CHAPTER X

MEMBERSHIP IN CORPORATIONS

§ 84. General Statement. The division of corporations into stock and non-stock will be considered for the purposes of this chapter. A stock corporation is one having shares of capital stock of the par value and to the amount designated in its charter. A non-stock corporation is one having no capital stock. The former are usually organized for the purpose of the pecuniary gain and advantage of its members. The latter are usually formed for the purpose of advancing and promoting, in behalf of its members and others, other objects than the financial benefit or advantage of its members. The methods of acquiring membership and the loss of that membership when acquired are essentially different in the two classes of corporations.

§ 85. Non-Stock Corporations. The charter, or the bylaws, of a non-stock corporation, determines the method by which membership must be acquired. Admission of members is usually under the absolute control of the corporation, subject to restrictions, if any, found in the laws of the State or in the articles of incorporation. Persons may become members either by joining in the original organization of the corporation, or, subsequently, upon being admitted to membership in accordance with its regulations, usually consisting of the requirements of an application for membership and a vote of approval by existing members. Membership in a non-stock corporation, it will be seen, is determined, not by the ownership of an interest in the corporation, or even the possession of the required qualifications, but upon the approval by the members of an existing corporation to admit to membership.

§ 86. Stock Corporations. Membership in a corporation having shares of capital stock is acquired through the

ownership of one or more of the aliquot parts into which the capital stock of the corporation is divided. The personal approval of the existing members of a corporation is not necessary nor the possession of any personal qualification. If an individual becomes the owner, in any legitimate way, of one or more of the aliquot shares into which the capital stock is divided, he thereby becomes a member of the corporation, although his personality may be distasteful or obnoxious to every other member of that corporation. He is a member in the full legal sense of the word and entitled to all of the rights which attach to the ownership by him of his proportionate part of the capital stock of the corporation. His interest in the corporation is evidenced, usually, by what is termed a certificate of stock, though its issue by the corporation and possession by the member is not necessary to constitute that relation. It is the ownership of an interest in the capital stock of the corporation that constitutes one a member. His name may appear on the books of the company as the owner of an interest, but this does not necessarily establish the relation. This subject will be discussed later in the chapter on capital stock. One may become an owner of the capital stock of a corporation by acquiring it through purchase or devise, by subscription to the shares of stock of the corporation, and through the operation of the doctrine of estoppel. The latter rule is applied where one, without owning shares of stock in a corporation, assumes the rights of membership and acts in accordance with that relation; holding himself out, in other words, to the public dealing with the corporation and with himself as a member of that corporation. The courts hold, where this condition exists, that in subsequent controversies or litigation arising from these acts, he will be estopped to assert his non-membership.

§ 87. Who Can Be Members. The relation existing between a corporation, the State, and its members, and between its members, is a contract one, and it follows that in the absence of statutory provisions only those who are capable of entering into a contract relation may become

members of a stock corporation. Infants may, however, acquire stock in a corporation, but this particular contract will be entered into subject to the principles of law controlling, in general, the contracts of those non sui juris. The right of affirmance or disaffirmance will exist upon attaining majority. The authorities are agreed that if an infant accepts the benefits of membership in a stock corporation he is also responsible for the liabilities following that relation and subject, therefore, to calls and assessments. Where the common law disability relating to married women prevails they are, even if of legal age, subject to the controlling principles of the law limiting their capacity to enter into contracts. In nearly all States, however, "Married Women Acts", so-called, have been passed removing the common-law disability, and in these States they are free, if of age, to enter into this particular contract relation as freely as other persons sui juris. They can become shareholders in stock corporations, entitled to the benefits and subject to the liabilities created through the existence of the relation. The right of one corporation to become a member of another stock corporation has already been discussed. The general rule may be repeated here, viz, that the legal right does not exist unless expressly conferred, the doctrine applying both to the acquisition of shares in another corporation as well as shares of its own stock. Trustees and others occupying a trust relation may become members of a stock corporation for the benefit of their cestui que trust. Statutory provisions exist in many States declaring the trustee under such circumstances to be merely a nominal legal owner of the shares, the trust estate constituting the true owner and in their absence this rule will still obtain.

§ 88. Loss of Membership. Membership in a stock corporation is lost by the transfer of the interest owned by the member to another. Membership in a non-stock corporation is lost by death, resignation or through expulsion, a resignation being the voluntary relinquishment or membership in a corporation, while expulsion is an involuntary

loss of membership. In non-stock corporations the power of expulsion is determined by the constitution and by-laws of the association or the corporation, and the member must give his assent to by-laws regulating expulsion before they can become operative upon him, though acceptance of membership with knowledge of the by-laws is usually held by the courts to constitute an implied assent.

§ 89. Requisites to Legal Expulsion. An individual possesses both personal and property rights. The former including with others, life, liberty, health, and reputation. These personal rights are regarded by the courts as entitled to protection, and both the Federal and State constitutions abound in provisions insuring to the individual the possession and enjoyment of his fundamental personal rights. Expulsion from a non-stock corporation may seriously affect or entirely destroy one of the most desirable and important of personal rights, viz, that of reputation. The courts, therefore, have universally held that before a member can be expelled from a non-stock corporation, certain and essential steps must be taken. One cannot be deprived of personal rights without due process of law. And despite by-laws or charter provisions to the contrary, to constitute a legal expulsion, the one expelled must have had notice of the proceeding looking to expulsion; the corporation must have considered the question of expulsion at a meeting regularly had or specially called for that purpose; due formality must have been observed in the proceedings, and finally there must have been a formal conviction resulting from the affirmative action of the required number of members. Discussing these essentials somewhat briefly, the person charged with an offense, the ground of an attempted expulsion, must have notice, not only of the offense with which he is charged, but also of the meeting at which the charge is to be considered by the corporation. He must be given a reasonable opportunity to appear and defend himself against the charges. The meeting at which the charges are considered and the vote of expulsion taken must be held in accordance with charter provisions or the requirements

of a by-law controlling the calling of meetings of the corporation and the business which could be legally transacted at the meeting. The proceedings involving the expulsion must be conducted according to the formalities required by the charter or by-laws. There must be, further, a consideration of the charge and the evidence offered sustaining it in connection with the formal vote of expulsion. The courts hold that there must be proof of the offense charged, even if the defendant fails to appear. In the case of nonstock corporations, where the essentials of a legal expulsion have been carefully observed, the courts, as a rule, will not interfere, unless the rule or by-law authorizing the expulsion was in itself immoral, contrary to public policy or in contravention of the law of the land; or unless the by-law was not observed, or some of the essentials noted above were omitted; and, finally, unless there was bad faith exercised by the corporation and its members in arriving at a decision. The courts will interfere, without doubt where the judgment of expulsion was made without notice and opportunity to be heard. The fundamental principles to be observed in connection with the subject of expulsion of a member from a non-stock corporation are that the personal rights of the individual are protected by constitutional provisions equally with his property rights, and that one cannot be deprived of either without due process of law, and due process of law includes, as its most necessary condition, the giving of notice to one whose rights are to be affected by a proceeding, and affording him, in a court or body of competent jurisdiction, a reasonable opportunity to appear, if he so desires, and protect these rights.

In considering the question of whether an offense prescribed by a by-law as warranting expulsion will, as a mat. ter of law, afford a legal ground for expulsion, many decisions have considered the character of the offense, some holding that only offenses of an infamous character; or, in other words, those which are indictable under the criminal codes of the State, will afford ground for expulsion. Other decisions hold that if a member of the corporation commit