS FBIEin>, OOLLBOB CIUkSSMATB ABD FIB8T LAW PABTIPB THE AUTBOS PUBLISHERS' NOTE Wb beg to call the attention of the purchasers of this book to ttie fact that it is only a portion of a complete handbook of the Law of Organization and Incorporation of Corpora- tions. Beferencea in the notes to the omitted parts may be found in the complete work. Part n. contains a Synopsis Digest of the Corporation Laws of ihB Several States and Territories of the United States. Part III. contains Forms and Precedents. I 1 PREFACE i The present work might with no inoonsidemble degree of fitness haye been entitled " A Treatise on Comparattve Incorporatian Law in the Several Commonwealths of the United States." Such a work if properly prepared should not fail to interest the active practitiwtir 1, 1104. TABLE OF CONTENTS, Introduction ..••..•••«• 1 PART I. INCOfiFORATlON AND ORGANIZATION OF COBPOBATIONS. CHAPTER L HitArTINa THE CHARTBB. § 1. General Remarks on Corporate Charters , , 9 § 2. Incorporators . . . • . 12 § 3. Corporate Name 14 § 4. Corporate Purposes 15 § 5. Number of Corporate Purposes permitted 19 § 6. Collateral Attack upon Corporate Purposes and Powers ... 21 § 7. Effect of Inserting Illegal Purposes 28 § 8. Coi-porato Powers, Classification of ... . . • , • . , 29 § 9. Common Law I'owers, Definition of ; Enumeration of ... . 80 § 10. Right to a Corporate Name 31 §'11. Right of Perpetual Succession . . . ■ 31 $ 12. Right to adopt and use a Corporate Seal 32 § 18. Power to Mquire, hold, and dispose of Real and Penonal Property 32 S 14. Power to appoint Corporate Offioers and Agento 88 § 15. Powmr to esteblish By-Laws 88 § 16. Power to sne and be sned • . . . • 84 § 17. Express Powers, l>efinition 1^ ; Enumeration of 84 §18. Power of Corporations to purchase their own Stoek .... 86 § 19. Power to subscribe for, porchase, and hold Stock in oHier Cor- porations 87 § 20. Power to consolidate with other Corporations 88 § 21. Power to transact all or any Part of the Corporate Bttsinesa oat- side of the State of its Domicile 38 § 22. Power to perform Constituent Acts outside of the Domiciliary State 40 § 23. Power to extend Corporate Existence 40 § 24. Power to change the Corporate Name 41 § 25. Power to increase or decrease Capital Stock 41 $ 26. Power to issue Preferred Stock 41 » ^ TABLE OP COHTBHTB. 4tj §2T. Ptoiwr to cfcM^etlKJ Corporate Purposes i2& Power to diMge Number of Directors . . • • ; : ' ' 1 I S pSlsr to ^ tt- Corporis Domicile and Pnnciral Place of I 80. pSSTacquir; and'enfor'ce 'a Lie^ upon Stock to secure the Rifment erf Debts Due the Corporation . ... * ' * * I St PowITT levy Assessments against the Stockholder with the Bight to forfeit their Stock for Non-payment thereof . . • « 182. Po^Sr to authorize Voting by Proxy at Stockho^^^ f §33 Power to permit Cumulative Voting in the FJectiooerf^^ .48 , I Power to issue Stock as full paid io Exchange for Services ' 'a-.!*, * Rl I 35. Power to dispose of Corporate AmU m "^^S-^'k^^^ ,M. Power to voLtarUydi»«l»ett.CoT?<«rtl«wW«»Itoco«m ^ ,!rr. p!;er'.o^i::^^vti;(i-;t.;p^i^ ' the Intemd AfciM Cotpontion J 38. Power to § 39. Power to anUiorae Appointtnon* « woumt ^ the Board ol IMreeton • i 40. Ptowor to enhrgo or dinnnish Corporate Powen I 11 Power to ehaase P*r Value of Shares .... 5Jk ST^ SCholders to vote Election of B.rector3. • • • « I 48. PMwr to etasify Directors m 144. P»w to .mend Articles before Organmtion . ..... I 46. PWer to .nrrender Charter before O^f "«'"7 ' j iLi; R>wer given to Minority StockhoWers to compel PonA-ecfS-lr ^ UoldiiiL'S "lioii CoMSoliiliilioii •••*..**, nt I 47. Incidental Powers, Definition and En«B«.tiMi ol . . • • • §48. Power to make Contracts 60 S 49 Power to borrow Money . . • • '\ .JjJ ' ' 60 I 50 Power to give and accept Cartom«7BpdMH«rfU*t. . . «« I 61. Power to Lvtgage and pledge M«HlP»«0Drift«P««3r • • 60 § 52. Power of Amotion • • ' * * . 61 §53. The Modern Doctrine (rf Ultra Vlree 65 § 54. Corporate Domicile 67 § 55. Board of Management ! ! ! ! . 67 § 56. Capital Stodt ' ' * 1 i rt' '\^\QiLjk 69 §57 linrftationsnponABioai^ of Capital Sfcoek .... I 5& Pte Value chaCor^ration-n.;yWin.B--- « I 02. Doration of Corporate Existence \ . 74 183. Date of Annual Meeting • • * ' ' 74 I 64 Limitation upon Corporate Indebtedness . ^ . • • • ies: Exemption of Stockholders from Personal laahdity . . ' ' ]l I 66. Adoption of By-Laws ^J'^^^T^ ol Ao Coi- I 67. Provisions for the Regulation ci Internal AMi» « «• ^ poratiou TABLE OF CONTENTS. § 68. Miscellaneous Phmsiona relatiTO to Contents of Articks of Jfe- ^ corporation § 69. Construction of Charter 77 CHAFTfiR n. PBOCUBIMO THE COARTBB. 8 70. Signing ttw Artides § 71. Acknowledgment of Earaention of Articles 70 8 72. Pnblicalion of Aftides .... 8 78. Affidavit as to Stodt Solieeripaons § 74. Anti-Trust Affidavit 81 § 75. Special Requirements in Particular States 81 8 76. Powers of State Officials lelatife to accepting or reieetiag Articles aa § 77. Right to Mandamus State Officials for refusing to lis Artielse . 81 § 78. Organization Tax g| § 79. Form in which Charter is granted , , . m § 80. Filing and recording in Local County Offices §81. Distinction between rfeywrc and ^c/ac/o Corporations .... 87 8 82. Right of Parties other than the State .to ooUateraUj impeaeii Corporate Existence gg 8 83. Bight of State to attack Corporate Existence in Direct Pko- oeedings ^ 8 84. Wben does Corporate Existence commence ? m CHAPTER IIL OKOAHIZATIOir 0» OORPORATIOIIS AFTSB ITOORPORATION. §' 85. The Incorporators' Organization Mee^g ' , . ^ § 86. Organization Meeting, how called .» gg § 87. Organization Meeting, where held HQ § 88. Steps Necessary to complete Organisation 88 § 89. Adoption of By-Laws ^ ^ gg § 90. Election of Directors 188 8 01. Power to hold Meetings for the Election of Directors witboat the Domiciliary State , jq^ § 92. Voting by Proxy . . . • ". i ! 104 § 93. First Directors' Meeting . . . ^ ! ! * ! 105 8 94. Election of Corporate Officers 1 ! 1 ! ! 107 8 85. Appoinknent of Executive Committee ! ! ! 107 8 86. Stoek Assessments * 1 ! ! ! 108 8 ^. CttrtiJIeates required to be made by Officers or Directors after P^^^n^on . . . i 8 08. Time in which Corporation mnslofganisa and commence Business 109 8 09. Stodr Certmcates 110 TABUt Of COMTBMm CHAPTER IV. laSUAMCS AMD rATMlHT OP CAFITAL STOCK. } 100. General Remarks as to the Issuance and Payment oi Cft^lftl Stock upon the Organization of a Corporation . . , . , 112 f 101. Minner of Payment of Capital Stock 113 I 102. Payment of Capital Stock in Services ! ! ! 120 I 108. P^jvent of Ci^Htal Stock in Property 1*>0 I 101. Statement 1 §100. Stetement of «%eealaliTe Value Role" 125 { 107. Effect of Appraisal of Property by Direeton under Statutory Astlioritj, when taken la Ezdiange for Stock 187 § 108. Effect of An»nu8al of Value ot Twpwij bj State Officials when the same is taken by Corporatkms in Exchange for their Capital Stock § 109. Meaning of Non- Assessable Stock .......... HI S no. Meaning of Full-Paid Stock [142 CHAPTER V. LEGISLATIVE CONTROL OVER DOMESTIC CORPORATIONS. I 111. Statement of Principal Methods by which LegisUtive Control oforBomeetie Corporations is obtained ....... 145 § 112. Amendment of Charters 145 § 113. Reserved Right of the State to repeal Charters ]58 §114. Logisl.'itive Control over Dissolution of Corporations .... 154 § 115. Forfeiture of Charters 167 § 116. The Police Power of the State 160 § 117. Legislative Investigation into Corporate Affairs 164 § 118. legislative Requirement of Annual R^rts from Corporations 164 § 119. Inspection of Corporate Books 165 § 120. Anti-Trust Legislation 167 § 121. Regulation of Internal Affairs 168 § 122. Liability of Stockholders for Debts of the Corporation . . . 169 § 123. Statutory Liability of Directors 174 § 124. Extension of Corporate Existence 176 § 125. Taxation of Domestic Corporations 177 I 12(1. Bsfolation of the Bij^t of the ConsoUdation 178 « CHAPTER VI. UMIiHUkTITS OOMTBOI. OTUi FOBXmV OCMWOBATIOm. § 127. Extent of Legislative Power of the various Commonwealths over Foreign Corporations ISO § 128. Doctrine of State Comity 134 § 129. What constitutes doing Business on the Part of a Foreign Cor- poration within the State 190 TABLE OF CONTENTS. ill S 180. Penalty for transacting BuainesB in a Foreign State withoat obtaining a Permit ' § 131. License Tax on Foreign Corporations § 132. Annual License Tax on Foreign Corporations § 133. To what Extent is the Taxing Power of the State with reference to Domestic Yind Foreign Corp)orations engaged in Interstate Commerce limited by the Commerce Clause " of the Federal Constitution? • INTENTIONAL SECOND EXPOSURE CHAPT£E IV. ISSUANCE AND PAYMENT OF CAPITAL STOCK. f 100. General Kemarks as to tfae Issnaiiee and Payment of Capital Stock upon the Oiganiiation of a Corporation § 101. Manner of Payment of Capita] Stoek 113 § 102. Payment of Capital Stock in Serrioes 12« § 103. Payment of Capital Stock in Pkopwfy l^Q § 104. Statement of True Value Rule 1^ § 105. Statement of Good Faith Rule J^S § 106. Statement of " Speculative Value Rule i 12« § 107. Effect of Appraisal of Property by Directors under Statvtory Authority, when taken in Exchange for Stock 187 § 108. Effect of Appraisal of Value of Property by State Officials when the same is taken by Corporations in Exchange for their Capital Stock § 109. Meaning of Non- Assessable Stock Hi f 110. Meaning of Full-Paid Stock .* ] 142 CHAPTER V. zmwLAnrm cmmoh ormm wmmmc oonroRATioiis. § 111. Statement of Principal Methods by which Legislative Control over Domestic Corporations is obtained 145 § 112. Amendment of Charters 145 § 113. Reserved Right of the State to repeal Charters I.53 §114. Logislative Control over Dissolution of Corporations .... 154 § 115. Forfeiture of Charters 157 § 118. The Police Power of the State iqq S 117. Legislative Inyestigation into Corporate Affairs 164 § 118. LegislatiTe Bequirement of Annual Reports from Corporations 164 § 119. Inspection of Corporate Books I65 f 120. Anti-lVost L^ritbition 167 I 12L Begolalion of Itttomal AAOfs I68 I 122. Liability of StoekhcdderB for Debts of the Corporation ... 169 i 128. Natatory LiaK^ty el Directors ........... 174 § 124. Eztensbn of Corporale EzisieBee i7e § 125. Taxation of Domestic Corporations 177 §m fiegttlation ol the Bight of the Consolidatloii ] m CHAPTER VI. LEGISLATIVE CONTROL OYER FOREIGN COBPOBATIONS. f 127. Bitenl of Legisialife Bower of the. Tarions Commonwealths OT«r Foreign Corporations ]9q §128. Doctrine of State Comity . 184 § 129. What constitutes doing Basinesi on tiM Fiul of a Foreign Cor- porstioa within the State .190 TAM«3S 07 COKTBNIS. XT § 180. Penalty for transacting Business in a Foreign State without obtaining a Permit " 195 § 131. License Tax on Foreign Corporations 198 § 132. Annual License Tax on Foreign Corporations 199 § 183. To what Extent is the Taxing Power of the State with reference to Domestic Imd Foreign Corporations engaged in Interstate Commerce limited by the Commerce Clause " of the Federal Constitiition? • 202 A TREATISE OH THB INCORPORATION AND ORGANIZATION OF CORPORATIONS. INTEODUCTION. The development of the modern business corporation act has been most curious and interesting. Previous to ike year 188T charters could be procured only by special act of the legislature. In that year the legislature of Connecticut passed the first busi- ness corporation act that went into force and effect in the United States. It was drawn by Theodore Hinsdale, of Win- chester, Connecticut, a Yale graduate of the class OBGAKBttTION OF OOMOKATIOHS. BO involved as to lead to almoBt certain ooidnsion when an attempt is made to take advantage of their provisions. In regard to the attitude taken by the legislatures of the several States in the framing of these General Acts, attention is called to aome r^narks of the CkMnmittee on Corporations addressed to the lepslatnre of Massachnaetta in 1908, which were aa f oUowa : "The history of corporations, as well as the logic of the case, shows that there are possihle two general theories as to the State's duties in creating corporations. First, the old theory that hemg creatures of the State, they should be guaranteed by it to the public in all particulars of responsibility and management; and the modern, qnite opposite theory that, in the absence of fraud in its creation or government, an orduiaiy husiness corporation should be allowed to do anythmg that an individual can da Under the old theory the capi- tal stock of a corporation was, in tiie law, considered to be a guarantee fund for the payment of creditora aa weU as affording a method of corporate enterprise. There resulted from tiiis principle not only the fundamental proposition that the capital stock, heing in the natnre of a guarantee fund, should be paid for at its par value m actual cash, but all the other provisions to protect creditors or other persons having dealings with the corporation, such as that the debts of a corporation should not exceed its capital stock, designed primarily in the iuterest of loeditora, and secondarily in that of the stockholders, who are looked after aa caiofuUy as if they were wards of the State when dealing in corporation matters. Under tiie modem tiieory, the State owes no duty to persons who may choose to deal with oorporo- tions to look after the solvency of such artificial hodies; nor to the stockholders to protect them from the consequences of gomg into looh concerns, the idea being that in the case of ordinary business corporations tiie State's duty ends in providing clearly that creditors and^toekholders shall be at all times precisely informed of all the faks attendfaig hotii tiie organization and the management of such corporations, and partieuhiily tiiat tiiere shaU be fuU pubUcity given to all details of the original organiaation thereof." It may be of some practical value at this pomt to inqmre hriefly what are the advantages of conducting business under corporate management ratiier than as an individual or a copartnership en- terprise. rni6Be advantages may be enumerated as follows: First, Immunity from individual liabiUty for dehte ariamg out of the conduct of the business. 4 INTEODUCTION. Second, The securing of the element of perpetuity for the life of the enterprise in hand, so that the death of any of the parties interested does not interfere with the conduct of tiie bosinesa. 2%m2, The good-will and prestige of the business is not then the property of an individual, but belongs to the corporation. Fourth, The ease with which capital is obtained for the use of the business through the sale of stock, thus doing away with the danger or necessity of admitting general or special partners into the concern. Fifth, The facility with which money can be obtained by the sale of bonds or preferred stock. Sixth, The ease with which individual interests in a business may be sold or transferred, without the necessitj of obtaining the consent of a third party to the sale. Seventh^ The remo^ of the danger of being ruined through the dishonesty or extravagance of a partner. Mghth, The small expense connected with the incorporation of an enterprise. Mnth^ The wide and far reaching extension of the powers of a corporation as compared with that of individuals and copartners. But the advantages of corporate management being stated, the question then arises : Where should the business man of to-day go to procure a charter for the enterprise he may have in hand? With forty-five States, five Territories, and the District of Columbia all offering facilities for incorporation, the task of selection there- from is by no means an easy one. Where the capitalization is small or the corporate purposes simple, it is sometimes, though not always, best to procure a charter from the State where tiio principal prospective incorporators reside or where thej propose to carry on the company's business. On the otiier hand, if the capitelization is to be sought in other localities, the proposed cor- porate business interstate in cliaracter, or the prospective capital- ization large, and the corporate purposes sought for broad in character, then it may be of great advantege to procure a charter in some outside Stete. Under such drcumstences recourse is usually had to what are recognized as the leading incorporating Stetes already referred to. But to go further, it may be stated that a proper investigation into the question as to where to look for a charter best suited to the immediate purposes of the i»t>ppBed corporation must necessa- 5 INCORPORATION AND ORGANIZATION OP COBPOBATIONS. rily entail an investigation among many others into the following matters: 1. Nature of the business corporation act of the State wherein it is proposed to incorporate. 2. Policy of such States towards corporations, domestic and foreign. 3. Publicity required as to the condition of corporations or- gauized under the laws of that particular State. 4. Extent of l^isLative control over private corpofstions. 5. Nature of corporate powers desired. 6. Initial expense. 7. Amount of annual franchise tax, if any. 8. Amount of capitalization permitted, and the par value of shares allowed. 9. Tune within wlMi the capital stock must be paid up. 10. Question as to whether stockholders' and directors' meet- ings must be held within the State in which the charter is procured. 11. Question as to whether the principal office of the corpora- tion may be maintained outside of the State of its organization. 12. Ascertainment of the question as to whether stock can be legally issued for property or services instead of for cash. 13. Inquiry as to what extent the appraisal of the board of di- rectors of the property or services paid for by the issuance of stock is conclusive upon the creditors of the corporation seeking, in case of insolvency, to enforce an allied liability for unpaid stock. 14. Power to issue preferred stock. 15. Par value of the corporate shares desired. 16. Power to create debts. 17. Ease or diiiiculty with which the charter n(iay be amended. 18. Amount of stockholders' liability, if any. 19. Extent ofdirectors'llalHlity, if any. 20. Ease or difficulty with which ^e corporation may be dissolved. 21. Nature of the laws of the various States with reference to the terms and conditions under which foreign corporations may do business therein. Each of the foregoing questions has its proper bearing when it comes to deciding where to go for a charter for some particular business enterprise which it is proposed to prosecute under the form of corporis orga^izatioQ. 0 iNraoDUcnoN. A discussion of each of these matters will be found in Part I. of the present treatise. Turning now to the character of the business corporation acts passed by the legislatures of the various States and Territories, it will be apparent to all that many of them are ^ wonderfully and fearfully made." If one were to attempt to characterize and compare the various incorporation acts of the several States and Territories, it would be found a task of great difficulty, for the reason that it is almost impossible to find a logical basis for classification. Any number of arbitrary classifications might be adopted, but these would be of no value to either the practitioner or the public at large. "What- ever attempt may be made here along this line must be based solely upon the most general lines of similarity of the incorporation acts of various States. As a preliminary to this, it has been noted that certain Stiates and Territories are known and recog- nized as *' leading incorporating States." The ones to which ref- erence is made are New Jersey, New York, Delaware, West Virginia, Maine, South Dakota, Connecticut, Massachusetts, Ari- zona, Nevada, District of Columbia, and Virginia. The great ma- jority of charters taken out annually in this country are procured in the foregoing enumerated States and Territories. By many the New Jersey act is considered to be a model of what a business corporation act should be. This fact, coupled with the large revenue secured by the State of New Jersey through this medium, has resulted in the passage in other States of statutes modelled more or less closely after the New Jersey act. This fact prompts the first classification that will be attempted here, which will be termed the " New Jersey Class." Within the limits thereof may be properly included not only New Jersey, but New York, Delaware,, West Virginia, Alabama, Nevada, North Carolina, New Mexico, and Virginia as well. Another classification would embrace a large number of West- ern States and Territories, which to a greater or less extent have modelled their corporation acts along the same general lines as that of California. This class may properly be referred to as the California Class," and included therein will be found Colorado, North Dakota, South Dakota, Oklahoma, Idaho, Montana, Oregon, Washington, Utah, Wyoming, Texas, and Arizona. 7 I INCOBPORATION AND ORGANIZATION OF COBPOJELLXION& Another group will be known as the " Maine Gronp," for the reason that tJie plan has been tiierein adopted of haying the cor- poration oi^anized before a certifieate of inoorporation or organiza- tion is filed with or issued by the State officials. In this class belong Maine, Massachusetts, Connecticut, Illinois, Missouri, Arkansas, and Indian Territory. Iowa and Nebraska have acts very closely resembling each other, and may be grouped as the ^ Iowa Class." In another gronp, which we shall call the ** Pennsylvania Class," are to be found Pennsylvania, South Carolina, Florida, Mississippi, and Kansas. The distinguishing feature of this class is that the incor- poration scheme adopted embraces a petition for incorporation by the incorporators addressed to State officials, to be followed by the filing of a certificate of inoorporation if the petition is favorably acted npon. Another group may be known as the " Kentucky Group," in which belong Kentucky, Ohio, New Hampshire, Rhode Island, and Vermont. There8emhlanoebere,itmastbeacbnitted,ismore&ui- cied than real, and probably does not depend upon any actual in- tent to copy the first Kentocky act. In the Michigan Class " are to be found Michigan, Wisconsin, and Minnesota, all of which possess acts resembling each other in certain features. It is impossible to place Georgia, Indiana, Louisiana, Maryland, and Toinessee in any specified class. They all possess inadequate and certainly unique business corporation acts, which are not likely to be copied by any other State in this day and generation. 8 INCOEPOEATION AND ORGANIZATION OF COEPORATIONS. CHAPTER L dbafunq the cha&xer. § 1. Oenend Remarks on Coiponite Piarteis. — Incorporation is a form of expression of the sovereign political power of the State in the creation of a juristic person possessing such limited powers as may be granted to it by the legislative branch of our State or national government. The growth of thfe corporate form of organization affords an example of the rapid evolution from a somewhat cireumseribed b^inning to proportions tiiat can only be described in this age of industrial trusts and com- binations as colossal in character. Even the courts have not infrequently called attention to the modern disposition to incorpo- rate everything. 1 Much of this is due no doubt to the passage by the various Sti^ legislatores of what are commonly known as business corpora- tion acts." The phrase *• business corporation," in this connec- tion, is a broad term, and includes all corporations engaged in business for profit, as distinguished from municipal and eleemosy- nary corporations.^ The creation of corporations organized for profit by special act is now fcHrbidden by constitotional pro- vision in all but seven of the States.* The existence through- out the country of general incorporation acts has fully reversed the old policy of granting exclusive privileges of any kind to corporations.^ ^ See In re Italian Mat Baa. AfB*ii, New Hampshire, Rhode Maud, Sontli 4 Pa. Dis. Rep. 357. Carolina, and Vermont. * Adams y. Company, Fed. Cases No. 47. < People v. Company, 130 III 268; 1 * Ookmeelicat, Horida^ Maasadmsettts N. £. 798. d § 1 INCOBPOSATION AKD OBGANIZATION OF COBPOBATIONS. [PABT I. The purpose of restiicthig the power to create corporationB by special act has been well set forth as follows : " To inaugurate the policy of placing corporations of the same kind upon a perfect equality as to all future grants and powers by making such laws applicable to all parts of the State and thereby securing the vigi- lance and attention of its whole representation, and, finally, of making the judicial constrndiion of their powers or the restric- tions imposed upon them equally applicable to all corporations of the same class." ^ It is universally recognized in this country that legislative authority is essential to the creation of a corporation.^ Incor- porators cannot come together and agree to become a corporation without conforming to legislative requirements.* It has been well said "that there is an obvious reason for making such organiza- tion by written articles of agreement a condition precedent to the exercise of corporate rights. It is the basis upon which all subse- quent proceedings are to rest, and is designed to take the place of a charter or act of incorporation by whioli corporate rights and privileges are usually granted. . If there were no such provisions, there would be an absence of any provision by which the right to exercise corporate powers could be definitely fixed and established, and there would be no means of ascertaining the rights of stock- holders and of persons dealing witii snch association.'* * The charter of a company together with the general laws of the State of its creation, enumerating and limiting the powers of all corporations of that class, constitutes the measure of its powers, and the enumeration thereof implies the exclusion of all other powers except snch as are incidentally or necessarily implied.* The instrument by which corporations are created is known by different names in various parts of the country. The term " charter " is a word which has descended to us from the common law existing in England long before the United States became a nation. It originally referred to the specific gtmt of certain privileges running from the sovereign to a subject. Subsequently it was applied in this country to a specific act of the legislature » Atkinson ». Company, 15 O. 81 21 ; * Utter v. Union Tool Ca, 11 Gray see also Ex parte Frits, 9 la. 30. (Mass.), 139. 2 McKim V. Odom, S Blaiid's dwo^ ° G. L. & H. I. Co. v. Kamper, 73 Ala. eery (Md.), 407. 325; Steiner v. Steiner L. & L. Co. » Stowe V, Flagg. 72 HL 397. (Ala.), 26 So. 494 ; Salt Co. v. East Sagi- naw, 13 WalL (U. S.) 378. 10 CHAP. I.] DRAFTING THE CHABTEB. §1 creating a corporation with distinct and exclusive purposes and powers. With the advent of the passage of general business cor- poration acts in tbis country, the word "cbarter" has been re- placed by such terms as articles of incorporation," articles of association," " certificate of incorporation," " certificate of oi^ni- zation," and " petition for incorporation." It goes without saying that under the Business Corporation Acts referred to there must be articles of some sort properly executed.^ It has been said that the essence of a corporation consists, first, in its capacity to have perpetual snccession under a special name and in an artificial form ; second, to take and grant property and contract obligations, sue and be sued by its corporate name as an individual ; and third, to receive and enjoy corporate privileges and immunities. The first two are the privileges of the incorpo- rators, and the third is the franchise of the corporation.' As far back as 1612 Lord Coke enumerated the essentials of a corporate charter as follows : (1) lawful authority for incorpora- tion ; (2) persons to be incorporated ; (3) corporate name ; (4) domicile; (5) words sufficient in law enumerating the purposes and powers of the corporation. All of these essentials and many more, which by statute are made essentials, are to be found in the business corporation acts of to-day. Referring now briefly to those matters which are by statute in this country made necessary parts of articles of incorporation, the follow- ing may be said : with the exception of Arkansa^, Georgia, In- dian Territory, Maine, Massachusetts, Mississippi, New Hampshire, Ohio, Oregon, Rhode Island, South Carolina, Tennessee, and Ver- mont, all have incorporation acts requiring that the duration of cor- porate existence shall be set forth in the articles of incorporation. Again, all but New Hampshire and Tennessee require a state- ment as to the number and par value of shares. More than half the States prescribe that the names of the first or tem- porary board of directors shall be inserted in the articles, while most of the remaining States require that the number of directors only shall be inserted. Fully half the States authorize the inser- tion in the articles of provisions for the issuance of preferred stock. A few of the Commonwealths require that the articles 1 Abbott V. Companj, 4 Neb. 416; ^ Snell v. City of Chicago, 133 X0.413; Lank v. Biggs (Neb.), 97 N. W. 1033; 24 N. £. 532. Giiadiv.Saiith»S5Bsrb.(N.T.)45. ' 11 § 2 INCOBPOEATION AND OBGANIZATION OF COBPORATIOHa [PABT I. shall contain a statement as to the amount of stock subacriptions, the amount of capital stock paid in, and the amount of capital with which the corporation wiU begin bmnness. Alaska, Arizona, l^elaware, Louisiana, Iowa, Minnesota, Nebraska, and Utali require tiiat the date of the annual meeting shall appear in the articles. Alabama, Connecticut, Delaware, Maryland, Massachusetts, Nevada, New Jersey, New York, North Carolina, South CaroUna, Utah, Virgmia, West Virginia, and Wisconsin expressly authorize the msertion in the articles ^^^^^^^ business ful b««nr^TlrkattT\ " """"^ ^ b-iness. lncl^":iZX^^^ any purpose for which individuals may Z^^te^^ t™** Connecticut for the trammction of ^ fe^'^^, ware for the tn«»action of anv laS h,!^°^ T' conduct any legitimate object or 0^1'"^^^^^^ lumbia any enterorisp nr 1.. • ,f ' ^ *be District. of Co- ducted by anTndTS e,cr r ""^ ^ ^"^^^ con- In Florid' for tltHS^'^^' ?fj^' -''-^'J- for auy purpose iniJ^^Z ^Z^^^^^^^^^^^ «-'«ia purpose for which individuals ma v l! wf T ^^^^ ""^ In lUinois for any lawM purpose ^"/f them^dves. tion of any kind Ji minin^ m^rZ'ti J ,k ing business ; also grain de^^^ ""^^ "^nnfactur- companies. In lowff^ t^LZ^" '*T^ transit m Kansas for the t^^o mming. chemical, and mercantile buiine« ll T'^T?^' the transaction of any lawful hnain^ f ' ° ^entacky for any legitimate object oVpurS^^'^rw > "O"^-* of any lawful business. ex^J-t^uu-""** transaction transaction of any f^'^^' Maine for the action of any S of»l^ ' ^'''y^''''^ tinnt cantile busll: 1^ fT ThLur'^^^^ ''^'^^ ^'^^ -^^forthetran:,orUt-^;:^'£^«;-^ ^^-^al purposes, mining corporation. In lfai^f^^*^'"^T"'-t""'>gor except to buy or seU real estate eating liq„,i. i„ ]Si^ w Vh° ? "'"'"^''ctun, inC « Mionigan for the transaction of any lawful a S*«Hoghei».OoiB,»By,S«Ma.8l8. 17 54 INCOBPOBATION AND OBGAKIZAIION OP OOBPOBAIIOHS. [PAOT L be carried on by the same corporation. In Minnesota for tho p«rpo8e. In Mwsoan for any purpose intended for profit or nnng, mm ng, cl.em.cal, or mercantile business, or for any lawfnl com-neroul or .ndustrial business, or foroarryLgon ^njhr^^i of busmess designed to aid in or protect the interests of tS company. In Neb«dc. for the transaction of a," Iw ul busf ''"^ •"•^""'^ - busin/ss, com r/r*'"" ""^^ ^^'^P^'^'^^ transaction^? any la ^.ful business. In New Jersey for anr lawfd purp^ or mg or other mdustnal purposes. In New York for anv lawful parpoee or purpo««. I„ North Carolina for en^a^in" in ani lawfnl bnsmess. In North Dakota for any purpose for kich ° - d.ndaals may lawfully associate themselves. In OhL for purpose for which individuals may lawfully associate theivt' except for carrymg on . professional business. In Oklahoma f'; ««n,ng, manufacturing or other industrial purposes. I„ XLo. for the purpose of engaging in any lawful enterprise. busiS pnrsmt or occupation. In Pennsylvania for the t«n«cZ^ In Rhode Island to cany on any oniinary business. In South Carolma for any purpose or purposes whatsoever or two or more combmed. In South Dakota for the transaction of any M bnsmess I„ Tennessee for the trade of the merchants, and for mmn.g bormg, manufacturing, and other specified purposes In Texas for manufacturing or mining and the purchase of goods wares, and merchandise ; abo for buying and selling a. 8.), 47 ; 40 Eng. Cli. 47 ; In re Ba,rueds BOoiT Co.. L. R. 2 Ch. 674; O'Bnen ^. Cmmninga, 13 Mo. Ap. 197; N. P. C. I. Co. V. Company, 16 Utali, 246 ; 52 F»c 168; Holman ». State, 106 I^- J*** ' H. £. 702i State f. Omt, S B. H. tUl; 24 In Colorado it is made evidence Jones V. Dana, 24 Barb. 395; Taylor v. Company, 91 Me. 193; 39 Atl. 560 ; Finch V. Ullman, 105 Mo 255; Saanden v. Farmer, 62 N. H. 57S ; Uoioo Wtter Co. v, Kean, 68 N. J. Eq. Ill ; 27 Atl. 101.5 ; U. S. Vinegar Co. v. Schlegel, 143 N. ^ • 537 ; 38 N. E. 729 ; W. & P. Ry. Co. V. Company, 114 N. C. 690; 19 S. E. 646 ; Carroll v. Bank, 19 Wash. 639 ; 54 Pac. 32 ; Vermont, etc. Ry. Co. v. Com- pany, 34 Vt. a; Gruhh r. Company, 14 Pa. St. 805; W.P.B. Co. p. Yowig, 12 Md.476. CHAP. I.] DBAFTINO fSE CHABTEB, of the existence of the corpomtioii. In Connecticnt it is evidence of the legal existence of ihe corporation, and Jt is there provided that it shall serve all the purposes of a charter for the corporation. In Delaware it is made evidence in any court of law or equity. In Georgia a certified copy of the petition for incorporation and order granting the same is made evidence of snch incorporation in any conrt. In Eentncky the.law provides that it may be used as evidence in any action for or against the corporation. In Maryland it may be used as evidence in all legal proceedings. In Michigan it is prima facie evidence of the due formation, exist- ence, and capacity of sndi eorporation. In Minnesota it is pro- vided that it shall be evidence in ail courts of snch incorporation. In New Jersey it is evidence in all courts and places. In North Carolina it is prima facie evidence of the organization and incor- poration of the company purporting thereby to have been estab- lished. In Pennsylvania it is evidence for all purposes. In Rhode Island a certificate must be received in evid^ce before any ooart, tribunal, or authority. In Tennessee it is competent evidence in any proceeding. In West Virginia it shall be received as evidence of the existence of the corporation. In Wyoming it is provided that it shall be evidence of the existence of the company. Again, in Massachusetts and Indiana the law provides that the certificate of record shall be conclusive evidence of the ezlst^iGe of such corporation. In Wisconsin it must be received as conclusive evidence of the existence of the corporation or of the organization thereof in all cases where such facts are collaterally involved. Again, in Alabama tiie certificate of the probate judge states specifically that the incorporators are duly organised as a corpora- tion for the purposes expressed in the declaration, having the power, capacity, and authority conferred by law. In Florida the law provides that letters patent " shall be conclusive evidence of the existence of the corporation in all actions where i^e question of the existence is only collaterally involved, and prima faeie evi- dence in all other actions and proceedings. In Indiana the order of the court declaring the existence of a corporation entered " ex parte " is conclusive as to the fact of such existence. In Missis- sippi the law provides that the powers specified in the charter shall by the approval of the Governor be vested in snch corpora- tion, and it shall go into operation at the time and on the terms and conditions specified. 25 § 6 INCORPORATION AND ORGANIZATION OP CORPORATIONS. [PART I. Again, certain statutes exist providing that after certain pre- liminary steps have been taken as prescribed by statute such incorporators and their successors and assigns shall thereupon become a body politic and corporate for certain specified purposes. These statutes really provide that upon the observance of certain specified preliminary conditions relative to the* making and execu- tion of articles of incorporation, the incorporators, their suc- cessors and assigns, shall be a body politic and corporate under the name and for the purposes stated in the articles. The foregoing is the statutory provision as it exists to-day in substance in Soutii Da- kota, North Dakota, and Oklahoma. In Virginia the law provides that they shall be a body politic and corporate by the name set forth in the said certificate and upon the terms and powers set forth therein, so far as not in conflict with law. In Pennsylvania the law provides that they shall become a corporation upon the pur- poses and terms named in the charter. In Maryland they are declared to thereby become a body politic and corporate according to the objects, purposes, articles, conditions, and provisions in said Instrument contained. In Maine they are declared to be a corpo- ration, with all the rights and powers and subject to all the duties, obligations, and liabilities provided by law. In Connecticut a copy of the certificate of organization is prima facie evidence that the corporation has been duly organized and is duly authorized to exercise all its corporate powers. In Maine the certificate of the Secretary of State that the corporation hus been duly organized is evidence of the corporate existence of the corporation. In South Carolina a certificate is issued by the Sec- retary of State that the corporation is fully authorized to com- mence business under its charter for the purposes indicated in the written declaration of the incorporators. It is not claimed that the i^tatotorj provisions here referred to operate so as to preclude entirely collateral attack upon corpo- rate existence, purposes, and powers. The most that is claimed for them where they do not make certain instruments conclusive evidence of corporate existence, purposes, and powers, is that they shift the burden of proof and render the likelihood of collateral attack more remote.^ 1 As to meaning of condnsiye efyidoice, of prima fade evidence, see Holmes v. Gflc lee Ameriean Order, ete. v. Menifet, 151 lUand, 41 Barb. (S, T.) 569; Knapp. etc. HaM. 558; 24N.E.918. AatoMiiiiiig Co. v. 8tiaiid,4 Waf^ Mi; SOFte. 1063; 26 CHAP. I.] nBAFTING TOE CHARTER. §6 It has now been fairly demonstrated, it is hoped, that in tlie majority of the Commonwealths collateral inquiry into corporate existence is either prohibited by statute or else is forbidden by implication, by reason of the issuance of certificates of due" in- corporation, under proper legislative authority, by State officials. In the few remaining States and Territories the courts have either by a process of judicial legislation or by an extended application of the principle of estoppel, practically made it impossible to successfully attack in collateral proceedings the due existence of a corporation. This on grounds of enlightened public policy.