493. A By-Law is a permanent rule of action, in accordance with which the corporate affairs are to be conducted. The by-laws are made by the stockholders or board of directors in meeting assembled.

After the election of officers and the making of by-laws, etc., the corporators make their report to the proper State official, usually the Secretary of State. If all is found to be in accordance with law, a charter is issued, upon receipt of which the corporation is authorized to begin business.

494. Charter.-A charter is the instrument which creates the corporation, and which enumerates and defines its powers and privileges. When a corporation is created by general statute, no powers can be acquired in addition to the powers specified in the statute.

495. Issue of Stock. -The capital stock is divided into shares of a specified face value, and each stockholder is entitled to as many shares of the stock as the proportion which his subscription bears to the whole. As each subscriber pays his subscription, either in money or property, according to agreement, there is issued to him one or more certificates of stock. This certificate may be in the following form:

No. 18.

Incorporated under the Laws of the State of Illinois. 10 Shares.

The Chicago Time Lock Company.

CHICAGO, ILLINOIS.

500 Shares at $100.

Capital Stock, $50,000. This Certifies, That GEORGE REIS is the owner of Ten Shares of the Capital Stock of The Chicago Time Lock Company, fully paid and nonassessable, transferable only at the office of the company, on the return of this Certificate.

[SEAL]

IN WITNESS WHEREOF, the President and Secretary have hereunto subscribed their names and caused the seal of the company to be affixed at Chicago, Ill., this 25th day of August, A. D. 1901. Henry Templeton, Sec.

S. M. Erskine, Pres.

This is the only evidence the stockholder has that he is a stockholder in the corporation, and therefore entitled to the rights and privileges of such. Stock is personal property and not real, even though all the corporation may own be real property. It is a chose in action.

496. Classes of Stock.-Stock may be either common or preferred. Common stock entitles the owner to a pro rata of dividends equally with all other holders of stock except preferred stockholders.

By preferred stock is meant stock which entitles its owners to dividends, up to a certain per cent, out of the net profits, before or in preference to the holders of the common stock. By watered stock is meant stock which is issued as fully paid up, when in fact the whole amount of the par value has not been paid in. By deferred stock is meant stock upon which the payment of dividends is expressly postponed until some other class of shareholders are paid a certain divi

dend.

CHAPTER XLI.

POWERS OF CORPORATIONS.

497. Implied Powers of Corporations.-The common law ascribes to all corporations certain incidental rights and powers, whether they are expressly enumerated in the charter or not. These are as follows:

498. Corporations to Have Succession.-By this is meant that the corporation may exist even though all the stockholders may die or dispose of their stock. In case of the death of a stockholder, his personal representatives take his place as a stockholder, but not as an officer. It has been said that "a corporation never dies," but this does not mean that it exists forever, but only for the time mentioned in the charter or in the statute. This power of succession is a necessary element in the life of a corporation with a large list of stockholders. If the death of a stockholder dissolved the corporation, as it does a partnership in case of the death of a partner, no undertaking of any magnitude, or requiring time for its consummation, could be completed.

499. To Sue and be Sued.-A corporation has the right to institute suits in its own name, in all cases where an individual, under like circumstances, would have a right of action. It is necessary that a corporation, for its own complete protection, should have this power to sue in its own name instead of in the names of its stockholders.

500. To Purchase and Convey Property.-At common law in America a corporation may purchase and convey land. The only limitation upon this right of corporations is that the purchase must be a natural incident of the business specified in the charter, that is, it must be in accordance with the purpose of the corporation. The States have quite generally followed the English statute of wills, and have restricted certain classes of corporations in the taking of realty by a devise. The object of this is to prevent large bodies of land from falling into dead hands, hence the statute is called the statute of mortmain.

son.

501. To Have a Common Seal.-A corporation is an artificial perNatural persons are required by common law to have a private seal, so corporations are required to use a common seal in all cases where a natural person would be required to use a private seal. It was formerly supposed that a corporation could only manifest its intention by its common seal, but the rule is now as stated above.

502. To Make By-Laws. We have previously observed (sec. 493), that a corporation by its stockholders can make by-laws. But if such power be given to the board of directors a majority may pass such laws. The by-laws must be framed strictly within the limits of the charter, and in accordance with the laws of the land.

