*

who are appointed for the first year. * * And provided also, that any time during the existence of corporations for profit, the number of Directors may be increased or diminished by a majority of the stockholders of the corporation to any number not exceeding eleven nor less than five, who must be members of the corporation, whereupon a certificate stating the number of Directors must be filed as provided for in Section 296, for the filing of the original articles of incorporation.

Sixth-The amount of its capital stock; and the number of shares into which it is divided."

Seventh-If there is a capital stock, the amount actually subscribed, and by whom. (Section 290, Civil Code.)

5. Articles of Incorporation to be Subscribed and Acknowledged.

The articles of incorporation must be subscribed by five or more persons, a majority of whom must be residents of this State, and acknowledged by each before some officer authorized to take and certify acknowledgments of conveyances of real property. (Section 292, Civil

Code.)

6. Articles of Incorporation to be Filed with County Clerk and Secretary of State.

Upon filing the articles of incorporation in the office of the County Clerk of the county in which the principal business of the company is to be transacted, and a copy thereof certified by the County Clerk, with the Secretary of State, the Secretary of State must issue to the corporation, over the great seal of the State, a certificate that a copy of the articles containing the required statement of facts has been filed in his office, and thereupon the persons signing the articles, and their associates and successors, shall be a body politic and corporate, by the name stated in the certificate, and for the term of fifty years, unless it is in the articles of incorporation otherwise stated. (Abstract from Section 296, Civil Code.)

7. Certified Copy of Articles of Incorporation Prima Facie Evidence.

A copy of any articles of incorporation filed in pursuance of this chapter, and certified by the Secretary of State, must be received in all Ex Parte S. V. W. W., 17 Cal. 132; People vs. Stockton Railroad Company, 45 Cal. 306; Roman Catholic Orphan Asylum vs. Abrams, 49 Cal. 455.) But a substantial compliance with the requirements of the Act by the persons seeking to derive the benefits of incorporation must be observed, and the omission of essential steps will be fatal. (Mokelumne Hill Manufacturing Company vs. Woodberry, 14 Cal. 424; Harris vs. McGregor, 29 Cal. 124; People vs. Selfridge, 52 Cal. 331.) The omission to state the place where its principal place of business is to be transacted is fatal. (Harris vs. McGregor, 29 Cal. 124.)

a In Building and Loan Association corporations organized prior to March 31, 1891, the capital stock could be placed at any sum that was desired or named in the articles of incorporation. Those organized after the 31st day of March, 1891, cannot have a capital stock exceeding $2,000,000.

Building and Loan Association corporations organized prior to the 31st day of March, 1891, could fix the value of their shares in any sum not exceeding $200 each, payable in periodical installments. (Section 639, Civil Code, amendment approved March 30, 1874. Amendments 1873-4, page 217; took effect July 1, 1874.)

Those organized after March 31, 1891, can only fix their shares of the par value of $100 or $200 each, as shall be provided in the articles of incorporation, and fixed by the by-laws. (Section 634, Civil Code, and the amendments of 1891, page 253; approved March 31, 1891.)

The statutes in regard to filing the articles of incorporation must be followed, in order to create the corporate existence of the association. (Bigelow vs. Gregory, 73 Íllinois, 197.)

the courts and other places as prima facie evidence of the facts therein stated. (Section 297, Civil Code.)

8. Building and Loan Associations should file Certified Copies of their Articles of Incorporation, duly Certified thereto by the Secretary of State, in the Office of the County Clerk in each County in the State in which they hold any Property.

No corporation hereafter formed shall purchase, locate, or hold any property in any county of this State without filing a copy of the copy of its articles of incorporation filed in the office of the Secretary of State, duly certified by such Secretary of State, in the office of the County Clerk of the county in which such property is situated, within sixty days after such purchase or location is made.

Every corporation now in existence, whether formed under the provisions of this Code or not, must, within ninety days after the passage of this section, file such certified copy of the copy of its articles of incorporation in the office of the County Clerk of every county in this State in which it holds any property (except the county where the original articles of incorporation are filed); and if any corporation hereafter acquires any property in any county other than that in which it now holds property, it must, within ninety days thereafter, file with the Clerk of such county such certified copy of the copy of its articles of incorporation. The copies so filed with the several County Clerks, and certified copies thereof, shall have the same force and effect in evidence as would the original.

Any corporation failing to comply with the provisions of this section shall not maintain nor defend any action or proceeding in relation to such property, its rents, issues, or profits, until such articles of incorporation, and such certified copy of its articles of incorporation, and such certified copy of the copy of its articles of incorporation, shall be filed at the places directed by the general law and this section; provided, that all corporations shall be liable in damages for any and all loss that may arise by the failure of such corporation to perform any of the foregoing duties within the time mentioned in this section; and provided further, that the said damages may be recovered in an action brought in any Court of this State of competent jurisdiction, by any party or parties suffering the same. (Section 299, Civil Code.)