* The judicial legislation above referred to covers the cases where it is impossible to apply principles of estoppel either on account of the absence of any conduct on the part of parties litigant show- ing their recognition of the corporation's existence, or else is inapplicable by reason of such parties havmg never in any way dealt with the corporation or recognized ito corporate existence.^ Having now considered at some length the question as to the right to collaterally attack the validity of corporate existence, there naturally follows an inquiry as to the right to attack the validity of corporate purposes and powers when the same are in- serted in the articles of incorporation. It would seem to follow, as a logical sequence, that if the rule be once established forbid- ding collateral attack upon corporate existence, this same rule should operate as well to prevent collateral attack upon corporate purposes and powers. This for the reason that if a corporation exists at all it must necessarily exist with such purposes and powers as are inserted in the articles of incorporation which called the corporation into being. As has already been observed, a large number of the States have enacted statutes forbidding collateral attack upon corporate exist- ence. For the reasons already stated, it would appear that these stotutes would be equally efficacious for the purpose of prohibiting collateral atteck upon corporate purposes and powers. Eastern Plank Road Co. v. Vaughan, U 863; Sannders v. Farmer, 62 N. H. 57J- N. Y. 546 ; Bates v. Wilson, U Col. 140 ; flackensack Water Co. v. DeKay 36 N J !J a!; ^,7"P*°>'' ^6 Conn. Eq. 548 ; U. S. Vinegar Co. v. Schlegei; 87; 13 Att. 137; JeweU ». Company, 101 143 N. Y. 537; 38 N. E. 729; W. & P. il' n „. rr o ^' ^' Company, 114 N. C. 690; 19 See Casey v. Galli, 94 U. S. 673 ; Diigu 8. E. 646 ; Beynolda v. Myers. 51 Vt. 444 : gan V. Company, 11 Col. 113; 17 Pac. Carroll y Bank, 19 Wash. 689 ; 54Pac82 105 ; McClinch v. Sturgis. 72 Me. 288; 2 gee Marioa Sayings Bank ». Dnnkin.' rinch V, Ullman, 103 Mo. 255; 16 S. W. 54 Ala. 471. 27 § 7 INCOBFOBATION AND 0B6ANTZATI0K OF CXmPOBATIONS. [PABT I. Again, as has already been stated, a large number of the in- corporation acts provide that the certificate of incorporation shall be issued by certain designated State officials. Where such cer- tificates are issued under express or even implied authority of the State, the rule unquesticmably is that the validity of corporate purposes and powers not per $e illegal, inserted in the articles of incorporation, cannot be attacked except by the State in a direct proceeding brought for that purpose.^ If, however, the charter is issued without the express or im- plied approval of the State officials,— their duty being merely to certify to the &ct and to mark them when filed as public doenments in their respective offices, — then the insertion of purposes not authorized by the statute, yet not unlawful per se, would probably not render the charter valid for all purposes even when filed.^ To sum up briefly the propositions herein presented, it may be said that collateral inquiry into the l^ality of a corporation's ex- istence, purposes, and powers is forbidden in this country, (1) by statutes expressly forbidding such collateral attack; (2) by reason of authority vested in state officials to issue certificates of due incOTporation which, for the reasons already stated are not open to oolklml attack; (3) by reason of statutory provi- sions ^ving to certified copies d articles of incorporation certain probative effect ; (4) by an extended application of the principle of estoppel forbidding such collateral attacks ; (5) by a process of judicial legislation denying on grounds of public policy the right of parties other than the State to attack the legality of corporate existence, purposes, and powers. § 7. Effect of inMirting Illegal PmposM. — There seems to be a sound basis in law for permitting collateral attack upon purposes that are illegal per ae. This for the reason that a distinction clearly mats between purposes which are merely unauthorized 1 State ex rd. Walker*. Tdbot, 1S8 Ma S9S ; Cawjr v. GalH. 94 U. S. 678; Fovtiw •9; f7 8.W.8M;I>ofef V. PttteiiOB,156 v. Bank, 112 U. S. 439; 5 S. Ct. 234; lad. SO} 56 K. E. 668; T. A. L. Co. v. Niemeyer v. L. U. J. Ry., 43 Ark. 111. Mlimnj- (Tenn.), 56 S. W. 35; AUbright « Willianja v. Company, 25 Ind. A p. V. Association, 102 Pa. St. 411. See also 351 ; 57 N. E. 581 ; Kiuston, etc. Co. y. People V. Beach, 19 Hun, 259; N.Orleans, Stroud, 132 N. C. 413; 43S.E.918; Ram. etc. R. R. Co. W.Frank. 39 La. An. 707; ley ». Tod, 95 T«. 614 } 69&W.iaS;Or. S 8a 810; Hoteei v. Offlilaiid, 41 Barb. Bj. k Nar. Co. v. Or. Bj. Co., 180 U. S. H. T. 569; Baifeeni Plank Road Co. v. 1 ; 9 S. Ct. 409; State v. Company, 88 Wis. Yai ^^, 14 N. Y. 546; C. & P. Co. v. 512; 60 N. W. 796 ; G. L. H. Im. Co. V. Secretary of State, 128 Mich. 621; 87 Hamper, 73 Ala. 325.. K. W. 901 ; Cochran v, Arnold, 58 Pa. St 28 CHAP. I.] DBAfTING THB CHAITEB. § 8 by the terms of the general incorporaMon act, and those parpoees which are forbidden by express statute, — civil or penal. In the latter case it seems clear that even the approval by a State official of such unlawful purposes as evidenced by the issuance by them of certificates of due incorporation, do not forbid collateral attack thereon in any suit whereby the corporation seeks to benefit by the insertion of sudi unlawful purposes in its articles.^ The rule might be still further extended so as to apply to pur- poses which may be lawful in a general way, yet which may be deemed unlawful on account of the limitations inserted in the articles upon the means by which such purposes are to be carried out.' The same principle would apply where the purposes are clearly contrary to the public policy of the State.^ But if pur- poses are lawful on their face, they will, as against all but the State, be presumed to be such.^ Where some of the purposes are merely unauthorized, while others are valid and proper, the insertaon of the unauthorized purposes will not vitiate ^ incorpo- ration.^ But where any of the purposes are illegal per «e, the State officials would be clearly justified in refusing to allow the articles to be filed, though some of them are lawful.^ §8. CfMrpomto Poweis, GlMaifioattoa oC — By ^corporate powers " is meant the right or authority of a corporation to act along certain lines prescribed for it in the instrument whereby it was created. The tendency of modern decisions is to assimilate the powers of private corporations to those of individuals and copartnerships.^ It is unnecessary to say that a corporation can- not assume for itself powers of action, irrespective of statute, by the mere declaration thereof in its artides of incorporation.* Neither can they be created by by-law.^ The Supreme Court of the United States ^ has observed that 1 F. N. Bank v. Compaoj, 59 Ohio St. « U. S. Vinegar Co. v. Foaki«iMh» 816 ; 52 N. E. 834 ; Inn DnQuesne 148 N. Y. 58; 42 N. E. 40S. doUege, S Pa. Dint Ct. Rep. 555 ; Mat- • Skick v. CooipHij, IS LmL Ap, 310; ter of Agudath Hakehiloth, 18 N. T. Wa, 44 N. E. 4S. Rep. 717; 42 N. Y. Sup. 985; State t*. « State v. C0119M7, 88 Wi>.5U; 60 Company, 29 Neb. 700; 46 N. W. 155. N. W. 796. 2 Or. Ry. & Nav. Co. v. Or. Ry. Co., ^ Fink v. Company, 5 Ore. 301. 130 U. S. 1 ; 9 S. Ct. 409. « People v. Green, 116 Mich. 505 ; 74 • SehflHtienBimdv. AgitetkmiyereiB, H. W. 714. 44 Mich. 313 ; 6 N. W. 675 ; McGrew v. 9 Andrews v. Compaiijr, 37 Me. SS6. C. P. Ex., 85 Tenn. 572 ; 4 S. W. 38 ; /n M Tluwut «. Coiii^jr, 101 U. S. 11. re Benefit Society, 10 Phil. 19; People ». Company, 130 IlL 268 ; 22 N. £. 798. 29 § 9 INCORPORATION AND ORGANIZATION OP CORPORATIONS. [PART 1. " we take the general doctrine to be that the powers of corpora- tions organized under general statutes are such and such only as are conferred hy statute. Conceding the rule applicable to all statateSy ^at what is fairly implied is as much granted as what is expressed, it remains that the charter of the corporation, is the measure of its powers, and that the enumeration of these powers implies the exclusion of all others." The foregoing is true only as to certain classes of powers which are hereinafter referred to as express powers." The mle is not applicable either to what are known as common law papers " or to the incidental powers " of corporations. Corporate powers may properly be divided into three general classes, to wit: (1) Common Law Powers ; (2) Express Powers ; (3) Incidental Powers. Generally speaking, there is no existing rule or prin- ciple by which corporations created for a certain specific object or to carry on a particular trade or business are to be held to be prohibited from all other dealings or transactions not coming within the exact scope of those designated. Undoubtedly the main business of a corporation is to be confined to that class of opera- tions which properly appertains to the general purposes for which this charter was granted. But it may also enter into contracts and engage in transactions which are incidental or auxiliary to the main business, or which may become necessary or profitable in the care and management of the property which it is anthorized to hold. The same is true as to certain powers which are held to exist at common law even in the absence of any specific refer- ence to sucli powers in the articles of incorporation. § 9. Common Law Powers, Definition of ; Enumeration of. — Common law powers are tliose which the law bestows upon cor- porations irrespective of statute or charter provisions, as being necessary for tJie carrying out of the purposes for which it was created.^ The common law gives to corporations the powers belonging to corporations of their class, unless there is some- thing in the nature of the corporation or in the terms of its charter, or in the act under which it was incorporated inconsis- tent with the exercise of the powers, or there is some general statute restricting the same.^ 1 Falconer y. Campbell, 8 Fed. Cases, 593; Knowles?nBeatty,l McLean,41; Leg- 4620 ; 2 McLean, 195 ; C. O. N. G. & F. gett v. N. J. M., etc. Co., 1 N. J. Eq. 541. Co. V. CD. Co., 60 Ohio, 96; 53 N.E. 711; < Smith o. Company, 27 N. H. 86; State V. Compwijr, 144 Mo. ft62 ; 46 & W. Sutton** Uoi^italCaM^ S Coke*i Hep. 259. 30 CHAP. I.J dbafuno thb chabt^ §11 The common law powers here referred to may be enumerated as follows: (1) the right to the use of a corporate name; (2) the right to perpetual succession; (3) the right to acquire, hold, and dispose of corporate property ; (4) the right to appoint corporate officers and agents ; (5) the right to establish by-laws for the government of the corporation, its officers and members ; (6) the right to sue and be sued. An examination of the various corporate acts in force in the several States and Territories will serve to show that without exception they contain an enumeration more or less full of the common law powers above referred to. In Indiana the statute refers to them as common law powers, and proceeds to enumerate them.^ § 10. Right to a Corporate Name. — The right to the USe of a corporate name is a power well recognized both at common law and by statute. Corporations have a property right to the use of such name in tiie transaction of their business which the courts will always protect.* They are recognized in law only by their corporate name.^ The name is said " to be the very being of their constitution ; the knot of their combination ; without which they could not do their corporate acts ; for it is unable to implead and be impleaded, to take any action until it hath gotten a name." * The action of State officials in granting the use of a name, it may be observed, is not conclusive, for courts of equity will never- theless protect corporations in the use of their name.^ State officials have, however, the power to protect the use of corpo- jrate names when applications are made for charters, even when the proposed name is not exactly similar to that of existing corporations.^ The right to have a corporate name is in itself a common law power ; but it is one which is not alienable.^ § 11. Rig^t of Perpetaal Suooession. — The " right of perpetual succession" under a designated corporate name is one of the common law powers of a corporation. The words "perpetual 1 Ind. Session Laws, 1 901 , ch. 127, § 28. 6 State ex rel. v. McGratb* 92 Mo. SS5 ; « L. D. Co. V. Massachusetts, 10 Wall. 5 S. W. 29. (U. S.) 566; see also ante, § 3. 7 State v. Company, 40 Kau. 96 ; 19 • Cnrtias v. Murry, 26 Gal. 633. I»ac 349 ; Detroit Citizens' Street Rv.' Co. * Smith ». Companj, SO Ala. 65d. v. Common Council, 125 Mich. 673; 85 6 Grand Lodge, etc. ». Graham, 96 N. W. 96. la. 592 ; 65 N. W. 837. 31 § 13 IHCOBPOBATION AND OBOAHIZATIOK OF 00BP<»ATI0N8. [PABif L succession " do not refer to the duration of the life of the oorporar tion, where this is specifically limited either by statute or hy the articles of incorporation, but merely operates to grant the continu- ation of corporate life daring the period so prescribed.^ Perpetual succession ordinarily merely conveys the right of continued un- broken succession for the period of time limited fw the corporate existence.^ § 12. Right to adopt and use a Corporate Seal. — It is an in- separable incident to every corporation tiiat it may have a common seal, and make, alter, and renew the mm» at pleasure « The doc- trine of the common law requiring the use of a corporate seal in the execution of corporate contracts is practically obsolete^ and the seal is now required, in the absence of express statute, only when it would be required of a natural person under similar circumstances.* Ordinarily the exercise of this power is dele- gated by the stockholders to the directors by means of an appropriate by-law.^ § 13. Power to acquire, hold, and dispose of Real and Personal Property. — No doctrine of the common law is more clearly and undeniably estaWihed than that which concedes to corporations an inherent right to acquire and hold title to real and personal property, except so far only as they may be restirieted by the objects of their creation or the limitations of their charter.* The power to acquire such property, when not restricted by statute, is only lunited by the rule that it must be such as is reasonably necessary or eonvenlrat to enable it to aeeimiplish tiie purposes for which it was created J Formerly the amount of real property which a corporation might purchase and hold was very generally limited by statute in most of the Commonwealths. The existence of such statutes may be traced to the policy of the common law and to the existence in England of statutes known as statotes of mcnrtmain, which pro- hibited corporations from taking and holding real estate without licenses from the king or Parliament^ However, in most of tiie 1 dtm V. Tmi, 1» Mo. 468; 31 S. W. * Green Co. v. Blodgett, 55 lU. Ap. 556. • Woodman v. Company, 50 Me. 549. a* Scanlon v. Crawshaw, 5 Mo. Ap. • LuAiop v. Bank, 8 Djna (Ky.). 114; 887 : see, however, FaiichiW ». AMOoatkm, Thompioii 9. WateM, 26 Mich. ^J'i^ ^26. T Blown V. Hogg, 14 111. 219 ; BMOmid- » Bauson r. Bank, 18 N. J. Eq. il2 ; son v. Association. 131 Mass. 174. TlHHBat V. DaklB, » W«id. 9. 8 Lewnw ». Hillegas, 7 Ser. & B. (Pa.) a2 CHAP. I.] DBAFTENO THE CHABTEB. §15 6tates such restrictions have been done away with, and corpora- tions may now hold such property, both real and personal, as the attainment of their corporate purposes may require. In anj event, the general power of a corporation to hold real estate is primarily a question betwen the corporation and the State, and cannot ordinarily be raised by third parties.^ Where such statutes exist the corporation has of course no power to exceed the statu- tory limit as against the State.^ The general rule is that corporations, unless forbidden by stat- • ute, have implied power to take property by devise.' The same rule applies with respect to the power of taking and holding property in trust, provided in so doing it acts within its corporate powers.* The power of a corporation to sell and convey is as broad as the power to purchase and hold, and is granted on the same terms.* § 14. Power to uppoint Oorporate Offloen and Agents. — At common law corporations have the inherent power, irrespective of statute or charter provision, to elect directors and executive officers and to appoint such agents as the business of the corpora- tion require.* § 15. Poww to evialiMali Bjr-iAwe. — Every corporation has the implied power to enact such by-laws as may be necessary for the proper government of the corporation, its officers, and stock- holders.7 Sometimes the statutes prescribe the nature of the by-laws to be adopted and authorize p^altses for violation therool' 818; White ». Howard, 38 Conn. 342; * Vidal r. Girards Executors, 2 How. Pag© V. Heioeberg, 40 Vt. 81 ; Riyaanv (U. S.) 127 ; Morrig v. Maj, 16 Ohio, 469 ; Nav. Co. V. Dawsons, 3 Grat. (Va.) 19 ; F. L. T. C!o. v. H. F. N. Co.. 41 N. Y. Moore v. Moore, 4 Dana (Ky.), 354; Mai- 619; White v. Rice, IIS Mich. 40S; 70 lett V. Simpson, 94 N. C. 37 ; Trustees v. N. W. 1024; GieeiM v, DaaoB, 6 Conn. Manning, 72 Md. 116 ; 19 Atl. 599; First 304. M.E. Church «. Dixon, 178 IlL 260; 52 & Miners' Ditch Co. v. Zellerbach, 37 N. B. 887, Cal. 543 ; People v. College, 38 Cal. 166. 1 C. B. & Q. R. B. Co. V. Lewis, fiS • Kearney v. Andrews, 10 N. J. Eq. 70; la. 101 ; 4 N. W. 842. A. R. R. Co. v. Kidd, 29 Ala. 22 1. 2 Market St. Ry. Co. v. Hellman, 109 f Wells v. Black, 117 Cal. 157 ; 48 Fte. Cal. 571; 42 Pac. 225; In re McGraw's 1090; People v. Society, 24 Barb. N. Y. Estate, 111 N. Y. 66; Andrews v. An- 570; Martin v. Association, 2 Coldw. drews, 110 HI. 223; Graves v. Niles, 1 (Tenn.) 418; Mechanics' Bank t. Smith, 19 Walker (Mich.), 332. Johns. (N. Y.) 115; Steger v. Davis, 8 • White r. Howard, 88 Conn. 342; Tex. Ciy. App. 23; 27 a W. 1068. Ravanna NaT. Co. ». Bawioos^ 3 Grat • Cahill v. Company, 2 Dong. (Mich.1 (^^) 1S8 ; Mobile v. YaOle, 8 Ala. 137. § IT INCOEPOBATION AND ORGANIZATION OP CORPORATIONS. [PART I. § 16. Power to sue and be ened. — It has been the rule of tlie courts from time immemorial to recognize and enforce the power of corporations to soe and be sued under and by their cor- porate name as incident to such corporate exist^ce.* § 17. Express Powers, Definition of; Bnumeratlon of. — Ex« press powers are those which are either granted to all corpora- tions alike by statute, whether inserted in the charter or not, or else are those which are permitted by statute to such corpora- tions as may see fit to take advantage of them, by reserving such powers in the charter itself. Statutes of the character first re- ferred to are construed by the courts to be ipso facto read into the charter, thereby becoming part and parcel of it. On the other hand, tiie last-named powers can only be availed of by the corpo- ration when, as lias been stated, tiiey are specifically reserved or set forth in the articles of incorporation. Express powers relate not only to the right to engage in a special line of business as set forth in the statement in the articles of the object or purposes for which the corporation is formed, but they relate as well to other powers which are here termed express/' inasmuch as they depend upon the existence of specific statutes authorizing tlieir exercise by such corporations as desire to avail themselves thereof. These express powers may be divided into twenty-eight classes, enumerated as follows : (1) power to purchase its own eaiatal stock ; (2) power to subscribe for, purchase, and hold stock in other corporations ; (3) power to consolidate with other cor- porations ; (4) power to transact all or any part of its business outside of the State of its origin ; (5) power to extend its cor- porate existence; (6) power to change its corporate name ; (7) power to increase or decrease its capital stock ; (8) power to issue preferred stock; (9) power to change the corporate pur- poses ; (10) power to change the number of directors ; (11) power to change its domiciliary office or place for the transaction of its business; (12) power to acquire and enforce a lien upon stock of the cwporation to secure the payment of debts due the corporation from stockhdders ; (18) power to levy assessments against the stockholders with the right to forfeit the stock for non-payment thereof ; (14) power to authorize voting at stockholders' meetings by proxy ; (15) power to allow cumulative voting at the election of directors ; (16) power to issue stock as full paid and non- 1 & W. Co. ». AfBMtraDg^ 17 Me. 34. 84 CHAP. I.] DBAPTING THE CHABTE&. §17 assessable in exchange for property or services ; (17) power to sell the corporate assets; (18) power to voluntarily dissolve the corporation without recourse to «ie courts ; (19) power to insert In the charter provisions for the regulation of the internal affairs of the corporation ; (20) power to authorize directors to adopt by- laws; (21) power to authorize appointment- of executive com- mittee from board of directors ; (22) power to enlarge or diminish corporate powers ; (28) power to change par value of shares ; (24) power of bondholders to vote at elections of directors ; (25) power to classify directors ; (26) power to amend articles before organization ; (27) power to surrender charter before organiza- tion; (28) power given to minority stockholders to compel purehase of their holdings upon consolidation. Of the foregoing enumerated powers, the following when ex- pressly authorized by statute are applicable to all corporations alike, whether reserved or enumerated in the articles of incorpora^ tion, to wit: The power to consolidate with other corporatbos; to perform constituent acts outside of the State of its origin ; to extend its corporate existence ; to change its corporate name ; to in- crease or decrease its capital stock ; to change the corporate pur- poses, the number of its directors, its domiciliary office or place for the transaction of its business ; to acquire and enforce a lien upon stock of the corporation to secure the payment of debts due the corporation from stockholders ; to levy assessments against the stockholders with the right to forfeit stock for non-payment thereof; to authorize voting at stockholders' meetings by proxy; to permit cumulative voting at election of directors (unless such right is merely made permissible by statute) ; to issue stock as full paid and noti-assessable in exchange for property or services ; to sell the corporate fissets in their entirety ; to voluntarily dissolve the corporation without recourse to the courts ; to authorize the directors to adopt by-laws (unless such authority is by statute re- quired to be reserved in the articles of incorporetion) ; to appoint an executive committee; to enlarge or diminish the corporate powere ; to change the par value of shares ; to amend articles before organization ; to surrender charter before organization ; power given to minority stockholders to compel purchase of their holdings upon consolidation. Of the remaining express powere it is probably in accord with the general omrreat of authority in this country to say that to be 85 § 18 INCOBPOBiiTION AND OBOANIZAHON OF COBPOBATIONS. [PABI I. aTailable to the corporation they must be reserved or specified in the articles of incorporation. The powers to which reference is here made may be enomerated as follows: To subscribe for, purchase, and hold stock in other corporations ; to transact all or any part of its business outside of the State of its origin ; to issue preferred stock ; the power to insert in the charter provisions for the Isolation of the internal affairs of the corporation; power of bondholders to rote at dection of directors; power to classify directors ; and possibly power to purchase its own capital stock. § 18. Power of Corporations to purchase tiieir own Stock. — There' is considerable conflict of opinion in this country relative to the question whether a corporation may purchase its own stock without express statutory authority so to do. One Kne of deci- sions holds to the view that such power exists only when expressly conferred by statute no matter what the purpose may be.^ Other • courts of equally high standing take the view — and this we beUeve to be tiie true .one — that erery corporation has implied power to purchase its own stock proTided it does so in good faith and with- out prejudice to the rights of creditors.* It has been said that, " generally speaking, a corporation, when acting within the scope of the purposes of its organization, has the same power to con- tract with reference to such powers as an individual. We believe the rule to be well settied m the United States by the overwhelm- ing weight of authority and reason that a private corporation may purchase its own stock if the transaction is fair and in good faith ; if it is free from fraud, actual or constructive ; if the corporation Is not insolvent and in process of dissolution, and if the rights of ereditors are in no way affected thereby." ' Where there is no formal corporate action taken, autiiOTizing the purchase of the company's own stock, a purchase made thereof, even though all the stockholders separately consented thereto, would be invalid as against creditors*^ 1 CmicUa 9. liBOoln, 61 Conii. 78; Yt 131 ; Chapman v. Company, 62 N. J. CBRierv.Coiiil»&7,56N.H.262; Mofgtm 497; 41 Atl. 690; Belknap v. Adams, 49 r. Lewis, 46 O. St. 1 ; 17 N. E. 558. La. Ann. 1350; 22 Sou. 382 ; Ins. Co. y. 2 City Bank Columbus v. Bruce, 17 Swigert, 135 HI. 162; 25 N. E. 382; Pot- N. Y. 507 ; N. E. T. Co. v. Abbott, 162 ter v. Company (Mont.), 74 Pac. 988. Mass. 148 ; 38 N. E. 432 ; Clapp v. Peter- • Pwcter ». Company (Mont.), 74 P*c Ben, 104 Dl. 26 ; Hall & Farley v, Heiid«r- 988. ioii,l26Ala.449; BMkit Omfntj,lB * DtlaVofgMBrfrlgwrtorMidiiiie d6 GHAP. I.] ^ DBAPrmO THE CHABTEB, § 19 Some of the States expressly authorize corporations to purchase shares of their own capital stock, while others expressly forbid it^ The rule of course does not apply to those cases where statutes exist expressly authorizing the forfeiture of stock for non-pay- ment of assessments.^ The purchase by a corporation of its own stock does not extinguish it^ Many of the States haye statutes expressly forbidding corporations to vote their own stock when held or owned by them. Even in the absence of such statute, it is probable that the courts would enjoin corporations from voting their own stock.* By statute in a number of States corporations are forbidden to purchase their own stock.^ § 19. Power to snlMiortbe for, pmrohaM, mad hold Stook in otiimr Corporations. — The prevailing rule in this country is that unless the power is expressly given by statute or by reservation of such right in the charter, corporations have no implied power to sub- scribe for, purchase, or hold stock in other corporations.^ An attempt has been made in some States to establish the rule that where the statute does not expressly prohibit such act, the corporation may purchase stock in other corporations without any express authority so to do, provided the circumstances are such as to render the transaction a necessary and proper means for accomplishing the objects of its creation.' If, however, there is no statutory prohibition in the matter and the State officials permit the insertion in the articles of the power to purchase and hold stock in other corporations, the exercise of such power is unquestionably valid.^ In the same connection it may be observed that a corporation cannot oi^nize subsidiary com- panies unless such power is given in express terms in the diarter or by necessary implication from the powers thereby conferred.* Co. V. German Savings Institution, 175 40 Ga. 582; First Nat. Bank r. Nat. Ex- U. S. 38; 44 L. E. 65. change Bank. 9S U. S. 122; Knowlee v. 1 See Fart III. Table 15, page 585 ; also Sandercock, 107 Gal. 629 ; 40 Fte. 1047. Tolman v. Company (Dak.), 22 N. W. 505. ' Hill v. Nigbet, 100 Ind. 341 ; Peshtigo 2 Taylor v. Company, 6 Ohio, 83; Co. v. Company, 50 111. App. 624; S. P. State V. Association, 35 O. St. 258. T. Co. v. Company, 50 Minn. 93 ; 52 N. W. * Bank v. Wickersham, 34 Cal. 444 ; 274 ; Steamship Co. i;. Company, 28 lAi Clapp V. Peterson, 104 IlL 26. An. 178. * See McNeely v. Woodruff, 18 N. J. » N. 8. Co. v. Horton (Neb.), 93 N. W. Law, 352; Brewster 17. Hartley, 37 Cal. 15. 225; De La Vergne Befrigerating Ma- ^ See Tolman v. Compaiqr (Dak.), 22 chine Co. v. German Savings IwitotMMi. N. W. 505. 175 U. S. 38 ; 20 S. Ct. 20. 6 Franklin Bank v. Commercial Bank, * Lagrone v. Timcierman, 46 S. C. 872 } 36 0. St. 258; Central Ry. Co. v. Collins, 24 S. £. 290. 37 § 2i mooBPcnuTioN and oboanization of oqbpobations. [PABT I. In Akdia, Bislarlot of Oolmnbia, and Georgia corporations are forbidden by statute to hold stock in other corporations. § 20. Power to consolidate with other Corporations. — Corpora- tions cannot consolidate as against dissenting stockholders, hofreyer desirable or beneficial the eonsotidation may be, unless l^itlaliTe antiiority is granted to that end.^ In the exercise of the police power of the State it maj lawfnllj prohibit the consolidation of corporations.^ Consolidation of corporations to a greater or less extent is. permitted by statute at the present time in the States of Alabama^ Califomia, OonneetiGat, Delaware, Dlinois, Kentucky, Maine, Montana, Nevada, New Jersey, New York, North Carolina, Vir- ginia, and West Virginia. An attempt has been made to lay down the rule that in order to effect a lawful consolidation as between two corporations, the power to so consolidate must be conferred by eaeh of the States under whose laws fkey were created.^ A better role, howeyer, and the only practicalde one seems to be this : That either statutory power to dispose of all the assets of the corporation, or in the absence thereof, the consent of all the stockholders must be obtained to the sale of the assets of one corporation to another. Consolidation in this way then takes the form (d a selling ool and of aooepting money or riiares in the new corporation in return for the assets of the old.^ § 21. Power to transact all or any Part of the Corporate Business outside of the State of its Domicile. — If there are no statutory re- strictions, a corporation has implied power to carry on its business at any place within the State in which its charter is procnred.* The statutory requirement reqairing the corporation to fix in the articles its principal place of business does not prohibit under ordinary circumstances the transaction of other business within the State.^ Long ago in Bank of Angusta v. Earie ^ Chief Justice Taney, 1 Pearce v. Ry. Ca, 91 How. 341 ; Hill Badiie, etc By. Co. v. Companj, 49 HL V, Nisbet, lOS lad. 841 ; PeoiOe r. Com- 881. pony, 121 N.T.582 ; 24N.E. 834; L.4N. ^ Ashley Wire Co. v. Company, 60 By. Co. ». Kentucky, 161 U. S. 677. 111. App. 179; City Bank v. Beech, 1 3 L. &N. By. Co. V. Kentucky, 161 U. S. Blatchford, 425 ; Stickle v. Company (N. 677. J. Eq.), 32 Atl. 708 ; Underwood v. Wal- 9 Id. dion, 12 Mich. 73 ; Berthin v. Company, * Matter of ProfpectPaik, etc. By. Co., S8 La. An. 910; Lane v. Bank, 9 Hdik. 87 H. T.871 ; Toledo, etc By. Ca v. Com- (Teiin.) 419. pany, 95 Fed. 497 ; 36 C. C. A. 155; « Potter Bank, 6 Hill (N. Y.), 49a LaiinaB «. Coiqmr, 80 Pa. 42> ? uX^eters, 519. 88 CHAP. L] DBAFTINO THE CHARTER. §21 commenting npon the right of a corporation to transact Uusiness be/ond the limits of Hie domiciliary State, spoke as follows : "It is very true that a corporation can have no legal existence out of the boundaries of the sovereignty by which it is created. It exists only in contemplation of law, and by force of the law ; and where that law ceases to operate, and is no longer obligatory, the corporation can have no existence. It must dwell in the place of its creation and cannot migrate to another sovereignty. But although it must live and have its being in that state only, yet it does not by any means follow that its existenoe there will not be recognized in other places ; and its xesidenoe in one state creates no insuperable objection to its power of contracting in another. It is indeed a mere artificial being, invisible and intangible ; yet it is a person for certain purposes in contemplation of law. . . . Natural persons through the intervention of agents are continually making contracts in countries in which they do not reside ; and where they are not personally present when the contract is made ; and nobody has ever doubted the validity of these agreements. And what greater objection can there be to the capacity of an artificial person, by its agents, to make a contract within the scope of its limited powers, in a sovereignty in which it does not reside ; provided such contracts are permitted to be made by them by the laws of the place." * The strictly legal existence of a corporation is confined to the State which created it, and it can exercise its powers, in another State only by permission, express or implied, of the legislative power thereof ; but the mere right to purchase and sell property will be recognized and protected in any State subject only to the limitations that the exercise of such right shall not be contrary to the laws or settled policy of the latter State or prejudicial to its interests or those of its ciMzens. Unless the Constitution or stat- utes declare a contrary rule, the courts of another State are bound to recognize the right of a foreign corporation to collect debts due to it, by receiving a conveyance of land.^ In order, however, to avoid complications that might possibly arise through hostile action on the part of stockholders or of foreign States, statntes have been enacted in a number of the Gommon- ^ See Hall v. Company, 91 Ala. 363 ; 8 < Thompson i;. Waters, 25 Mich. 214. 8a 848. 89 § 23 INCORPORATION AND ORGANIZATION OF CORPORATIONS. [PART L wealths expressly authorizing the tramuiction of business in foreign states and jnrisdictions.^ Under the progressiye incorporation acts in force in many of the States at the present time it is unquestionably permissible to organize corporations in one State for the exclusive purpose of transacting their entire business in other States and Territories.^ § 22. Fowor to pifciCTt OMMtttuiit Aets outside of tt» Domi- ciliary stata — By constituent acts is meant snch corporate trans- actions as are separate and apart from its ordinary business dealings with third parties ; such, for example, as the organization of the corporation in the first instance, the adoption of by-laws, the issuance of stock certificates, the election of directors and officers, and the holding d Btockhcdders' meetings.' As a general rule such constittnent acts cannot be performed withoat the domir ciliary State.* The legislature may, of course, authorize the performance of constituent acts beyond the limits of the State. This has been done in a nnmber of the Commonwealths.^ It is probably safe to say that aside from organization meetings the presence of stock- holders of the corporation at a meeting held without the State will estop them from attacking the validity of the proceedings had at such meeting.^ § 28. Power to wKtend Coipon^ BxiMiio*. — In twenty-seren 1 See Part III. Table 12, page 582. See 428 ; Galveston, etc. Bj. Co. v. Cowdwy, AsUey Wiie Co. v. Company, 60 m. App. 11 WalL 459 ; 80 Law. Ed. 199. 179; Kennebec Co. v. Company, 72 Mass. ^ Commonwealth v. Smith, 45 Pa. St. 204 ; Aspinwall v. Company, 20 Ind. 492 ; 59 ; Smith v. Company, 64 Md. 85 ; 20 Atl. Blodgett V. L. Z. Company, 120 Fed. 893. 1032; Tuckasegee Mining Co. v. Goodhue, 2 Sec. Nat. Bank v. Hall, 35 O. St. 158 ; 118 N. C. 981 ; 24 S. E. 797 ; Camp ». M. L. & S. Co. V. Reinhard, 114 Mo. 218 ; Byrne, 41 Mo. 525 ; F. T. L. Co. v. Laigle, 21 S. W. 488; O. M. Co. v. Gamt, 18 59 Tex. 839; Ciaig Co. v. Smith, 168 R. 1 484 ; 28 AtL 973 ; People v. Com- Mass. 262 ; 39 N. E. 1116 ; Bellows v, Todd, pany, 153 111. 25; 38 N. E. 752; Tilley v. 39 Iowa, 209; Hodgson v. Company, 46 Coykendall, 172 N. Y. 87 ; 65 N. E. 574 ; Minn. 454 ; 49 N. W. 197 ; Harding v. Com- Minn., etc. Co. v. Denslow, 46 Minn. 171 ; pany, 182 111. 551 ; 55 N. E. 577 ; Jones v. 48 N. W. 771 ; Wright v. Lee, 2 S. D. Company, 20 Col. 417 ; 38 Pac. 700; Mack 596; 51 N. W. 706; A., etc R. R. Co. v. v. Company, 90 Ala. 396 ; 8 So. 150; Fletcher, 35 Kaa. 286; 10 Pac 596: North, Aspinwall «.Compaoj, 20 Ind. 492 ; CoQXt- etc. Stock Co. V. People, 147 IlL 234 ; right v. Deeds, 37 Iowa, 503. 35 N. E. 608; Canada S. Ry. Co. v. Geb- » See Part III. Table 11, page 581. hard, 109 U. S. 527 ; 3 S. Ct. 363 ; Cowell « Handley v. Stutz, 139 U. S. 417 ; V. Springs Co., 100 U. S. 55; Ha.stings r. Galveston, etc. Ry. Co. v. Cowdrey, 11 Anacortes, etc. Co., 29 Wash. 224 ; 69 Wall. 459 ; see also Humphreys v. Mooney, Pfec776; IrniieCo.v.Boiid,74Fed.849. 5 Col. 288. s See McCdl Compaiiy, 6 Cobb. 40 CHAP. I.] DRAFTING THE CHABTEB, of the Commonwealths perpetual existence is permitted in the incorporatioa of companies therein. The power to extend such existence is not of any material importance in these Common- wealths. Twenty-fiye of the incorporation acts specifically provide for the extension of corporate existence. Without such statutorj authority corporate existence cannot be extended.^ In some of the States extension of corporate existence must be accompanied by the payment of an organization tax, as is the ease of new corporations. Tims, in New Jersey, where such a provi- sion exists, it has been held that such tax must be paid even though the extension of the corporate existence was obtained in the guise of an amendment to the charter.^ § 24. Power to oliaiiee tb« Cknporate name. — Without statu- tory authoriiy so to do corporations cannot change their name.* If the proposed change of name conflicts with the name of an existing domestic corporation, State officials are justified in refus- ing to allow the certificate shQwing the adoption of the new name to be filed.* Some of the Sti^tes, as, for example, New York and Califomia, only permit change of name by application to the courts. § 25. Power to increase or decrease Capital Stock. — A corpo- ration has no implied power to either increase or decrease the capital stock.^ Such power must be conferred in express terms by the incorporation act under which the corporaticm is organized.* Power to increase or decreiise capital stock vests in the stock- holders and not in the directors.'^ Frequently incorporation acts provide that the stock shall not be diminished to less than the amount of the corporate debts. Such is the case in California and oi^er States. Certificates of stock issued on a fictitious increase of stock are void.^ § 26. Power to issue Preferred Stock. — Stockholders enjoying 1 See Part IlL Table 8, page 578; also ^ Sutherland v. Olcott, 95 N. Y. 93; post, sec. 120. Crandall v. Lincoln, 52 Conn. 73 ; G. L. & 2 NationalLead Co. v. Dickinson (N. J.), H. Insurance Co. v. Kamper, 73 Ala. 325 ; 57 AtL 188. Palmer v. Bank, 72 Minn. 266; 75 N. W. * Sykes v. People, 132 HI. S3 ; 2p N. E. 880; Detroit Chamber of Commerce ». 391 ; C. D. & M. Ky. Co. v. Keisel, 43 la. State Seerefeaiy, 1C9 Midi. 891 ; 67 N. W. 89; Glass Co. v. Company, 32 Ind 376. 897. * /nrcU. S.M. Rep. Agency, 115 N.Y. t C. C. By. Co. v. AUerton, . 