CHAPTER XL CORPORATIONS (1. Procedure to incorporate (I. Creation 2. Charter fromfa. By special act Cre state b. By general act a. Common (1. Stockholders II. Management 2. Directors b. Preferred 3. Officers and agents a. Expiration of charter 1. Manner b. Surrender of charter III. Dissolution 352. Introduction. The corporation is the most recent form of business organization. When the Federal Constitution was adopted, there were six corporations engaged in business in this country. Two of them were banking houses, two insurance companies, one a bridge company, and one was engaged in the manufacture of iron. There are now over five hundred thousand corporations in the United States, representing immense aggregations of capital and engaging in every conceivable form of business, of both a public and a private nature. The corporation is a favorite form of business organization for three reasons: First, because investors are not individually liable for all the debts of the corporation, as in the case of a partnership; second, because it offers a simple form of investment for the person who has some money but not enough to engage in a business for himself, or who wishes to invest only a part of his fortune in a particular enterprise; third, because it offers a convenient means of engaging a large amount of money in a single enterprise, through the contributions of many investors. 353. Definition. A corporation is an organization the members of which, called stockholders, are authorized by law to act in certain respects as a single person, under a corporate name. Chief Justice Marshall defined it as “an artificial being, invisible, intangible, and existing only in contemplation of law," and this definition has persisted in judicial decisions. The corporation is composed of members, usually stockholders, but it is something entirely different from the members who compose it. 354. Consists of Two Contracts. The existence of a corporation is founded, not upon contract between the members composing it, as in a partnership, but upon a charter, or franchise, from the state, providing that the corporation may exist and act as an artificial person. This charter is really a contract between the state and the corporation. By this contract the state agrees that the corporation may exist, transact business, and exercise the powers for which it is organized. Since There is also a contract between the stockholders. members' votes carry weight in proportion to the stock they own, the management and control of a corporation is in the hands of the members holding a majority of the stock. They elect officers and direct the business of the enterprise. But the majority of a corporation is always obligated by an implied contract that they will manage the corporation according to the provisions of the charter, and will not engage in prohibited or unauthorized undertakings, or employ the corporate funds for purposes other than that for which the corporation was organized. This restriction is for the benefit of the minority members of the corporation, and is in reality a contract between the members composing the corporation that the majority will always act within the charter powers. EXAMPLE The Acme Company, a corporation, is organized and receives a charter from the state empowering it to engage in the business of manufacturing iron rails. It is composed of a large number of members, and the majority of these members vote to engage in the business of operating a railroad. The minority members may object to this and may prevent the majority members from engaging the capital of the corporation in such a business which is outside the scope of the powers of the corporation as represented by its charter. Or an objection might be raised by the State. Each member is entitled to demand that his contribution to the corporation shall be used for the purposes for which the corporation was organized and no other. 355. Nature of a Corporation. While the corporation is based upon these two contracts, it is not a contract itself, but a person. It is not a natural person like the members who compose it, but an artificial person with the power of acting in certain matters like a natural person. It possesses rights and duties very similar to those of a natural person. Among these are: (1) The right of property and reputation protected at common law, and under constitutional provisions, similar to the same right of natural persons; and (2) duties, arising both from the provisions of the charter by which it was created and as fixed by law. Among the secondary rights which a corporation possesses are: (1) The right to continue in existence after the death, withdrawal, or substitution of its members; (2) the right to take and hold property in its corporate name, such property belonging to the corporation, and not to the members who compose it; (3) the right to sue and be sued like a natural person; (4) the right to incur debts and make contracts in the corporate name, which create obligations binding upon the corporation alone and for the collection of which the corporate assets alone are liable; (5) the right to contract with its own members and to sue and be sued by them. EXAMPLES 1. A candidate for public office in public speeches falsely accused a coal company, during the coal famine of 1902-3, of charging exorbitant prices for coal and refusing to sell at all to persons who were sick and suffering. Such charges amounted to slander, injured the company's business reputation, and entitled it to sue for damages which it had suffered. Gross Coal Co. vs. Rose, 126 Wis. 24. 