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CORPORATIONS AND THE STATE

CHAPTER I

ORIGIN AND DEVELOPMENT OF PRIVATE
CORPORATIONS

It is the purpose of these lectures to discuss the political, social, and economic conditions which have caused the growth of corporations, and to point out the relation which exists or should exist between such corporations and the state. It is not intended to neglect the form and organization of corporations which are subjects of undoubted importance, but particular attention will be given to the great tendencies and the general facts and principles which have caused the modern corporation to assume its importance in our economic and social life.

A corporation is a group of individuals empowered by law to act as a single person and endowed by law with the capacity for succession. It can own property, incur obligations, sue or be sued in the same manner as an individual, and its members usually enjoy the advantage of limited liability. While the personnel of a corporation may change

from time to time, the corporation itself can continue indefinitely. It is this feature of permanence which constitutes one of its chief advantages. Sir Edward Coke expressed his view of the corporation as follows: "A corporation is invisible, immortal, has no soul, neither is it subject to the imbecilities or death of the natural body." In the Dartmouth College case, the following definition was given: "A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law."

The idea of the corporation as an entity separate from the individuals composing it has often been emphasized to the point of absurdity and used as a means of escape for officers who were personally guilty of wrongdoing. This is no better illustrated than in the argument of the defendants in the North River Sugar case, to the effect that the corporation itself could only do what the law allowed it to do, that any other act was ultra vires and accordingly the act of individuals and not of the corporation.' The court refused to accept this reasoning and rightly held that the action of the majority of directors was the action of the corporation. This legal fiction has since become largely discredited; but we are still prone to forget that a corporation is composed of individuals, and that its directors and even its stockholders have their personal responsibilities to the general public. 1 121 N. Y., 582.

We should remember also that the corporation is an institution which, like all others, has been evolved from earlier and more primitive forms. It is but one manifestation of the innumerable instances of the association of individuals in society. The modern corporation is of comparatively recent origin, but as long ago as the Middle Ages, and even during the time of the Roman Republic, there existed organizations of individuals with corporate rights. These will be briefly discussed in the course of this chapter. They were of quite a different nature, and bore little resemblance to the present day commercial and industrial organizations and hence are only of passing interest.

Two factors assume especial importance in the progress of the human race: Increase of population, and association of the individual units which make up population.

The United States Census Report for 1900 quotes Adam Smith as saying:1

"The most decisive mark of prosperity of any country is the increase of the number of its inhabitants."

An increase in population indicates the absence of devastation by war or pestilence and the existence of a sufficient supply of food-conditions requisite for advancement in civilization. A substantial increase also makes possible entrance into new fields of endeavor, and the more perfect develop1 Supplementary Analysis, p. 29.

ment of those enterprises and activities which are already in existence.

Advancement in civilization has usually been contemporaneous with increase of population. Rightly considered, however, increase of population is rather an indication than a cause of advancement. The two most populous countries of the world, China and India, have been marked by stagnation and lack of progress contemporaneously with the wonderful advance of other countries. It thus appears that the quality of population and its ability to promote increased effectiveness is more important than mere numerical increase.

Association is invariably in evidence wherever humanity has successfully striven to work out its problems. The fact of co-operation has ever been manifest, however baffling it may be to express its cause in exact terms; whether its origin is due to instinct, like-mindedness, or common interest is a question for the sociologist. If we were to use a single sentence to describe its existence we might say that association has its foundation in an intelligent exercise of the desire for human happiness, for life becomes tolerable and progress is made easy only where there is a readiness for the association or co-operation of individuals in some form of social organization. On this subject Mr. Carlyle very well said in one of his earlier essays:

"Such is society, the vital articulation of many individuals into a new collective individual; greatly

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