18 WalL 176 ; 21 N. E. 1034 ; People v. Company, 233. Ill Mich. 405; 69 N. W. 653. « Beitman v. Steiner, .98 Ala. 241; * Ins. Co. V. Kamper, 73 Ala. 825 ; Poll- 18 Son. 87. Qan o. Upton, 96 U. 8. 8S8. 41 §26 INCORPOEATION AND ORGANIZATION OF COBPORATION& [PABf L preferential or additional rights not enjoyed by the holders of common shares are called " preferred stockholders." The issu- ance of preferred stock is a mode by which a corporation obtains funds for its enterprise, without borrowing money or contracting a debt^ The question as to whether or not preferred stock may be issued by corporations without express authority by law is a somewhat difficult one to settle. In twenty-five of the States ^ the question is settled by the existence of statutes expressly authoriz- ing the issoance of preferred stock, and even in those States where no such statutes exist it is, with some few exceptions, the custom of the State officials ta permit the insertion in the articles of incorporation of provisions authorizing the issuance of preferred stock. Tlie action of such officials is certainly conclusive as against all the world except the Statc.^ Tlie tme rule governing ^e matter now before us is, in the opinion of the writer, best set forth in tlie case of Campbell v. American Zylonite Company.* In this case the articles of incor- poration divided the capital stock of the corporation into shares, equal in amount and value. Some time after incorporation one of the stockholders executed a blank assignment of certain stock owned by him to a tiiird party as security for a loan. Subsequently all the stockholders, except tlie owner of this pledged eertificate, at a meeting duly called for that purpose, voted to surrender to tlie corporation, without consideration, forty per cent of their i^ock, and authorized the corporation to reissue this forty per cent in the form of preferred shares. The l^^ity of this act wa9 contested by the holder of the pledged certificate, and in passing upon the legal question involved, the court spoke as follows : ** The right of every shareholder to his proportion of the profits of the corporation was vested, and in the absence of some power to change the relative value of the shares conferred by statute or by the articles of incorporation, no change could be made without the consent of all the shareholders. . . . The assignee of shares having possession of the eeiiifieafees, althoi^h holding under unregistered transfers, axe not bound by oontraets between tiie registered share- holders, the corporation and all the o^r shaieholden which are not within the express or implied powers of corporations or of their share- holders. As between the assignor and the assignee, the unregistered 1 CbaibB 9. CowpaiiJ, S5 Yt llC ' See Hamlin v. K. K. Co., 78 Ftd. 670. t88eFtetIII.1Mil»8»9if»S78. « US N. Y. 455 ; 25 N. £. 8d3. 43 GHAP. I.] DBAmNG 1^1 CIBABTBR. §26 assignment was not void. It follows that the change in the relative value of the shares which this corporation and its registered share- holders sought to effect was not within the express or implied powers conferred upon the corporation or shareholders, and that their action is not binding upon the holder of the assigned certificate who did not consent to the issuance o£ the preferred shares." In Kent v. Quicksilver Company * the court addressmg itself to the question now before us, spoke as follows : There arises the query whether there was power in the oorporation to d!g^;ii^g«^«^ between tiie stockholders in it to form them into two classes, and to give to one class rights in the corporate property aad business and earnings from which the other was shut out. We are not prepared to say that at the first the corporation might not have lawfully divided the interest in its capital stock into shares arranged in classes, preferring one class to another in the right which they should have in the profits of the business. The charter gave power to nutke such by-laws as it might deem proper consistent with Con- stitution and law. We know of nothing in the Constitution or the law that inhibits a corporation from beginning its corporate a^on by classifying the shares of its capital stock, with peculiar privileges to one share over another, and thus offering its stock to the public for subscriptions thereto. No rights are got until a subscription is made. Each subscriber would know for what class of stock he put down his name, and what right he got when he thus became a stockholder. There need be no deception or mistake, there would be no tread- ing upon rights previously acquired; no contract, express or im- plied, would be broken or impaired. Shares of stock are in the nature of choses in action, and give the holder a fixed right in the division of profits or earnings of the company so long as it exists, and of its effects when it is dissolved. That right is as inviolable as is any right in property, and can no more be taken away or lessened against the will of the owner than can any other right, unless power is reserved in the first instance, when it enters into the constitution of the right; or is properly derived afterward from a superior law giver. It is manifest that any action of a corporation which takes hold of the shares of its capital stock already sold and in the hands of lawful owners, and divides them into two classes, —(me of whieh is thereby given prior right to a leoeipt of a fixed sum from the earn- ings before the other may have any receipt therefrom, and is given an equal share afterward with the other in what earnings may remain, — destroys the equality of the shares, takes away a right 1 78 N. Y. 167. 43 § 26 INCORPORATION AND ORGANIZATION OF CORPORATIONS. [PART I, which originally existed in it, and materially varies the effect of the certificate of stock. It is said that when a corporation can lawfully buy property or get money on loan, any known assurance may be exacted and given which does not fall within the prohibition, express or implied, of some statute. But the prohibition to such action as this is found not, indeed, in a statute commonly so called, but in the constitutional provision which forbids the impairment of Tested rights, save for public purposes and on due compensation. The right which a stockholder gets on the purchase of his share, and the issue to him of the certificate therefor, is such a vested right. It is contended that the power so to do is an incidental and implied power necessary to the use of the other powers of the corporation, and is a legitimate means of raising money before securing the agreed consideration therefor. We have already conceded that it is legitimatiB to borrow money and to secure the repayment of it with a compensation for the use of it. But tliat is when it is done in such way as to put the burden upon every share of stock sdike, and to enable every share of stock to be relieved therefrom alike ; in' such way as to preserve the equality of right and privilege and value of the shares, and maintain intact the contract thereto with the stockholders. " We are, therefore, of the opinion that there was no power in the corporate body, nor in a majority of the stockholders, to provide by by4aw for the malaon of a preferred stock, so as to bind a minority of the stockholders not assenting thereto.'' In what has been stated a most important principle has been referred to^ which, it is beUered, is controlling upon the question at hand. This principle to which reference is here made is Hiat the charter proceeds frona the State, and that nothing can be legally done by the corporation acting through its stockholders not au- thorized either by statute or by the charter itself. Thus it is clear Uiat in these States where the statutory right to issue pre- ferred stock is not granted and the charter itself (mly proyides for common stock, no preferred stock can be legally issued by the stockholders as against the State, except by amending the charter itself* This, too, even where the stockholders consent.^ This question is likely to be presented in a troublesome form where cmnmon stock has been pledged to creditors before the pre- ferred stock was issued. 2 From a careful examination of the authorities it may be said 1 Knoxrilk, etc. Co. v. City of Knox- • See generally Lockhart v. Ytin Als- ?ille,98 'tan. 1; 87& W.888. tyao^Sl MielkTft; MflGs^gor9.Iiiianui60 A A CHAP, I.] DRAFTING THE CHARTER. §26 that in order to constitute an issue of preferred stock valid as against all the world, there must be a statute authorizing it, or provision therefor inserted in the charter. To make the issue valid as against all but the State, the consent of all of tlie holdera of common stock to the issuance of preferred stock is, doubtless, all that is necessary It is hardly necessary to add, in addition to the foregoing, that the total amount of common stock added to the ' preferred stock so issued must not m any case exceed the total authorized capital stock of the corporation. The rights of holders of preferred stock depend upon the terms of the statute or of the charter or by-law authorizing it.^ Ordi- narily the power to authorize the issuance of preferred stock vests in the stockholders and not in the directors.^ Where a portion of the stock of the corporaticm is issued as preferred, no creditor of the corporation can object, provided the money paid for the stock reaches the treasury of the corporation, and the dividends on the stock are not to be paid except out of net profits.* Unless the statute provides otherwise, preferred stockholders may be deprived of the right which they wwM otherwise have, to vote their stock in the same manner as com- mon stockholders.^ This is commonly done either by charter pro- vision or by a by-law adopted before any preferred stock is issued. Preferred stock cannot be lawfully issued with the provision that it shall bear interest absolutely In order to make pr^Mrred stock a lieu upon the corporate assets statutory authority is neoessary.^ Co^S8K.J.Eq.l81;Higgiiwt;.Lan8ingli, By. Co., 4 K. & J. 1 ; 27 L. J. Ch. 1; 154 m. aOl ; 40 N. E. 362 ; Covington, Corry v. Londonderry, etc. Co., 29 Beav. ete. Co. V. Sargent, 1 Cinn. Sup. Ct. 272; 3 L. J. Ch. 290; Coates v. Notting- 854 ; Elevator Co. v. Memphis, etc. Co., ham Water Works Co., 30 Beav. 86. 85 Tenn. 703; 5 S. W. 52; March v. i Higgins v, Lanaingh, 154 lU. 801; Eastern R. R. Co., 43 N. H. 515 ; Batei 40 N. E. 3C2. V. Androwoggln, etc R. R. Co., 49 Me. « Scott o. a*0. B. B.CA,tSlfd. 491 ; Pkooty v. Mich., etc. R. R. Co., 75 ; 49 Atl. 327. 1 Hun, 655; Kent v. Quicksilver Min. » See Coit v. Freed, 15 Utah, 426 j 49 Co., 12 Hun, 53 ; Jones v. Terre Haute, etc. Pac. 533. Co., 57 N. Y. 196; Hoyt v. Quicksilver * First Nat. Bank of Peoria v. Peoria Mining Co., 78 N. Y. 159; 8. 0. 9 Week. Watch Ca, 191 Dll. ISS; SO N. B. 8S9. Digest, 187, aff'g 17 Hun, l«9; Cnnjv. • Lockhart v. Van Aktyae, 31 Mich. Scott, 54 Pa. St. 270 ; Sturges v. E. Un. 76 ; MaektntOBh v. Company, 32 Fed.a60j By. Co., 7 De Gex, M. & G. 158 ; Matthews Miller v. Ratterman, 47 O. St. 141. V. Gt. Northern R. R. Co., 28 L. J. Ch. 375 ; « Winscott v, Investmeat Co., 63 Mo. Green's Brice Ultra Vires, 145 ; Hutton Ap. 367. V. Scarborough Hotel Co., 2 Drew & Sim. Continental Troat Co. «. ToMo, Cte. 514; Hook v. Qt. Weatem By. Ca, 3 By. Co., 72 Fed. 9S. L. B. Ch. Ml; HMiy v. Gt Northm § 28 mOOBFOEATION AND OBOAHIZATION Of €N»P0EAn01l& [PAST I. § 27. Powwr to dttmniB Hbm Oofponito Pmpoa ti. — In the earljr days the right of amendment, when the same related to altering the original purposes of corporations, was jealously guarded and limited both by statute and bj judicial construction. In later years there has been eTUOiGed greater liberality in this regard, as evidenced by graniaag to corpcMralionB nnlimited power gi amend* ment.^ The only real difficulty in this connection arises when an attempt is made to so completely change the original purposes for which a corporation was formed as in effect to create a new ecnrporation. Under the Pennsylvania Incorporation Act gov- erning amendments, it was h^d that this coold not be done.^ The presmit attiMIe of the courts on iliis snbjeet is well shown by a recent New Jersey decision, — that of Meredith v. New Jersey Zinc & Iron Company.^ In this case the right of amendment, even when producing fundamental changes in the corporate pur- poses, was soslained.* It appears clear that mid^ the liberal power of amiNidment existing to-day in the majority* of the States, any changes may be made, no matter how fundamental, by the consent of all the stockholders. And where the matter is simply one between the corporation and the State, the right to make such an amendment cannot, in ^ States referred to, be qo es t kmed wh^ adopted by the requisite number of stockholders. § 28. Power to change Number of Directors. — Only in those States where the number of directors is required to be fixed in the articles, is it necessary to have statutory authority to change the same. In oth«r States the matter of amendm^t may be regulated by the by-laws. HowcTer, in the larger number of the Commonwealths, the power to amend the articles with reference to changing the number of directors is required to be based upon express statutory authority so to do.^ 1 See Ftet IIL, Table 8, page 578. elH; S8 H. W. 113; Stickle v. Liberty « Jn re Pennsylvania Bottling Co., 19 Cycle Mfg. Co. (N.J. Eq.), 32 Atl. 708; Pennsylvania County Court Reports, 593. Banet v. Company, 13 111. 504; Boss v. See also State v. Tajlor, 53 Iowa, 759 ; 6 Company, 77 111. 134 ; Pac. Ry. Co. v. Ren- N. W. 39. shaw, 18 Mo. 210 ; Ashton v. Burbank, 2 > Meredith v. Company, 59 N. J. Eq. DilL (U. S.) 435; Del By. Co. v. Thorp, 1 2S7; 44 AH. SS. See alto tee. 112, jml, HBfit(Del),149; M.B.B7.Co.«.8iiIlivaB, * See also Grand Birer College v. Rob- 37 Ga. 240 ; Com. v. Cullen, 13 Pa. St. 133. ertson, 67 Mo. App. 329 ; Mercantile State- ^ See Part III. Table 16, page 586 ; also ment Co. v. Kneal, 51 Minn. 263 ; 53 N. W. see Matter of GriflBng Iron Co., 63 N. J. 632 ; Bowie v. Grand Lodge, 99 Cal. 392 ; Law, 168; 41 Atl. 9311 ; 63 N. J. Law, 84 Pac. 103 ; Day v. Company, 75 la. 357 ; 46 Atl. 1097. 46 CHAP. I J DRAFTING THE CHARTER, §30 § 29. The Power to change the Corporate Domicile and Principal VlMom of BiwbMM. — As will hereafter be seen, it is essential to corporate existence that the corporation should have a home.i It is the naming of the domiciliary office in the articles which fixes the residence of the corporation for jurisdictional purposes, and fixes the usual place for holding stockholders' and directors' meet- ings. If it is desired to change the domicile, or if the location of the corporation's principal place of business is to be transferred from one place to another, an amendment to the articles must be had under legislative sanction .2 It should, however, be noted in this connection, that the corporation's domicile and its princi- pal place of business are not necessarily one and the same thing.* Again, if , as is the case in some States, the name of the agent - upon whom process upon the corporation may be served, is re- . quired to be set forth in the articled, in order to lawfully sohsti- tute a new agent, an amendment to the articles is necessary, made pursuant to statutory authority given in the premises.* § 80. Fowwr ta mo^pm aaA oBftim a Ltoa upon Stock to se- onre the Paymoat of Debt* Dm tiM Ccwpiiiatlon. — In a large number of the States statutes exist expressly granting to eovr porations the right to enforce a lien upon the stock of its members for the purpose of securing the payment of debts due from such members to the corporation.* The courts are not by any means in entire agre^n^t as to whether statutory authority to enforce such a lien is essential to its validity. Some courts, of excellent repute, maintain the affiron- ative, and others take the opposite view.^ It seems fairly certain that at common law such a right did not exist J The true view appears to be that while at common law a cor- poration had no lien on the shares of its <»pital stock for the debts due it from the stockholders, nevertheless such a lien may be acquired either when given by statute or when such right is 1 See post, sec. 54. • See Part HI. TaMe 9, page 57». a See Stickle v. Liberty Cycle Mfg. « Coitdlo ». Gompany, 69 N. H. 405, a Co. (N. J. Bq.). «8 AtL 76S; KemMtt AU. 640; Young v. Vough, 23 N. J. Eq. V. Company, 68 K. H. 432; 39 Ati. 685 ; 8^5; Moore v. Bank, 52 Mo. 377 ; In re Harris y\McGregor, 29 Cal. 124. Klaus, 67 Wis. 401 ; 29 N.W 582 ; Farm- 8 Van Etten v. Eaton, 19 Mich. 187; era', etc. Bank, v. Wasson, 48 la. 336; McConuell ». Company (Mont.), 74 Pac. Cont. T. R. Co. v. Toledo, etc. Ry. Co., 72 194. 92. * See Johnaon ». Haaon Lodge, 21 Ky. » Brinkerbofl, etcCo.». Osnmr,118 LawBcp. 498; &ia W.6Sa Ma 447; M&W.129. 47 §dl IMCOBPOaAIIOM AND OBOANIZAUON OF COBPORAHONS. [PABT I. preserred by inserting provisions therefor in the Articles of Incor- poration, or by the passage of a ralid by-law, or by inserting a provision therefor in the stock certificates.^ § 31. Power to levy Assessments against the Stockholden with the Right to forfeit their Stock for Non-payment thereof. — With some few exceptions the right to forfeit stock for non-payment of valid assessments levied against it is preserved by statute in most df the States and Territories.* Even in the absence of snch statute the right to forfeit stock for non-payment of valid assessments when given to the corporation by its by-laws will probably be enforced by the courts. In any event the common law remedy would exist, giving the corporation the right to recover judgment against the delinquent stocklu^ers for the amount of such assessments.' In all cases the right to forfeit stock is considered to be merely a cumulative remedy.* The right to levy assessments upon stockholders does not exist after payment by such stockholders for their stock in full, unless the power to do so is conferred either by statute, by Hie articles of incorporation, or by the unani- mous consent of all the stockholders.^ But even in the absence ' of express power to declare a forfeiture of stock for non-payment, a corporation may sue for amount of subscription to the capital stock, and on failure to collect the amount subscribed may secure payment by sale of stock subscribed.^ On the general subject of assessments the followhig may be said : provisions for the forfeiture of capital stock for the non-payment of assessments must be just and reasonable in order to be valid.^ The terms of the statute in any event must be strictly complied with.^ The power to levy assessments rests in the durectors by virtue of thehr office and not in the stockholders.* Even where 1 Union Bank v. Laird, 2 Wheaton Neb. 642 ; 79 N. W. 560; Duluth Club v. - (U. S.), 390; St. Louis Per. Ins. Co. v. McDonald, 74 Minn. 254; 76 N. W. 1128; GoodfeUow, 9 Mo. 149; Van Siuid* v. BUnlc, Slate v, Aaiociation, S8 N. J. Law, 195 ; S8 Cobb. 144; Saigrat v. Inmnraace Co., SaUiraa Ca Clnb v. Butleri S6 N. T. 25 Mass. 90. See also Atchison Bank v. Miscellaneous Reports, 306 ; Mayberry v. Durfee, 118 Mo. 431 ; 24 S. W. 133 ; V. G. Meade, 80 Me. 27 ; 12 Atl. 635 ; Price's B. Co. V. Bloede, 84 Md. 129 ; 34 Atl. 1127 ; Appeal, 106 Pa. St. 421 ; Weeks ». Corn- Bishop V. Globe Co., 135 Mass. 132. pi^iy, 55 N. Y. Sup. Ct. 1. * See PUrt III. Table 17, page 587. • Chase v. Company, 5 Lea (Tenn.),416i * Saa Joaquin «. Beeeher, 101 CaL 70; ' Critsej p. Cooke, 67 Kaa. SO ; 73 FUe. SSFm.849. 541. « M. F. a N. Co. V.Hall, 121 MaM.97S; » P. G. T. B. Co. «. GaliMB, 11 Mel- Raymond V. Caton, 24 III. 123 ; LeMepi 9, calf, 1. Architects' Co., 4 La. Ann. 3 1 6. * Chouteau Ins. Co. v. Fkjd, 74 Mo. 2S& * Enterprise Ditch Co. v. Moffitt, 58 48 CHAP. I.] ])SAffni provided the transaction whereby the stock is to be issued in exdumge for such property or services is made in good faith and no fraud is perpetrated upon stockholders or creditors.*. The statute to prohibit absolutely the payment of subscriptions to the capital stock in property or services must be clearly re- strictive in character.^ The only effect apparently of the absence in particular CkMomonwealths of any provision, otmstitutiional <»r statutory, authorizing the payment of stock in property ojr ser- vices, is to induce the courts to adopt what is known as the " true value rule"^ rather than the "good faith rule."^ But in the Ck>mmonwealths referred to, the character of the property, labor, or services accepted in exdiange for stock must be strictly such as the corporation imder its charter has the power to ac- quire, and when property is so taken it must be fairly represented to the corporation and for a just, lawful, and needed equivalent for the money subscribed.^ 1 See Part m. Table 10, page 580. Smith, 30 N. Y. 116 ; Shannon v Steveii- 2 See Alabama SessioA I«ir% 1903, p. son, 173 Pa. St. 419 ; 34 Atl. 218. 395, sec. 7, subdiv. c. ^ See Knox v. Company, 86 Ala. 180 ; 5 ' See Session Laws of Virginia, 1903, So. 578. dnpu 270. * See post, see. 104. ^UM»v.Kmtif,nUa,n;3mikw. ^ See pott, mc. 105. •iMke*. Knapp^TS M0.SS; Powtta 50 CHAP. I.] DRAFTING THE GHABTEB* §a5 § 35. Power to dispose of CogpomOm AMeti m wn Bsfeiiely.^ In ten of the Commimwealths express power is conferred npoa corporations to dispose of ilieir entire corporate assets by obtain- ing the consent of a certain percentage of the stockholders to such disposition.^ Much controversy has arisen as to whether or not express statutory power is necessary in order to authorise transfer by a corporation ol the entire corporate assets. At commoa law neitlier the directors nor a majority of the stockholders had power to sell or otherwise transfer all of the property of an acting and prosperous corporation able to achieve the objects of its creation as against the dissent of a single stockholder.^ The view is taken by the New Jersey court in Color 1^ Com- pany* that the sale of the corporate assets as an entirety is eqniy- alent to a dissolution, and therefore can only be done through the courts under statutory authority. Many courts, however, take ' the view that it can be done where it is not in fraud of the rights of creditors or in yiolation of charter or statutory iestri<^n8» and this, too, by a majority of the stockhdders against Hie dis- sent of a minority where the oxigencies of the business seem to require it.* Thus, it has been asserted that " it is a well settled rule that a strictly private corporation has the same right to dis- pose of its property that an individual has, and that when insol- vent or in a failing condition, it may s^ all thereof without the consent of all of ihe. stockholders. It is the general rule, however, that neither the directors nor a majority of the stockholders of a corporation have power at common law to sell or otherwise transfer all its property while the corporation is a going, pro^erons concern against the dissent <^ any share- holder.*' » It may be added in this connection that the right to exist as a V. Mvnniy, 3 N. T. App, Dir. S7S; 88 Co. v. M. O. P. Co., 89 IM. 5S9; MefeoOl N. Y. Sup. 233; Id. 157 N. Y 717; 53 v. A. S. F. Co., 122 Fed. 115; Tnm 9. N. E. 1130 ; Kimball v. Company, 69 N. H. Company (la.), 99 N. W. 290. 485; 45 Atl. 253; Montgomery v. Com- » 64 N. J. Eq. 117 ; 53 Atl. 680. pany, 48 N. Y. App. Div. 12; 62 N. Y. * Treadwell y. Company, 7 Gray (Mass.), Sup. 606; Id. 168 N. Y. 657; 61 N. £. 393; Martin v. Zellerbach. 38 CaL 300; 1131. Mineis' IKteh Co. v. ZellerbMl^ 87 CaL 1 See Fvt m. Table % page 379. 548 ; Feathenfeonhiiiigh v.Coaipaiij, L. R. ^ Forrester v. Company, 21 Mont. 544; 1 Eq. 318; Bartholomew «. Coa^Mgr. ft 55 Pae. 229 ; Idem, 74 Pac. 1088 ; People Conn. 521 ; 38 Atl. 45. V. Ballard, 134 N. Y. 269 ; 32 N. E. 54 ; 6 Xraer V. Company (la.), 99 K, W. California Bank v. Kennedy, 167 U. S. 290. 862 ; 4SL.E. 198;B.&M.C. C.&S. M. 51 §86 INCOBPOIUIION IW OBGANIZAXION OF COfiPOBilXlONS. [PART I. eorpomtion is not alienable.^ The sale of all the corporate prop« erty does not operate to disstdye the eprporation.^ § 36. Power to ToliiBtarlly dissolve tbe Corporatioii witbout Recourse to the Courts. — The dissolution of a corporation is a peculiar function that rests primarily in the legislature, and is conferred npon courts or upon the corporation itself, only by explidt legislatiTB autliority.^ Stockholders, in the absence ol statutory provision, cannot extinguish^ the corporate charter or dissolve the corporation, nor can a court of equity accomplish a similar result at their instance.* In all the States some provision is made for dissolution of corporations. For example, in Alabama, Connecticut, New Jersey, North Carolina, Virginia, and West Yirginia the ineiMrponitOrs have the right to surrender the chmrter before organization. In twenty-seven of the Commonwealths corporations may be dissolved under statutory authority without recourse to the courts.^ The doctrine that dissoluti 99 GaL Laagckm, 84 Ffdu 49. 459. See also Daviij;.Craipai^, 87 .Allk 6 Sou. 140. $2 CHAF. L] PBAFTIN6 THE CHABTES, alone have |>ow«p to surrender the charter.^ It will be re- membered, of course, that the expiration of the time limited bj the charter as a corporation's term of existence is held in most jurisdictions to result in the dissolution of such a corporation.' But neither insolvency nor sale of all of the corporate property, nor cessation of business operates to dissolve the corporation.^ But in the absence of any provision in tlie charter limiting cor- porate existence, the corporation is entitled to perpetual Ml^* K the articles provide for a longer period of corporate existence than the law allows, the excess is void.^ In many of the States statutes exist providing that the corporation shall continue in existence for periods ranging from three to five years after the expiration of the time limited for its existence for the purpose of windmg up its affairs.^ A majority of the States delegate to the courts the power to dissolve the corporation on application of stockholders or credi- torsJ The fact that certain States make the directors trustees for creditors on dissolution does not necessarily take away the jurisdiction of courts of equity to appoint a receiver • Many States have statutes providing that upon the expiration of the time limited by their charter as the duration of their corporate exist- ence, they shall nevertheless be continued for a certain period of time in order to permit of the winding up of the coiporalo affairs. Without such statutory provisions suite cannot bo mamtained against the corporation after such period has expired.* § 37. Power to insert in the Charter Provisions for the Regula- tion of the Internal Affairs of the Corporation, — The incorpora- tion acte of eighteen of the States contain provisions relative to the contents of certificates of incorporation, authorisuig the insertion therein of provisions for the regulation of the business of the corporation, or for the purpose of defining or limiting the powers of the corporation, its officers, directors, and stockholders.^^^ 1 Jones V. Bank, 10 Col. 464; 17 Pac. also Foster v. Bank, 16 Mass. 245; Nash- 272 ; Barton y. Association, 114 Ind. 226 ; ville Bank u. Petway, 3 Hum. (Teun.) 522. 16 N. E. 486. 'See Miner v. Company, 93 Midi. 97 ; « Mason v. Company, 25 Fed. 882. SS N. W. 918 ; Wheeier Oompuij, 14S Davis V. C6mpaay,87 iOa. 88S ; S So. lU. 197 ; 32 N. E. 420. 140. » City Pottsiy Ca «. TatM, 37 N. X * F. L. S. Co. V. Clowes, 3 N. Y. 470. Eq. 543. 6 People V, Cheeseman, 7 Col. 376; 3 » Nelson »>. Hubbard, 96 Ala. 238; U Pac. 716. Sou. 428. 6 See Part m. Table ,17, page 587 ; see See Ptet m. TMd 10, page 5Sa 53 { 87 mCOBPOSATION AND OBOANIZATiaM OF 00BF0BATI0N8. [PABT I. TJnlesB the law expressly permits the insertion of such provisions ill the certificate of incorporation, State officials are justified in refusing to accept and file certificates containing such provisions. This generally on the ground that in the absence of statutory proTiaioii so anthoriang, they are properly the subject of by-laws and not proper for insertimi in Hie certificate of incorporation.^ Leaving out of consideration the fact of acceptance by State officials, and approval by them of certificates of incorporation containing such provisions as ai*e here referred to, when there is no statute aiithoriamig the same, ^ following may be said: The general teat as to wheHier proTistons not called for by the statutes are valid when inserted in certificates of incorporation must be determined from their character. If they are not powers, but are merely in the nature of by-laws, they are invalid as not being called for by the statute. If they are powers, but not authorized by statute, to permit su^ inserticm in the certificate of incorpora- ti The act pro?idei that any stockholder in any corporation e(m- solidating, who at the time of such consolidation objects thereto in writing, may, within ten days after the agreement of consolida- tion has been filed for record in the office of the Secretary of State, donand in writing from the consolidated corporation pay- nient of his stock; and siMsh ccnrpormtion shall witiun three months thereafter pay him the value of his stock at the date of 1 State V. McCnllongh, 3 Nev. 202. 428 ; Law v. Rich, 47 W. Ya. 634 ; 35 S. £. 2 See Part III. Table 14, page 584. 858. s Mamma v. Company, 8 Fet. U. S. ^ Sec. 79, chap. 194, of the Session iSf; Taylor v.HfliaBfli, 14 Fed. Bep. 498; Lswiof 190S. 58 GHAP. L] nBAFTINO TBB CHABTEB. §4T sueh consolidation. In case of disagreement as to the value thereof, such value shall he ascerteined by liiree disintmsted persons, to be chosen, one by the stockholder, one by the directors of the consolidated corporation, and the third by the two thus selected; and in case their award is not paid within thirty days from this date it shall become a debt of said consolidated corpora- tion and may be collected as such. Upon receiving pajment of the amount awarded, such stockholder shall transfer his stock to the consolidated corporation, which shall dispose of it on the best terms attainable.^ § 47. InMmMk Fowm, Pdliiltioa aiiA BmmMratioii oC — An incidental power is one that is directly necessary or proper to the execution of an express power, and not one that has a slight or remote relation to it.^ The term expresses those powers which flow necessarily out of the exercise of the express powers con- ferred by statute or by charter.^ The exercise of a power that might be beneficial to the prin- cipal business of the corporation is not necessarily incident to it.* The principal incidental powers may be enumerated as follows : (1) power to make contracts ; (2) power to borrow money ; (3) power to give and accept customary evidences of debt ; (4) power to mortgage or pledge real and personal property ; (5) pow«r of amotion. The implied powers which a corporation has in order to carry into effect those expressly granted, and to accomplish the pur- poses of ite creation, are not limited to such as are indispensable for tiiese purposes, but comprise all that are necessary in the sense of appropriate, convenient, and suiteble, including the right of reasonable choice of means to be employed. Acts of a cor- poration which if standing alone or engaged in as a business would be beyond ite implied powers, are not necessarily ultra vires when they are inddentol to or form part of an entire transaction which in its general scope, is within the corporate purpose. The validity of such a transaction is to be determined from ite general 1 See Lanman v. Company, 30 Pa. St. 798 ; People ». CJompany, 175 lU. 125 ; 51 42 ; Mowrey v. Company, 17 Fed. Cm. N. B. SSi. No. 9891; 4 BimOl, 78; HUaborg, etc. » SeeU. M. Co. v. Bank, 2 Col. 248; By.Go.9.G«TCtt,5eO.Sl.405;S4N.B. WriglHi^. Ha«h«i, 119 ImtSM; S11I.B. 493. 907. 2 Hood V. Company, 42 Conn. 112; * Nicollet Nat. Bank v. Company, 71 People V, Company, 130 lU. 268 ; 22 N. E. Minn. 413 ; 74 N. W. 160. 59 § 52 INCOBPOBATION AND 0B6AKIZATI0N OF COEFOBATIONS. [PAB!F t character considered as a whole rather than bj segregation into individttal parts and each regarded as distinct from the other.^ § 48. Power to make Contraota. — A corporation is a creature of law, and may do any act or thing under contract the same as natural persons might do, subject to the rights conferred on it by the law of its creation or by its charter.^ Where chartered in one State for any purpose, it may lawfully make a contract in furtherance of that purpose in any other State where not pro* hibited by the laws thereof.' § 49. Power to borrow Money. — The power to borrow money in carrying out the purposes of the corporation's organization is one of the incidental corporate powers.^ In this connection it may be said that the power to borrow money has been held to imply the, power to issue bonds.^ However that may be, in addi- tion to an enumeration in the statute of the power to borrow money, a majority of the business corporation acts expressly confer the right upon corporations to issue bonds.^ § 50. Power to sftve ma aooepfc OwHtomMj Bvideaoee of Debt ^ This inddental power includes the right of corporations to make notes or biBs of exchange, to accept drafts and notes, and to draw checks. 7 I 51. Power to mortgage and pledge Real and Personal Property — Every oorporation has the incidental power to mortgage and pledge its real and perscmal property in order to procure and secure necessary loans to be made to the corporation.^ It is sometimes said that a corporation has power to pledge both its issued and unissued shares.^ § 62. Power of Amotion. — The power of amotion has refer* ence to the removal of offioers and directors. The term ^ dis* 1 C. O. N. 6. F. Co. V, Company, <0 • See Fart IH Ttf»]e 14, p. 584. Ohio, 96; 53 N. E. 711; Foiltr«.Ceai|iaiiy ^ Mom v. AyenO, ION. T. 449 ; Lneas (Mont.), 74 Pac. 938. v. Pitney, 27 N. J. Law, 221 ; Smead ». * Hand w. Company, 143 Pa, St. 408; Company, 11 Ind. 104; Strauss v. Com- 22 Atl. 709 ; People v. Company, 70 N. Y. pany, 52 0. St. 59; Morris v. Cheney, 51 569 ; MacGinniss v. Company (Mont.), 75 III. 451. Pm. 8t. * State 9. Company, 61 Kan. 547 ; GO * Ban V. Conpaaj, 91 Ala^ 868 ; § Pac 837 ; Fanaen* Bank v. Company, Son. 348. 108 Ey. 447 ; 56 S. W. 719 ; SaviagiTraet * See Ward v. Johnson, 95 111. 215; Co. v. Company, 112 Fed. 693. Wright». Hughes, 119 Ind. 324 ; 21 N.E. » See U. Savings Ass'n v. Seligman, •W. 92 Mo. 635 ; 15 S. W. 630 ; Burgess i>. * CoBMae a wee l tlt v. Smith, 10 AOea Seligman, 107 U. S. 20; 2 S. Ct. 10. (MiM.), 448 r Snitii a. Law, 81 N. T. 198. 60 CHAP. I.] nftAFTIKO THB CBABf SB* §5a franchisement " has reference solely to the deprivation of the right to vote as against stockholders.^ The right is delegated by statute to the stockholders in fifteen of the Commonwealths.^ In the absence of such statute there is no power in the stockholders to remoYe directors before the expiration of their allotted terms, except for cause, provided such terms are Exed by statute.* It seems to 'have been the rule of the common law .that every corporation had an implied power to remove directors for cause when their terms of office were not prescribed by statute.* In New York it has been held that the power to remove directors may be covered by by-law.* The main grounds which justify amotion where no statute exists limiting the same, are the conviction of crime on the part of directors, misconduct in office, and violation of statutory provi- sions.* If the charter or statute provides steps which must be taken to remove directors, such statute must be strictly foUowedJ In the exercise of this power the stockholders meet, charges must be preferred, and the director removed by a majority vote.« Equity will not interfere in such matters in the absence of usurpsr Hon or gross ne^igence.^ § 58. The Modm Dootitw of mtra Vlraa. — To define in a general way the ancient doctrine of vUra vireM is to say tliat a contract of a corporation which is unauthorized by or in violatimi of its charter, or entirely outside of the scope of the express purposes of its creation or beyond the powers granted to it by the charter or by statute, is void in the sense of being no contract at all, because of a total want of power to enter into it; that such contract will not be enforced by any species of action in a court of justice ; that being void ab initio, it cannot be made good by ratification or by any succession of renewals, and that no perform- ance on either side can give validity to the unlawful contract, or form a foundation of any right of action upon it.^ I Wlifte Biwraen, 4 Abb. P*. ». 8. • Rex v. Taylor, 3 Salk. 231 ; R. E. G. 152. V. Smith, 10 Wood, 74 ; DeLacey v. Corn- s' See Part III. Table 9, page "579. pany. 1 Hawks (N. C), 274; Purdj v, 8 Nathaa w. Tompkiiw, 82 Ala. 437; Ass'n (Mo. Ap.), 74 S. W. 486. 2 So. 747. • Baker v. Backus, 83 DL 79; Ptekw. 4 Fawcette v. Charles, 13 Wend.47S. Grant LocomotiTe Wr any other persons can be allowed to evade or disregard." In a later case, when sitting on the United States Supreme Court bench, the same judge ob- served : ^ " The reason a corporation is not liable on a contract ultra vir€9 are the interests of the public that the corporation shall not transcend the powers granted ; the interests of the sto^holders that the capital stock shall not be subjected to the risk of enterprises not contemplated by the charter, and therefore not authorized by the stockholders in subscribing for the stock ; the obligation of every one entering into a contract with a corpora- tion to take notice €i the 1^^ limits of its powers." Taming now to this statement, attention should be called to those reasons which have aided a great majority of the courts in evolving a new doctrine of ultra vires better suited to the condi- tions of the present time. In the first place, except in the eme of what is known as " qnan^^ohKofiivate corporations,-' the tmttm B. O. L. Ga V. OsMj, 151 N. Y. « Biefaardson v. Sibley, 11 AUen, 65. Si; 4ft N. B. StO. • Ffttebrntgh. etc Co. ». K«oknk, etc 1 See Heunesey v. Muhleman, 40 H. T.- MOgp Oft, ISl U. & 17 ; 9 & Ct 77a Ai». DiT. 175 ; 57 N. Y. S. 854. 