commenting upon the right of a corporation to transact business beyond the limits of the 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 existence there will not be recognized in other places; and its residence 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." 1

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 citizens. Unless the Constitution or statutes 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.2

In order, however, to avoid complications that might possibly arise through hostile action on the part of stockholders or of foreign States, statutes have been enacted in a number of the Common

1 See Hall v. Company, 91 Ala. 363; 8 So. 348.

2 Thompson v. Waters, 25 Mich. 214.

wealths expressly authorizing the transaction of business in foreign states and jurisdictions.1

Under the progressive 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.2

§ 22. Power to perform Constituent Acts outside of the Domiciliary State. By constituent acts is meant such corporate transactions 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 of stockholders' meetings.3 As a general rule such constituent acts cannot be performed without the domiciliary State.1

The legislature may, of course, authorize the performance of constituent acts beyond the limits of the State. This has been done in a number of the Commonwealths. It is probably safe to say that aside from organization meetings the presence of stockholders of the corporation at a meeting held without the State will estop them from attacking the validity of the proceedings had at such meeting.

§ 23. Power to extend Corporate Existence.

1 See Part III. Table 12, page 582. See Ashley Wire Co. v. Company, 60 Ill. App. 179; Kennebec Co. v. Company, 72 Mass. 204; Aspinwall v. Company, 20 Ind. 492; Blodgett v. L. Z. Company, 120 Fed. 893.

2 Sec. Nat. Bank v. Hall, 35 O. St. 158; M. L. & S. Co. v. Reinhard, 114 Mo. 218; 21 S. W. 488; O. M. Co. v. Garst, 18 R. I. 484; 28 Atl. 973; People v. Company, 153 Ill. 25; 38 N. E. 752; Tilley v. Coykendall, 172 N. Y. 87; 65 N. E. 574; Minn., etc. Co. v. Denslow, 46 Minn. 171; 48 N. W. 771; Wright v. Lee, 2 S. D. 596; 51 N. W. 706; A., etc. R. R. Co. v. Fletcher, 35 Kan. 236; 10 Pac. 596; North, etc. Stock Co. v. People, 147 Ill. 234; 35 N. E. 608; Canada S. Ry. Co. v. Gebhard, 109 U. S. 527; 3 S. Ct. 363; Cowell v. Springs Co., 100 U. S. 55; Hastings v. Anacortes, etc. Co., 29 Wash. 224; 69 Pac. 776; Irvine Co. v. Bond, 74 Fed. 849. 8 See McCall v. Company, 6 Conn.

In twenty-seven

428; Galveston, etc. Ry. Co. v. Cowdrey, 11 Wall. 459; 20 Law. Ed. 199.

4 Commonwealth v. Smith, 45 Pa. St. 59; Smith v. Company, 64 Md. 85; 20 Atl. 1032; Tuckasegee Mining Co. v. Goodhue, 118 N. C. 981; 24 S. E. 797; Camp v. Byrne, 41 Mo. 525; F. T. L. Co. v. Laigle, 59 Tex. 339; Craig Co. v. Smith, 163 Mass. 262; 39 N. E. 1116; Bellows v. Todd, 39 Iowa, 209; Hodgson v. Company, 46 Minn. 454; 49 N. W. 197; Harding v. Company, 182 Ill. 551; 55 N. E. 577; Jones v. Company, 20 Col. 417; 38 Pac. 700; Mack v. Company, 90 Ala. 396; 8 So. 150; Aspinwall v. Company, 20 Ind. 492; Courtright v. Deeds, 37 Iowa, 503.

