porations not for profit) has a specified capital stock. When corporations are formed under general laws, provision for the amount of capital stock is made in the articles of association and in the application for a certificate of incorporation. The actual capital of the company may vary materially from year to year, but the capital stock can be changed only by amendment of the articles of association with the permission of the state, or by further compliance with the general law regarding corporations. 361. Membership in Corporations. Membership in a stock corporation consists simply in the ownership of one or more shares of stock. Stock may be acquired either by (1) subscription, or (2) by transfer from a prior holder, either by purchase or as a gift. The contract between the corporation and a third person by which the third person agrees to contribute a certain amount of money or property to the business of the corporation in return for the issuance to him of stock certificates is called the subscription. It is usual to secure a number of such contracts before the formation of the corporation is completed, and some states require that certain proportions of the total capital stock shall be subscribed and other proportions paid for in cash, or its equivalent, before the corporation may be created. After shares of stock are issued they are personal property which may be sold or transferred by gift from one person to another. Some formalities must be observed in the transfer of shares of stock, however, that are not required for the transfer of other personal property. It is usual to transfer a stock certificate by an assignment of the interest of the holder to the purchaser, the assignment usually being written upon the back of the certificate. The new holder then secures a registry of the transfer on the books of the company, which registry serves as notice to the corporation that he is now the holder of the stock and entitled to the rights of the shareholder. It is customary and in some corporations compulsory for the new holder to deliver up the old stock certificate to the corporation, which issues a new certificate naming him as the stockholder. The corporation would be protected if it paid a dividend to an original holder in good faith without notice of the transfer of the stock, and the new holder's only remedy would be against the prior holder of the stock who had wrongfully received the dividend. Similarly, creditors are entitled to assume that the person named on the books of the company is the owner of the stock and may levy upon a declared dividend as his property. EXAMPLE Brydon owned 488 shares in the North Branch Company. He sold and assigned a part of this stock to Gemmell, who gave notice to the company and demanded that his stock be registered and that he be paid all future dividends. The officers of the corporation refused to register his shares. He was entitled to bring suit against them for dividends which they paid to Brydon, as he had given them notice of his ownership in the stock and any future payment to Brydon was not in good faith. The officers had no right to refuse to register his stock. Gemmell vs. Davis, 75 Md. 546. 362. Classes of Stock. The capital stock of a corporation may be of two kinds: (1) common, and (2) preferred. Common stock is stock the owners of which are not in any way specially preferred or favored. The owner of common stock is entitled to one vote in the management of the corporation, for every share he owns. He shares in the common stock dividends (and in case of the dissolution of the corporation, in the assets) in proportion to the amount of stock he owns. In the absence of special provisions all stock is common stock. Preferred stock is stock which entitles the owner to receive dividends, or to share in the distribution of corporate assets, or both, before or in preference to the holders of common stock. Preferred stock can be issued only when the corporation has the special power to issue it, and the preferred stock certificate usually states that the holder shall be entitled to a certain specified dividend on his investment which shall be paid, out of the profits of the company before any payment of dividends shall be made to holders of common stock. In some corporations the preferred stock shares equally with the common in the dividends remaining after the preferred dividends have been paid, but as a general rule the preferred stock is limited to a fixed amount, after which all dividends accrue to the benefit of the holders of common stock. Thus the common stock frequently receives larger dividends than the preferred. Articles of Incorporation of Buffalo Hill Mining and Development Company Know All Men by These Presents: That we, the undersigned, George N. Wright, James A. Lyons, and John E. Evans, for ourselves, our associates and successors, have associated ourselves together for the purpose of forming a corporation under and by virtue of the statutes and laws of the State of South Dakota, and we do hereby certify and declare as follows, viz.: 1. That the name of this corporation shall be "Buffalo Hill Mining and Development Company." 