62 CHAP. I.] nSAFTIMO THE CfiARTEa. §53 public has no diredi interest whatCTcr in the nature of the powers vested in them. Corporations are no longer created by special act, except in a few cases, and it would be a poor rule which would require a stranger to take notice of the contents of char- ters not public and difficult to obtain. In modern times the placing in articles of incorporatimi of a lai^ number of purposes, in some cases giving the corporation almost unlimited scope along business lines, has practically removed the objections spoken of above, to the effect that capital shall not be subjected to the risk of enterprises not contemplated by the charter. " Turning now to the changes already referred to, as having taken place in the doctrine of uUra vires^ they may be stated m the form of the following propositions : (1) " The claim that a con- tract is void, because under the charter beyond the power of a corporation is seldom recognized as a defence to an agreement otherwise objectionable, and never where it would defeat the ends of justice or become a shield against wrong ; " ^ (2) the doctrine of ultra vires is not usually applied where the party setting it up has received a benefit from the unlawful act relied upon as a defence (3) where the most tliat can be said of a corporate act is that it is an abuse of power, the State alone can act ;^ (4) the doctrine that persons dealing with corporations are bound to take notice of their power is now practically done • away with by the application of the doctrine of estoppel in the case of completed contracts. Again, it should be carefully noted that by the fullest applica- tion of the doctrine of estoppel where attempts have been made to set aside centrists on the ground that they were ultra vire$ of the corporate powers, the courts have practically revolutioniied the doctrine as it once existed in this country. The doctrine of es- toppel here referred to is of the character referred to by Lord Denman in Pickard v, Sears,^ where he says that where one by his words or conduct wilfully causes another to believe in the ex- istence of a certain state of things, and induces him to act on ^al belief so as to alter his own previous position, the former is pre- cluded from averring against the latter a different state of things as existing at the same time. By an extended applioation of the 1 Int. Trust Co. v. Company, 70 N. H. » Bector v. Hartford Deposit Co., 190 118; 46 Atl. 1054; B. B. Y. O. Co. v, I1LS80; 60 N. £.528. Banley^lSlTteh', 506 ; 50FR.St.6ll. « 6 Ad.4SL4ii. > Norton v. Bank, 61 N.H.SSS{ Swih 9. Battle, 7S N. H. 4. , § 58 mooBPOBATioir Jam <»oaiiization of ooepobaiions. [pabt t doctrine laid down by Lend Denman, the courts hold that where there has been no express violation of the law the corporation is estopped by its own contract or conduct from setting up, as a de- fence to an action to enforce such contract, that it was not in the power of the eorporatba to make it. So too the courts hold that where a private corporation ^ters into a ccmtract in excess al its granted powers and has received the benefits of the contract which the other, parties acted upon, the corporation is estopped to repudiate the contract on the ground that it was ultra vires. Repeatedly the courts have held that where, a contract with a corporation — the making of which is beyond its chartered powers — has been fully executed by both parties to the contract, neither of them can assert its invalidity as a cause of action as against the other. Again, it may be stated that where a corporation has acted in excess of its granted powers or in the face of express or implied statutory prohibition it is dear that there can be no objection raised on that ground between it and a private party, for this can only be raised by the State in a direct proceeding to forfeit the franchises of the corporation.^ Again, it may be stated that the doctrine of estoppel, as well as the doctrines of ratification and confirmation by aeqmesoeoce, apply under modem rules to ultra vireM oontracti.' An Ohio court has divided unauthorized acts of a corporation into two classes : (1) where it has no power to do what it promises or to receive what is promised ; (2) where it has no power to do what.it promises but may receive what is promised. In each class, it was said, if acticm is broof^t, one of tiiree states (rf fact will appear : (a) where it has performed its promise, but the other party has not ; (h) where the other party has performed, but it has not ; (c) where neither party has done all that was promised. In case 1 a the corporation cannot recover ; the contract has no existence. In case 2 a the corporation may recover for perfon&- anee if it has eliminated the uUra vires element and there is no want of mutuality. In cases 1 b and 2 b what remains to be done is nMra vires^ and neither party can recover. In cases 1 c and 1 UDion Nat. Bank v. Matthews, 98 Works Co., 44 Fed. 146 ; Linkanf v, Loo- U. 8. 621 ; PnllBUUi ». Upton, 96 U. asSS. bard, 137 N. T. 417 ; 83 N. £. 472 ; VhoB *■ See Water Works Co. v. Low, 46 N. T. v. School, 1 60 Mass. 177 ; 35 N. £. 776 ; Sup. 633 ; Woodruff v. Erie R. R. Co., 93 J. B. Farrell Company v. Wolf, 96 Wis. N. Y. 609 ; Miller v. Am. Mut. Acci. Ins. 10 ; 70 N. W. 289 ; Smith ». Bank o£ Uew Co., 92 Tenn. 167 ; Wood w. Corry Water England, 72 N. H. 4. 64 • CHAP. I.] wuifnra THE mixam. § ^ 2 c neither party can recover because the contract is vUra writ. Recovery cannot be helped by promises of the officers. Pure assertion of law cannot give rise to estoppel. Nor is recovery aided by Oie fact that a ecmsideration was conveyed to an indi- yidual as trustee for the ecHrporatkmA § 54. Corporate Domicile. —Corporations, like iiidmdfiala, iBiisI have a place of abode.^ As far back as Lord Coke's time a plaee of abode was held to be of the essence of a corporation Unless provided otherwise by statute, the rule at the present time is that eorporations to have any legal exigence muit have a home within the boundaries of the State which creates it. In the words of Justice McAdam in Kruse v. Dusenbury * ** A corporation cannot become a tramp. It must have a domicile — not in theory, but in fact — within the sovereignty which created it ... A corporation in the natore of things must have some office or place of business in the State where it was incorporated, so that creditors may know where to find it, that they may presoit and if necessary prosecute their just demands. The statute con- templates that such place of business shall exist not only in name, hut in fact; for, if the corporation has no place of business in the stote where it was incorporated, it does not affect the charter, but it cannot have branch offices elsewhere. Like a live tree, it cannot consist of branches only, but must take root in its native soil before it can extend its branches into other States." Most of the States have i^tutes expressly requiring the main- tenance of a domiciliary office wiiiiin tiie State of the corporation's origin, and failure to comply with Ihis requirement renders tiie charter of such corporation liable to forfeiture upon proper action taken by the State.^ Thus in Minnesota a charter was forfeited for the failure on the part of the corporation to maintain a domiciliary office therein. In this case,6 the court observed, that independently of statote, it is incumbent upon a private corporation to keep its principal place of business, its books and records, and its principal offices in I Voi V. Association, 9 Bull. (Ohio) 194. Tex. 80 ; State v. Company, 45 Wis. 579 ; * In re Spring Valley Water Co., 17 Simmons r. Company, 113 N. C. 147 ; 18 (jjl. 132. S. E. 117; State r. Company, 58 Minn. « See Sutton's Hospital Cases, 5 Coke's 330 ; 59 N. W. 1048 ; State ». Company, Rep.253. 69 Kan. 141 ; H Pm. 4t2. * 19 Wk. Di. pointed agents to represent Hie stockholders in the managsmeiit ol the company. These agents are generally known as a board of directors, or less commonly as a board of trustees. Twenty of the States, require the names of the first board of directors to be inserted in the eertifieate ineorpmtion, while of the re- mainder nine reqnire merely the nnraber <^ direetim to he stated therein. Twenty-two of the States preseribe residen- tial requirements for directors, while others require that all directors shall be stockholders. The number of directors required by the Tarioos business ecnrporation acts vary from an unlimited maximum to a mii^miim of one.^ Where the statute requires the number of directors to he set forth in the articles, the incorporators cannot name a number less than the minimum required by law.^ The power to have and elect directors is inherent in every corporation, irrespec- tive df statatSL In faet, it is an essential featoze ol eorporste existence.* In the absence of express provision in the charter or by-laws the management of the business of the corporation is vested in the Board of Directors and not in the stockholders.^ Failure to p^^M dire^m in the artioles when the same is required by statute will justify State officials in refunng to ifo arti» cles.^ Merely providing for executive officers in the artioles is insufficient.^ The original directors named in the certifi- cate of incorporation under direction of the incorporation act are directors clothed with all the powm of the corporation, and may exercise the s«ne powers as elected by the stockholders.^ § 56. Capital stock. — Capital stock is the fund of money or other property fixed as the basis for conducting the business of the ecnrpoi«lioii^ and ciMitribi^ H jBMtiwiwritafa tq ths m i h 1 See Part HI. Table 14, page 584. » fiakwright ». Company, 13 Ind. 404; a /nre GermasiajEISIif80MUMi|ilS|i*«BB. In re Association, 19 Penn. Co. Ct. Itop> Co. Ct. Rep. 89. 25 » People ». Selfredge, 52 Cal. 331. » Terwilliger v. Company, 59 111. 249 ; • Batei v. WUbod, 14 CoL 140; 24 Heed v. Company, 50 Ind. 343 ; Harlbat v. Vwa. M. IfaahaU, 6211^ MO; SSN.W.8IS. ' BaaSlMi TnMt Oob v.ClMMMk liS « DMav.BMlk,5W.a&(Pa.)i«l S.T.48SS S7 V.B.S14. 67 § 56 IMCOSPOftATIOll AHD (»0AKa4TI0N OF CX>BFOBAfI01». [PAfiT L tal, and is usually lefHreseiited by shares issued to subscribers to the stock on the initiation of the enterprise.^ Capital stock from another aspect is the security for creditors of the corpora- tions, and entitles the owners thereof to participate in the man- agement of corporate business and share in its profits and in its surplus after payai^tof ccnrpc^rate debts.' Shares of stock, on ^ke other haiid, are simply the muniments and eyidence of the holder's title to a given share in the property and franchises of the corporation in which he is a member. ^ Frequently the words ^capital" and capital stock" are used interchangeably to express the proporfy and assets of the cmrporation. It is not altogelher dear whether express authority to issue shares oi capital stock is necessary, yet it has been repeatedly held that in order to increase or reduce the capital stock of a corporation, legislative authority is necessary. The prevail- ing Tiew seems to be in fa?or of the neeessilj of leg^lative absence of statutory charter requirements neither •ubscription for capital stock nor payment thereof is necessary to corporate existence.*^ If the charter of a corporation does not fix tlie amount of its capital stock , it must be fixed by the stock- lioldersy or, with their consent, by the directors.* Stodc can be issned only by direction of the corporation.' In many of the Commonwealths the minimum amount of capital stock which a corporation may have is fixed by statute. Very few of the States limit the maximum amount of capitaliza- tiiHEL* To determine the amount 6f capital stock that a corpora- tion has, preferred slaek mnst always be included herein.' It is ndl always anr easy questiim to determine who are and who 1 ChriateMHl 9. Xbo^ 106 liL T. 97 ; 12 Companj, 74 Texas, 421 ; .8 8. W. 101 ; N. E. 648. Stowe v. Flagg, 72 111. 397. * Janney o. Bank, 98 Ala. 515 ; 13 So. <^ So. K. Rj. Co. v. Cashing, 45 Me. 701. 5Si; Sfiifte'v. Bank, 95 Tenn. 221; 31 s ifeehaaici^ Buk n, Conpanj, IS S.W.M8. lf. T. 599. ^ H. D. P. AM*n V. Stevens, 34 Nelk. * Cooke V. Marshall, 191 Pa. St. 315; 528; 52 N. W. 568; Hendrix r. Academy 43 Atl. 314; 196 Pa. St. 200 ; 46 Atl. of Music, 73 Ga. 437; State t?. Company, 447 ; Detroit Chamber of Commerce 41 Ind. 151 ; Williams v. Hewitt, 47 Ia. V. Gardner, 109 Mich. 691^ 67 W. Ann. 1076 ; 17 So. 496. 807. • See Ftetm. Table 5, page 675. See * MdObAjp, CenqMnqr, 155 XImi. 1^ ; also Hngbes v. Cominiiy, 84 Md. 816. 10 B. S. SIO; MhMS |bk BmUl «. • 9Md e; C « if iiy , 10 a C. 584. 68 CHAP. L] DBAFTING THE CHARTER. §67 are not stockholders. The question must usually be determined hj the partitmlar facts of each case.^ Sometimes the incorporation act requires the articles to state the time when and the manner in whidb stoek shaU be p^d for. It is sufficient in this connection to say, for example, that the stock shall be paid for in cash, and that no certificate of stock shall issoe nutil such payment is made. 2 The statement may be broadened if desired by setting forth in the articles that the stock shall be paid for in property, at swA times and of such a character and with such notice to the subscribers as the directors shall deem for the best interests of the corporation.' Where the statute requires the amount of the capital stock to be stated, it has be^ held sufficient to simply state the number of shares and the par value of the same.^ § 57. Limitations upon Amount of Ciqpital BtCKdiB. — As haS already been observed, the great majority of the incorpora- tion acts provide that the amount of capital stock which the cqrporati(m is to have fiAaXl be fixed in the articles of incor- poration. This is the usual and often the only limitation on the amount of capital stock which any particular owprntimi is authorized to have. However, in fourteen of the Common- wealths the minimum capital stock of all corporations is fixed by statute, while in three of them the maximum capitalization is also prescribed.* In this connection the words of the court in Barry 9^ Ifer- chants Exchange Co.^ are peculiarly instructive. In that case Chancellor Sanford observed : " That the capital stock of a corporati. § M mooBPOBAnoN and oeganization of .cobpobations. [pabt I. functions after the expiration of its charter. Ordinarily thig is a matter which concerns the State alone. ^ Usder saoh oii^ ciim stance a^ in order to protoet thircl parties^ tiie oodtIb reoognize •ach eoiporaticms as eorpmitioiis de facto on the ground that there is clearly anthorily for their attempting to act as cor- porations. ^ Many courts of high authority have held that a corporation is dissolved and ceases to exist when its charter expires.^ In many States there are statutes permitting coipo- rMom to exist as sneh for oerlain purposes after the expiration of their chnrt^.^ The purpose of such statutes is to grant to the corporation time to close up its corporate affairs. It has been held that the object of such statutes is not to limit^"^ but to enlarge corporate privil^^es so that the ccnrpoiatiaii may contimie actiTC biMnneas throog^oat the idiole charier period.* § 68. Date of Annual Meeting. — In Alaska, Arizona, Dela- ware, Iowa, Minnesota, Nebraska, and Utah the corporation acts require that the date of the annual meeting of the oorpmtifm be inserted in the articles. Such proTisions aie to be regarded as directory nikm tim mandatory, and their legal effect is es- saitially the same as if snch provision was merely made in a valid by-law of the corporation. In Arkansas, Louisiana, and Tennessee the date of the organization meeting must appear in the certificate of incorporation.^ fiven when the statute requires that the directors shall be ebosffiu at the annual meeting, this has no reference to tiie election ot the first board at the organi- zation meeting. 7 § 64. Limitation upon Corporate Indebtedneie. — In the absence of constitutional or statutory provision, there aie no limita- tions imposed upon corporaMons witib respeet to tiie amount of indebtedness which ^y may incur.* The whole extent of cor- porate credit is measured and controlled by its capital. The laws of trade have placed more efficient barriers than the State » BnBlinell v. Oomifaay, 138 UL 67 ; S7 « Berwick v. Company, 39 Mich. 701. ^- ^- ^96- * Hughes V. Parker, 20 N. H. 58 ; « Miller i;. Company, 31 W. Va. 836 ; Beardsley ». Johosoo, 181 N. Y. 884 * 8* S 8. B. toe. N. E. 380. ' • BndUnr ». Bcppell, 188 Ma 545; f K A. M. Co. v. Moiing, 15 Gray 32 S. W. 645;8ti^pii«.y«BMil^9S (MkMi ),Sll. ' N. y. 384. 8 Barry v. CoMny, 1 StB. C3m. « See Part IIL TaUe 17, page 587. (N. Y.) 880^ 310. 74 • mUFXINO THE CSUkBTER. $66 leffislataies to the power of corporate borrowing. In Alaska, Arisona, Floridm lows, Miiiuesota, and Nebraska, the incor- poration acts require that the inaxiiinim amount of indebtedness which the corporation may incur shall be set forth m the aiiioles of incorporation. , , In twenty-two of the Commonwealths statutes, either expressly or by impUcation, prescribe the amount of indebtedness which corporations may incur.* . , v ^ j When the phrase " implied limitatioa upon ecwp<»«te indebtech ness " is used, reference is had to that not uncommon form of limitation where directors or stockholders are made liable for COTporate debts in case the corporate indebtedness exceeds a certain definite* amount^ § 65. Exemptioii of Stoottoldm towi Vmamtl UMmw. — While there is no common-law liability imposed upon stodc- holders for corporate debts, nevertheless parties may lawfully contract to any extent they see fit as to their own personal lia- bility for such indebtedness.' In order that stockholders may avoid personal liability for corporate debts it is necessary in Ariwma, Delaware, Iowa, Kentucky, Louisiana, Mississippi, Nebraska, and Utah, to insert provisions in the certificates of incorporation expressly exempting stockholders from sudi liability. of the States and Territories the ineorporatiim acts expreaslj provide for delegation of power to directors to make, alter, car repeal by-laws.* In many of the States in order that the coi^ pmtion may have this power it is necessary to insert provision therefor in the charts.* Unless the power to make, alter, or repeal by-laws is thus delegated to the board . nMiisMT Fed. firm. 28 S. W. 668 ; State v. Lee, 21 O. St. 662 ; U^M x,vmvmmj, . g^^^^^ ^ ^^,1,0^4^0^^ 35 Q. St. 483^ 70 §72 nfOOBPOBATTON AND OBGAmZATWMI OF COBPOBATIONS. [PABTI. incorporatore were personally known to him will not inyalidate the incorporation proceedings.^ Even where the statutes require the orgaDiiati^m meetiiigB to be held within the domioiliary State, it is not neeemry that the articlea be signed and acknowledged therein. > The omission of immaterial parts of the acknowledgment does not operate to render the incorporators liable as partners.* In order to entitle articles to be filed with the proper State official, they must be u^ied and aeknowledged in aU respects as reqniied bylaw.* f T2. MttMlioB of Arttoles. — In ten of the Commonwealths the law requires that either the petition for a charter or the charter itself or the substance thereof shall be pablished for a prescribed length of time-* The original tlieMy upon which such' reqnirementi are based ai^wars to have be^ «at the creation of a corporation slioald be attended with all possible publicity, in order that all the world might acquaint itself with the fact that it is dealing with a corporation and not with a natnral per- son. « At the present time the l^alnres seem to proceed on the basis of inmishii^p the newspapers wi^ additional paid BMtter on ite tiMmy that they need it in their business. Howem tiiat may be, it still remains true that the statutes governing publication of articles must be substantially com- plied with, otherwise the charter may ba declaml roid at the instance of the State.' Scmietimes doe pablica^cn of articles carries with it immu- nity ircnn personal Halnlity.* t It has been held that the publication of more than the law requires will not invalidate the l^^ty of the poblicatioa* , P \ ^ ^ B%Awr». Giegory, 73 DL 197; Field v. 3Pac.716. See al*, Borton Acid 11%. CofO^ 1$ 1m. jJiu W ; Bmi w.' bJL Co. r Monng, 15 Gray (Mass.), 21 1. Imry, 55 Mo. 810; Indiaiuipdlii IftTS! « Humphreys t; Mooiiey, 5 Col. 282. v. Herkimer, 46 Ind. 142; Holmee v. 9 ""^^ *® ^ ^1 568; Davenport Nat. m« 1 ^'^^ ^- ^ ; 15 N. W. 865. N wJfiS *;ir T^' * » • »»Tenport Nat. Bank v. Davi«, 43 la. Lr249 U^'T^^ " ^ Clark ^ si kit TTT T^i . ^'^^^^"^ " Ky. L«r Bep. 614 ; 31 . ^ r ^' ^ S. W. 878 ; Wing r. 81at«. U B. L W; •See In re Church, etc., 14 Phil. 121 ; 35 Atl. 302; Heinig r. C^J^M £ «Ji*«ii^Griinm,noia. 145;81N.W. 800 ; 5 Ky. Law Sep. 28L^' • ^'^^■PM^t •! la. Wl ; IS (Pa.) 14a - 80 OBAF. n.] PBOGUBIMO THE CHARTER. iT6 5 78, Aftdavit as to Stock Subscription.. - The laWB of Florida, Georgia, Illinois, Kansas, Michigan, Missouri, Ohio, Oregon^ tennsylTania, Soath Carolina, Texas, Utah, Vermont, and West Virginia require in addition to the ordmary ae- knowledgment of the execution of the articles, that tiie same be accompanied by an affidavit showing that the amount of stock required by law as a preliminary to doing business as a corpo- ration has been duly subscribed.^ The same matter appears in the certificate of organization required in Arkansas, Con- necticut, Indian Territory, Maine, and Virginia. On the other hand, the incorporation acts of Alabama, V^U - fomia. Delaware, Idaho, Kentucky, Nevada, New Jersey, New York, North Carolina, Ohio^ Virginia, and Washington merely require that the amount of stock subscriptions be set forth in the articles. , _ As to the content of the affidavits as to stock subscriptions, it is sufficient if they serve to show clearly that the statute rela- tive to the same has been substantially complied with.* Unless the statute designates some officer before whom such affidavit be sworn to, it may be made before any officer authonied to administer oaths and to certify to the same.* § 74. Anti-TruEt Affidavit. — Some few of the States — such, for ' example, as South Dakota, Missouri, and Illinois - require either of the incorporators before organiaation or of certain designated officers of the corporation a^r organization lhat they certify and make oath to the effect that the corporation is organised for the transaction of a lawful business and not for the purpose ni^i'.L.G»id,8rAI».482;6Soa.332. VaUey Works, 17 Cal. 132. Q 4«Ti, 10 Pa. 88a CHAP, n.] wocuBmo the charter. § 76 tion bestows upon State officials the duty of examining articles of incorporation and passing upon their legal sufficiency and authorizes State officials to certify that the incorporators hare become a corporation, then the issue of such certificate becomes an adjudication that the corporation has been duly formed until the State has vacated the charter by proper proceedinjjs taken in the conrts.^ Usually this duty is bestowed upon the State depart- ment which is a branch of the executive, and cannot tiiereforo pass upon questions which are purely judicial.* It is confined to an examination as to whether the purposes of the proposed cor- poration are legal on their face and whether conditions precedent have been complied with so that a charter should properly issue.* The main points to which State officials shoidd address them- selves in passing upon corporation papers presented to them are as follows: (1) Have the requisite number of incorporators signed the articles of incorporation? (2) Have the articles been properly acknowledged by the incorporators ? (3) Is the corporate name mentioned in the articles one that can be law- fully used by the proposed corporation ? (4) Have the statu- tory requirements relative to the contents of the articles of incorporation been substantially complied with ? * Generally speaking, permission to file charters may be refused upon the following grounds: If the name of the proposed corporation is identical or closely resembles that erf an exii^ing corporation, the State officials may exercise their discretion and refuse to pass the charter. ^ It has been held, however, by a court of excellent authority that a statute prohibiting the 6orporation from assuming a name in use by any other organization or so closely anal<^us to it as to mislead the public is designed to protect domestic corporations.* 1 Boyce y. M. E. Church, 46 Md. 359 ; Charter St. L. Ass'n, 19 Ta. County D. H. R. R. Co. t'. Marsh, Fed. Cas. 4014. Ct. Rep. 25 ; In re DuQuesue College 2 Granby Co. v. Richards, 95 Mo. Chftrter, 12 Pa. Connty Ct. Rep. 4tl ; 106; 8 S. W. 246; Van Pdt v.Gatdner, WoodbMiry v. McClnrg, 78 Miaa. 8Sl; 2» 54 Nab. 701 ; 75 N. W. 874. Sou. 514. ' » P. R. T. Rd. Co. Charter Appli- 5 state r. McGrath,92 Mo. 355 ; 5 S. W. cation, 20 Pa. County Ct. Rep. 151 ; N. 29 ; American Clay .Mfg. Co. v. American M. G. T. Co. V. N. G. T. Co., 21 Pa. County Clay Mfg. Co., 198 Pa. St. 189 ; 47 Atl. Ct. Rep. 393 ; People v. Company, 130 lli. 936 ; People v. Payne, 161 N. Y. 229 ; 55 268 ; 22 N. E. 798. N. B. S49. * State ». National Inv. Co., 88 Wie. • People v. H. L. A. Co., Ill Mieh. 512; In rt Ap|>lieation for Charter, 5 405; 69N. W.653. Bi.Dii.Bmw 948; /a n A pp li c ati nn lov 83 § 78 INCOBPOttATlON AND OBGAMIZATIQII OF OOWMUIIOIIV. [^Atl I, Generally speaking, the action of the Secretarj of State in issuing a license or certificate of iaeorporatioii is ministerial i Neither State cfficials nor tiie courts can with respect to incor- ^ration add new conditions to those prescribed by statute. » Generally, the test of the extent of powers of ministerial offices is the right to compel performance by mandamus.' It is an almost universal rule that after tile certificate is once issued, the officer who issues it has no power to revoke the cer- tifi^te. For thi& purpose application must ordinarily be made to Hie courts.* § 77. Right to Mandamus Btete Offioials lor tviMag to file Article.. — Ordinarily mandamus is the pn^r remedy where State officials refuse to file a eertifieate of incorporation, pro- vided the duty of reednng and filing the same is lodged with them.* § 78. Organization Tax. — By the term " organization tax," as here used, is to be understood the amount o£ money exa<$ted by the State from individuals in letnm for a grant from the former to the latter of the right or priyil^ of heing a corporation ; that is, of doing business in a corporate capacity and under the privilege or franchise whicli when incorporated the company may exercise. The right or privilege to be a corporation or to do business as such body is one generally deemed of value to the corporation, which is the right or privilege by whieh several individuals may unite them- selves under a common name and act as a single person with a succession of members without dissolution or suspension of busi- ness and with a limited individual liability. The grant of such a right or privilege rests entirely in ih» discretion of the State, and may unquestidnablj be aeemL [PIBT I. § 79. JPofm ill wUMh Ctefetr te gnuitsd. — In only twentj^nine of the States do the corporation acts expressly proTide for the issuance of a certificate of incorporation or charter by State officials. In some few of the remainder the power to issue such instrumeuts is assumed by the officers having the matter in charge without any express authorization therefor in the statute. In the remaining States proof of incorporation is usually had by pro- cnring certified copies of the articles of incorporation. The mat- ter becomes one of practical importance in connection with the right of third parties to collaterally attack not only the corporate existence but the* corporate purposes and powers as welL This matter has already been dtsenssed at length in a previous section.^ Ordinarily the commencement of corporate existence dates from the time when the certificate of incorporation is issued. Where the statute expressly provides for the issuance of a charter bj State officials the latter have no discretion in the matter, and must issue the same upon demand of the parties who have legally •entitied themselves to the same.^ The certificate must be issued immediately, and must be in the form, if any, prescribed by the statute.^ The Secretary of State should always affix his seal to the certificate of incorporation.^ § 80. raiag aad Saeordliic in X«oia Coimt7 imom, — Generally speaking, it is part of the plan adopted by the various legislatures in the enactment of general incorporation acts, to provide in addition to requiring that articles of incorporation be filed with some designated State official, that they always be filed in one or more local county offices.^ Usually ^e latter requirement is confined to the provision that they be filed in the county where the corporation's domiciliary office is located. However, in some few of the States such articles must be filed in every county wherein the corporation transacts "its business or holds real property. In some of the States, such as California and Maryland, more Importance appears to be attached to the filing of the articles in the local county office than with State officials.^ 865; 38 L. E. 773; People r. Pfister, 57 Ass'n v. Clarke, 61 Me. 351 ; Sparks v Cal. 532. Company, 87 Ala. 294; 6 So. 195 ; People 1 See ante, § 6. . ». Piiyn, 1«1 N. Y. 229; 55 N. E. 849. • 8fe«t« P. Tsfkir, 55 0. St 61 ; 44 N. S. * Benner ». State, 7 Lea (Tenn.), 6SS. 513 ; Sparin V, Goapany, 87 AH. SM ; 6 « See Part III. Table 4, page 574. So 195. 8 SeeN.H.a4M.Ca». Woodberrr. « Stowe V. Flagg, 72 HL 397 ; TL F. 14 CaL 434. 86 CHAP, n.] PBOCUBING THE CHARTER. §81 The purpose of filing articles in county offices has heen said to be in order that persons dealing with the corporation may have an easy and publie inspection of the basis of its corporate organi- zation 1 With some lew exceptions corporate existence is not made to depend upon the filing of the articles in the local eoimty offices. In any event, where such filing is not had, the corporation is treated as a corporation de facto, if not de jure,^ The fore- going is certainly true in the absence of any proceedings by the State in the nature of quo warranta.* . , ^ ^ In some States the filing of articles in designated^ offices is specifically made a condition precedent to the legal existence of thTcorporation, while in others it is merely made a condition precedent to the right of the corporation to engage in business as such.* It has been held, however, in Missouri that in order to the creation of corporate existence artieles must be filed m both State and county offices. ^ . . . ^ ax. At the present time it is safe to say that as to third parties the validity of corporate existence will be presumed even when articles have not been filed in local county offices as required. But in some jurisdictions attempts have been maiie to hold the incorporators liable as partners under such conditions. & 81 Diatinction between de jure and de facto Corporations. — A Con)oration de jure is one whose right to exercise corporate fungous would prove inyuhierable if assaUed by the State in quo warranto proceedings.^ A de facta corporation, on the other hand, is one the legality of whose existence may be inquired into by the State m quo warranto proceedings. The general rule is that to prove tiie existence of a corporation de facto it is necessary to 1 Loverin v. McLaughlin, 161 BL 417 j 44 N. E. 99. • Curtis V, Tracey, 62 HI. Ap. 49 ; B. & T. Co. V. Gade, ^5 111. 181 ; Johns v. People, 25 Mich. 499 ; Whitney v. Wyman, 101 U. S. 392. . 8 Bank v. Davies, 43 Iowa, 424 ; Martin V. Deetz, 102 Cal. 55 ; 36 Pac 868 ; I. T., etc. Ca ». Hwkiaiwr, 46 Ind. 142; Hiun- phiey» ». HooAey, 5 Col. 282 ; Sims v. Commonwealth, 24 Ky. L. Rep. 159; 71 S. W. 929 ; Childs v. Hard, 32 W. Va. 66 ; 9 S. B. 362 ; Abbott v. Co., 4 Neb. 416. « Bergeron ». Hobbs, 96 Wifc 641 ; 71 N. W. 1056 ; In re Shakopee Mfg. Co., 37 Minn. 91 ; 33 N. W. 219 ; G. M. & S. Co. V. Richards, 95 Mo. 106 ; 8 S. W. 246. 6 Hurt V. Salisbury, 55 Mo. 310. « See P. & G. T. Co. v. «obb, 88 Ky. 226; 10 8. W. 794; B«MliMk v, Dertnw richer, 55 How. Pr. 516; 4 Abb. New Cases, 444 ; F. G. B. & T. Co. v. Gade, 55 Bl. 181; N. Y. N. Exchange Bank v. Crowell, 177 Pa. 313 ; 35 Atl. 613 ; Clegg V. Company, 61 la. 121; 15 N. W. 865; Gent V. Company, 107 BL 652; CMldg*. Hurd, 32 W. Va. 66 ; 9 8. B. 862. 1 Clapp 0. Compaaj, 40 Hebw 470; IS N. W. 9i6. 87 § 82 INCORPORATION AND ORGANmTION OP CORPORAJIONS, [PABT I. show (1) an act authorizing the creation of a corporation of that character; (2) an application duly made thereunder bj the requisite number of ineofporatorB praying for inecMrponilioii. (8) It is sometiioes neoeMarj, althooi^ not always, to show user thereander.i § 82. Right of Parties other than the State to collaterally im- peach Corporate Exiatence. — The right here referred to has already been considered somewhat at length in connection with a diaeiis- aion iji the right of third partiea to ooUaterally attack corporate purposes and powers.* There are some additional matters, however, not akeady discussed to which attention will now be called. As has already been suggested, the courts have taken Taried and conflicting views relative to the ri^^t ol partiea other than the Slate to odlalerally attack the existence of a corporation with whom they chance to be involved in litigation. The diverging views here referred to may be classified as follows : (1) the view that the State alone can test the question whether or not a corpo- ration which has procured a charter from the proper State officials is in kw as well as in fact a C(»pmtion (2) the view that this question may he inquired into by third parties, but- that it is suffi- cient in such cases for the corporation to show substantial com- pliance with the conditions prescribed by the general incorporation act in order to prove that it is a corporation de jure as wdl as de Sad»;^ (8) the view that the matter may be hiqaired into by thbd partleSy and that under soch drenmstances it is necessary that the corporation shall show strict compliance with each and every con- dition precedent prescribed by the general incorporation act in order to establish the fact that it is a corporation die jure as well aMdefacto.^ For porpose ci convenience these three diverging views may be ^ Stout V. Zulick, 48 N. J. Law, 599 ; 7 Att. 362 ; Haas i'. Baok, 41 Neb. 754 ; 60 9. W. M; Daggaa v. Company, 11 CoL 113 ; 17 Bu. 106 : CMitna Ag., etc Am^ii v. Company, 70 Ala. 120 ; Baker v. Backus, 32 111. 79 ; Hughes v. Bank, 5 Litt. (Ky.) 45; Buffalo, etc. Ry. Co. v. Cary, 26 N. Y. 75; rinnegan v. Noerenberg, 52 Mimi. S89; 9S N. W. 1150; Continental TM Co. 9, T., Me. Ry. Co., 82 Fed. Ut; City of Guthrie v. Territory, 1 Okla. 188; 81 fte. 190; A.L^ete.Ca v,M.,«le.B. 8S Co., 157 HI. 641 ; 42 N. E. 153 ; In re Gibbt Estate, 157 Fa. St. 59 ; 27 Atl 383. • See ante, § 6. * See ante, § 6. * Jooee V. Compeajr, 21 Col. 263 ; 40 Fac. 457 ; Stout v. Zvlick, 48 N. J. L. 599 ; 7 Atl. 362 ; Finnegan v. NocMbeig, 52 Minn. 239 ; 53 N. W. 1150. • Mokelumne, etc. Co. v. "Woodbury, 14 CaL 424 ; Lacas v. Bank, 2 Stew. (Ala.) 147. CHAP, n.] PBOCUBINO THB GHABfBI § 82 distinguisbed as follows: referring to the first as to tiie second as the substantial compliance, and the third as tiie strict compliance rule. Space will permit of discussion here of only the first of the rules just referred to. The legislatures alon^, as has been shown, can create a corpora- tion. Under the modern practice these bodies ha^e passed general incorporation acts entrusting the execution of the law to the executive department of the government. Under the rule now generally established, either by statute or judicial construction, in most of the States a corporation becomes a corporation de facto from the moment the charter or certificate of incorporation is issued by the proper State authorities.* The bads of holding such certificates as conclusive of corporate existence as against all the world except the State is that where by reason of such certificate a corporation is held out to the world as ready to under- take business, most disastrous consequences would follow to com- mercial undertakings if any private person was allowed to go bad^ and enter into an examination of the circumstances attendmg the original ineorporation.* The power which creates the corporation it is needless to say should alone have the power to take it away. It should not be permitted to parties other than the Stote for this reason to col- laterally impeach corporate existence, for to permit such impeach- ment would be in legal effect to permit third parties, for the purpose at least of that particular action, to destroy the effect of the previous action of the State in the premises. On grounds of public policy as to all parties but the State, it should under such circumstances be conclusively presumed that the stetotory requirements relative to incorporation have been duly complied with.* A corporation must of necessity be presumed to be rightfullv in posaesdon of the franchise and rightfully exercis- ing the power which the legislative grant oonfenu Individual right is not invaded if the presumption is tree in feet and tliere is no usurpation. It is the State — the sovereign — whose righto are invaded and whose authority is usurped. The in- dividual could not eroate the corporation, could not grant, define, or timlt ito powers ; any grant o| these by the BOfmign cannot 1 Sm ante. I « > Tar River Nar. Co. v. Neal, 3 Hawki « Lake Supeiiof Co. MoiriMa, 22 (N. C), 520; Welch » Buk, 122 N. Y. CMdsaP.m 177i25N.B.269. § 83 INCORPORATION AND ORGANIZATION OP COBPORAHONS. [PABT I. lessen his right. There can consequently be no cause (d com- plaint by the citizen, and no right to inquire whether the corpo- rate existence is ri^^tful, de jwre^ or merely colorable.^ Corporations may exist eithef de jure or de facto. If of the latter class, tliey are under the same protection of the law and governed by the same legal principles as those of the former so long as the State acquiesces in their existence and exercise of cor- porate functions. A priTate citizen whose r^ts are not invaded and who has no cause of complaint has no right to inquire col- laterally into the legality of its existence. This can only be done in a direct proceeding on the part of the State from whom is de- rived the right to exist as a corporation and whose aatbority is nsnrped.^ A corporatimi de faeto may legally do and perform every act and thing which the same entity could do and perform were it a de jure corporation. As to all the world except the paramount authority under which it acts and from which it receives its charter, it occupies the same position as though in all respects valid,- and even as agunst the State, except in direct proceedings to arrest its usurpation of powers, its acts are to be treated as efficacious.' Finally, it may be observed that the principle here contended for has been held by at least one court to be applicable to a case where a corporation had incorpwated under an unconstitutional law, yet nevertheless the validity of the corporation's existence could not be collaterally attacked, as it had been chartered by the implied consent of the State.* § 83. Right of State to attack Corporate Badstanoe la Diieet Firocaedings. — This section has reference only to actions brought by the State for ^ purpose of testing the legality of corporate existence where it is alleged that there has been a failure on the part of the incorporators to perform all the conditions prescribed by statute as a precedent to corporate existence. The action here referred to is that ol quo warramto^ which, even in the abnenee of statutory provision, may he maintained at cmnmon law in b^alf of the State against incorporators who assume to exercise corpo- • » Uhman v. Warner, 61 Ala. 455. « People ». LaBns, 67 Cal. S26 : 8 P««. * 8dd«(>« SoBi' Co. ». Iter, n Ala. 84. . o^:*. 224 ; 8 So. 658; Tu Bhw Bur. Co. * Bidiudt ». Biak. 76 Miim. 196 : 77 iiMi,8Hswb(N.a).HaL ir.w.att. 90 CHAP, n.] PBOCUBIKG THE CHAETEE. §83 Tate powcw without being legally iacorporated, for the purpose of ouBHiig them from flie exensiae of auch powers.i In all such proceedings aa againat the Stote not merely a de facto corporate existence must be shown, but a exiatenee as well. The general prevailing view at the present time aaema to be that, as against the State in such proceedings, it is necessary to show a apecifec statute authoriring the creation of corporations of the character of the one agaimit which the qm warranto pro- ceedings are brought, and also substantial comphanoe m the preliminary organization of the corporation with all condition, precedent prescribed by statute.