503. To Elect Officers.-A corporation transacts its business through its officers and agents, and not through its stockholders. The right to choose these officers, then, is necessarily implied. In the election of officers a stockholder generally has a vote for each share of stock he may own. Consequently, if he owns a majority of the stock he can control the election. A majority of the votes cast will elect, even though only a small proportion of the shares are voted at all. To obviate this, and to give the minority stockholders a minority representation on the board of directors, constitutional provisions are found in a number of States. This is effected by a

1

1 California, Illinois, Missouri, Nebraska, Pennsylvania, West Virginia.

system of cumulative voting. Thus, if there are six directors to be elected, a stockholder who owns one hundred shares may cast six hundred votes; and these he may cast entirely for one, or distribute them among the six, as he may choose.

The statutes quite generally recognize the right of a stockholder to vote by proxy. This right did not exist by common law, but may be recognized by the by-laws. No particular form of proxy is necessary, though it should be in writing and signed.

It is also held as necessary for the protection of the corporation that its officers or agents may be removed for just cause, but the latter is a power that must be expressly granted in the charter or the statute.

Know All Men by These Presents, That I, Edward O. Folsom, do hereby constitute and appoint Charles N. Crandle my true and lawful attorney for me and in my name, place and stead, to vote as my proxy at a certain election of directors of the Chicago Steel and Iron Company, to be held at the office of the company on the day of 190 according to the number of votes I should be entitled to vote if personally present. In Witness Whereof I have hereunto set my hand, in the City of Chicago, State of Illinois, this 15th day of August, 1901.

Signed and delivered in the presence of

M.M. LINK.

EDWARD O. FOLSOM.

FORM OF PROXY.

504. To Make Contracts.

To make contracts is the real object of most private corporations, and so patent is it that it seems hardly necessary to refer to it as an incidental power.

A corporation may borrow money and may issue notes, bills and acceptances for the purposes of their business, but they have no authority to endorse or guarantee for accommodation. It may mortgage its real estate and personal property. It cannot make loans of money unless its regular business involves loaning, but if it does loan. money the borrower must return it.

A secured a judgment against B in a justice court. B took an appeal to a higher court and in doing so was required to give a bond with a surety. C, a corporation, signed the bond as surety. It was decided that an ordinary corporation could not bind itself as a surety as it was not in the scope of its charter. 181 Ill. 44. 11 Wis. 306. 70 Ia. 541.

505. Torts. It is now the settled rule that a corporation is liable for the acts of its agents in the course of its business, and of their employment, the same as if it were an individual. (See sec. 435.)

Corporations have been held liable for assault and battery committed by their agents in executing the rules of the corporation; for trespass; for malicious prosecution and for conspiracy. A corporation may even be indicted, but of course cannot be imprisoned, though its. officers may be.

506. Name of a Corporation.-A corporation, like all persons, must have some means of identification. For this purpose a name is chosen, and it is by this name that it transacts corporate business. The right of a corporation to the exclusive use of its chosen name is generally recognized by statute, but it is usually protected by the courts independent of statute. The corporation has neither the right nor the power of itself to change the corporate name, but it may do so by the consent of the authority granting the charter. There is little restriction upon the choice of a name for a corporation, but it is sometimes prescribed by statute that it shall begin with "The” and end with "Company," "Corporation," or other synonomous term. This is the law in Colorado and Ohio, and perhaps other states.

507. By What Law a Corporation is Governed.—The general rule is that the existence of a foreign corporation is recognized for all purposes and in all respects, except those specially prohibited by the domestic law. It may sue in any state where it has rights to defend, and it may also carry on its business anywhere, but it cannot move from the state where created to another, although it may maintain offices in each. Its property is subject to the laws of the state where it exists.

508. As Trustees. It was formerly supposed that a corporation could not act as a trustee, but it is now common for them to organize for this very purpose. They also act as guardians of property, executors, administrators, etc., and indeed there is often economy in their doing so, for having many clients, they can offer the superior service of trained agents at a minimum cost. They are also organized to guarantee the title of realty to intending purchasers.

509. Liabilities of a Stockholder.-One thing that has tended to popularize corporations, more than any other, is that at common law the stockholders are not liable for the corporate debts. If the corporation should become bankrupt, the stockholders may lose their stock, and if they have not fully paid for it they are liable for