5 See Part III. Table 11, page 581. 6 Handley v. Stutz, 139 U. S. 417; Galveston, etc. Ry. Co. v. Cowdrey, 11 Wall. 459; see also Humphreys v. Mooney, 5 Col. 282.

of the Commonwealths perpetual existence is permitted in the incorporation of companies therein. The power to extend such existence is not of any material importance in these Commonwealths. Twenty-five of the incorporation acts specifically provide for the extension of corporate existence. Without such statutory authority corporate existence cannot be extended.1

In some of the States extension of corporate existence must be accompanied by the payment of an organization tax, as is the case of new corporations. Thus, in New Jersey, where such a provision 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.2

§ 24. Power to change the Corporate Name. Without statutory authority so to do corporations cannot change their name.3 If the proposed change of name conflicts with the name of an existing domestic corporation, State officials are justified in refusing to allow the certificate showing the adoption of the new name to be filed.4

Some of the States, as, for example, New York and California, only permit change of name by application to the courts. § 25. Power to increase or decrease Capital Stock. A corporation 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 corporation is organized." Power to increase or decrease capital stock vests in the stockholders and not in the directors.7 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 other States. Certificates of stock issued on a fictitious increase of stock are void.8

§ 26. Power to issue Preferred Stock.

1 See Part III. Table 8, page 578; also post, sec. 120.

2 National Lead Co. v. Dickinson (N. J.), 57 Atl. 138.

3 Sykes v. People, 132 Ill. 32; 23 N. E. 391; C. D. & M. Ry. Co. v. Keisel, 43 Ia. 39; Glass Co. v. Company, 32 Ind. 376. In re U. S. M. Rep. Agency, 115 N. Y. 176; 21 N. E. 1034; People v. Company, 111 Mich. 405; 69 N. W. 653.

Stockholders enjoying

6 Sutherland v. Olcott, 95 N. Y. 93; Crandall v. Lincoln, 52 Conn. 73; G. L. & H. Insurance Co. v. Kamper, 73 Ala. 325; Palmer v. Bank, 72 Minn. 266; 75 N. W. 380; Detroit Chamber of Commerce v. State Secretary, 109 Mich. 691; 67 N. W.

897.

233.

7 C. C. Ry. Co. v. Allerton, 18 Wall.

8 Beitman v. Steiner, 98 Ala. 241;

5 Ins. Co. v. Kamper, 73 Ala. 325; Pull- 13 Sou. 87. man v. Upton, 96 U. S. 328.

preferential or additional rights not enjoyed by the holders of common shares are called "preferred stockholders." The issuance of preferred stock is a mode by which a corporation obtains funds for its enterprise, without borrowing money or contracting a debt.1 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 2 the question is settled by the existence of statutes expressly authorizing the issuance 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 to permit the insertion in the articles of incorporation of provisions authorizing the issuance of preferred stock. The action of such officials is certainly conclusive as against all the world except the State.3

The true rule governing the matter now before us is, in the opinion of the writer, best set forth in the case of Campbell v. American Zylonite Company. In this case the articles of incorporation 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 third party as security for a loan. Subsequently all the stockholders, except the owner of this pledged certificate, at a meeting duly called for that purpose, voted to surrender to the corporation, without consideration, forty per cent of their stock, and authorized the corporation to reissue this forty per cent in the form of preferred shares. The legality of this act was 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 certificates, although holding under unregistered transfers, are not bound by contracts between the registered shareholders, the corporation and all the other shareholders which are not within the express or implied powers of corporations or of their shareholders. As between the assignor and the assignee, the unregistered

1 Chaffee v. Company, 55 Vt. 110.

2 See Part III. Table 8, page 578.

See Hamlin v. R. R. Co., 78 Fed. 670.

▲ 122 N. Y. 455; 25 N. E. 853.

assignment was not void. It follows that the change in the relative value of the shares which this corporation and its registered shareholders 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 of the preferred shares."

In Kent v. Quicksilver Company 1 the court addressing itself to the question now before us, spoke as follows:

"There arises the query whether there was power in the corporation to distinguish between the stockholders in it to form them into two classes, and to give to one class rights in the corporate property and 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 make such by-laws as it might deem proper consistent with Constitution and law. We know of nothing in the Constitution or the law that inhibits a corporation from beginning its corporate action 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 treading upon rights previously acquired; no contract, express or implied, 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, one of which is thereby given prior right to a receipt of a fixed sum from the earnings 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.