* In quo warranto proceedings the burden of proof is upon the corporation to show that it has been legally incorporated. In the proceedings of the character referred to it haa b^n well said that « public policy demands that the power to onat d* ooi^ porations from the exercise of corporate powers because of faUare to comply substantially with conditions precedent be sparingly exercised " ^ Were the rule otherwise, disaatrons conaequonoea would follow in the commercial world, and in all such cases the .oonrta should talce extraordinary care to see that the rights of third partwa are fully protected. In proceedings brought by the State, the most important matter to be looked at ia whether there has been a failure on the part of the ineorporatora to comply with the pro- visions of the statute, which are merely directory aa oppoaed tj) those that are mandatory. A " directory " provision ia one which the legislature did not intend as essential to corporate existence, and the failure to comidy witli which is a mere irregularity and is not fatal to corporate existence. A. "mandatory" provision, on the other hand, is one which must be aubetantially complied with in order to create a corporation dejurefi Whether the partkmlar wovision of the statute is directory or mandatory is to be deter- mined by «the intention and true meaning of the legislature deduced from the act and sometimea uded by other acts t* pan 1 OreNie v. People, 150 m. 813 ; 87 • Peojd. .. towden (Cel.) 8 Pac. 66^ H B^A IXiggan »• CniMiwy. " Colo. 113; ■ • State ». Webb, 97 Ala. Ill ; 12 So. 17 Pac. 105. 877: People v. Selfridge, 52 Cal. 331; » Newcomb ». Bee^, Sta^ V. Critchett, 37 Minn. 13 ; 32 N. W. B. W. S. ^^-^^^T^^'* 787 ; Holman «. State. 105 Ind. 569; 5 146M»»«»; « N. E.702. .j^ § 84 mcommATioN and oboanization op corporations, [part I. mMeria and extraneoiu circmnstances." ^ Even as against the State it is only necessary that a mandatory provision shall be substantially coraplied with.2 § 84. When doM Corporate BstetaBoe oomoMBoe ? — Where tiie Statute provide*, as it does in some of the Commonwealths, that the articles of incorf^tion shall be filed with State officials or in some local county office or both, the general rule is that the corporate existence dates from the time of filing of the articles with such officials and not from the time it begins to do business.* The foregoing seems to be the rale in foree in the majority of States. Some of Ihe States, however, provide by statute as lo when corporate existence shall commence, as, for example, Alabama, California, Colorado, Connecticut, Delaware, Idaho, Iowa, Kansas, Kentucky, Maine, Massachusetts, Michigan, Mis- sissippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Dakota, Ohio, Pennsylvania, Rhode Islai^, Sooth Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.* In a number of the States corporate existence depends not merely upon filing articles with the Seeretary of State, hat also iling the same in the local^reom^ oSoe ol the eoonty where the prindpal plaoe €i hoslness of Ihe corporation is to be located, as, for example, in Arizona, California, Colorado, Delaware, Idaho, Maryland, Montana, New Jersey, Utah, and Wisoonnn. In some few of the States the statute by rsason <^ its pecnllar provision seems to eontaapli^ tiie COTpomte exbtence shalf com- mmm heiim the filing of articles of mcorporation with any official, cither State or county ; this for the reason that the certificate required to be filed with such officials must be signed by corporate officers. States to which reference is here made Mm Arkansas, Illinois, Indian Terriu»y, Maine, Mawachnsetts, Ifiehi- gan, and Missosri. 1 CroM V. Company. 17 111. 54; Eak- « Hanna v. Company, 23 0. St. 622- nght 9, ODmpany. 18 lad. 404; Newcomb G. M. & S. Co. t;. Richards. 95 Mo. 106 8 \* a W. 146 ; Humphreys v. Mooney, 5 Colo. 2 People V. Company, 97 Cal. 276 ; 32 SM ; V. C. BaOiraj Co. v. CUyea, 21 Vt. Pac. 236; State v. White, 13 Mo. Appeals 30; Borough of Braddock ». CompMir, ISf 139; People v. Cheeseman, 7 Colo. 376; Pa. 379; 42 Ml 15; Badger Paper Co. 3 Pac. 716: Newcomb y. Reed, 12 Allen, v. Rose, 95 W^' 45; 70 N. W.aOS; Hlmt S62; Eakright v. Company, 14 Ind. 404; r. Company, 11 Kan. 412. W^taniflk V. Bneket, IS Maw. M ; B. W. « See Part II., Synopsis-Digest of the a. Co. ». Inhabitants of Wmimtm, 146 CotporatioB Uwi ol tht M?enl States lfaii.462; 16M.S.4Sa MMm. * chap.il] PBOGUaiNG THE GHABTEB. §84 There seems to exUt in some jurisdictions the theory that in the matter of determining when the corporate existence com- mences reference must he had, first, to the primary franchise of being a corporation vesting in the incorporatoi-s and nei^to tt^ secondary franchise to do certain specific acts which vesto m the corporation.^ Again, in some States, while filing articles of mcor- powtion constitutes a condition precedent to the creation of cor- borate existence, it is also n condition pfooedent to the nght of doing business.' ^ Ordinarily corporate existence docs not wmmenoeorta aU eon- ditions precedent are performed.' There is a very obvious distinc- tion hJLm mxOx act. 88 are declared to be necessary steps in the process of incorporatioii and 8ueh as are required of the individ- uals seeking to become incorporated, but which J»T prerequisites to the assumption of corporate power.. With to the former any material omission will be fatal to ita exwtenoe ui * corporation de jure, a. against the Statfe. In respect to the latter, failure to comply tiierewith i. not ordinarily accompanied by forfeiture of its charter power., but rather goes to the question of the personal liability of the individuals who attempt to do busittCM 88 a corporation without having complied with aU the conditions subsequent* ,.1 Corporate existence in this immediate connection ordinarily means full authority to transact busineM 88 such in f^twdi^ tinction to the qualified existence of such corporations whwh dates from the time of filing the articles of association with the Secre- tary of SUte.f* So too, in those States where organization precedes the filing of a certificate of incorporation, it has been held that a corporation has a qualified existence from the date of the toaor- porators' first meeting.* In lUinois corporate existence does not commence nntd the Koeption of a lioenw from the Secretary of State to take stock > state. WM«Co,6lK«.M7; 60 f , ^ = ^^^'UVt^!^.^ ^ Til ^fi7. i« * Hmod V. Hamer, 32 Wis. 162; E. 2 Gade v. Company, 165 lU. 367; « ^'T^^ A ^^.cSj T Fn iiR- 18 „ ^. ^ I AO Pa] as* 6. L. Co. V. Green, 46 iS. J. r.q- »o N. E. 286; Martin v. Deetz, 108 KM. o», r_ „ n« „ w^Midhnrv 14 36Pac.368; /« r» a M. 37 Miim. 91 ; Atl. 844; M. H. Co. Woodbiwjr. 14 «• v w 910 • Jf^ms V. aK>l>Ie, 25 Mich. Cal. 424. ^ P M ^ i^^ mZ^ Ma ' Hurt r. Salisbury, 55 Mo. 310. * a Q w L 6 s. G. & P. Co. V. Scholfield, 70 Ck»li. 106 : 8 W . 24o. , 8 Afferton v. Company, 67 Ind. 334; 500 ; 40 AtL 182. Borough of Braddock v. Company, 189 ^ § 84 INCOBPORATION AKD OBOAKKATIOH OF CCOPORATIOIIB. [PAW j. subscriptions.! It would of course foUow, from the necessities of the case, that before a oorp. Ham- § 87 INCORPORATION AND ORGANIZATION OP COBPOJUWOKg. [PAET I. §86. OrganiMtioii Meeting, how called. — The more reeoiit incorporation acts, sucli as are in force in Coniiecticat, Maine Massachusetts, New Je«ej, North Carolina, and West Virginia point out apeeificaUj how the organization meeting of a corpora^ ti«i IS to be ealled. Where no such statutes exist the better and nfer practice is for ail the incorporators, as well as the subscribers to the preliminary subscription agreement to the capital stoek of the proposed corporatiim, to sign a waiver and agreement fixing tlie time and placefortheorganization meeting of the corporation.^ It has been held that all are not required to be present at the organization meeting who sign the articles of incorporation unless the statute requires it A majority, it is said, is snffieients Hie safer practice, however, is to comply wi«i tiie rale stated above* ^ Vii^nia is one of the few Stetes possessing a statute giving the mcorporators the right to assign their interests as such in a pro- spective corporation. Failure to call a meeting as provided bv statute is to be regarded as a breach of a condition sabeeqoent and is not fatal to the crealaon Stnrges, 72 Me. 288; ton. etcBy. Co. v.C § 88. steps Necessary to complete Organization. — The princi- pal matters which demand attention at the organization meeting of a corporation muy be enumerated as follows : (1) the adoption of by-laws ; (2) Section of directors ; (S) providing for the issue and payment of tiie capital stoek of the corporation. The snbject of the adoption of by-laws and the payment of the capital stock of the corporation will be left for subsequent consideration." With respect to the matter of the election of a board of direc- tors the following may be said. Many of the inca]^[Kirati(m acts require that the names of the first board oi directors shall -,be set forth in the articles of incorporation, and this ordinarily obviates the necessity of electing a new board at the organization meeting of the corporation.^ Unless the statute so requires it, it is not necessary, in order to give the incorporators the right to partici- pate in 1^ organization meeting, that they be stockholders.^- Bnt ordinarily it is contemplated by the incorporation acts that the incorporators shall be stockholders or subscribers for capital stock. 1 See to the same effect Heath v. S. L. ^ Hammond v. Straus, 53 Md. 1 ; Per- Min. Co., 39 Wis. 146; O. & M. Ry. Co. v. kins v. Borders, 56 Miss. 733; Proprie- If cFhenon, 35 Mo. 13 ; Onnsbj v. Ym- toa, ete. v. Dickinson, S Gray (Mass.), 586 ; moDt Min. Co.„56 N. Y. 632 ; Umnphfey Cqjiiifte v. RaUe, 8 Ongon, S84; Deii8> V. Mooney, 5 Col. 282 ; Wright v. Lee, 2 more Oil Co. v. Densmore, 64 Pa. St. 43 ; S. D. 596; 57 N. W. 706 ; T. M. Co. v. Singer Mfg. Co. v. Peck, 9 S. D. 29; 67 Goodhue, 18 N. C. 981. N. W. 947 ; Kamsey v. Tod, 95 Texas, « Graham v. Co., 118 U. S. 161 ; 6 Sup. 614 ; 69 S. W. 133 ;' Byrnes v. Beck, 10 Ct 1009. GiL 121 ; B. B. & T. Co. v. J. B. T. Qo. • Hamihoii Tiiiit C& v. Ckmtm, 168 101 Tenii. 54S ; 48 & W. 9S8; Weditel- N.T.483; 57N.E.ei4. bog V. Bfe^ M fM. Ml '98 CHAP. III.J ORGANIZATION AFTER INCORPORATION. § 89 The right to vote stock is an incident to stock ownership, and was recognized at common law as a property right.^ In some few of the States, statutes exist limiting the right of stockholders to own more than a certain percentage of the total stock of the corporation. ^ Sometimes the incorporators are appointed commissioners to take stock subscriptions. It has been held that the failure of such commissioners to take the oath of office as required by statute, will not render the subscriptions void.' Where anthority to open books of suV)scription is given by statute to the incorpora- tors, this authority may be exclusive, so that subscriptions cannot lawfully be received by others. Such subscriptions, however, may ' of course be ratified by proper parties.^ Ordinarily the election of officers is by statute devoWed upon the board of directors. However, in some few of the State* cer- tain officers are required to be elected by the stockholders. § 89. Adoption of By-Laws. — A by-law is in effect a contin- ning rule of action for the government of the corporation, its mem* bers and officers.* The purpose of a by-law is to regulate and define the duties of the stockholders between themselves and the conduct of the officers and the management of the corporate affairs.^ All corporations have the implied power to make by-laws for the government of the corporation and the management of its affairs.^ Unless otherwise provided by statute, the by-laws must be adopted by the incorporators at their organization meeting or else by the stockholders at a meeting duly called for that purpose.^ Some few of the States, among them being South Dakota, North Dakota, and Oklahoma, permit incorporators to adopt by-laws, whether they are subscribers for the capital stock of the proposed corporation or not. Statutory provisions exist in several of the 1 Commonwealth v. Dalzell, 152 Pa. ^ Ilollman v. Company, 9 Gill & J. St. 217 ; 25 Atl. 535. (Md.) 462. < Mack V, Company, 90 Aim, 396 ; 8 * N. C. M. R7. Co. «. Eslow, 40 Midi. So. 150; Coramted within thirty days aftor ineorporaticHi and coined into a book of by-laws.^ Such stetotes are clearly directory and not mandatory. § 90. Election of Directors. — The power to choose a board of 1 Carroll v. Bank, 8 Mo. Ap. 253. • State ex rd. Attomej-General i;. Conk- * In re Kkw, 67 Wit. 40; S9 N. W. Im, S3 Wis. 21. S8S; Peo|aev.ConiMm7,8SlIL4S7; && t Stele v. Ovwtoo, 4 Zabiiikie (N. J.), Ass'n V. Company, 25 Mo. Ap. 642. 435. 3 In re Klaus,'67 Wis. 40 ; 29 N. W. ^ Goddard «. MiffihllH* Ihrfhii^, 9 582 ; Mitchell v. Cosopuj, 40 H. Y. Sap. Mo. Ap. 290. Court, 413. » Ex parte Frank, 52 Cal. 606. ' « M. G. R. Company v. Wysong, 51 ^ People v. Society, 25 Barb. (N. Y.) 7. Ind. IS. u Com, v. WoioeBter, 3 Pick. 461 ; King • See Kent v. Goa^y, 78 K. T. 18S; v. Vahn, 170 ID. 186 ; 48 N. B. 677. Oa Bergman v. Assoda^xi, S9 Minn. 275 ; failaie to post by-laws, see Iju^pm v. 13 N. W. 120; Commons v. Company, 12 Company, 49 la. 317. Pa. St. 318; People v. Cliice|;o Board of 12 See Hall v. Crandall, 29 Cal. 567; Trade, 45 111. 1 18. Clapman v. Doray, 89 Cal 52 ; 26 Pac 605. 100 CHAP, in.] ORGAKIZATION AFTBB IKCORPOBATIOH. § 90 directors is inherent in all private corporations irrespective of The election of directors in connection with the organization of a corporation ordinarily follows the adoption of by-laws. After the organization the election of directors is usually had at the annual meeting of the corporation. In giving the notice of such annual meeting it is customary to specify m the notice tiiat a board of directors is to be chosen.^ In choosing the directors it is incumbent upon the incorpora- tors or stockholders, as the case may be, to observe the pro- visions of the statutes relative to tiie number of directors to be chosen and their qualifications as to stock-holdings, residence^ and citizenship if any such are prescribed by statute. In the absence of such statutes as exist in many of the States authorizing the dividing of directors into classes, so that only a certain portion of the board are elected annually, the full board must be elected each year. In the absence of statute making the ownership of stock A qualification for holding the office of director such ownership is not necessary .3 Even where the statute requires that directors shall be stockholders, it is not necessary that they shall become such before their election if they become stockholders before enter- ing upon the duties of their office * In the election of directors by the incorporators it is sufficient in order to qualify him that a director be a subscriber for stock, though no certificate has in fact been issued.^ Where ownership of stock is necessary to qualify one as a director, the prevailing rule seems to be that the moment a director ceases to be a stockholder, he oeases to be a director de jure (but not de facto) without proceedmgs havmg first been taken to remove him.^ Where a director is required to take an oath of office before entering upon the dischai^e of his duties, his failure to take such an oath will not prevent him from becoming a director de facta? Any person who can be a business agent for another can, if pos- sessed of statutory qualifications, become a director Ordinarily 1 Hurlbut V, ManhaU, 62 Wia. 590; » Dispatch Light Packet v. Company, 22 N W 852 12 N. H. 205 ; Wright v. Company, 52 a Merritt v. Ferris, 22 111. 303. N. J. Eq. 352 ; Howe v. Scarbaiongli • Wright V. Company, 117 MaM. 226. (Ala.), 85 So. IIS. 4 Greenough v. Company, 64 Fed. 22. ' Simpioa ^^^f^^l^J^^"""^^ ^ . • MeOomb v. AaBodatkm. 10 N. Y. Sap. « Pteople ». WebiHr, 10 Wead. (N. Y.) 552; Bestir. HeMtan, 92 hkim. 554. § 90 IKOaSPOBATION AND ORGANIZATION OP COBPORATIONS. [PART I. it is not necessary that resignations of directors be accepted iu order to become effective.* Persons owning a majority of stock have a right to elect direo- tors.2 It is a fundamental principle in corporation law that a majority of stockholden ahM control the policy and regulate the business afiPairs of the corporation, and to this each stockholder impliedly agrees when he acquires stock in the cor})oration.3 However, in order to insure minority representation on the board, cumulative voting for directors is permitted in a large number of the' States.^ Where such right to cumulate votes is mandatory snch right cannot be taken away by by-law * The fact that a corporation begins business with an insufB- cient number of directors does not invalidate debts contracted by them, nor deprive it of its corporate rights and privileges unless some action is taken by the State to that end.® Failure to elect a board of directors annpally does not work dissolution. The old board will hold over by implication of lawj This is a rule not only esta]>lishcd by statute in a large number of the States, but is a well established rule of corporation law iu the absence of such statutes.8 In the election of directors a majority vote of all present is sufficient, provided a majority of the stock is represented at the meeting.* Yacancies in the board of directors cannot be filled by the remaining directors, but must be filled by the stockholders, unless such power is expressly granted by statute.^^^ Even where the right to fill vacancies is given to the remaining directors it is probably true that there must be present at the meeting a majority of the whole number of directors prescribed by the charter, and ^at such vacancy be filled by a majoi-ity vote thereof.^i Unless regulated by statute or by-laws, the board of directors may fix any place within tbe domiciliary State at which annlUd 1 Ptw., etc. of Manbattaii Ca r. Kal- » Hanter r. C CmAmATlOK OF OCNUraUfiaNS. [PAflf I. passage af a resolution hy the board of direetors ordering an assessment, eitiier in whcAe or in part, upon the par value of the capital stock. Tlie general rule appeara to be tliat unless the governing statute or a bj'-law of the corporation cx])ressly provides that directors' meetings should be held within the domiciliary State, that such meetii^ may be held without the limits of such State if desired.^ Some courts, however, apparently distinguish in this regard between meetings of the board of directors for the election of olTicers and those meetings merely called for the transaction of routine business. Such courts hold that meetings of the first class must be held within the diwiidliaij State, while the others may be held without such State if desired.^ In nearly half of the States statutes exist authorizing the holding of directors' meet- ings without the State.^ It is unquestionably true that where in- corporators can perform constituent acts outside of the domiciliary State directors can elect officers in like manner.* When calling the directms together for tlieir -first meeting, the mode of notice provided for in the by-laws must be given. In the absence thereof personal notice must be given, or a waiver of uotice must be had from eacli of the directors.^ It is hardly necessary to state in this connection that no director can lawfully delate power to act for him to another person.* At common law a majority of the directors present and voting at a meeting was necessary to constitute a quorum of the full board J In some few of the States, notably Oregon, statutory provisions exist permitting less than a majority of the board of directors to constitute a quorum. Provisions in statutes and by- laws requiring the dection of directors to be hdd on a specified date are ordinarily construed to be merely directory.^ The general rule is that a majority of the directors constitute a quorum 1 Thompson v. Compan}-, 58 Miss. 423 ; ^ Bank r. McCarthy, 55 Ark. 473 ; 18 Lead Co. v. Reinhard, 114 Mo. 218; 21 S. W. 759 ; B. B. R. Co. v. Buck, 68 Me. S. W. 488; Bassett {.'.Mining Co., 15 Nev. 81; Library v. Association, 173 Fa. St. 293; FtesoDS v. Lent, 34 N. J. £q. 67; 30; 33 Atl. 744. Haaaa v. Company, aS O. St. fll. * Peny r. Companv, 93 Ala. 364 ; 9 s Smith V. Minuig Co, 64 M d. 85 ; 20 80. 217 ; Ciaig Medidne Cd. r. Mer- Atl. 1032 ; G. 1. & S. Co. V. Tofer,80 Md. chants' Bai^ M H«b, 661 ; 14 H. T. 278 ; 30 Atl. 651. Sup. 16. 3 See Part III. Table 12, pa.!?e 582 ^ Blackwell v. State, 36 Ark. 178. * Ohio, etc R. B. Co. v. Mcrherson, 35 » Beardsley v. Johnson, 121 N. Y. 224 ; Mo. 13. 24 N. £. 380. ' 106 CHAP. IH.] OliGANIZATIOH AFTBB INCORPORATION. §95 for the transaction of business, and a majority of the quorum have power to bind the corporation by their votes.^ § 94. Election of Corporate Officers. — 111 nearly all of the States Statutes exist designating certain officers that business corporations must have, and providing that such officers shall be elected by the board of directors duly convened for that purpose. Where, however, as is sometimes the case, this power is devolved upon the stockholders by statute, then directors have no power to elect such officers.2 In the absence of such statutes as are here referred to, giving the du-ectors power to elect officers, it must be admitted that the current of authority is to the effect that the power then hes in the stockholders alone.* The law implies that directors shall hold their office until their successors have been elected and qualified.^ Where vacancies occur in the boai-d of directors they must be filled, in the absence of statute, charter provision, or by-law giving the power to the directors, by the stockholders only, and even where the power to fill vacancies is lawfully bestowed upon the remaining directors, vacancies can then be filled only by action of a majority of the aiithorized number of directors.^ Questions of policy, or mani^ement, or expediency of contract or actiou,or consideration of gross misappropriation or unlawful appro- priation of corporate funds to the detriment of corporate interests, are left generally to the decision of the directors if their powers are without limitation and free from restraint. To licld otherwise would be to substitute the judgment and discretion of others m place of those determined on by the scheme of incorporation-^ § 95. Appointment of ^raoiitfY« Committ»«. — The incorpora- tion acts of Connecticut, Delaware, Massachusetts, Nevada, New Jersey, North Carolina, Virginia, and West Virginia all authorize the appomtment by the board of directors from their own number of an executive committee to whom may be entrusted most of the ordinary duties that devolve upon the full board of directors. 1 Ten Eyck v. Companv, 74 Mich. 226 ; * People v. Rankle, 9 Johnson (N. Y.), 41 N. W. 905 ; see alao Hoyt v. Thompson, 147 ; Huguenot Nat. Bank v. StadweU, 6 19 N. Y. 207. ^^^y 2 See In re St. Helen MiU Co., 13 Saw. * Moses v. Tompkiiis, S4 AIm. SIS ; 4. 92 ; Walsenberg Water Co. r. Moore, 5 Son. 763. t CoL App. 144; 88 Pac 60. ' EUerman Ry. Co.. 49 N. J. Eq^ « B^Tdsley r. Johnson, 121 N. Y.224; 24 217 ; 23 Atl. 287 ; Llmer t;. Company, 98 N. E. 380 ; In re A. A. G. Iron Co., 63 N. J. Me. 579 ; 57 Atl. 1001. Law, 168, 357 ; 41 AO. 931 ; 46 AU. 1097. § 96 INCOBPOBATION AND OBGANIZATIOH OF attPQRATI01f& [PASTL It was at one time held that the performance of any duties by the board of directors inrolving the exercise of discretion and judg- ment could not be so delegated.^ The modern rule, even in the absence of statute, is that directors have the power to delegate to a part of their own number authority to perform any part of the ordinary business of the corporation, eren though it involves the exercise of the broadest judgment and discretion ^ In any event, whenever a question is raised as to the validity of acts done by an executive committee, the ratification of their action by the full board will undoubtedly correct all defects in the act complained of which would have been valid in the first instance if performed by the board itsdfj^ § 96. BMt AMflMomta. — Where the capital stock of a cor- poration is not aU issued in the first instance in exchange for property, it is customary for the board of directors to pass a reso- lution at their first meeting, making an assessment upon the stock of stockholders either for its entire par value or some fractional part therecrf. GeneraUy speaking, in order to sustain a right of action on stock subscriptions, it is necessary to show that a valid call or assessment has been made.* An assessment is a rating or fixing of the proportion by the board of directors or by the stockholders, which every subscriber is to pay of his subscrip- tion, of which notice is given, which notice ia referred to as a "call." 6 While it is doubtless true that a call " may be made either by the directors or the stockholders, nevertheless it is usually made by the directors. This of course necessitates the organization of the corporati M4;16&Ctll73. 108 CHAP. III.] OBGANIZATION AFTER INCORPORATION. §97 directors have implied power by virtue of their office to make assessments.^ In any event, shareholders may delegate such power to the directors'when the same is given to them by statate or by-law.^ It is questionable, however, whether the directors have power in their turn to delegate the power of making assessments to some ministerial officer.^ In the making of assessments the utmost care should be obs^ved to see that all the statutory requirements rela- tive to the same are complied with. § 97. Certificates required to be made by Offioen or INrootora after Organization. — In Maine, Massachusetts, Arkansas, and Indiana the statutes require that the board of directors together with certain of the corporate officers shall file a certificate of organization with certain officers. Ordinarily the failure to file such certificate would not affect the legal character OWAmunON of OQBPOAATICmS. [PABtt to be kept in mind in conneetion with the foregoing is to see that the stock is so issued that fotore purchasers thereof shall not be liable thereon either to the corporation or to creditors. This can be accomplished most satisfactorily in the following manner. Have the corporation accept the proposition to issue its capital stock, either in whole or in part, against real or personal property to be thereafter dulj oonveyed or transferred to the corporation. Next the property so conveyed or transferred should be appraised at a valuation which will stand the test according to the character of the property so conveyed or transferred of either the good faith or the speculative value rules already referred to. The next step is for the party to whom such stock is issued to transfer such stock, either in whole or in part, back to the corporation under a trust agreement providing that the same shall be sold at such times and at such prices as to the board of directors of the cor- poration will seem advisable for the purpose of procuring the necessary working cq>itaL Under such dreumstances the stock 80 traarferred, while originally issued at par, may be sold at the best price obtainable, and the purchasers will not incur liabil- ity beyond the agreed price even to subsequent creditors.^ The same is true of stock that has be^ forfeited for non-payment <^ assessments.^ § 104. AtitMaui of Waliie Ride. — In connection with the appraisal of property taken by a corporation in exchange for its capital stock, the courts have established various rules with a view to laying down some satisfactory principle upon which such appraisal may be based in those eases where creditors seek to enforce as against the hddm of such stock an alleged liability for unpaid stock subscriptions. The various rules here referred to may be enumerated as follows : " the true value rule," " the good faith rule," and " the speculative value rule.'' It is to the first of these that our attention will now be directed. What is known as ^ the true value rule ^ is a natural outgrowth of the adoption by many of the courts of the trust fund doctrine enunciated by J udge Story in Wood v, Dummer.^ This may be > Ifon Co. «f a2. 9. Hayet . Company, 9. Drazel, 90 N, Y. 87 ; Davis Bros. v. 69 N. H. 485 ; 45 AU. 258. Company, 101 Ala. 127 ; 8 So. 496 ; Ailing 2 PuUmtn v. Company, 73 HI. Ap. 818; V. Wenzel, 133 111. 264; 24 N. E. 551 ; Otter v. Company, 50 Barb. 247. M. & L. R. Ry. Co. t;. Dow, 120 U. S. 287 ; 8 3 Masoii, 308 ; Fed. Cmm, Ho. 17944. 122 CHAP. IV.] ISSUANCE AND PAYMENT Of CAPITAL STOCK. § 105 stated as follows : That the courts will not treat anythiug in the shape of property accepted by the corporation in exchange for its capital stock as payment thereof except to the extent of the true value of the property received, wholly without regard to the pres- ence of fraud or the absence of good faith in the transaction.^ Not only has the true value rule been adopted by many courts, irrespective of statute, but it has found legislative tec<^ition as well. Thus the incorporation act of Alaska requires that such property shall be assessed at its true money value ; that of Con- necticut and Delaware, at its actual value ; in Kentucky, at its market pi^ice ; in North Dakota and South Carolina, at its true money value ; in Tennessee and Utah, at its fair cash yaliie, and Florida, at a just valuation. In Connecticut, Massadiimetts, and North Dakota the necessity of making such appraisal according to the strict letter of the statute is very forcibly suggested by making the directors liable to all parties injured thereby in case they fail to make such appraisal as directed by the act Statutoiy provisions whidi exist in so many of the States dedaring all fictitious increase of stock void have been held by the courts not to make the validity of an over-issue of stock dependent upon the inquiry whether the money or property received therefor was of equal value in the market with the stock so issued, or to restrict private corporations acting without the approval of l^r stock- holders in the sale of their stock for money, property, or labor done upon such terms as they might deem proper, provided always that the transaction is a real one, based upon present consideration, having reference to legitimate corporate purposes, and is not merely a device to evade the law and accomplish l^at which is forbidden.* § 105. Btatoment of Oood Faith Role. — As has already been observed in a previous section,^ the trust fund theory of Justice Story no longer obtains in a majority of the States. With the absence of any general recognition by the courts of this doctrine, there necessarily followed the abrogation of the true value rule, which was based largely upon the trust fund doctrine. In its place has appeared in many jurisdictions what is known as the " good faith rule." The true value rule in its practical applica- tion was harsh and unconscionable, was wholly in the interest of 1 Shickle v. Watts, 94 Mo. 410; 7 Pac. 582; M. & L. R. Ry. Co. v. Dow, S. W. 274. • 120 U. S. 287 ; 7 S. Ct. 482. s Smith V. Company, 115 CaL 584 ; 47 ^ Ante, § 101. 123 §105 INCOftPO&ATION AND OBOANIZATIOII OF C01F(»UT»>Ma. [PABTL creditors, and made little account of - the interestg of equally inno- cent stockholders. The good lalth rale, on the other hand, while often difficnlt of practical application, is much more liberal and fair to all concerned than the rule which it is now so rapidly sup- planting. It may be stated as follows : That where the governing statute authorizes Uie shares to be paid for in property instead el ca^, or where the law of the Slate concedes this power, then the fact that they are so paid for at a fair valuation of the property, affords no ground of complaint to the creditors, provided such payment is made and accepted in good faith. In fact, in order to render the transaction Toid either gross OYer-Talttati 81 Moat 291 ; 53 Pac. 959. < See Civil Code oi Montana, 1895, > 869 QamUe v. Company, 1S8 H. T. § 4ia fl; SftN.E.901. 130 \ H .s> ;« tt^M ^ ~ CHAP. IV.] ISSUANCE AND PAYMENT OF CAPITAL STOCK. § 106 actual intrinsic value thereof at the time the properties are taken over by the company. The view of the matter here presented was first sa|^pested, it is belieyed, by the United States Cirenit Goort many years ago in the case of the Sonth Monntain Consolidated Mining Co.^ At the trial below in this case the court spoke as follows : <eenlative or non- speculative in character, conclusive respectively upon the stock- holders and the creditors. The reason of this is that in the case of non-speculative properties it is easy to demonstrate that the same has been grossly overvalued; as, for example, by showing the market value Off tiie aaiae* Again, in the case <^ speculative enterprises the same is tme for the reason that the valuation placed upon the properties from a speculative standpoint, if honest and fair, would be such as to render it practically impossible as a matter of proof to show that such valuation was fraudulent or grossly overvalued^ —this for the reason that in every snch case it will be found thai there exists an immense margin for h.,^ spoke as felloirs : ''Whateyer may haTS been in fset the vslne of the property tamed over to the company for its stoek, the latter i^;reed to take it for the stoek. The persons interested were the stockholders, and there was no dissent on the part of any person in what was done. Neither any person then holding stock, nor any person who afterwards became a stockholder by assignment from one who then held the stock,, can now make complaint on behalf of the corporation against tlie law- fulness of that transaction. This I take to be the settled law on , that subject." In the absence of statutory an^nty ocmferred upon the corpo- rttioD cnr in the absence of nnanimons consent of all the stock- holders, it is clear that the directors of a corporation have no power to assess sliares which have been fully paid up.s § 1 10. Meaning of Pull-Paid Stock. — Tlie term " full-paid stoek " as here used oiay be defined to be stodc whose par valne has been paid, either in cash or in property, the ownership of which does not subject the holder thereof to any further liability either to the corporation or to the creditors. The mere declaration that stock is full paid, either by resolution or by stamping npon the stock this statementi does not make it so, at least as to ereditors.^ It has already been said that stock may be issued for less than its par value to subscribers as full paid and non-assessable and be ' binding as between the corporation and the stockholders.^ Where statutes exist declaring that stock issued in a particular manner shall be full paid and non-assesfeable, they are merely to be con- stmed to the effect that stock may be issued in this manner, and that the holders thereof shall not be held liable to further calls or assessments on the part of the corporation, but such immunity 1 The Wyoming statnte would appear Pacific Fruit Co. v. Coon, 107 Cal. 447; to be mateiiaUjcliffntiiAfiMMi tila West 40Pac 54S. Virginia and Nevada aeti. * Upton v. Tribleeodc, 91 U. 8. 845 ; iS « 75 Fed. 936. L. E. 203; F. N. Bank v. Companv, 43 8 Wells V. Company, 90 Wis. 442 ; 64 Minn. 327 ; 44 N. W. 198; National Tube N. W. 69 ; Ventura, etc. Ry. Co. v. Hart- Works v. Gilfillan, 124 N. Y. 302 ; 26 man, 116 CaL 260 ; 48 Pac. 65 ; Handley N. E. 538 ; Kroenert v, Johnston, 19 Wash. v.Stiita,a9n.S.4l7; llS.Ct530; Gaiy 96;25Pac605. 9. Onpny, eUtriw4«4; SS Bm. 494; * 8m 8eovffle 9. Thayer, lOS U. & 141^ 1« I V CHAP, nr.] ISSUANCE AND PAYMENT OF CAPITAL STOCK. § HO will not be extended in such suit so as to prevent subsequent creditors enforcing their claims for the payment of the unpaid residne.! Many of the States have statutorj provisions to the effect that no corporation shall issue stock except for money |Mld, labor done, or property actually received, declaring all fictitions increase of stock to be void. Under such provisions an original issue of stock as fully paid at less than par will be held to be Y0id.« Many cases will be found bearing upon tiie question as to the validity of so-called " bonus " or " promotion stock.** In regard to the validity of such stock the courts differ. One line of decisions is represented by the courts of New York and Massachusetts. In Ohristensen v. the New York Court of Appeals spoke as follows : « It may be admitted that the liability of subserihers on unpaid stock subscriptions constitutes an asset of the corporation which can- not be given up by the corporation without consideration on the x»rt of creditors. The unissued shares of a corporation are not assets. When issued, they represent the proportionate interest of the share- holders in the corporate property, — an interest, however, subordinate to the claims of creditors. There are unquestionably public evils growing out of the cxeation and multiplication of shares of stock in corporations not based upon corporate property. The remedy is with the legislature. But the lial»lity of a shaieholder to pay for the stock does not arise out of his relation, but depends upon his eon» tract, express or implied, or upon some statute, and in the absence of either of these grounds of liability, we do not perceive how a person to whom shares have been issued as a gratuity has by accepting them committed any wrong upon the creditors or made himself liable to pay the nominal ism of the shares as upon his subscription or contract'*^ On the other hand, courts of almost equal authority have refused to treat such stock in the interest of creditors as ML paid and non- assessable, and have enforced in their favor an alleged stockholders' 1 Vt Marble C©.^.€k»iipaiij, 135 Cal Cal. 624; 87 Pac. 638; Kellerman v, • 679 ; 67 P*c 1057. Maier, 116 Cal. 46 ; 48 Pac. 377 ; Garrett a'wUliams v. Evans, 87 Ala. 725; 6 v. Company, 113 Mo. 330 ; 20 S. W, So. 702 ; Perry v. Mill Co., 93 Ala. 364 ; 965. 9 So. 217 ; Beitman v. Steiner, 98 Ala. » 106 N. Y. 97 ; 12 N. B. 648. 241 ; 13 So. 87 ; Stein v. Howard, 65 Cai « Same rale in N. H. H. N. Go. «. 616: 4 Fac662i Jdtooa «. Hewitft» 103 CoMpioy, 14SMmu 849; 7 N. V. 77a. 148 § 110 INCORPORATION AND ORGANIZATION OP COBPORAUONS. [PABTI. liability thereon.i It has been held, liowever, that even though a stockholder has paid nothing for his stocky he is entitled to rote the same.' 1 See Peninsula Savings Bank v. Com- N. W. 894 ; Scoville v. Thaver. 105 U S pany 105 Mich. 535; 63 N. W. 514; 143; Garrett v. Company/ll3 Mo. 330- Handley Sliiti, 139 U. S. 417; 11 S. 20 S. W. 965. ' Ct. 530; De Lm Vei|pie Mrigmtiog • Cwlwright v. Dickinson, 88 Temi. Machine Co. v. German Savings Institu- 476; 12 S. W. 1030; W. E. L. Ca » tion 175 U. S. 40 ; 20 S. Ct. 20 ; 44 L. E. Landy, 66 Vt 248; 29 AtL 248: lee al«i 65; liogers v. Gros^ 67 MiasL 224; 69 Biuey v. Hooper, SS lU. !