9. Adoption of By-Laws-When, How, and by Whom.

Every corporation, under this title, must, within one month after filing articles of incorporation, adopt a code of by-laws for its government, not inconsistent with the Constitution and laws of this State. The assent of stockholders representing a majority of all the subscribed capital stock, or a majority of the members, if there be no capital stock, is necessary to adopt by-laws, if they are adopted, at a meeting called for that purpose; and in the event of such meeting being called, two weeks' notice of the same by advertisement in some newspaper published in the county in which the principal place of business of the corporation is located, or if none is published therein, then in a paper published in an adjoining county, must be given by the order of the Acting President.

The written assent of the holders of two thirds of the stock, or of two thirds of the members, if there be no capital stock, shall be

effectual to adopt a code of by-laws, without a meeting for that purpose." (Section 301, Civil Code.)

10. Directors-Election thereof.

The Directors of a corporation must be elected annually by the stockholders or members, and if no provision is made in the by-laws for the time of election, the election must be held on the first Tuesday in June.

Notice of such election must be given, and the right to vote determined, as prescribed in Sectiom 301. (Section 302, Civil Code.)

11. By-Laws-For What May Provide.

A corporation may, by its by-laws, where no other provision is specially made, provide for:

First-The time, place, and manner of calling and conducting its meetings, and may dispense with notice of all regular meetings of stockholders or Directors.

Second-The number of stockholders or members constituting a

quorum.

Third-The mode of voting by proxy.

Fourth-The qualifications and duties of Directors; also, the time of their annual election, and the mode and manner of giving notice thereof.

Fifth-The compensation and duties of officers.

Sixth-The manner of election and tenure of office of all officers other than the Directors.

Seventh-Suitable penalties for the violation of by-laws, not exceeding in any case $100, for any offense; and,

Eighth-The newspaper in which all notices of the meeting of stockholders or Board of Directors, notice of which is required shall be published, which must be some newspaper published in the county where the principal place of business of the corporation is located, or if none is published therein, then in a newspaper published in an adjoining county; provided, that when the by-laws prescribe the newspaper in which said publication shall be made, if from any cause at the time any publication is desired to be made, the publication of such newspaper shall have ceased, the Board of Directors may, by an order entered on the records of the corporation, direct the publication to be made in some other newspaper published in the county; if none is published therein, then in an adjoining county. (Section 303, Civil Code.)

a By-laws must be reasonable and not oppressive or vexatious. (St. Luke's Church vs. Matthews, 6 Am. Dec. 619; Leggett vs. N. J. M. & B. Company, 23 Id. 728; Taylor vs. Griswold, 27 Id. 33; Kent vs. Quicksilver Mining Company, 78 N. Y. 182-183; Carlan vs. Father Matthews Society, 3 Daly, 20.)

By-laws must be prospective (not retroactive). They cannot impair vested rights. (People vs. Crocker. 9 Cal. 112; Howard vs. Savannah T. U. P., Charlt. 173; Pulford vs. Fire Department, 31 Mich. 458; Kent vs. Quicksilver Mining Company, 78 New York, 159-183.)

A by-law good in part and bad in part will be sustained as to that which is good, if separable from that which is objectionable. (Amesbury vs. Bowditch Ins. Company, 6 Gray, 596; Rogers vs. Jones, 1 Wend. 237; Shelton vs. Mayor, 30 Ala. 540.)

A by-law void as to strangers and non-assenting members, may be good as a contract as to assenting members. (Slee vs. Bloom, 19 Johns. 456; Cooper vs. Frederick, 9th Ala. 738.)

b See No. 9, ante.

Under Subdivision 7, of Section 303, above quoted, Building and Loan Associations could unquestionably provide for fines for non-payment of dues, interest, or premium.

12. Book of By-Laws Must be Kept.

All by-laws adopted must be certified by a majority of the Directors, and Secretary of the corporation, copied in a legible hand in some book kept in the office of the corporation, to be known as "The Book of By-Laws," and no by-law shall take effect until so copied, and the book shall then be open to the inspection of the public during office hours of each day, except holidays.

The by-laws may be repealed or amended, or new by-laws may be adopted, at the annual meeting, or at any other meeting of the stockholders or members called for that purpose by the Directors, by a vote representing two thirds of the subscribed stock, or by two thirds of the members.

The written assent of the holders of two thirds of the stock, or two thirds of the members, if there be no capital stock, shall be effectual to repeal or amend any by-law, or to adopt additional by-laws.

The power to repeal and amend the by-laws, and adopt new by-laws, may, by a similar vote at any such meeting, or similar written assent, be delegated to the Board of Directors.