2. A canal company was bound by its special charter from the state to construct a canal deep enough to accommodate certain vessels. It failed to keep the canal in a suitable condition, and a vessel was damaged through this negligence. The owner of the vessel was entitled to recover his damages against the corporation, it having been under a duty for the benefit of all persons who used the canal. Riddle vs. Proprietors, 7 Mass. 169. 356. Kinds of Corporations. The two important kinds of corporations in present day commerce are (1) Public, and (2) Private Corporations. Public corporations are primarily governmental institutions created by law for the administration of public affairs in particular communities. Such organizations are frequently called municipal corporations, and include cities, towns, villages, counties, school districts, drainage districts, and irrigation districts created by the state. Private corporations are such as are created by private enterprise to accomplish some private end. They are usually organized for private profit, the members sharing in the profits to the extent of their shares in the corporation. They include religious, charitable, railroad, banking, insurance, manufacturing, and trading corporations. Even though they be formed for the purpose of serving the public generally, as is true in the case of railroads, water-works, and gas and electric companies, if they exist primarily for private gain they are private corporations. They can only exist by the consent of the members incorporating the company. 357. Compared with Partnerships. The features of this form of commercial organization are strikingly explained when it is compared with the partnership. The following are the chief differences between the corporation and the partnership. (1) In creation: Corporations can be created only by express authority of the state; partnerships, by mere contract of the parties. (2) In franchise: A corporation has at least one franchise, the franchise from the state to be a corporation; a partnership, none. (3) In management: A corporation is managed only through its duly appointed officers and agents; in partnerships, each partner, or member, can act for the partnership. (4) In powers: The corporation can lawfully exercise no powers except those expressly conferred by the state or necessarily implied from those granted to it by the state, and these cannot be enlarged without the consent of the state; while the members of a partnership may do any lawful thing which they agree to do. (5) In duration: The corporation is perpetual unless expressly limitedthe death, resignation, or insolvency of members does not dissolve it; but any one of these dissolves a partnership. (6) In ownership of property: The title to the corporate property is in the corporation and not in the individual stockholders; that of the partnership in the members of the partnership, they being considered joint owners. (7) In litigation: A corporation sues or is sued in its corporate name; the partnership, in the names of its members. (8) In transfer of interest: The transfer of his interest by a member has no effect on corporate existence; but a transfer of interest dissolves a partnership. (9) In liability of members: In absence of a special statute, a member of a corporation is not liable beyond the amount subscribed for his shares; but in a partnership, there is an individual liability of each partner to the entire extent of its debts. Ana, (10) in dissolution: A corporation can be rightly dissolved only by or with the consent of the state; partners may dissolve a partnership at any time. EXAMPLES 1. Button acquired all the stock in a corporation and then sued Hoffman in his own name to recover possession of some personal property which had belonged to the corporation. This he could not do, but should have brought suit in the name of the corporation, as Button and the corporation were separate and distinct persons. Button vs. Hoffman, 61 Wis. 20. 2. Burral sued the Bushwick Railroad Company, a corporation, to recover certain dividends on stock owned by him, which the corporation wrongfully withheld. Objection to this suit was made on the ground that Burral was a member of the corporation and therefore could not sue it, which would have been a valid objection had the organization been a partnership. Here, however, Burral and the corporation were separate and distinct persons and the suit could be brought by Burral against the corporation. Burral vs. Bushwick Railroad Company, 75 N. Y. 211. 358. Formation. A corporation is created through the joint act of the state and the individuals who compose it, called the incorporators. These incorporators apply to the state for permission to organize a corporation, and upon receiving the permission of the state provide for its organization. The permission of the state may be granted either (1) by special act; or (2) by general act. By special act. Until about 1840, this was the usual method of securing the permission of the state in the United States, the incorporators applying to the legislature of a state, or to Congress, for permission to form a particular corporation for a particular |