«. CHAP, y.] LEGISLATIYE CONTROL OTEB DOMBSTIC COBFOBATIONS. § 112 CHAPTER V. tSmrSLATTVE OONTBOIi OYEE BOMBSXIO OOEFOBATIOm § 111. StetMmit €ff FfeinoiiMl MMiiods bj wMeli IitciaUiftlvo CJontrol over DomMtlo Ck>rporatioii8 Is obtained. — Under onr modern system legislative control over domestic corporations ordinarily takes the following forms, to wit: (1) control over amendment of corporate charters; (2) reservation on the part of the State of the right to repeal all charters; (8) control over dissolution of corporations; (4) by ike exercise throngh State officials of the right to forfeit charters by means of quo warranto proceedings; (5) by means of the exercise of the police power; (6) through legislative investigation into corpo- rate affairs; (7) by requiring annual reports of corporations; (8) by compelling corporations to permit inspection of their books and records for the benefit of stockholders and creditors ; (9) by means of anti-trust legislation ; (10) by the enactment of statutes regulating the internal affairs of the corporation ; (11) by the imposition of liability upon stockholders for corporate debts over and beyond their liability for unpaid stock subscriptions; (12) enactment of statutes imposing liability upon directors for misfeasance or non-feasance in office ; (13) by means of legisla- tive control over the extension of corporate existence ; (14) by the exercise of the right of taxation upon corporations ; (15) by regulating the right of consolidation of corporations. § 112. AmendBMat of duurten. — A glance at ^ke general business acts in force in the several States and Territories will serve to show that in all of them more or less attention has been paid by the legislatures to the question of the right to amend — with more or less freedom — articles of incorporation. In a ma- jority of these the power of amendment will be found to be prac- tically unlimited. In nine the limitations imposed are not wide in scope, while in eleven the power referred to may be characterized 145 . § 112 IMOCttKttAlION AKQ OBQAVlZiLTKm Or OOUmATIONS. [PABTL as being very nanow in its praetieal operation.^ The practical questions to be considered in this immediate connection have reference, first, to ascertaining in what body the legislatures have seen fit to place the power of amendment, and, secondly, an inquiry whether the power when granted, apparently in tiie broadert terms, is in legal effect without any limitations whatsoever. As a general rule, the directors have no power to amend charters unless such right is expressly conferred upon them by statute. ^ower to amend resides exclusively in the stockholders.^ Turn- ing now to the seeimd inqniiy referred to above, the following may be said. Wii& reiqieet to right on tiie part id majority stock- holders to exercise the power of amendment, there are two prac^ tical views of the question which deserve consideration. The first has reference to the effect, if any, the exercise of such right may have upon the right of the corporation to enforce stock subscrip> Mons which were made in relianee iqxm tbe corporate purposes set forth in ^ original charter. The other relates to the binding effect of such amendments, when had, upon dissenting minority stockholders who have previously paid up their stock subscriptions. In the first ease it appears to be the generally accepted view tiiat when a party makes a subscription to the capital stock of a corporation he does it in reliance upon the implied understanding that no changes shall be made in the charter without his consent which produce material and fundamental changes therein.^ The rule however can clearly not apfdy where the changes made were tilMng or immaterial or were in ftirthenmce of the original objects of the corporation.* There is a well-defined tendency at the present time on the part of many courts to take the view that in order that a subscriber to the capital stock may escape liability on his subscription on the gronnd that there has been a material amendment to the dbarter since his subscription was made, that 1 Sm FSut n, Synoptis-Digest of tiie 13S ; Abliotk v, Companj, SSBwb. (N. T.) Cotpontioii AdB of the Several Stetet, 583. under the head " Amendments." ^ Mowrey v. Company, 4 Bissell (U. S.), 2 Gill V. Bayless, 72 Mo. 424 ; Ry. Co. 78 ; Printiiig Home v. Tniiteee, 104 U. S. V. AUerton, 18 Wall. U. S. 233; Olleshei- 711. mer v. Mfg. Co., 44 Mo. Ap. 172 ; Clongh * Fry's Executors i?. Company, 2 Met- 9. Company, SS CoL 520; 55 Pm. 809; calf (Ey.), 322 ; Peoria v. FMoo, 35 la. State 9. Oftedal» 72 Ifimi. 488 ; 75 N. W. 115 Milfoid, ete. Tnnipike Co. v, Bnuh, •M; CoouBMiirMllliv. CDBeD,13B».8l. 10 0. St 111; Dmfee v. Conpanj, S SiO. 146 CHAP, v.] LEOISLATrTB CONTROL OTEB DOMEBflO OOBPOSAflOllS. § 112 such amendment must necessarily have brought about changes of the most radical and fundamental character.^ Turning now to the second question here referred to, the fol- lowing may be said. Important questions frequently arise as to the right of majority stockholders to amend tiie charter of the corporation against the dissent of minority stockholders so as practically to create an entirely new corporation with purposes and powers wholly difEerent from those conferred in the original lated by the original 161 § 112 nrooBpOEATioN Am imiuxiumoK of oonpo&ATioim. [pabt h eharter. This inteipretatian pati aside the express proyision authorizing an amradment or alteration (rf the act <^ incorporation, and gives it no effect as against a stockholder without his assent, although he bought his stock or subscribed for his shares subject to the legal effect of such a stipulation. The real contract into which the atockh<^der ^ters with the corporation iS| that he agrees to beoome a memto <^ an artificial body whidi is created and has its existence hj virtne of a contract with the legislature, which may be amended or changed with the consent of the com- pany, ascertained and declared in the mode pointed out by law. Having, by virtue of the relation which subsists between himself and the corporation as a holder of shares, assoited to the terms of the original act of incorporation^ he cannot be heard to say that he will not be bound by a vote of the majority of the stock- holders accepting an amendment or alteration of the charter made in pursuance of an express authority reserved to the legis- latnie, and which by sudi aooeptanee has become buiding on the oorporation.'' In some few of the States, as for example Ohio,^ the law provides that no amendment shall change substantially the original pur- poses of the organization. In many of the States great similarity is to be observed in the fcnrmalities necessary to be taken in ord^ to l^lly am^ the charter, tlsiially the matter is brought to the attention of the stockholders by a resolution passed by the board of directors directing the calling of a meeting of the stock- holders for the purpose of passing upon certain proposed amend- ments. A meeting of the stockhdders is then called in the manner prescribed by sta^e, if any, or aecordmg to tiie method set forth in the by-laws. If the requisite nnmber of stockholders vote in favor of such amendment, a certificate to that effect is usually made by the officers of the corporation and filed in the same offices as is required in the case of the original articles of incorporation. Thereupon the amradment ordinarily becomes effective. If the statute does not prescribe the method of amending the charter, the only safe plan to pursue is to adopt substantially the same procedure therefor as is prescribed by statute in the case of original articles.^ ^ See Hevised Statutes of Ohio, sec. ^ Day v, riWJplliJ, 7S Is. SM; SS 3258a ; also State v. Taylor, 55 0. St. 61; N. W. 113. Picard i;. Hughey, 58 0. St. 577. 152 CHAP, v.] LBOIga-ATIVB C(»mK)L OTER WMESTIG COBPOBATIONS. § 113 §118. Reserrsd Hl^ Of ti» State to repeal cai«i»fs. — exception, under the system of incorporation now in vogue, each of the several States and Territories reserves the right in the grant- ing of corporate charters under general acts to alter, amend, or repeal the same at any future time. The presence of such enact- ments is due to the decision of the United States Supreme Court in Dartmouth College v. Woodward,^ wherein that tribunal an- nounced the principle that the charter of a private corporation was entitled to protection from alteration, amendment, or repeal m the part of State legislatures under the clause of the Federal Constitution forbiddmg impairment of the obligation of contracts. When this case was decided, it became obvious at once that " many acts of incorporation which had been passed as laws of a public character, partaking in no general sense of a bargain between the SUtes and the corporations which they created, but which yet con- ferred private rights, were no longer subject to alteration, amend- ment, or repeal except by the consent of the corporate body, and that the general control which the legislatures creating sudi bodies had previously supposed they had the right to exercise, no longer existed." It was no doubt with a view to suggesting a method by which the State legislatures could retain in a large measure this important power without violatung the provisions of the Federal Constitution, that Justice Story, in his concurring opinion in the Dartmouth College Case, suggested that, " when the legislature was enacting a charter for a corporation, a provision in the statute reserving to the legislature the right to amend or repeal it must be held to be a part of the contract itself, and the subsequent exercise of the right would be in accordance with the contract and could not therefore impair its obligation."* With respect to the right to repeal, the power of the legislature in this regard, when exercised, is all but absolute, and the courts ordinarily will not inquure mto the legislative motive for exercis- ing it. IJi^er such curcumstances it will be presumed that the power is properly exercised.* The only exception appears to be that the courts will interfere where the legislature has exercised its power of repeal so wantonly and causelessly as palpably to violate the prindi^ o{ natural justice.^ I 4 Wheaton, 518, deddtd in 1819. Wagner Free Inalitiiliaii «. PhihwMp l iiSj s QiMirood V. Cmmpmy, m U. & 132 Pa. St. 612. 13. ^ Lothrop et a2. v. Stednuui et al.. Fed. > Qxeenwood v. CompaDj, lOd U. S. 13; Cases, No. 8519. 153 § 114 INOOftPCMUTION AND ORGANIZATION OF COBPOBATIONS. [PABT I. Another question, however, is presented when the legislature attempts to alter or amend the charter. In order to justify the exercise of this power by the legislature the same must be 80 ezierciBed as not to defeat or Bnbstantially in^wir the object of ihe grant or any ri|^t8 vested under it whidi tlie legislatnre may deem necessary to secare either that object or some public right.^ From the foregoing it is to be seen that the reserved power to repeal and alter is not unlimited. On this subject the U. S. Supreme Court, in Union Pacific Railroad Co. v. United States,^ spoke as f dlows : That the power to alter or amend a charter even when reserved has a limit no one ean doabt All agree that it cannot be used to take away tiie property already acquired under the operation of the charter or to deprive the corporation of the fruits actually reduced to possession of contracts lawfully made. It may safely be affirmed that the reserve power may be exercised to almost any extent to carry into effect the original purposes of the grant or to secure the due administration of its affairs so as to protect the rights of stockholders and creditors, and for the proper distribution of its assets. Also to im>tect the rights of the public and of the incorporators or to promote the doe adminisfaation of the a&irs of the corporation. The alteratioDs must, however, be reasonable. They must be made in good &ith, and be eonsistent vrith the object and scope of the act of incorporation. Sheer oppression and wrong cannot be inflicted under the guise of alteration or amendment." § 114. Legislative Control over Dissolution of Corporations. — Legislative control over dissolution of domestic corporations (omitting any reference to forfeiture of charters by State action,) is exercised in the following four ways: (1) by preseribing the maximnm duration of eorpmtte charters; (2) by permitting corporations to surrender their charters before organization ; (8) by authorizing voluntary dissolution, with or without recourse to the courts; (4) by enacting statutes authorizing involuntary dissolution on application of stockholders or creditors. Each of these matters will now be taken up bri^y for discossicm. (1) Legislative limitations upon corporate duration. Tn the absence of any provision in the governing statute or in the charter limiting corporate duration, the corporation is entitled to perpetual 1 N. Y. & N. E. Kailiwy Co,v. Twm * M U.a TCQ. lilBnrtol, 151 U. S. SftS. . CHAP. T.] taOISLATiyS OOmWOL 0?1B DOICfiSXIC COBPOEATIONa, § 114 exlstdnce.^ Tlie legislature may however, if it sees fit, limit the duration of corporate existence to any specific number of years. This right has been exercised in a majority ol tfce States.2 Upon expiration of the period of time limited in the charter as the duration of corporate life, dissolution results by operation, of law.* If the articles provide for a longer period ot duration tiiair the law allows, then the excess is of no force or effect.* In many of the States statutes exist continuing the existence of corporations after the expiration of the period limited in their charters for oertain periods of years in order to permit them to dose up their corporate affairs. Such statutes may be lawfully enacted subsequent to the creation of the corporation, for the reason that they provide for the enforcement of rights whidi equity recognizes even in the absence of statute.^ (2) Surrend^ of charter before organization. Statutes exist in the States of Connecticut, Delaware, Maine, Massachusetts, Nevada, New Jersey, New York, North Carolina, Virginia, West Virginia, and Wisconsin expressly permitting corporations to surrender their charters either prior to organization or to the commencement of corporate business. It is unquestionably true that in order to render such a surrender valid it must have been made under authority of tiie statutory provision enacted, which is of course equivalent to acceptance by the State.* (3) Voluntary dissolution with or without recourse to the courts. " Charters," it has been said, are in many respects com- pacts between the government and the corporators. And as the former cannot deprive the latter of their franchises in violation of the compact, so the latter cannot put an end to the compact with- out the consent of the former. It is equally obligatory on both parties. The surrender of a charter can only be made by some formal act ceedtngs m behaU of the State to establish and enforce a forfeiture. The State which gave the corporate life may take it away. The State which imposed the conditions may waive their performance, and the corporate life may run on until the State by proper proceedingi (ordinarily warranto, or in the nature of quo wammto) mtei- noses and enforces a forfeiture.* Courts of equity have no inherent jurisdiction, in the absence of statute conferring the same, to decree a dissdntioii of a cor- poration or declare a forfeiture of its charter on any grounds. 1 Chamberlain Company, U8 Ma.s. ^ 366 ; W. & B. T. Co. Maryland, 338; Boston Gla^^^^^^^ ^^^^.^^^ Hy. don 24 Pick. (M«».) 49 , Ummi ISW^ ^ ^ Bank Company, 104 U. S. 54. 5 feeler v Companv, 143 111. 197; . Rex ^r^;»J**"".^TH^ 32 N E ^0; Denike i Company, 80 in; m» ». Whom, 5 JoIiiukmis Chan. 32 iN. A^em*.o tr-j § 115 mCOBPOBATIOir AKD OBOlHlZlTIOir 0^ COBPOBATIOXB. [PABT I. The pnncipal groands under tiie siatate upon which charters will be forfeited may be enumerated as follows : (1) non-user of cor- porate franchises ; (2) mis-user or abuse of corporate powers ; (3) for non-performance of conditions precedent to valid existeiiee fts a corporation ; (4) for ncm-performanoe oi ecmditions subsequent to Talid coBtinaa&oe of existraice as a corporation ; (5) for viola- tion of express statutes; (6) for non-payment of taxes; (7) for insolvency. These will now be taken up briefly for separate consideration. (1) Forfeiture for non^iuer of corporate franekUes. It is a weU* established doctrine of the law that courts should proceed with extreme caution in proceedings which have for their object the forfeiture of corporate franchises; nor should such a penalty be visited except for plain abuse of power by which the corporation fails to fulfil the designs and purposes of its organization.^ Again it has been well said : ^ It is not eyery failure to perform a duty imposed that will work a forfeiture. It must be something more than accidental negligence, something more than an excess of power, something more than a mere mistake in the mode of executing the acknowledged powers; and though a single act of simple non-feasaaoe may be a ground ol forfeiture, a spedfio act of non-feasance not committed wilfully and not producing or tending to produce mischievous consequences to any one, and not being contrary to formal regulations of the charter, will not be." 2 All these judicial utterances are little more than a declaration of the fact that the policy of the State, ol its (^cers and courts should be to encourage in all legitimate ways the organization and operation of all corporations organized to promote any legit- imate enterprise. " The rights, privileges, and franchises of such corporations," it has been well said, "should not be declared forfeited, and they ^ould not be ousted and excluded therefrom, excqyt for 8<^d, weighty, and cogent reasons, for the violation of a positive or prohibitory statute and not of a statute whose pro- visions are permissive and apparently directory, and never upon mere technical grounds." ^ The term "forfeiture of charter for non-user of corporate franchises,'* as here used, has a very broad signification. It K. Y. 599. BBbhomwmUmmv, Company, l Stete ». Chemical Bank, 10 0. St. 535. SSiM. 97; Araitt v. CooifMiy, IM M. > State v. Cooipany, 8 R. j. 181. m, •]feQM«.8iil^71Iiid.478. 158 CHAR V.l LMSLAnVB CONTROL OVER DOMESTIC CORPORATIONS. § 115 may have wference to action taken by the State with a view to forfeiture of corporate charters on any one of the foUowmg grounds: failure to organize the corporation within the time prescribed by statute ;i failure to carry on the business enn- Lrated in its articles ;2 failure to elect officers fittluie to maintain domicUiary office within the State;* failure to com- mence business within the time designated by statute. (2^ Forfeiture for nMuu or abme of corporate powers. lo work a forfeiture on the ground of misuser or abuse of corporate powers, there should not only be a wrong, but one arwmg from wiUul abuse or improper neglect. The corporate default must be something more than accidental negligence or mere mistaken excess of power, or mistake in the mode of exercising an acknowl- edged power. There must be an abuse of trust, of such a nature as would render a trustee liable to forfeit his station on flie eomplamt of his ceetui trust if the question stood on the f^^^^^^^ ^^J^^ them. Corporatiomi are political trustees. Have they fulfilled the purposes of their trust or acted in good faith with a view to fulfil- ment? is the question to be asked when they are caUed upon^ to forfeit their charter, either for acts of commission or «It appears to be settled," observed the New York Court cj Appeals, "that the State as prosecutor must show on the part of Se corporation accused some act against the law of its being which has produced or tends to produce injury to the public. The transgression must not be merely formal or accidental, but mate- rial and serious, and such as to harm or menace the public welfare. For the Stete does not concern itself with the quarrels of private litigants. It furnishes for them sufficient courts and remedies, but interferes only where some public interest requires its action. Corporations may and of ten do exceed their authority where only private rights are affected. But when the transgression has a wider scope and threatens the welfare of the people, they may summon ttie offender to- answer for the abuse of its franchises or the violation <^ its corporate duty." ^ 1 c. . Qimonfr^n 7fi N C 57 ^ W. F. C. F. Co. ».Kittridge. 5 8«w.44; 1 State V. Simonton, vo jn. v^. . « . ,<^-ni £io. oo v i? 9»« . W. a M. CO. . Bum, U4 K. C. 3.3; ^^^^^^^^'^V^Z. 19 O. Hi. ^i>o. » Sfeftte V, Bftrron, 58 N. H. 870. 822. , xt v kqo . «a « ^ I Compil^T, S8 IBbb. 3S0i 59 ' People Company, 121 K Y 582 M H. W^48 i^n- Comply, 59 Kan. K. E. 834 ; see aUo M. 0. & R. K. vO. 151 ■ 52 P«c. State V. Compui;. 45 Cross, 20 Ark. 443. Wi..57.. § 116 INCORPORATION AND ORGANIZATION OP CORPORATIONS. [PART I. (3) Forfeiture for non-performance of conditiom precedent Even a corporation defectivelj organized maj have what is termed a " defaeto existence," so that it cannot ordinarily be impeached by parties other than the State. Nevertheless the right to bring proceedings to forfeit the charter of such cor- poration vests with the State which may bring proceedings to forfeit the same and oust it from the exercise of corporate powers.^ (4) F^eitwre fw nmi-perfwrmance of condUion$ subsequent It has been well settled that charters of corporations may be forfeited by proper action brought by the State for failure to comply with conditions subsequent which are clearly mandatory and not mc^y directory in their nature.^ (6) Forfeiture for vMoHm of express Mahtte. This is one of Hhe clearest grounds for the exercise by the State of its right to forfeit charters. The most common ground for the exercise thereof is in connection with anti-trust legislation.^ (6) Forfeiture for nonrpaymont of taxes. Several of the States authorise forfeiture of charters for non-payment of organization and annual fnmchise taxes. This right has been exercised with great frequency, and constitutes unquestionably a valid exercise of the power of such legislature over corporations.* (7) Forfeiture for insolvency. In the absence of statutory pro- vision to that efEect, insolvent alone will not authorize the State to forfeit corporate charters.* However, it is unquestionably valid for a State to prescribe that if a corporation be insolvent for a certain length of time it shall constitute a forfeiture of its charter.^ § 116. The Police Power of the State. — The police powerof the State comprehends all thoee goieral laws of internal regulation which are necessary to secure the peace, good order, health, and 1 Holmaa 9. Sli^ 105 Ind. 569; People ten, 4S CaL SOl ; People v. Bank, 129 OL ». City Bank, 7 CoL 226 ; 3 Pac. 214. 618 ; 22 N. B. 288 ; 24 N. E. 884. 2 State V. Company, 1 Tenn. Cases, * Hughesdale Mfg. Co. r. Vanner, 12 511 ; People v. Company, 131 N. Y. 140; R. I. 491 ; Bank v, Ckmftmj, 17 Apw JAr. Hammond v. Strauss, 53 Md. 1. (N. Y.) 524. » SimmoDBi;. Company, 113 N. C. 147; ^ People v. Bank, 6 Cowen (N. Y.), State ». Company, 24 Texas, 80; Bnjkat 211 ; A. & L. T. Co. v, Holthoiise, 7 lud. V. Company, 40 N. J. £q. 392 ; People v, 59; State o. Bank, 13 Smeadaail. (Miss.) Company, 60 How. Pr. 82 ; People v. Com- 569 ; Chicago Ins. Coi. v, Needka, pany, 130 111. 268; State u. Standard Oil 113 U. S. 574. Co., 49 O. St. 137; People v. Company, » People v. Bank, 12 Mich. 526 ; C. M. 121 N. Y. 582 ; see also People v. Cham- L. & L Ass'n v. Hunt, 127 III 257 ; Denike V. Company, 80 N. Y. 699. 160 CHAP, v.] LEGISLATIVE CONTROL OVER DOMESTIC CORPORATIONS. § 116 comfort of society, but the proper limit in its bearing upon charter rights and privileges of private corporations for public uses would seem to he this : That the legislature may at all times regu- late the exercise of the corporate franchises by general laws passed in good faith for the legitimate ends contemplated hy State police power ; that is, for peace, good order, health, comfort, and welfare of society ; but it cannot under the color of such laws destroy or impiur the franchises itself, or any of the rights or powers which are essential to the exercise of it.^ After the decision of the United States Supreme Court in Dart- mouth College V. Woodward,^ that court proceeded to enunciate the doctrine that in the exercise of what is termed " police power," the several States might pass laws as a valid exercise of such powers when otherwise thej would be forbidden to do so under Section 10, Article 1, of the Constitution of the United States, which forbids the impairing of the obligations of contracts by means of laws enacted by them. The police power arises primarily from the nature of the social contract, just as when each person upon becoming a member of a Bodetj must of necessity relinquish some of the rights and pnv* ileges which, as an individual and considered alone, he might retain. The Supreme Court of Massachusetts in Commonwealth V, Alger 3 says : " All property is subject to such reasonable re- strictions and regulations established by law as the legislature under the governing and controlling power verted in them by the Constitution may think necessary and expedient." In Gibbons v. Ogden* the United States Supreme Court held that the police power is lodged with the several States. In Prov- idence Bank v. Billings ^ the court took another step forward, and held that the abandonment on tlie part of tiie State of its power ol regulation in this regard ought never to be presumed in any case where the purpose of the State to abandon it does not clearly appear. In the License Cases ^ the court held that, in the exercise of its police power, a State may pass quarantine and sanitary laws damag- ing and even destroying property in smne cases. In Bartenieyer V. Iowa ^ tiie court held that a State law prdbdhiting the manufac- 1 p. W. B. B. B. Co. V. Boweto, 4 Hoofl- ton, Del. 506. * 4 Wheat. 5ia • 7 Cttilu 84. II * 9 Wheat. 1. * 4 Peters, 514. * 5 Howard, 404. Y 18 WaL 138. ,161 § 116 INCOBPOBAHON AND 0B6ANIZATI0N OF COBPOBATIONS. [PABT I. ture and sale of intoxicating liquors was a valid exercise of the police power. In Beer Company v, Massachusetts ^ the court held that as a measure of poliee r^latioa, looking to the preaenratioii of pnhllc morals, a Stote law prohibiting the manufacture and sale of intoxicating liquors is not repugnant to any clause of the Con- stitution of the United States. In Mugler v. Kansas ^ it was held that a State may absolutely prohibit tlie manofaetaro and sale of intoxicating liquors as a beverage, and may declare places where snch liquors are mannfac- tured or sold to be nuisances, and may authorize the destruction of such liquors found therein, and of all property used in keeping and manufacturing such nuisances. Such a statute is valid as tq such liquors lawfully manufactured before the enactment of the statute, and although it greatly deteriiKrates the valne of the property law- fully used in such manufacture before the enactment of the statute. In Munn v. Illinois ^ it was held that when the owner of property devotes it to a use in which the public has an interest, he in effect grants to the pablic an interest in snch use, and must to the extent of that interest sobmit to be controlled by the public for tiie common good as long as lie maintains the use. In Fertilizing Company v. Hyde Park* the right of State authorities to compel the removal of a bone fertilizing business from a location near the village to a point farther removed, was held to be valid as an ezerdse of ihe police power. In the Slaughter Hoose Gases* the court held that the power of State legislatures to make a contract of such a character that under the provisions of the Constitution it cannot be modified or abrogated does not extend to subjects affecting public health and pnblie morals, so as to limit the farther exercise of legislative power over those subjects, to ^ prejadice ci ihe general welfare. To summarize briefly the general doctrine of the federal Supreme Court on this subject, the same may be done by present- ing the following abstract propositions : (1) Laws for the welfare and safety of a commnnity being essential to iJie existmiee ci every Slate, it cannot be snpposed to have been within the intention of the original thirteen States to limit this power by assenting to the Federal Constitution.^ 1 97 U. S. 25. * 111 U. S. 746. 8 123 U. S. 623. « Louisville & N. R. Co. v, Eentnckj* « 94 U. S. 1 13. 161 U. S. 677 i 40 L. £. 849. * 97 U. S. 659. . 162 CHA?. v.] LBGISLATITB OONTBOL OVm DOMESflO OORPOBATfONS. § 116 (2) Generally speaking, the extent to which a State can regulate the business or affairs of a corporation depends upon the nature of the business — whether it affects the public closely or remotely. If it is of such a character or magnitude that the public are directly interested in its proper management, th^ it falls within the proper sphere of legislative control.* (3) Being an inherent right as well as a duty, the legislature may pass enactments looking towards the safety of life and prop- erty, and general laws of this nature are a legitimate exercise of the police power." Thus it may compel railroads to fence traeks, maintain cattle guai*ds, put up signboards at crossings, construct viaducts, require all trains to stop at intersections of railroads, etc.^ (4) Laws intended to prevent or remove nuisances are clearly within the " police power " of the State.^ (5) A State may pass laws for the protection of its inhabitants against the evils of intemperance, even though existing contracts be affected thereby.* (6) Laws regulating the employment of persons of a certain age in manufactories are a valid exercise of the general power of the State to enact laws to secnro the heallk and education of the commnnity.* (7) A State may by statute protect the interest of employees when the common law affords no protection ; as for example, a law providing that all railroad companies shall be liable for wages due to day laborers employed by contractors engaged to construct the company's railroad and works w^s held to be valid.* (8) A State may by general laws regulate the use and dis- position of property within its jurisdiction, although existing incorporated companies be thereby affected.^ (9) A State may psss laws for the proteetioQ of the morals ^ Mann r. Illinois, 94 U. S. 113 ; 24 28 L. E. 629 ; Magler v. Kansas, 123 U. S. L. £. 77; Pearsall v. Company, 161 U. S. 623. 646;40L. E.888. * Knoxville Iron Ga v. Harbifoii, 188 * Reid V. Colorado, 187 U. 8. 137; 47 U. S. 13; 46 L. E. 55. L. E. 108 ; Smith v. Coil^tliy, 181 U. S. ^ Enoxville Iron Co. v. Harbison, 188 248 ; 45 L. E. 847. U. S. 13 ; 46 L. E. 55 ; Butchers' Union, 8 Slaughter House Cases, 16 WaS. 86; etc. v. Company, 111 U. S. 746 ; 28 L. E. 21 L. E. 394. 585 ; Dent v. West Virginia, 129 U. S. 1 14 ; * Reymaon Bnwing Co. 9. Brieter, 88 L. E. 683; Holden r. Haidy, 169 U. 8. 179 U. 8. 445 ; 45 L. .£. 269 ; Rhodes v. 866 ; 48 L. £. 780. State of Iowa, 170 U. S. 412; 42 L. E. 7 Budd v. New T«i, 148 U.S.SI7| 1088; Foitsr «. Kauaa» 118 U. & 801; 86 L. 1^847. § 118 INCORPORATION AND ORGANIZATION OF CORPORATIONS. [PABT L of its citizens, even though vested corporate rights be thereby affected.^ § 117. finlilittTn IhTestlgation ixi^to Corporate Affairs. — The itatoteB of Ckdifornia, Michigan, Minoeaola, North Dakota, Okla- homa, South Dakota, and Wisconsin contain express provisions for the appointment of legislative committees to examine into the affairs of corporations organized under their laws. The pro- visiona of the South Dakota act may be quoted as exemplifying the nature of aodi sli^iEtoj ^roviaioii. It reads as follows: ^Tlm legislative assemblj, or dtim hfaaeh ihmof, may examine into the affairs and oondition of any corporation in this Stale at all times ; and for that purpose any committee appointed by the said assembly, or either branch thereof, may administer all necessary oaths to the directors, officers, and stockholders of such corporation, and may examine them on oath in relation to the affairs and con- ditions thereof ; and may examine the safes, books, papers, and docu- ments belonging to such corporation, or pertaining to its affairs and condition, and compel tibe piodaetion of all keys, books, papers, and doeoments bj aomniary process, to be issued on application to any cireait court or any judge tiiem^ soeh roles and i^piktkms as the court may prescribe." • Such an inquiry as is authorized by the statutes jnst referred to has been held not to constitute a judicial act, and is therefore con- sidered a valid exercise of legislative powers.^ On this particular anbjeet the Sopmae Court of JMaaMehoBetta spc^e as follows: "^Oie inqmry into Hie affiurs or defaults of a corporation with a View to ecmthrae or disoontinne it, is not a judicial act No issue is framed. No decree or judgment is passed. Ko forfeiture is adjudged. No fine or imprisonment is imposed. But an inquiry is had in such form as is deemed most wise and expedient, with a view to ascertain- ing facts upon which to exert legislative power or to learn whether a contingency has happened upon which legislative action is required."^ § 118. Iiesislative Requirement of Annual Reports from Corpora- t l m i ff_ Statutes eauat in thirty-4;hree of the Ckoummwealtha 1 Austin V. Tennessee, 179 U. S. 343; ^ gee. 478, Rer. Civ. Code; sec. 2970, 45 L. £. 224 ; Petit v. Minnesota, 177 U. S. Comp. L, 164; 4L.S.716; nuiBiiiKtOBv.GeoigiA, • Lodivop v. 8lediBaB,4S Cobb. 5S8; 161 V. 8. Sit; 41 L. B. 166; L'Hote t;. Ped. Cas. No. 8519. lie«Oikuii,77 n.&5e7;^I<.S.m ^ Qmm*^ B s kwir, S8 Pid;. a44> CHAP, v.] LEGISLATIVE CONTROL OVER DOMESTIC CORPORATIONS. § 119 requiring annual reports from domestic corporations.^ The valid- ity of Buch statutes was considered by the Supreme Court in the case of Ei^le .Insurance Company v. State of Ohio ^ The court in its opinion therein spoke as follows : The right of the plaintiff in error to exist as a corporation and its authority in that capacity to conduct the particular business for whieh it was created were granted subject to the condition that the privileges and franchises conferred upon it should not be abused or so employed as to defeat the ends for which it was established, and that when so abused or misemployed they might be withdrawn or reclaimed by the State in such way and by such modes of procedure as were con- sistent with law. Although no such condition is expressed in the plaintiff's charter, it is implied in every grant of corporate existence. Equally implied in our judgment is the condition that the corporation shall be subject to such reasonable regulations in respect to the general conduct of its powers as the legislature may from time to time pre- scribe which do not materially interfere with or obstruct the sub- stantial enjoyment of the privileges the State has granted only to secure the ends for which the corporation was created. If this con- dition be not implied^ then the creation of corporations with rights and privileges which do not belong to individual citizens may become dangerous to the public welfare through the ignoranoe or miseonduet or fraud of those to whose management their affairs are entrusted. It would be extraordinary for the legislative department of a govern- ment, charged with the duty of enacting such laws as may promote the health or morals or prosperity of the people might not when unrestrained by constitutional limitations upon its authority, provide by reasonable reguilatiicMis against the misuse of special corporate privileges which it has granted, and which could not except by its sanction, express or implied, have been exercised at all'* The conclusion of the court in the case just referred to was that the charter of the corporation did not exempt it from obligatiiNEia to comply with the subsequently established police rcgrulations of the State, requiring certain corporations to make annual state- ments of their conditi(|D. § 119. iDspeotioB of Corporate Books. — In all the Gommim- wealths but five statutes have been enacted requiring the keefM&g of certain corporate books and giving to stockholders, and some- times to creditors as well, the right to mspect the same. At 1 See Part IIL Table 7, page 577, « IM U. & 44S. § 119 nrooBPoiuiiON and obganization of coapoAATions. [PAftr t. coinmon law stockholders had the right to inspect books and papers of the corporation at reasonable times and for a proper porpose.^ Creditors had no meh eommon law rights. On this subject the New York Court of Appeals in the Matter of Stein way ^ spoke as follows : " The elementary works unite in holding that the incorporator has the right in question and that mandamus is the proper remedy. We think that according to the decided weight of authority a stockholder has the right at eommon law to inspect the books of his corporation at a propm ttme and j^aee and iox a proper purpose, and that if this nf^t is refosed fagr the officers in eharge, writ of mandamus may issue in the somd discretion of the court with suitable safeguards to protect the interests of all concerned. It should not be issued to aid a blackmailer, nor withheld simply because the interest of the stock- holder is small, but the court should proceed cautiously and dis- creetly, according to the facts of the particular case. To the extent, however, that an absolute right is conferred by statute, nothing is left to the discretion of the court but ihe writ to issoe as a matter of eonrse, althoi^^h even then doubtless doe precautions may be taken as to lame and place so as to prevent interruption of bosiness, or other sarioa& ineonvenienoe. We do not think, however, that the statnte now in force in this State is exclusive, or that it has abridged the common law right of stockholders with reference to the examina- tion of the corporate books. By enabling the stockholder to get some information in a new way, it did not impliedly repeal the common law rule, which enabled him to get other information in another way, for the courts do not hold the common law to be xepealed by impli- cation unless the intention is obvious. By simply providing an addi- Monal remedy the existing remedy was not taken away. The statute merely stoengthens the eommon law rule witii reference to one part thereof, and left the remainder intact." The right of inspection of corporate books is not the inspection of the idle, the impertinent, or the curious, but an inspection with a laudable object to accomplish, or a real and actual interest upon which is predicated the request lor information disclosed fay the books.' 1 People V. Eadie, 63 Hud, 320; 133 « 159 N. Y. 250. N. Y. 573 ; Burham v. Company, 76 Cal. 8 state ex rel. Bourdette v. CoBntBV, 24; 17 Pac. 940; Phceuix Iron Co. v. Com- 49 La. Ann 23 So. 815. moowttdtli, lis Fi. St. 563 ; Hemingwa/ «. fl— ii ig Bi j , iS 0—. 449. 160 CHAP, t.] IMtSLAVTE GOKTBOL OTIB DOttSSTIC OOBPOEATIONS. § 120 The purpose of requiring a copy of stock hooks and books of account at the corporation's domiciliary office is to protect the rights of stockholders and to aid the State in exercising its visito- rial powers, or to enable creditors or stockholders to ascertain the number of shares standing in the names of each so as to levy exeontion and attachment thereon. The mere fact that a domestic corporation has kept its books in another State when required by law to keep its books at its domiciliary office, is not a ground for dissolving the corporation when parties entitled to inspection of such books have never been refused the right to inspect the same at the domiciliary office.