The power, when delegated, may be revoked by a similar vote at any regular meeting of the stockholders or members. Whenever any amendment or new by-law is adopted, it shall be copied in the "Book of By-Laws," with the original by-laws and immediately after them, and shall not take effect until so copied.

If any by-law be repealed, the fact of repeal, with the date of the meeting at which the repeal was enacted or written assent was filed, shall be stated in said book, and until so stated, the repeal shall not take effect. (Section 304, Civil Code.)

[Upon the effect of non-compliance regarding statute, see Hall vs. Crandall, 29 Cal. 567.]

13. Directors-How Many, and Who to be.

The corporate powers, business, and property of all corporations formed under this title, must be exercised, conducted, and controlled by a Board of not less than five nor more than eleven Directors, to be elected from among the holders of stock, or when there is no capital stock, then from the members of such corporation.

* * *

A majority of the Directors must be, in all cases, citizens of this State. Directors of corporations for profit must be holders of stock therein, in amount to be fixed by the by-laws of the corporation.

Directors of all other corporations must be members thereof. Unless a quorum is present and acting, no business performed, or act done, is valid as against the corporation.

Whenever a vacancy occurs in the office of Director, unless the by-laws of the corporation otherwise provide, such vacancy must be filled by an appointee of the Board." (Abstract from Section 305, Civil Code.)

a

For what other books that are necessary to be kept, in addition to the "Book of By-Laws," by Building and Loan Associations, see No. 38, post.

The Directors of a corporation are its chosen representatives, and constitute the corporation for all purposes of directing others. They are the mind and soul of the corporate entity, and what they do as the representatives of the corporation the corporation itself is deemed to do. (Maynard vs. Fireman's Fund Ins. Company, 34 Cal. 48.)

Illegality of election of members cannot be collaterally raised. (Eakright vs. Logansport Railroad Company, 13 Ind. 404; Sternmetz vs. Versailles T. Company, 57 Ind. 457; Atlantic Railroad Company vs. Johnston, 70 N. C. 348; Walker vs. Fleming, Id. 483; Hughes vs. Parker, 20 N. H. 58; R. R. Co. vs. McPherson, 25 Mo. 13.)

14. Directors to be Elected at First Meeting.

At the first meeting at which the by-laws are adopted, or at such subsequent meeting as may be then designated, Directors must be elected to hold their offices for one year, and until their successors are elected and qualified. (Section 306, Civil Code; took effect July 1, 1874.)

15. Election by Ballot; Number of Votes.

All elections must be by ballot, and every stockholder shall have the right to vote in person, or by proxy, the number of shares standing in his name, as provided in Section 312 of this Code, for as many persons as there are Directors to be elected, or to cumulate said shares and give one candidate as many votes as the number of Directors multiplied by the number of his shares of stock shall equal, or to distribute them on the same principle among as many candidates as he shall think fit. * * * The Directors receiving the highest number of votes shall be declared elected. (Abstract from Section 307, Civil Code.)

16. Organization of Board of Directors.

Immediately after their election, the Directors must organize, by the election of a President (who must be one of their number), a Secretary, and Treasurer; they must perform the duties enjoined on them by law and the by-laws of the corporation. A majority of the Directors is. a sufficient number to form a Board for the transaction of business. Every decision of a majority of the Directors forming such Board, made when duly assembled, is valid as a corporate act. (Section 308, Civil Code.)

17. Dividends-How Made; from What.

The Directors of corporations must not make dividends except from the surplus profits arising from the business thereof; nor must they divide, withdraw, or pay to the stockholders, or any of them, any part of the capital stock; nor must they create debts beyond their subscribed capital stock; nor must they divide, withdraw, or pay to the stockholders, or any of them, any part of the capital stock, except as hereinafter provided [see section for the withdrawal of stock]; nor reduce or increase the capital stock, except as herein specially provided." For a violation of the provisions of this section, the Directors under whose administration the same may have happened (except those who may have caused their dissent therefrom to be entered at large on the minutes of the Directors at the time, or were not present when the same did happen), are, in their individual and private capacity, jointly and severally liable to the corporation, and to the creditors thereof, in the event of its dissolution, to the full amount of the capital stock so divided, withdrawn, paid out, or reduced, or debt contracted; and no statute of limitations is a bar to any suit against such Directors, for any sums for which they are liable by this section; provided, however, that where a corporation has been heretofore or may hereafter be formed for the purpose, among other things, of acquiring, holding, and selling real estate, water, and

This section does not prohibit the surrender of stock as hereinafter provided in Building and Loan Associations, nor does it prohibit the forcible retirement of stock as hereinafter provided; but the surrender of stock and retirement of stock when the same can be done as hereinafter set forth, must be done strictly in accordance with law, as herein provided.