2. That the purpose for which this corporation is formed is to conduct the business of: (a) Mining, smelting, refining, reducing, and dealing in and with all sorts of ores, metals, and minerals, and the prospecting, locating, opening, operation, and developing of mines, oil wells, quarries, and mineral deposits of all descriptions; (b) Constructing and operating mills, factories, machine shops, and industrial plants of all descriptions, and the buying, selling, and dealing in and with all supplies, merchandise, and materials, raw and prepared, useful or convenient, in connection therewith. 3. The place where the principal business of this corporation shall be transacted is Pierre, in the County of Hughes and State of South Dakota. 4. The term for which this corporation shall exist shall be twenty years. 5. The number of directors of this corporation shall be three, and the names and residences of such, who are to serve until the election of their successors, are as follows: 6. The amount of the Capital Stock of this corporation shall be and is To Hundred Thousand Dollars, divided into two thousand shares of the par value of $100 each. In Testimony Whereof, we have hereunto set our hands this 29th day of September, 1916. [Signed] GEORGE F. WRIGHT. JOHN E. EVANS. STOCK SUBSCRIPTION Subscription List The Everready Manufacturing Company Capital Stock, $50,000 Shares, $100 each We, the undersigned, hereby severally subscribe for and agree to take at its par value the number of shares of the capital stock of The Everready Manufacturing Company set opposite our respective names, and agree to pay therefor in cash on demand of the treasurer as soon as said company is organized. Albany, New York, February 24, 1916. 1. Henry Ames, a brother of George Ames, desires the latter to assist him in financing a manufacturing business, suggesting that they form a partnership. George Ames is a wealthy man, while Henry Ames has been unsuccessful many times in business, but apparently has a valuable proposition this time. What advice would you give George Ames regarding the kind of business organization which should be formed? Why? 2. Samuels has loaned $5000 to Johnson and seeks to collect payment. He secures a judgment against Johnson. He learns that Johnson owns thirty shares of stock, valued at $100 a share, in the Acme Manufacturing Company, a corporation. This is one-third of all the capital stock of the company, which has assets of $20,000, having been a profitable undertaking. How may Samuels collect his claim? Why? 3. Ames and Bates acquire all the stock in the Cool Dairy Company, a corporation, and desiring to sell the real estate belonging to the company, execute a deed in their own names as the owners of the property to Dale. Does Dale secure a title to the property? Why? Would he have done so if the Cool Dairy Company had been a partnership between Ames and Bates? Why? 4. The A corporation receives a charter from the state empowering it to build a toll-bridge across a river and to charge a fee for travel, the charter providing that this corporation shall have the exclusive right to maintain a toll-bridge within one mile of that place for thirty years. Two years later the state grants another charter to the B company empowering it to operate a steam ferry within a hundred yards of the bridge. This cuts the revenue of the A corporation in half. Has the A corporation any remedy? Why? CHAPTER XLI CORPORATIONS- Continued 1. Express Powers a. To buy and sell land b. To acquire property by will c. To borrow (2. Implied d. To issue notes e. To pledge its property g. To use a seal 363. Powers of a Corporation. Upon its organization a corporation possesses the power to act in accordance with the provisions of its charter. In addition it has certain implied powers. Among these are: (1) Power to acquire land, necessary for the business of the corporation, by purchase; (2) power to sell and transfer the title to land; (3) power to acquire property by will from another; (4) power to borrow and issue negotiable instruments; (5) power to mortgage or pledge its property; and (6) power to make by-laws, rules, and regulations for the conduct of its business; (7) power to use a seal. These express charter powers and the powers implied from the creation of the corporation are exercised by the stockholders, acting through officers elected by them, called the board of directors. The stockholders may be very numerous and too large and unwieldy a body to assume personally the active management. of the corporation. They control the corporation, therefore, only through the medium of the board of directors. These directors are elected at the annual meeting of the stockholders, and as they represent the will of the holders of the majority of the stock, it is said that the control of the corporation is in the hands of the holders of the majority of the stock, whose power is absolute so long as they act within the provisions of the charter and the implied powers of the corporation. |