^ §120. Anti-Tnart liegtataiiM. — The term ^tmst" indudea any form of combination or combinations between corporations or between corporations and individuals for the purpose of regulating production and repressing competition by means of the power tiins centralized.^ Under tlie common law agreements, pools, traats, or eombma- tions between persons or corporations looking towards any absolute restraint of trade or to regulate prices or to promote monopolies, were against public policy, and as such were unlawful and void. But when the question of public policy is at issue, certain matters should be noted. It has been well said ^ that the public policy of tlie State Tariea from time to time. It is not to be measured by the private com- bination or combinations of the persons who happen to be exer- cising judicial functions, but by reference to the enactment of the law-making power, and in the absence of them to the decisions of . the courts. When, however, the l^latnre has spoken upon a particular subject and within the limits of its constitutional powers, its utterance is the public policy of the State." • Congress dealt with illegal trade combinations in relation to inters^ite commerce as early as 1887, when it passed the Inter- State Commerce Act, and later on, July 2, 1890, it passed what ia known as the " Sherman Anti-Trust Act." Smce that tune thirty- three of the States have passed more or less stringent anti-trust acts.* All this legislation has been framed with the same purpose. 1 Ribling Stock Cow ». FtepK 147 Dl. « MacGinniis v. Company (Mont.), 75 234 ; 35 N. E. 608. Pac. 89 ; United States v. Association, 166 2* MacGimiiss ». Company (Mont.), 75 U. S. 290 ; 41 L. E. 1007. Pac 89. * See Ptetm. Table 3, page 578. 167 § 121 INCOBPOfiAXION AKO 0B6ANIZ4XI0N OF COftPOEiLXIOMS. iPABT U In some of these acts an arbitrarj distinction is made between dealers and prodneers. Such provisions , have nnder certun oli^ comstances been declared to be ^ class legislation," and as soch are invalid under the Fourteenth Amendment to the Federal Constitution. Under tliis principle the anti-trust acts of Illinois ^nd Texas haye recently been declared to be unconstitutional.^ In the note below will be found the dates of the passage of the earlier anti-trust acts in the several States.' § 121. Regulation of Internal Affairs. — In many of the States the regulation of the internal affairs of corporations has been largely delegated by statute to the corporations themselves. Such is the case in Alabama, Cionneoticnt, Delaware, Iowa, Maryland, Massachusetts, New Jersey, Nebraska, New York, North Carolina, South Carolina, Tennessee, Utah, Virginia, West Virginia, and Wisconsin. In other of the Commonwealths, without express provision of law permitting the same. State officials allow clauses for the p^^tion d the internal aflkirs of the corporation to be in- corporated in articles of incorporation filed with them. As an 1 ConnoUj v. Unioii S. P. Co., 184 tions; Eentacky, General, May 20, 1890; U. S. ft40; 46L.'£.679; Stirte v. Syppen LoiriiiMia, Gonenl went into effect Jolj 7» & Compress Warehouse Co., 95 Texas, 603 ; 1 892 ; Maine, General, Mar. 7, 1889 ; Mieh- 69 S. W. 58; Ford v. Association, 155 111. igan, became a law July 1, 1889; Minne- 166; 39 N. E. 651 ; Harding v. Company, sota, April 20, 1891 ; Mississippi, Part of 182 111. 551 ; 55 N. £. 577. See also the Code ef the General St. Laws of Mis- Norihem Secaritiee Co. v. United States* siasippi adopted in 1892, and amended its U. & 197. Maieli 11, 1896; MiMOOfi, Original Aet, > The Federal AntHlVwt Act coBHMialy April 9, 1891, xerised under ^et o€ known as "the Sherman Act" was ap- April 11,1895, and rerised again March 24, proved July 2, 1890. The following is a 1897; Montana, Annotated Code of 189.5, list of the States wherein anti-trust legis- sees. 321-325 ; Nebraska, Act of April 8, lation of a more* or less comprehensive 1897; New Mexico, Feb. 4, 1891; New ch a infft fi T WW pMwd, togetlmr wkh «he To*, May 7, 1897 ; North Carolina, date tbe mmt west into dieet: Mnxch 11, 1889 ; North Dakota, March 9, Alabama, Insurance Act, Feb. 18, 1897; 1897 ; Oklahoma, Dec. 25, 1890; Soath Arkansas, Anti-Trust Act, Mar. 16, 1897; Carolina, Feb. 25, 1897; South Dakota, California, Cattle Trust Act, Feb. 27,1893 ; March, 1, 1897 ; Tennessee, April 6, 1889 Delaware, Life Insurance Act, Feb. 15, amended March 30, 1891 ; Texas, Origi- 1891 ; Florida, Trade in Cattle, Jane 11, nal Act, March 30, 1889, amended April 30, 1897; Georgia, Anta.M4»opoljAet,DecS8, 1895 ; Utah, March 9, 1896 ; Washington, 1896 ; Illinois, Prohibitory Pools, Tnuts, Con., Art. XII. see. 32, and abo Act erf and Combinations, Original Act, July 11, March 21, 189.5, Seeeion Laws, 1895, 1891, amended June 10, 1897; Indiana, chap, cxlviii. ; Wisconsin, April 27, 1897. Mar. 5, 1897, General Anti-Trust; Iowa, ( See " Biography of Commercial Trusts," General Anti-Trust, May 6, 1890; Kansas, by Wm. H. Winters, Librarian of the Matt. % 1897, deSnaa a teMt in Sfe lee-' N. Y. Law Inatitvte in 1890.) 168 CHAP. Y.^ LE6ISLATIYJS CONIBOL OYEB, DOMESTIC COBPOBATIONS. § 122 example of the statutes above referred to, attention is called to tke proTisiooa of the New Jereej Act, which reads as follows : ^ The certificate of incorporation may also contain any provision . which the incorporators may choose to insert for the regulation of the business and for the conduct of the affairs of the corporation, and any provision creating, defining, limiting, and regulating the powers of the corporation, the directors^ and the stockholders or any class or classes of stockholders."^ I I Without such statutory auiliority State officials are unquestioii- ably justified in refusing to allow articles of incorporatioii to be filed containing such clauses as are here referred to.* ^ The Court of Appeals of New York in an early case, commenting upon the legal effect of the insertion of provisions in the articles not authorised by the incorporation act, spoke as follows : '*The want of anthority for this provision wonld not affect the validity of the corporation. The articles must contain the statements affirmatively required by the act, because those statements constitute the conditions precedent to the right of the company to become incorporated. If unauthorized provisions are added, all the acts done pursuant to such provisions will be void, but until the company is proceeded against for abuse of its franchises its rights as a corporatioii will not be affected by soch unauthorized provisions.^' * The more modem view in regard to such matters is that where State officials are either expressly or impliedly empowered to pass upon the validity of articles of incorporation submitted to them with a view to filing in their office, the approval of such State official once obtained renders such clauses as are here referred to valid as against all but the State, even when their insertion in the articles is not expressly authorized.* § 122. Liability of Stockholders for Debts of the Corporation. — Tlie general subject of stockholders' liability may be best dis- cussed under three heads : (a) Liability for unpaid stock subscrip- tions; (h) Double liability as established by statute in certain 1 New Jersey Session Laws of 1896, ' Eastern Piank Road Co. v. Yaaghau, chap. 185, sec. 8, subdivision 7. 14 N. Y. 551. > /n re Steyedofes' Bwiefidal Am'o, * See amU, see. 6. U Fhfla. Fa. ISO; Me anU, me. & - « § 122 nfCOBPOBATIOK IKD aBOAMKAlIOR OP OOSMUimm. [TAXtt States ; (c;) Special liability as established hj statate in certain States. (a) Liability for unpaid stock subscription. The statutes which exist in nearly every Commonwealth in the Union making stock- holders liabk for unpaid stock rabscriplions are merely declaratory of the common law.^ The liabtlity of stockholders of corporations for unpaid stock subscriptions with reference to creditors is often- times confused with their liability to the corporation itself. The latter liability is directory and the right to enforce it may be waived by tlie corponiti- AttrOl, 118 N. T. 865 ; 23 N. E. 544; ginia, Washington. West Virginia, Wia> Gidding v. Holter, 19 Mont 268 ; 48 Fte. consin, and Wyoming. See Dvkman v. 8; Felker v. Company, 148 Mass. 226 ; 19 Keeney, 160 N. Y. 677; 54 N.*E. 1090; N. E. 225; Githers v. Clarke, 158 Pa. St. Chamberlain v. Company, 118 Mass. 552; 616; 28 AtL 282; Tlioffl|Moii Hoostoa 174 CHAP, v.] LEGISLATIVE CONTROL OVER DOMESTIC CORPORATIONa § 123 (4) For failure to file annual reports.* (5) For violation of express statutes.^ (6) For authorizing the contractioii of debts in excess of the amount limited by law.* (7) For contracting debts before statutory requirements, such as subscriptions for stock, either in whole or in part, publication of articles, etc., have been complied with.* (8) For failure to file certificates as to reduction of capital stock.* (9) For false oaths to articles of incorporation.* (10) For making loans to directors.' (11) For making loans to stockholders.^ (12) For loss of funds through negligence,* (13) For failure to display name or itemized accounts at domiciliary office.^ (14) For failure to allow inspection rf books.^ Electric Co. v, Uumj, 60 N. J. L. 20; 37 Atl. 443. 1 Such liability exists in Colorado, Michigan, Montana, New Hampshire, New T<»k, and Oklahoma. See Gairison v, Howe, 17 N. Y. 488; Van Btten v. Eaton, 19 Mich. 187;' Shanklinv. Gray, 111 Cal. 88 ; 43 Pac. 399 ; Cincinnati Cooperage Co. V. O'Keeffe, 120 N. Y. 603 ; 24 N. E. 993 ; Wallace v. Walsh, 125 N. Y. 26 ; 25 N. B. 1076 ; Glenn IWls Paper Co. ». White, 18 Han (N. Y.), 214; Bolen v. Crosby, 49 N.Y. 183 ; Tabor v.BMk, 68 Fed. 888; 10 C. C. A. 429. 2 Such liability exists in Arkansas, Idaho, Indiana, Kentucky, Michigan, North Dakota, and South Dakota. See Ftettenon v. Stewarl, 41 Minn. 84; 42 N. W. 986 ; Lorevin v. McLaaghlin, 161 HL 417 ; 44 N. E. 99 ; Clow v. Brown, 150 Ind. 185; 48 N. E. 1034 ; 49 N. E. 1057 ; Gnnther v. Company, 21 £y. L. Bep. 655 ; 52 S. W. 931. 8 Such liability exists in California, Illinois, Idaho, Mississippi, Montana, New Hampshire, New Mexico, North Dakota, Oklahoma, Khode Island, Tennessee, Ver- mont, and Wyoming. See Tradesmen Pub. Co. V. Company, 95 Tenn. 634 ; 32 8. W. 1097; Lewis v. Montgomery, 145 111.30; 33N.B.880; Honor 9. Heaniiig^ 88 U. S. 988. * Such liability exists in Illinois, Ohio, Vermont, and Wisconsin. See Kent v. Clark, 181 lU. 287 ; 54 N. B. 967; Ckwr v. Brown, 110 Ind. 185 ; 48 N. B. 1084; 48 N. B. 1057 ; Hequembourg v. Edward^ 155 Mo. 514; 55 S. W. 490; Loverin v. McLaughlin. 161 111. 417 ; 44 N. E. 99. 6 Such liability exists in Indiana. New Jersey, and North Carolina. • Such liability exists in MaHadiBscllB. 7 Sach liabOity exists in Massachusetts and New York. See Thacher v. King, 156 Mass. 490; 31 N. E. 648; Connecticut River Bank v. Fiske, 62 N. H. 178; Wit- ters V. Sowles, 31 Fed. 1. 8 Such liability exists in District of Cdnmbia, Mississippi, Missovri, New Hampshira, New Yoric, Oklahoma, Ehode Island, and Tennessee. See Working- men's Banking Co. v. Rautenberg, 103 HI. 460 ; Bank Commissioners v. Bank of Buffalo, 6 Paige (N. Y.), 497. 9 Snch liability exists in Minnesota. See Horn SXlrw Mining Go. v. Ryan, 42 man, 196 ; 44 N. W. 56 ; M. F. N. Bank V. Harper, 61 Minn. 375 ; 63 N. W. 1079. 10 Such liability exists in California and New Jersey. See Eyre v. Harmon, 92 Cal. 580 ; 28 Pac. 779 ; Ball v. Toman, 119Cal.85; 51 FlM. 546. u Sn^liabili^adstsinllewJinMr. 175 § I24t mocmmknom \m mAmzAnoN of cobporahoms. [piet l (15) For embeBzlemeiit <^ officers.^ (16) For faihire to make eeriafieate of payment of capital 8tOCk.2 (17) For making false appraisal as to value of property taken in exchange for corporate stock.^ (18) For not producing liat of stockholders at the annual election of directors.* (19) For permitting an illegal issne of stock or bonds.* (20) For making prohibited transfers of property (21) For issuing stock as full paid when less than its par yalue is paid thereon J § 124. of CkxKpmts Batalmoe. — In order to extend corporate existence speciid kgislatire action is liecessary.^ In nearly all of the States statutes exist providing that for a period of three years after the term of existence limited by its charter has expired, the corporation shall continue to exist for the pur- pose of winding np its affidrs. Express power to extend cor- porate existence is granted in twenty-^ve of tiie Commonwealths.* Where corporations are permitted under their charter to make their term of existence perpetual, this right to extend corporate existence is of very little practical importance. As, however, perpetual existence is permitted in only twenty-seven of the Sta^ it is a qfoestion cf much practical importance in the re- mainder. It has been held by at least one court <^ excellent repute that where the power of amendment of the charter is unlimited, even though it does not refer specifically to the right to extend corporate existence* it may nevertheless be used for that pnrpoae.^ When so extended, it must pay an orgaidsation tax if tiie law 1 Such liability exists in Colorado, New » Such liability exists in North Dakota Mexico, and Pennsylvania. See Scott v. and New York. See Clow*. Blown, 150 Depeyster, 1 Bdw. Ch. (N. T.) 513; Ind. 185; 4S17. B. 1084. Wallace v. Bank, 89 Temi. 630 ; 13 S. W. * Such liability exists in New York. 48 ; Oudcrkiik «i Bttik, lit N. Y. S68 ; S8 ? Snch liability exists in North Dakota. JS. E. 875. See Schley v. Dixon, 24 Ga. 273. 2 Such liability exists in Colorado, » People v. Pfister, 57 Cal. 532 ; Attor- Delaware, Maryland, New Hampshire, ney-General v. Perkin, 73 Mich. 303; North Carolina, and Bliode Uand. Smith v. Company, 58 N. J. Sq. 881 ; * Snek UaUlitf exkte in Conaeetient. 48 587 ; People v. Greene, 116 Mich. See Hequembourg v. Edwards, 155 Mo. 505 ; 74 N. W. 714 ; Frostberg Mining Ca. 514 ; 56 S. W. 490; F. C. T. Ca », Sloyd, v. Company, 81 Md. 28 ; 31 Atl. 698. 47 0. St. 525 ; 26 N. E. 110. » See Part III. Table 8, page 576. « Such liability exists in Delaware and >0 People v. Greene, 116 Mich. 505; Hew Jersey. 74 N. W. 714. 176 CHAP. T.] LjSSII^ATiyE CONTBOL OYER DOMTCIC COBPORATIOMB. § 125 80 provides, eyen though existence is extended under guise of an amendment.^ § 125. Taxation of Domestic Corporations. — Legislative control over domestic corporations is exercised by means of the un- questioned right of such legislatures to impose a tax upon, their organization and annuallj thereafter in the form of a fran- chise tax. The latter may be defined to he a tax levied by the State upon the capital of a corporation in return for the privilege of . exercising its corporate powers within the limits of the State levying such tax. On the general subject of franchise tax the New York Goort of Appeals in a recent case^ spoke as follows : ''The system of taxation in this State is so complicated as to invite mistakes on the part of those who are called upon to enforce the law. In some instances the tax is laid upon property and in others upon rights and privileges connected with the property. There is direct taxation of real estate and of some personal property, indirect taxation of other personal property, taxation of the capital stock of corporations and of their franchises, taxation upon the right of succession to the property left by decedents, and the like. . . . " There is, first, an organization tax, payable to the State, which is imposed but once, and is exacted for the privilege of becoming a cor- poration. Next, there is a tax upon . the real estate owned by tiie corporation in this State, which is assessed the same as if it were owned by an individual. The personal property of the corporation is not directly taxed, but its capital stock and surplus after deduct- ing the assessed value of its real estate and making some other deductions, is assessed at its actual value. Finally, there is a fran- chise tax on corporations which is payable annually to the State, ' computed upon the basis of the amount of its capital stock employed within this State.' This is not a tax upon property, although it is measured by the value of property, but upon the right of a corpora- tion to exist and exercise the powers granted by its charter. These forms of taxation do not all rest upon the same principle. The organization tax is in the nature of a license fee for the right to become a corporation. The tax upon real estate is a direct tax upon real property, while the franchise tax is not laid upon property at all, but is imposed upon the corporation for the privilege of carrying on business in this State and exercising the corporate franchises granted by the State. The distinction between a tax upon the prop- 1 Nl. Lead Co. v. Dickinson (N. J.), ^ People ex rel. etc. v. Knight, 174 N. Y. 57 Atl. 138. 475 ; 67 K. E. 65. IS 177 § 126 INOOBFOIUXIOII AKD OROANIZAIION OF COBPOaAIIONS. [PABT U erty of a corporation and a franchise tax, althougli well established and of great importanoe^ is easily owlooked, as we find from oiir own experienee.'' , With reference to organization taxes there can be no qnesUon raised as to the constitotimiality of sudi taxation.^ The constitutionality of franchise taxes being imposed npon the franchise as a species of property is clearly within the con- stitutional powers of State legislatures In all of the States and Territories, with the exception of Alaska, Arkansas, District of Columbia, Georgia, Indian Territory, and (^khoma, graduated organization taxes are imposed upon demesne ecHrporations. , With respect to annual franchise taxes these are imposed only in the States of Alabama, Colorado, Delaware, Maine, Massachu- setts, New Jersey, New York, North Carolina, Ohio, Oregon, Fennsylvaniay Soulli Carolina, Texas, Vermont, Washington, and West Yirginia. In Alabama, G. State,63 G«. S188; ooafra, |U.&)SS;K.4B.LBy.0o.v.Maisli,17 Feople «. ConpMiy, ia» M. Y. 474; SI 179 § 127 INOOBPOBATIOM AND OBOAMtZATIOK OF OOWO&AXEOlia. [PABt L t c CHAPTER VL LEGISLATIVE CONTROL OVER FOREIGN CORPORATIONS. § 127. Ziztent of Legislative Power of the various Commonwealths over Foreign Corporations. — A foreign corporation maj be defined as one created under tlie laws of a State, Territory, goyeminent, or conntrj other t^aa that wherein it seeks to do business.^ With some few exceptions nearly all of the Commonwealths have enacted statutes prescribing the terms and conditions upon which foreign corporations may carry on business within their borders.* Most of these statutes closely resemble each o^r in charaotery and generally look to the attainment of the same end. Thus, for example, in order to give courts of the foreign State jurisdiction over the foreign corporation and to secure proper protection for such of its citizens as may transact business with the latter, the statutes prescribe that foreign corporations shall designate an agent residing within the State upon whom service of process upon the corporation may be served, and also designate a place of business where it may be found. Such provisions are unques- tionably valid. 3 Again, most of the acts require tliat a certified or sworn copy of the charter of the foreign corporation shall be filed in certain designated offices, usually with the Secretary of State and in the local recording office of the county where its principal place of business is to be located. The object of such enactment is to fur- nish easily accessible evidence of the existence of the corporation, and to protect parties dealing with it from fraud and impositicm.^ Still other States require iJie filing of reports enumerating the officers, giving information relative to the business to be trans- acted within the foreign State and as to the financial condition 1 My V. Coinpnij, 64 Ind. 1. « Evans ». Lee, 11 Ner. IM ; D. P. Co. « See Part III. Table 13, page 583. v, Angmkiiie, 5 Wish. 67 ; 31 PSc 327 ; 8 St. Clair v. Cox, 106 U. S. 356 ; Huffman v. Company, 13 Tex. Of. Ap. Lafayette Ins. Co. o. Stench, 18 How. 169 ; 36 S. W. 306. (U.S.) 404. 180 CHAP. VI.] LEGI^TIYB CONTBOL OTEB fOBEIOM C0EP0BATI0N8. § 127 of the corporation.^ The right to transact husiness in a foreign State is a matter of State comity, pure and simple. The recog- nition of a foreign corporation and enforcement of its contracts in States other than that of its creation rests only on comity, and any conditions governing the right to transact business outside of the domiciliary State of the corporation may be imposed upon them or they may be entirely excluded.' But the conditions imposed must not be repugnant to the Constitution of the United States or to the public policy of the foreign State as evidenced by its statutory enactments ^nd judicial decisions, nor can they be re- pugnant to rules of public law.' In this connection it may be observed that foreign corporations cannot claim the protection of the prohibition of the United States Constitution against denying to citizens of any State the privileges and immunities of citizens of the several States.* Nor can they claim the benefit of the clause agamst denying to any person equal protection of the law.* A State may preclude all foreign corporations not engaged in interstate commerce or in the employ of the general government from transacting business within its limits, and the courts cannot Inquire into ii» reasons for so doing.^ A State may disorimmate between foreign and domestic corporations.^ In short, the power of States over foreign corporations with respect to imposing con- ditions for doing business are as broad as those exercised over domestic corporations.^ Wherever a corporation transacts its business it carries its charter with it, and that becomes the law of its existence in the foreign State, for the charter is the same abroad as it is at home. Whatever disabilities are placed upon the corporation at home are ordinarily equally binding upon it abroad, and whatever proper legislative control it is subject to must in general be recognized and submitted to by those who deal with it elsewhere.^ The foregoing rule should be qualifie4 1 WaOAngUm County Mnt his. Co. v. « Doyle v. Company, 94 U. S. 541 ? DaweB, 6 Gray, Mass. 376. Horn Silver Miiii«g Co. ». New Yoik, 143 2 Paul V. Virginia, 8 Wall. (U. S.) 161. U. S. 314. 8 Lafayette Ins. Co. v. French, 1 8 How. ^ Ducat v. Chicago, 1 0 Wall. (U. S.) 415. 407 ; S. P. Ky. Co. v. Denton, 146 U. S. " Orient Ins. Co. v. Daggs, 173 U. 8. 201 ; Am., etc. Christian Union v. Yount, 566. 101 U. 8. 866. ' • Canada, etc Ry. p. Geblieid, lOS U. 8. * Pani V, Vlfglnia, 8 Wall (U. S ) 168. 697 ; Isle Royale Land Corporation y. Sea. 6 P. C. S. M. A C. Co. ». PWill^lnMJ^ Pake V. Taylor, 37 Fla. 641 ; Dema- Mich. 145; Clarke v. E. R. Co., 50 Fed. restr.Flack, 128N.Y. 205; 28N.S.S45; 338; State v. Water Co., 61 Kaa. 5«8; Colwell V. Company, 100 U. S. 55. People v. Howard, 50 Mich. 239. 2 McDonoagh v. Murdoch, 15 How. ^ L. 6. B. T. Co. v. Commissioners, 6 (U. S.) 413. Kan. 245. * Empife Mflk v. Company (Tex. Ap. ), * Empive WDb ». Company ( Tex. Ap.)« U8.W.MM. lft8.W.10S. i Diamond Ififtcb Oa «. r^nuMb SI ' TUM «. Coapngr, 74 Mo. 544. 182 CHAP. VI.] LBOISLATIVB CONTOOL OVER FOREIGN CORPORATIONS. § 127 corporations shall have no rights or. privileges other than those possessed by domestic corporations of the same character. A fair interpretation of snch statntes^onld seem to be that such foreign corporations shall have equal powers with domestic corporalaons 9<^ *S4N»T.m 185 § 128 VKCoamnumm ard OBGAmsAmm of ocmtcmknom. Ttaxsi. of obstnietkm to tiie free oonzse of genenl oommeioe. Its ayeniies IiaTe been open to an. * In this cmrntry oxa individual interests are so interwoven that tbe nnion of the States is due, in its continuance, if not in its origin, as much to commercial as to political necessity. The citizens of each claim a birthright in the advantages and resources of all. They demand from their. local authorities such facilities as the law-making power can afford in the employment of labor and capital They claim snch corporate franchises and immunities as may enable them to compete on equal terms with the eitixens of other States. For these, with the stmctore of our institations, they naturally look to their own goremment They acknowledge a double allegiance in their local and federal relations, which, by general consent, carries with it a correlative community of rights. They may live in an inland State, but they are none the less citizens of a maritime nation, and they may lawfully organize companies at home for traffic on ocean highways. ''A corporate charter is in the nature of a commission from the Stale to its eitiiens, and their snooessofs in interest, whether at home or abroad. Each goTcmmen^ in the exereise of its own discretion, determines the eonditions of its grant. It is free to impose or omit territorial restrictions, but it can confer general powers to be exer- cised within its bounds or without them, wherever the comity of nations is respected. For the purpose of commerce such a com- mission is regarded like a government flag, as a symbol of allegiance and authority ; and it is entiUed to reoognitioa abroad until it forfeits a recognition at home. ... . . We think the policy of this State is in harmony with that of the eonntry, and that it would be neither provident nor just to inaagorate a role which would unsettle the security of corporate progerty and rights and exclude others from the enjoyment here of privileges which have always been accorded abroad. Our national commerce is but the aggregate of that of the States, and every needless restriction by the operation of local laws is unjust and calamitous to all. We suppose the rules of comity on which we have hitherto acted to be generally accepted and approyed. We see no reason why a Southern State may not grant to a oorporation of its planters the right to ereot mills for the manufacture of their cotton in New England; nor why the legislature of Massachusetts may not , authoriie a company of Lowell millers to raise cotton in South America or the Sea Islands. The State of Illinois touches neither the Atlantic nor the Pacific ; but if it should organize a company of its citizens on the ocean with its office in the City of Jbfew York 186 CHAP. VI.] LBGI8LATITB OOMTBOL OVEE FOBSfGH CORPORATIONS. § 128 and its business conducted by managete elected annuaUy in Chicago, the rights of the corporation would be reoognirod wherever the obligations of national law are respected," Through the operation of interstate comity corporations or- ganized under the laws of one State may exercise their corporate powers outside of the geographical limits of the State from which they have obtained their charter. The doctrine of the courts on this subject is well set forth by the United SUtes Supreme Court in Cowell v. Colorado Springs Co.^ as follows : w By the general comity which, in the absence of positive direction to the contrary, obtains through the States and Territories of the United States, corporations created in one State or Territory are per- mitted to carry on any lawful business in another State and Territory, and to acquire, hold, and transfer property there equally as indi- viduals. If the policy of the State or Territory does not permit the business of the foreign corporations in its limits or allow the cor- poration to acquire or hold real property, it must be expressed in some affirmative way; it cannot be inferred from the fact that its legislature has made no provision for the formation of similar corpo- rations or allows oorppralaons to be formed only by general law." A moat inatmctive case in thia immediate connection is that of Demarest v. Flack,' wherein the New York Court of Appeala observed that: " The courts of every State and country recognize foreign corporap tions through what is termed national or State comity. But whether such recognition shall be given must be decided by the courts of the country where the corporation seeks to do business. In our State, as in others, it is a question of domestic policy, and what that policy is must be determined by an examination of our own legislation. If we find any direct enactment upon the subject, it is our duty to obey it, and in its absence we must determine the question with reference to our general legislation and to the circumstances which surround us as a great and growing commercial community, having need of aiid employing large amounts of combined capital, and fmr whose prosperity and growth it is of the utmost importance that such capital should have the greatest facilities extended it for useful employment, with reasonable and proper personal exemptions from liability. We can find no reason for a domestic policy that should exclude from recog- 1 100 U. S. 55. « 128 N. Y. 205j S8N.E. 64S. 187 § 128 IHOOBPqftATIOlf AKD OBOAMISATION OF OOBIHHUIIOHS. [PABTI. nitioa by our courts foreign corporations generally. It may safely be said there can be no sncb domestic policy at the present day in a einlized State. ... ** An examination of our laws shows that it is, and for many years has been, the policy of this State to enlarge the facilities for the formation of corporations. General laws are on our statute book for the formation of corporations of almost every conceivable kind, and under some one of them a corporation of the kind mentioned in the case could readily be formed. The freedom from personal liability would be as great and could be as easily attained under our own as under the laws of West Virginia. The security of the creditor would not be substantially greater in the case of the domestic than in that of the foreign corporation. In the latter the creditor has the remedy by attachment, and he can obtain about as easy access to its property as if it were domestic instead of foreign. " There is really nothing to evade by incorporating under a foreign law. No harmful results flow to a creditor or to the community here by such incorporation. Where the oorpozatlon formed under another jurisdiction oomes here to do business of a kind which we permit to be done by corporations, and where our laws provide for incorporating individuals for the purpose of doing that business, it is difficult to see how the terms * evasion ' and * fraud' can be prop- erly applied to acts of our citizens whereby they obtain incorpora- tion in another State. When they come in our State to do business they must conform to our laws relating to foreign corporations and comply with the terms laid down by us as conditions of allowing them to transact business here. In the case of many kinds of cor- porations such conditions liave already been imposed by our laws, and if tiiere be any kind where none is imposed it is conclusive evidence that up to this time the legislature has not thought it conducive to the true interests of the State and its citizens to impose them. I do not intimate that it is necessary for a State to expressly by statute exclude foreign corporations from acting within its juris- diction. The policy of the State may exclude them, and that policy may be clearly established by a reference to the general l^islatioii of a State. I find none such, in the laws of this State. "It has been urged that the easy way which our laws provide for forming corpora^ons is itMlf a reason why we should not recognize as a corporation those of our own citizens who have gone to another State for the purpose of incorporating themselves under the laws thereof, to do business in our own State as such corporation. "We think there is very little force in the argument. The public policy which we see in our own State, as evidenced by her laws upon ISS CHAP. VI.] LBQISLATITB OONXBOL OVEtt FOBEIGN COBPOBATIONS. § 128 the subject of the formation of corporations, is one which looks to their ready and easy formation as a means of transacting business with an accumulation of capital and an exemption from personal liability to the largest extent consistent with reasonable supervision by the State. The facilities for incorporation offered by this State are not the result of any desire to promote the formation of corpcwar tions here as against their formation in other States. They are offered because of a policy on our part which urges upon the Stete the propriety of furnishing them as one means of controlling the business done by them and keeping it within our borders. If in any particular case it is thought by those interested in the matter that the business can be done in our own State and by our own citizens with greater facility under the form of a foreign corporation than under that of a domestic one, there is no pubUc poUcy which forbids its transaction under such form. The supervision of a foreign cwr- poration by this State may easily be exercised by imposing terms as Tcondition of permitting it to do business here. The absence of mr such terms in our legislation forms no reason for refusing to reojgnize the corporation. The power rests with the legislature to say whether any, and if so what, terms shall be imposed upon such corporations as a ccmdition of granting them permission to do business here. Those terms can only be imposed by the legislature, and in their absence our courts ought not, merely on that account, to refuse to recognize a foreign corporation. In the absence of legislaiaon, our courts must either refuse absolutely, or else they must recognize the right of such corporations to come to this State and do business here. The courts cannot themselves impose terms or conditions. ... **The truth is, foreign corporations are not properly to be regarded with suspicion, nor should unnecessary restraints be imposed upon their doing business in our midst. They carry no black flag, and the policy of all civilized nations is to grant them recognition in their courts. It seems to me that every reason which urges upon us toe recognition of foreign corporations organized with power to do business in our State and composed of citizens of the foreign »»te, is equally potent when the foreign corporation is composed of our own citizens. It has always been supposed that a State should^ at least deal as liberally witii its own citizens as with those of foreign States. If, tiierefoie, we permit foreign citizens to come within our limits in the form of a foreign corporation organized with power to do business here and recognized by us, why should we not permit our own citizens to avail tiiemselves of the like privUege ? If we impose terms and conditions upon foreign corporations, » ww^j doing business here, those same terms and conditions stiU and § 129 INCOBPOBAUON AND OfiGAMIZjlTION OF COBPOKATIONS. [PABTi* equally apply to a foreign corporation when composed of our own citizens. Why should they not ba |jaoed at least upon an equality with the foreign oitizen?"^ § 129. Wbat ot m s tito Ua doing BnrineM on tito Part of a Foreign. Oorpotatlon witido the State. — There is perhaps no subject of corporation law wherein will be found greater diversity in the opinions of the courts of the several Commonwealths than that relating to the rights of foreign corporations. The growth of corporate organization as well as the vast extension of tiie bnsi- nesB of corporations ontnde , 106 III. II , 10 WdJ. 5T«riN«»bi«aali|ir*»M- * State Rf """""d, « O &t. 214 1 • 125 U S 184 13N. K.30; Miles ». Woodward, 115 Cal. Hlaftman Company, 13 Tex. Civ. 308 ; 46 I'ac. "076 ; State v. Company, 39 Ap. 169 ; 36 S, W. 306 ; E. & S. A. M. & I. Minn^538 i *l W. 108. Co. Hardy, 93 Texas, 289 ; 55 S. W. ^ * D^I* C«mp«y. M V. S. 535. 169 : Utley ... Company, 4 Col. 869 ; Green Hartford Fi« InSj_^Co r. Vtfmmi. T t Aviation, 105 Ioirm,6S8; 15 N.W. Mich. 485 ; 38 N. W. 474. 199 §132 INCOBPOBATION AND OBaANIZATION OF COftPOIUTIONS. [P^J. in Horn Silver Mining Co. v. State of New York.^ Upon the sub- ject just referred to, that court s|x>ke as foiioirs: " The right and imyil^ or the feanehise, as it may be termed, of being a emrporation, is of great Talne to its members, and is con- sidered as property, separate and distinct from the property which the corporation itself may acquire. According to the law of most States this franchise or privilege of being a corporation is deemed personal property and is subject to separate taxation. The right of the States to thus tax it has been recognized by this court and the State courts in instances without number^ It was said, in Delaware Railroad Tax,^ that * the State may impose taxes upon the corporation as an entity existing under its laws, as weU as upon the capital stock of the eorporatiou m its sepoiate corporate property. And the manner in which its yalue shall be assessed, and the rate of taxation, howeyer arbitrary or capricious, are mere matters of legislative dis- cretion,' except, we may add, as tliat discretion is controlled by the Organic Law of the State. And, as we there said also, 4t is not for us to suggest in any case that a more equitable mode of assessment or rate of taxation might be adopted than the one pre. scribed by the Legislature of the State; our only concm is with the validity ol the tsz; all else lies beyond the domain of our jurisdiction/ ^"The granting of the rights and privileges which constitute the franchises of a corporation being a matter resting entirely within the control of the legislature, to be exercised in its good pleasure, it may be accompanied with any such conditions as the legislature may deem most suitable to the public interests and policy. It may impose as a condition of the grant, as well as, also, of its ecmtinued exercise, the payment of a specific sum to the State eaeh year, <» a portion of the profits or gross receipts of the oorporation, and may prescribe such^mode in which the sum shaU be ascertained as may be deemed convenient and just There is no constitutional inhibition against the legislature adopting any mode to arrive at the sum which it will exact as a condition of the creation of the corporation or of its con- tinned existence. There can be, therefore, no possible objection to the validity of the tax prescribed by the statute of New York, as far as it relates to its own corporations. Nor can there be any greater objection to a similar tax upon a foreign corporation ^g business by its permission within the State. As to a fordgn corporation — and aU oorpotatiwis in States otiier ^ the State of its creation are 1 143 U. S. 305. « SS U. 8. (1« Wan.) 206. OHAP.TI.] LBOIK-ATITB CONTROL OVBB FOREIGN COBPOBATIONS. § 132 deemed to be foreign corporations — it can claim a right to do business in another State to any extent, only subject to the conditions imposed by liie laws. _i. ^.v 4. x. ** This doctrine has been so frequently declared by this court that it must be deemed no longer a matter of discussion, if any question can ever be considered at rest. ^ ^ "Only two exceptions or qualifications have been attached to it in all the numerous adjudications in which the subject has been eon- sidered, since the judgment of this court was announced more than half a century ago in Bank of Agusta v, Earle.^ One of these qualifications is that the State cannot exclude from its limits a corporation engaged in interstate or foreign commerce, established by the decision in Pensacola Teleg. Co. v. Western U. Teleg. Go.^ The other limitation upon the power of -the State is, where the corporation is in the employ of the general government, an obvious exception, first stated we think by the late Mr. Justice Bradley m Stockton V. Baltimore & N. Y. E. Co.» As that learned justice said, < If Congress should employ a corporation of ship-builders to con- Steuct a man of war, they should have the right to purchase the necessary timber and iron in any State in the* Union.' And this court, in citing this passi^, added, ' without the permission and against the prohibition of the State.* * "Having the absolute power of excluding the foreign corporation, the State may, of course, impose such conditions upon permitting the corporation to do business within its limits as it may judge expedi- ent; and it may make the grant or privilege dependent upon the payment of a specific license tax, or a sum proportioned to the amount of its capital. No individual member of the corporation or the cor- poration itself can call in question the validity of any exaction which the State may require for the grant of its privileges. It does not lie in any foreign corporation to complain that it is subjected to the same law with the domestic corporation. The counsel for the ap- pellant objects that the statute of New York is to be trealed as a tax law, and not as a license to the corporation for permission to do business in the State. Conceding such to be the case, we do not perceive how it in any respect affects the validity of the tax. How- ever it may be regarded, it is the condition upon which a foreign cor- poration ^n do business in the State, and in doing such business it puts itself under the law of the State, however that may be eharacterized." 1 13 Peters (U. S.), 519. * Pembina Con S. Min. & Mill Co. 2 96 U. S. 1 . Ptemsylvania, 185 U. S. 181. 8 32 Fed. Rep. 9. 201 § 188 INCOBPOBAHON AND omAimjauas w oospimATioss. [PARTh From the foregoing opinion it is clear that it is nnqnestionablj within the power of the Tarioos State legislatares to impose an annual license tax upon foreign corporations transacting business within their limit. However, but few of the States have chosen thus far to exercise this power. Alabama, Colorado, Massachusetts, New York, Oliio, Oregon, Texas, Vermont, Virginia, Washington, and West Virginia are the onlj States wHieh impose an annual license tax upon foreign corporations. In each of these States the tax is a graduated one, the amount thereof depending either upon the authorized capitalization of the corporation, or the amount of the capital stock represented by capital invested in the foreign State where such annoal license tax is imposed* § laa. To what Bst0iit is Hub Taxing Power oi the State with Reference to Domestic and Foreign Corporations Engaged in Inter- state Commerce Limited by the " Commerce Clause " of the Federal Constitution? — The question as to the extent of the legislative power of the various State legislatures with reference to taxing domestic and foreign corporations must always be arrived at by giving due consideration to the limitations imposed upon this power by the provisions of what is known as the ''Interstate Commerce Clause of the Federal Constitution." i Again, this question, in order to permit of intelligent consider- ation, mnst be viewed from four standpoints, to wit: (1) What effect, if any, has the Interstate Commerce Clause of the Fed- eral Constitution upon the right of the several States to impose organization taxes upon corporations engaged in interstate com- merce ? (2) What effect, if any, has the Interstate Commerce Clause of the Federal Constitution upon the right of the several States to impose franchise taxes upon corporations engaged in interstate commerce? (3) What effect, if any, has the Interstate Commerce Clause of the Federal Constitution upon the right of the several States to impose license taxes upon corporations engaged in interstate commerce ? (4) What effect, if any, has the Interstate Commerce Clause of the Federal Constitution upon the ri^ht of the several States to impose property taxes upon corpora- tions engaged in interstate commerce? Each of these will now be taken up for separate consideration. (1) What effect, if any, has tlie Interstate Commerce Clause of the Federal ConstitatitHi upon the right of the several States 1 See Constitution of the United States, Art. I. sec. 8, clause 3. 202 €HAP. VI.J LBGISLATIVB COHTBOL OVBB FOREIGN COBPORATIONS, § 138 to impose organization taxes upon corporations engaged in inter- state commerce ? The State is said to possess inherent power to tax its corporations. So the State has undoubted -power to exact a bonus for the granting of a franchise, payable in advance or in futuro} A round sum or an annual charge, with or without ref- erence to capital stock, may be asked by the legislature for such a franchise.* In discussing tlie question of the right of a State to impose a fee, a license or a tax upon corporations, the Supreme Court of the United States in Ashley v, Ryan,» spoke as follows : At the time the articles were presented for filing, the statute law of the State charged the parties with notice that the benefits which it was sought to procure could not be obtained without pay- ment of the tax for consolidation which the Secretary of State exacted. As it was within the discretion of the State to withhold or grant tiie privilege of exercising corporate existence, it was as a neces- sary ^sultant also within its power to impose whatever conditions it might deem fit as prerequisite to corporate life. The act of filing, constituting, as it did, a claim of a right to the franchise granted by the State law, carried with it a voluntary assumption of any bur. den with which the privilege was accompanied, and without which the right of corporate existence could not have been procured. Having thus accepted the act of grace of the State and taken the / advantages which sprang from it, the corporation cannot be per- ndtted to hold on to the privilege or right granted and at the same time repudiate the condition by tiie performance of which it could alone obtain the privilege which it sought. That the right to be a State corporation depends solely upon the grace of the State and is not a right inherent in the parties, is settled. "... It follows from these principles that a State in granting a corporate privilege to its own citizens, or, what is equivalent thereto, in permitting a foreign corporation to become one of the constituent elements of a consolidated corporation organized under its laws, may impose such conditions as it -deems proper, and that the acceptance of the franchise in either case implies a submission to the conditions without which the franchise could not haye been obtained." The right of the State to impose such taxes upon the organiza- tion of a corporation is in no wise affected by the Interstate Com- merce Clause of the Federal Constitution ; this, too, even when 1 B. & 0. B. B. Co. V. Maiylsiid, SB 2 Gordon ». Appeia Tax Courl^S Horn U.8.45S. (U.S.) 134. 8 153 U. S. 436 203 § 138 INCOBPOBATION AND ORGANIZATION OF COBPOBATIONS. [PABT L the corporation is formed for the express purpose of engaging in interstate commerce. In the words of the United States Supreme Court, ^ the right and privilege of being a corporation is of great Talne to its members, as it is considered as property separate and distinct from the property which the corporation may acquire. According to tlie law of most States tliis franchise, or privilege of being a corporation, is deemed personal property and is subject to separate taxation. The right of the State to thus tax it has been reei^ized by tiiis court and the State ooorts in instances without number." * (2) What effect, if any, has the Interstate Commerce Clause of the Federal Constitution upon the right of the several States to impose franchise taxes i^n corporations engaged in interstate commerce? Again, atten^on is here called to t^e decisions of the United States Supreme Court relative to the exercise of the power in question. The granting of the rights and privileges," observes that tribunal, " which constitute the franchises of a cor- poration, being a matter i*esting entirely within the ccmtrol of the legislature, to be exercised in its good pleasure, it panied with any sndi conditioiis as the legislatnre may deem most suitable to the public interests and policy. It may impose as a condition of the grant as well as also of its continued exercise, the payment of a specific sum to the State each year, or a portion of the profits or gross receipts ot the corporation, and maj pre- scribe sach mode in which the Bum diall he ascertained as may be deemed conTenient and just. There is no constitutional inhi- bition against the legislature adopting any mode to arrive at the sum which it will exact as a condition of tiie creation of the corporation or of its continued existence. There can be, there- fore, no possible objection to the validity of the tax prescribed by the statotea of any State so far as it relates to its own corpora- tions, nor can there be any greater objection to a similar tax upon a foreign corporation doing business by its permission within the State. As to a foreign corporation, it can claim a right to do borineas in another State to any extmt only sabject to the conditions imposed by its statutes. Only two exceptions or qualifications have been attached to the foregoing, to wit : One is that the State cannot exclude from its limits a corporation en- > H.».II«irTaik, YoA, 134 IT. 8. 5N; Dalnran B. B. IM v. 8. 305; HoM bi.CSa.fi. Bnr Tmx, 86 U. a MS. 204 CHAP. VI.] LiaiSLATITK OOHTBOL OTHl FOBHSH COBPOBATIONS. § 133 gaged in interstate or foreign commerw. The other limitation is St where the corporation is in ti.o employ of tiie goyernment. Having the absolute power to exclude the foreign corpora ion the State may of course impose such conditions upon permittmg the corporation to do business within its limits as it may judge expe- . dient ; and it may make the grint or privilege deP^.-^den* "P^" the payment of a specific license tax or a sum proportioned to the „nount of its capital. No individual member of tin, eorpomtion or the corporation itself can call in question the vahdity of any exaction which the State may requii-e for the grant of its pr.v- ilecres. It does not lie in any foreign corporation to complain that- it Ts subjected to the same law with tiie domestic corporation. In a certain sense the imposition of an organization ta» w M much the levying of a franchise tax as the imposition by a State of annual tiixes upon corporations in return for the right to exer- cise their corporate powers witiiin tiie jurisdiction of the State. The one has been defined to be a "franchise to be,' and tiie otiier as a " franchise to do."* «• _ (8) What effect, if any, has the Interstate Commerce CTause of the Federal Constitution upon the right of the several States to impose lioensij taxes upon corporations engaged m interstate commerce? Sta-ictly speaking, the imposition of a franchise tax has reference only to domestic corporations, whUe licenM taxa, when applied to corporations, have reference not only to domestic corporations, but to foreign corporations as well. Foreign coi- poMAions, as such, can be taxed by foreign States only upon Corporate property sitiiated within such foreign State, or upon tiie business done there. They cannot be taxed in a foreign State on account of their corporate franchises, as that was not given by tiie laws of the foreign State but was dependent upon the laws of the State of its creation and had an existence separate therefrom. A corporation may, ttirough its agent., extend its operations into other States, and thus, metaphorically speaking, go tiiere; but it never really travels, and its franchises exist only at tiie place of its domicile and residence.^ Expre- Co. OUo. 16. v. Coite. 6 Wall. 606, By. Co, TT ft • Home Insurance Co. v. New 142 U. S. 227. i^r ir m'u TeOO, Reading R. R. ». ' People. Equitable Tna.t Co.. 96 SNT. PH»^lY»u^ 15 W»a. 296 J State B. B. S87; PUmptoD v. Bigelow. 93 S. T. 5M. 205 §183 INOOBFOSATIOH AKD (XMAHHATIOIV OF OOBPORATIONi. [PART I. On the other hand, tiiere is clear diirtiiietion between a license tax and a property tax. The former involves a charge for permission or authority to transact certain business, while the latter, when applied to corporations, is a contribution imposed upon and measured by the property of ike corporation.1 The right to impose a license* tax npon corporations is snbject to tiie following limitation : If the tax is essentially a regulation of interstate commerce and its imposition does not constitute a proper exercise of the police power of the State, then it comes within the inhibition of the Interstate Commerce Claiise of the Federal Constitution.* Again, in Pemhiiia Consdidated Silvw Mining & Milling Co. V. Pennsykania,* the United States Supreme Court spoke as follows : ** The exaction of a license fee to enable the corporation to have an office for the transaction of its business within a foreign State is clearly within the competency of the legislature of that State. The recognition of the foreign corporation's existence in a foreign State, even to the extent of allowlDg it to have an office within its limits for the use of its officers, agents, and employees, was a matter de- pendent upon the will of the State. It coold make the grant of the privilege condi^onal npon payment of a license tax and fix the same according to the amount of the anthorized capital of the corporation. The absolnte power of exclusion includes the right of a conditional and restricted exercise of its corporate powers within the State, v The equal protection of the laws which these bodies may claim is only such as is accorded to similar associations within the jurisdiction of the State. The plaintiff in error is not a corporation within the jurisdiction of Pennsylvania. The office it hires is within snch juris- diction, and on condition that it pays the required license tax it can chiim the same protection in the use of the oflSce that any other cor- poration having a similar office may claim. It would then have the equ^ protection of the law so far as it had anything within the jurisdiction of the State, and the constitutional amendment requires nothing more. The State is not prohibited from discriminating in the privileges it may grant to foreign corporations as a condition of their doing business or hiring offices within its limits, provided always such discrimination does not interfero with any transaction 1 Cooley on Taxation, 2nd ed. pp. 383, 2 People ex rel PeniujhsBia B. B. 576 ; Welton v. Missouri, 91 U. S. 275 ; Wemple, 138 N. Y. 1. Emert v. Missouri, 156 U. S. 296. « 125 U. S. 181. 206 CHAP. VI.] LEGISLATIVE CONTROL OVER FOREIGN CORPORATIONS. § ISS by such corporations of interstate or foreign commerce. It is not every corporation lawful in the State of its creation that other States may he willing to admit within their jurisdiction or consent that it have offices in them; such, for example, as a corporation for lotteries. And even where the business of a foreign corporation is not unlawful in other States the latter may wish to limit the number of such cor- porations or to subject their business to such control as would be in accordance with the policy governing domestic corporations of ^ a similar character. The States may therefore require for the admis- sion within their limits of the corporations of other States, or of any number of them, such conditions as they may choose, without acting in conflict with the concluding provision of the first section of the Fourteenth Amendment. « The only limitation upon this power of the State to exclude a foreign corporation from dohig business within its limits, or hiring offices for that purpose, or to exact conditions for allowing the cor- poration to do business or hire offices there, arises where the cor- poration is in the employ of the Federal Government, or whero its business is strictly commerce, interstate or foreign. The control of such commerce, being in the Federal Government, is not to be restricted by State authority." In Waters Pierce Oil Co. v. Texas ^ it was said that : *^ Having no absolute right of recognition in other States, but de- pending for such recognition and enforcement of i^s contracts upon their assent, it follows, as a matter of course, that such assent may be granted upon such terms and conditions as those States may think proper to impose. They may exclude the foreign corporation entirely; they may restrict its business to particular localities, or they may exact >suoh security for the performance of its contracts with their citizens as in their judgment will best promote the pubUo interest. The whole matter rests in their discretion." In Hooper v, Oalifomia^ conditions imposed upon a foreign corporation were considered, and a statute was sustained, making it a misdemeanor for a person in California to procnre insurance lor a resident in that State from an insurance company not mcor- porated under its laws, and which had not filed a bond required by the law of the State. All preceding cases were cited, and it was assumed as settled that the right of a foreign corporation to engage iu business within a State other than that of its oreatioii, 1177 U.S. 28. •166U.S..648 J 3»L.Ed^2^97. § 133 INCOBPORATION AND ORGANIZATION OF COBPOBATIONS, [PABT I. depends solely upon the will of snch other State. " And the ex- ception to the rule was stated to be " only cases where a corpora- tion created by one State rests its right to enter, another and to engage in hasiness thereui upon ihe federal nature of its business.*' A State may tax the franchise of a domestic corporation or impose a license tax upon a foreign corporation, but can only subject a corporation engaged in interstate commerce or in the employ of the general government to such property taxation as only incidentally afPeets its occupation, as all business, whetlier of individuals or corporations, is affected by common governmental burdens.^ ^ The power to license is a police power, although it may be exer- cised for the purpose of raising revenue.^ But ilie State in the exercise ovide for security of lives, linabs, health, and comfort of persons and protection of property, or in regulation of highways, canals, railways, and other commer- cial facilities, passage of laws to regulate sale of articles deemed injurious to health or morals of community ; imposition of taxes on persons residing within the State and upon occupations pursued therem, not directly conneeted with foreign or interstate com- merce or with some other business exercised under authority of the United States and imposition of taxes upon all property within the State mingled with and forming part of the great mass of property therein.* ' (4) What effect, if any, has the interstate commerce clause of the Federal Oonstitntioii upon tbe right of the several States to impose property taxes upon corporations engaged in interstate commerce ? IT I ^ TfhgMpi Co, II. 155 576 ; Philadelphia, etc. Ass'n v. New York, a w ' n fl. ®- saver Mining Co. v. 2 W.ggin. Co. 1^ Btrt fiH. Lodi, 1S7 New York, 143 U. 8. 805; Poitel. etc ^•r, Cable Co. v. Charleston, 153 U. S. 698: 8 Austm V. Tennessee, 179 U. S.S44; Martin v. K R., 151 U. S. 677; Hoopers T^VK^'''^^-J^-5-^^^^- California, 155 U. S. 652; BonZn trfl^n Q^'.S^^^L^ t!!L?"; R^il^'^y. 125 U.S. 491; Smith ..Alabama, trict, 120 U. 8. 498. See atao Liverpool 124 U. S. 474. laa Oa. V. MaMehMetti^ 10 WaQ. (U. 8.) 208 pHAP. YI.] LEGISLATnrE CONTROL OTEB FOBEIGN C0BP-81 AMOUNT, limitations upon amount of ei^^tal atodc ••••••• 89-70 of ftoeik paid in 72 subscriptions 70-71 with which a corporation may begin buaineia • • • • 73 ANNUAL LICENSE TAX, upon foreign corporationa 199-202 ANNUAL MEETING, date of • • • place for holding •••• •••• 40 ANNUAL REPORTS. (See Skpobts.) ANTI-TRUST AFFIDAVIT . . . . ; • • • • 81 ANTI-TRUST LEGISLATION 167-168 884 OESmAh INDEX. APPLICATION FOB CHARTERS, form of • • J2 refusal of «),ra-«JI APPOINTMENT, of executive committee lan of resident agent 1^ APPRAISAL OF PROPERTY, by directors |^7-I38 by State olBcialB Al taken by a oorpoi»laon in exchange for captal ifcock . . . 137-138 ARTICLES OF AGREEMENT, purpose of ARTICLES OF ASSOCIATION, synonymous with charter • • • 11 ARTICLES OR CERTIFICATE OF INCORPORATION, acknowledgment of i;,-^7?o amendment of • 14o-lo2 contents of .... • defects in ^ evidentiary effect of ' * ' oa *oa_St filing, publishing, and recording of 80, 86-W miscellaneous provisions relative to contents of 76-77 publishing ^2 recording • remarks on * ...... 7v sigmng. • tjnxmjmom with charter u ASSENT OF STOCKHOLDERS, toby-laws ^2 to preferred stock ^ ASSESSMENTS, forfeiture of shares for nqn-payment of stock 108-109 power to levy ASSETS, ^ • of corporations liable for their debts 1** power of corporation to dispose of its entire 61-52 ATTORNEY-GENERAL, approval of articles by 7? bringing of quo warranto proceedings by • !»• BENEFITS, ^ ^ . doctrine that the reception of benefits under an ullra vires contract cuts ofE the right to set up its illegality 63 BEQUESTS, power of corporation to accept oa BOARD OF DIRECTORS. (See Directors.) BOARD OF MANAGEMENT ^ BONA FIDE PURCHASERS OF SHARES, liability of, to creditors : . . . . .171-172 665 GENERAL INPEZ. BONDED INDEBTEDNESS, limitations upon (See Part II.) BONDHOLDERS, right to participate in election of directors 07 BONDS, power to issue •••••• 00 BONUS, to be paid to the State upon creation of corporation! • • • 84-85 BONUS STOCK, X48 BOOKS, inspection of corporate , 165-167 open to inspection of creditors 165-167 stockholders ......... 165-167 what books corporations required to keep (See Part II.) where kept 65-66 BOOKS OF ACCOUNT. (See Books,) BORROW, incidental power of corporations to , 00 BREACHES of TRUST, by directors .174-176 BURDEN OF PROOF, when thrown upon creditors in attacking yalnation of property taken in exchange for stock 125-137 when thrown upon stockholders in attacking valuation of property taken in exchange for stock 125-137 BCrSINESS, entire, may be transacted ostride of domiciliary State .... 40 power to trati8aet,oiitade of doimdifiaiy Stale 38-40 IHrindpal plaoe of • . 06 BUSINESS GORPORATIOK, TiMwmIng of term 0 BX-LAWS, adoption of • ^ 90-100 by direeloft n... 75 alteration of 90-100 book of * . . . . 100 definition of 00 inherent power to mak« 33 mode of enacting 33 power of directors to adopt 65-56 of stockholders to adopt , 99 to enact 33 to inflict penalties for violation of (See Part II.) ■latatory proTlsions lelatiYe to loo C. CAPITAL, Mabifity of direetors for deelaring dividenda Out of 174 wbalisiWliflnafpiiedtoeoipoiiSiioiit 07-68 . 666 GENE&AL INDEX. CAPITAL STOCK, .... 41 decrease of •* * definition of increase of * 112-113 r==:U«^*oi ^^'^''Vm^d manner of payment of payment of, in cash 120-1'^'^ p~p?^ m services CEETIFICATE OF CAPITAL STOCK, ^ ^ ^^^^^^ when must issue 110-111 who entitled to * *. UO-IU who must sign ' ' r 1^ CERTIFICATE OF INCORPORATION. (See AeticlW orlmoom- PORATION.) CERTIFICATE OF ORGANIZATION, ^ ^ ^ synonymous with charter ''*'*'%** CHANGE IN ARTICLES. (See AnKHDMBirr TO Abmclm.) CHANGE OF CORPORATE NAME • • " CHARTERS, , . • 77-78 construction of ^ creation of corporationi under definition of * ' essentials of ^ form in which granted * nature of (See also Articles of Incobporation.) selection of matters to be inserted in . . . (See Part lU. 642-644) CITIZENS, meaning of term in federal constitution *^ CITIZENSHIP OF CORPORATIONS ^ CLASSIFICATION, of directors * " of incorporation acts »... •••• COLLATERAL ATTACK, 21-81 SS-W upon corporate existence upon corporate powers upon corporate purposei COMBINATIONS, , . , * in restndnt of trade, unlawful trusts few the control of corpora, tions and the prevention of competition among tiiem . . . lOi-ioa COMITY, t Qjt i ftA doetriue of State ^^^^ COMMENCE BUSINESS. . time within which corporation must organize and . . . ' ^"^^^^^ when corporation entitled to ^"^ n i COMMENCBMENT OP CORPORATE EXISTENCE . ... 9i-94 COMMENCEMENT OF OPERATIONS (See Commence Bitsixf.ss.) SJSIeCE CLAnSBOP THE FEDEEAL CONSTITUTION^ 202-210 G£N£RAL INDEX. GENERAL INDEX. COMMERCIAL PAPER. (See Neootiabls Instbuments.) COMMISSIONERS, to take stock sabscriptious 99 COM.MITTEE, executive ^ 107-108 COMMON LAW POWERS, definition of ••••••••••• 30-31 enumeration o£.* .....,«.^ 30-til COMPANY, does not imply incorporation 14 COMPETITION, combinations or trusts among corporations for the prevention of . • . 167-168 CONCLUSIVE, meaning of, in relation to eyidentiary elEect of documents • • • 26 CONDITIONS, imposed upon domestic corporations with reference to transaction of business within State 145-179 imposed upon foreign corporations with reference to transaction of bvidiiess wHhin Stete 180-210 CONDITIONS PRECEDENT, to coming into ezistenee as a oorporatipn 93 CONDITIONS SUBSEQUENT, forfoitoie of chartsn oil the happening of 93 CONSOLIDATION, meaning of 40 payment of taxes iqpem $5 ivgnlation of lifjtA of 17&-179 CONSOLIDATION OF CORPOBATIONS, when power exists • 99 CONSTITUENT ACTS, power to perform outside of domicHiary State 40 CONSTITUTIONAL LAW 181,202-210 CONSTITUTIONAL PROVISIONS, creating indindnal KaMMty of stockholders for eorporate debts 169-174 CONSTITUTIONAL RESTRAINTS, lehitiTe to impairii^ the citations of oontraeta' 153-151 npon the creation of corpmtions •••• 9 CONSTRUCTION OF CHARTER rT-79 CONTRACT^ impairing obligation of • • • . 77-78 power of ccarpotations to make 00 CONTROL Oi* QQRFORATiONS, who entitled to ..•« 102 CORPORATE AGENTS, powor to appcMnt • ••• 83 CORPORATE BOOKS. (See Books.) CORPORATE ELECTIONS. (See Euccnoirs.) .068 CORPORATE EXISTENCE, at aa collateral attack upon . . 21-28,88-92 duration of .J^lt extension of Aft_ii * power to extend ^0 41 proof of right of State in direct proceedings to attack 90-9l when commences CORPORATE NAME, not alienable . power to diange ^| right to CORPORATE OFF ICERS» election of ^^^^^J power to appoint CORPORATE POWERS, at common law • 30 31 classification of 29-30 collateral attack upon 21-28 consolidation of-..« definition of 30, 34, 59 enumeration of 34-35 express 30,34,36 financial ^ implied 30-31,69 ini^dental. . . . . , 80,59-60 powOT of amotion 60-61 to give and accept evidences of deht • 60 mortgage and pledge 60 pnrcdiase corporation's own stock •^ • 36-37 purchase stock in other corporations « • . • • • * 37-38 CORPORATE PURPOSES* collateral sttadc upon . • 15-19 illegal number Qf 19-20 CORPORATE SEAL, right to adopt and use ft ^ CORPORATIONS, cannot be <»eated by voluntary agreement 10 cannot become incorpocatois • 1^ citizenship of ^ common law powers of • • ^® consolidation of 178-179 created by special act 9-10 de facto corporations 87-88 definition of domicile of ®® express powers of 34-86 eztennou of corporate existence , . . . . 10-41 for what purposes may be fovraed It 669 G£N£BAL INDEX. CORPORATIONS ^ continued, iocidental powers of 59-60 iiaiDe^if 14 i power of minonlj stot^bolden to eompel purcbM . 47 lo amend artieks before organiwtioii 58 appoint executive committee 59 authorize directors to adopt bj-laws 56-^ authorize voting by proxy 40 bestow upon boodholder'B right to yote at eoiporale elections •••••••• ••••,,, |J7 borrow money , 60 change corporate domicile 47 change corporate name ^ 4^ change corporate purposes "4g change namber of directors 43 change par value of shares 57 change principal place of bnsinesi 47 ^ classify directors ..•^..^ 57-58 diminish corporate powers • • . 57 dispose of corporate assets as an entirety .... 51-5S enforce a lien upon stock to secure payment of corporate debts , . . , 47-48 enlarge corporate powers 56 forfeit stock 48-4d increase or decrease capital stock 41 insert provision for regulation of internal affairs . . 53-55 issoe preferred stock 41-45 issue stock in azehaogie for services or property . . 49-50 levy assessmoits •••«......,. 48-49 make contracts ^ ^ 00 perform constituent acts , 40 {>ermit cumuhitive voting 49 purchase its own stock 86-37 purchase stock in other corporations 87-38 surrender charter before orgamzation 58 transact business outside of domiciliary State . • . 38-40 voluntarily dissolve the corporation 62-53 steps necessary to creation of 12 time witiiin whkdi corporation must organize 109-110 where can be created by special act g CORPORATOR j2 COUNTY OFFICES, y filing and recording in , 86 CREDITORS, directors* liability to 174-176 right of, to enforce stockholders' liabilily for corporate debts . 169-174 inspect corporate books , .165-167 stockholders' liability to.«.,«.«^,,,,, 160-174 CUMULATIVE VOTING. at corpoiata eleetioiis •••••• 49 670 GENERAL INDE& D. DARTMOUTH COLLEGE DECISION 153 DATE OF ANNUAL MEETING • 74 DEBTS, limitation npon account of corporate 74-75 power of corporations to incur •• 60, 74-75 DECREASE OF CAPITAL STOCK 41 DE FACTO CORPORATIONS, «r-9a DEFAULT, in payment of annual tax, effect of •••••••••• 160 DEFINITIONS, business corporation . , . 0 capital stock • . • • 68 incorporation ^ incorporator ••••..«•••• 12 shares cS. stock ...,..••.•• 68 BE JURE CORPORATIONS 86-90 DELEGATION, of powers (rf board of direettm to exeentiye committee . . . 107-108 DEVISES, power of corporations to accept 88 DBflNISmfF^, of corporate powers 63 DIRECTORS, adoption of by-laws by 75 appraisal of property by .... .. 137-138 classification of 57-58 election of . .100-104 first meeting of 105-107 named in certificate are directors de jure . . , 67 power to adopt by-laws 55, 96 appoint executive committee 56 change number of.. 46 Yote by proxy • 108 qualification of *....«... 101-102 (See Board of Mahagbmbiit.) statntory Ualnlity of.... 174-178 DIRECTORY PROVISIONS, what are 81 DISQU ALIFIC ATION, for the office of director •••••^ ••• 101 DISSENTING DIRECTORS, provisions for the exoneration of, from statutory liability • • 154-107 DISSOLUTION, involnntaiy ....•••.. 158-157 voluntary ••••.. 52-53, 155-150 DISSOLUTION OF CORPORATIONS 52-58, 154-187 671 OBNEBAL INDBX. DISTINCTION, belweeD de jure and de facto eofporaticnui • DIVIDENDS DOCTRINE OF ESTOPPEL • DOCTRINE OF STATE COMITY DOCTRINE OF ULTRA VIRES DOING BUSINESS, what oonstitiites doing bnnness by a foroign ooipor^ • DOMESTICATION, of lorragn oorporations DOMESTIC CORPORATIONS DOMICILE, corporate DOMICILE OF CORPORATIONS^ power to change oorpearato DOMICILIARY OFFICE DOUBLE LIABILITY, of stockholders to ereditora DUMMY, directors • •• incorporators DURATION, of corporate existence limitations upon of office for directors ••• •••• 87-88 . 174 G3-65 184-190 61-65 190-195 . 198 65-66 . 47 65-66 . 173 U U 73-74 154-155 . 102 E. EFFECT, of ai of property by directors 137-138 state offienls 139-141 ELECTION, of corporate offieecs ELECTIONS, corporate .«•• 100-104 of directors 100-104 ELEEMOSYNARY CORPORATIONS • • • • ^ EUGIBILITY, as an incorporator • to office of director 100-104 ENLARGEMENT, of corporate powers ^ EQUAL PROTECTION OF LAWS 181 ERROR OF JUDGMENT . 136 ESTOPPEL, doctrine of, in pais 0'>-q» in case of ultra vires contracts 63-64 to deny corporate existence 28 672 GENIAL INDEX. EVIDENCE, . . m meaning of conclusive . . . • • ^ pnma facie .* 24^26, W-8a of corporate existence 74J75 EXCESSIVE DEBTS EXECUTION, of articles of incorporation EXECUTIVE COMMITTEE, .... 107-108 appointment of . . • • . . • ^ power of directors to appoint ^ powers of executive committee of directors EXEMPTION, 75 of stockholders from personal liability • EXISTENCE OF CORPORATION. (See Corporate Exibtbucb.) ^ EXPIRATION OF CHARTER 17 EXPRESS POWERS, . . . • • 84-87 definition of * 84-87 enumeration of EXTENSION, ^ .176-177 of corporate existence g- payment of tax npon . • EXTRA-TERRITORIAL POWERS 38^ 184-180 F. FALSE REPORT, ,7. liabiUty for directors making . FEDERAL COURTS, .^s right of fcweign corporationa to remove cases to ...... ajo . ^ 84-85, 177-178 organization • • • • ' FICTITIOUS INCREASE, ... 128 Ot stock »n -1 40 FICTITIOUS STOCK • • ^ . FILING CHARTER, in local county offices 82-84 with State officials FINANCL^- POWERS OF CORPORATIONS FINES, ^ « « .88 power to enforce by-laws by pecuniary fines ^Lji^f FIRST DIRECTORS' MEETING ^^^^ FIRST GENERAL INCORPORATION ACT, ^ ^ reference to.. FOREIGN CORPORATIONS, 19^-202 annual license tax on . * • • • 198-199 license tax on \' ' •! ioiL.1flS penalty for transacting business without permit !» power to exclude • * ' ' * * * 100.195 what constitutes doing business on the part • • * * ' ' "^^^ 4S 673 GENERAL INDEZi o^tetrikoiia IcMPoe cl ttatatei enfndng liability upon direc tors and stoekhcdden Ififl 17fl lOfiFEITURE OF CHARTERS, for inaolyenej 100 for misuse or abuse of eorpoiaia powwi • 150 for non-payment of taxes j^jq for uoQrperforowiice of oonditimiB precedent ....... 160 subte^uent 160 for non-user of corporate franchises . 158-159 for violation of express statute ...•»,,,.. 160 FORFEITURE OF SHARES * *4&^ FORM, in whidiehartflrlsgnated 86 FRANCHISES^ ■ corporation FRANCHISE TAX, * ' * distinctiou between ^RMichise tax and pm pvt iy iu • • . . 177-178 distinguished from osgaouatMNi tes 84-85 right to impoM jyg FRAUD 'm-128 FRAUDULENT ISSUE OF SHARES 33 FULL LIABILITY CORPORATIONS * * 174 FULL-PAID STOCK ' 142.143 FUNDAMENTAL CHANGES IN CHARTER ! 146-162 GIFT OF SHARES, ^' effect id, OB lialrility of stockholders 14S-144 •*QbOD FAITH RULE," for payment of sliaraa in property othar than money .... 123-125 statement of 123-126 GRADUATED OBGANIZATIOH TAX. right to impoae " jyg validi^ of ••• GRANT, ...... w power to H. HOLDING OVER BY DIRECTORS ^ I ILLEGAL PURPOSES opofl IMMUNITY, ' ' • from personal liability by publication of articles 80 IMPLIED POWERS 59 INCIDENTAL FOW^tS 59.61 INCORPORATION, dflftnition of 9 purposes fwwhidioMpofatiQMai^ be formed 17.19 e74 GENERAL INPEX* INCORPORATION ACTS, classification of. ... INCORPORATORS, aliens may be • corporations cannot be definition of . . . • dummy infants cannot be . . married women may be . . • * * ' ml may sign articles by mark mnst be known persona organiasation me^g 1? privileges of . ^ qoalificationa of • aynonymoos with eorpoiafcom *^ INCREASE, in par value of sharea ^' of capital stock INDEBTEDNESS, limitation upon corporate INDIVIDUAL LIABILITY OF STOCKHOLDERS .... 169-174 INFANTS INSOLVENCY, forfeiture of charter for INSPECTION OF BOORS AND RECORDS* by creditors by stockholders 16o-lb7 INSPECTION OF CORPORATE BOOKS 165-167 INSPECTORS OF ELECTION 10^-104 INTERNAL AFFAIRS, provisions for the regulation of 5^5, 76, 168-169 INTERPRETATION OF CHARTER 77-78 INTER-STATE COMMERCE, claose of the Federal Constitution 202-210 INTRODUCTION • ^ INVOLUNTARY DISSOLUTION . 156-157 IPSO FACTO DISSOLUTION 154-157 IPSO FACTO FORFEITURE 157-160 ISSUANCE AND PAYMENT OF CAPITAL STOCK . . . im-ll» Jm LABOR DEBTS, liability of stockholders for LAND, power of corporations to take and bold «WHI LAW AND FACT, questlQns of . • • 675 GENERAL IKBEX. LEADING INCORPORATING STATES, enumerafcioii of • •••8,7 LEASES, power of oorpoifttbiw to accept leaaeB la «iehaiigefo^ « 50,121 LEGISLATIVE AUTHORITY, easoitial to creation ooiponifimis • 10 I^ISLATIYE CONTROL, OTOr domestic cor]x»ratioii8 145-179 Qfrer foreign corporations • • 180-210 LEGISLATIVE INVESTIGATION, into corporate affairs LEGISLATIVE REGULATION, of internal affairs 167-168 LEGISLATIVE REQUIREMENT, of annual report 164-165 LEGISLATURE LETTERS PATENT, when conclusive as to fact of incorporation ...... 24-28 LIABILITY, of directors. (See Directors.) of stockholders. (See Stockholdkba.) LIABILITY OF STOCKHOLDERS, ezemptloii from 74-76 LICENSE TAX, upon foreign eorpontkms 10^100 LIEN, e(»ponilioii's Ben upon stock <^ ste sMmbers to seeme debts dne it *7-48 LDOTATIONS, npon amount of capital stoek 69-70 upon corpoTate existence 74-75, 154-155 upon power to hold real property 32-33 LIST OF SHAREHOLDERS, ^ failure to keep alphabetical list of stockholders not an ipso facto dissolution M. MAJOBITT, of directors rnle in private corporations 102 of stoekholdm Mkt^led to contoolin private corporations . . . 102 MANDAMUS, right of . . . ♦ 84 MANDATORY PROVISIONS ^1 MANNER OF PAYMENT OF CAPITAL STOCK . . 69, 113, 120 MANUFACTURING CORPORATIONS ... 173 MARRIED WOMEN, may be incorporators 13 MAXIMUM AMOUNT, of indebtedness °2 676 GsnniAif mix. MEETING, date of annual 74 orga niz a tio n MEETINGS, of directors 105-107 for election of directors, where held 104 of stockholders 40^ 96-08, 104 MERGER. See CoNSOLiDATioir. MINING GOBfPANIES ............. . iai-182 MINISTERIAL DUTIES 84 MINORITY STOCKHOLDERS, power to compel purchase of their stock upon consolidation S8-60, 102 MISCELLANEOUS PROVISIONS, relative to contents of articles of incorporaMon 76-77 MISCONDUCT OP DIRECTORS. (See Amotion.) MISTAKES OF JUDGMENT, in appraisal of property taken in exchange for stock .... 136 MISUSER, a ground for forfeiting corporate charter 159 MONEY, payment for stock in 118 MONEY OR MONEY'S WORTH" RULE 113 MORTGAGE, corporate power to go MORTGAGE BONDS iO K. NAMES OF CORPORATIONS, corporate name not alienable , 31 purpose of . . i 14^ 31 power to change 41 protection of corporate 81 right to a corporate name , 14, 31 rfmikrity in corporate name forbidden 14,31 NEGLIGENCE, liability of directors for 175 NEGOTIABLE INSTRUMENTS, corporate powers relating to 60 NON-ASSESSABLE STOCK , 141-142 NONPAYMENT OF TAXES, forfeiture of charter for , , JQO NON-PERFORMANCE OF CONDITIONS PRECEDENT, forfeiture of charter for 160 NON-PERFORMANCE OF CONDITIONS SUBSEQUENT, forfeiture of charter for . . • • • 160 677 GENERAL INDSXi disiohition of eoarpofttiong to • • • • 108-150 NOTICE, of diieetora* meeliiip •••••• 106 of inflfl r pi g Mfcop* mp c ti MBi 96 0. OATH, of inspectoit of election 108 of office 101 OFFICE 66 OFFICERS, of corporations lOT ONE-MAN CORPORATIONS 13-14 ONUS proband:. (See Burden of Proof.) OEGANIZATION MEETING OF INCORPORATORS, how called • ^6 where held 96-98 ORGANIZATION OF CORPORATIONS, certificate of 109 steps necessary to complete ••• 98-99 ORGANIZATION TAX 84-85 distinguished from franchise tax 85 . graduated 85 right to impose 178 ORGANIZE, time witiun which corporations mnst 109-110 OUSTER, judgment of, in quo vxirrarUo proceedings . . . 112-113, 157, 198 OVERVALUATION, of property delivered in exchanfe fe tMk 122-137 P. PAID UP STOCK, maaiiiiiff of ••••••• ••••• 1^^144 PARTNERS, fiability.of InooipontoraM • 80,173 FAB YALUE, ^tugagid in ••••••••••••• 57 ofei^telrtoek 70 PATENT BIGHTS 60,121 PAYMENT OF CAPITAL STOCK 112-120 iMrtifieiitoof 109 in property 120-122 PBNAXItiJflS, to Tioiatioii oi b3f4a;w8 678 OBNEBAL INDEX. PENALTY, for failure to organize and commence business 110 upon foreign corporations for transacting business without permit 195-198 PERPETUAL SUCCESSION, right of 31-32 PERSONAL PROPERTY, power to hold 32-33 PETITION FOR INCORPORATION,, synonymous with charter . • • 11 PLACE OF BUSINESS 66 power to change 47 PLEDGE, power to • 60' PLEDGEES, liabiUty of , for unpaid stoek aiibBcripiloiii 172 FOUCE POWER 160-164 POWER, to impose organization taxes 8S POWER OF ATTORNEY, signing articles by. 70 POWER OF STATE LEGISLATURES, oyer foreign corporations 180-164 POWERS OF CORPORATIONS* cannot be r. 0- r% - av 2 r ■ I *^ ■ 1 X . X- ■ I