Every corporation which is subject to the provisions of this act shall have the following powers and privileges and shall be subject to the following liabilities: (a) To have perpetual succession in its corporate name, unless a period for its duration is limited by special law.

(b) To sue or be sued in its corporate name, and to prosecute or defend to final judgment and execution or decree in any court of law or equity.

(c) To have a capital stock to such an amount as may be fixed in its agreement of association or articles of organization or of amendment as hereinafter provided. (d) To have a corporate seal, which it may alter at pleasure.

(e) To elect all necessary officers, fix their compensation and define their duties. (f) To hold, purchase, convey, mortgage or lease within or without this commonwealth such real or personal property as the purposes of the corporation may require.

(g) To make contracts, incur liabilities and borrow money on its credit and for its use.

(h) To make by-laws not inconsistent with the laws of this commonwealth for regulating its government and for the administration of its affairs as hereinafter provided.

(i) To be dissolved or to have its affairs wound up in the manner hereinafter provided.

Where to Incorporate. In what State shall the corporation be organized? With the ordinary mercantile corporation, the answer is to organize as a domestic corporation in the State where the business headquarters are and where most of the business is to be transacted. A corporation doing business in a State other than that in which it is incorporated, is called a foreign corporation, and the laws in one way or another are likely to be less favorable to a foreign corporation. A State may, although it seldom does, pass laws to shut out a foreign corporation altogether, or by drastic laws reach the same result by indirection.

Conditions Influencing Place. With railroad companies or with large corporations of various sorts doing much business in several States, the case is less simple. The fees for organization and for taxation are not alike in all States; other conditions of organization or of operation are more burdensome in some States than in others. On the other hand, the conservatism of the laws of certain States tends to give a high standing to a corporation organized therein, which has some effect towards making the financing easier. In the case of long lines of railroads, separate corporations are often organized in different States, and operated under a single management. For the larger matters of organization, the services of a lawyer are desirable or necessary, and in most cases are readily available.

Charter a Contract. The charter is recognized as a contract between the State and the corporation. A general statute may be considered an invitation; an offer is made when the articles of incorporation are filed, and when these are accepted by the proper State official in accordance

with the statute, there is a complete contract; neither the corporation nor the State may violate it, since the Constitution of the United States provides that "no State shall pass any law impairing the obligations of contracts."

Amendment of Charter. In older charters there are sometimes found provisions which later seem unsatisfactory to the State, but amendment would constitute an impairment of the contract. A remedy is sometimes found in such cases when a corporation asks for further legislation in its behalf; the State is then in position to "trade," and exact some desirable amendment as the price of the new legislation. Statutes or special charters nowadays commonly contain a provision reserving to the State the right to amend.

Securities; Bonds and Stock. A corporation has an inherent, an implied power to contract debts. This carries with it the power to give security and in this way to issue bonds. When a man builds a house he often pays for it only in part in cash and gives a mortgage for a part; sometimes he pays in cash all he can raise and gives a mortgage for the balance; sometimes he borrows all he can and pays cash only for the balance. A corporation is similarly financed, oftentimes in part from the sale of bonds, and in part from the money paid in to the capital stock of the corporation by the subscribers who thus become stockholders, or else paid by later stockholders who become such by purchasing treasury stock directly from the corporation.

Bonds. The bonds are frequently, but not always, mortgage bonds. The ordinary mercantile corporations seldom issue bonds, and some of the early railroads issued no bonds for many years. Manufacturing and railroad corporations, and the so called trusts, some of them mercantile, find it convenient to issue bonds. Whether to provide the money needed mostly from the sale of bonds or by subscription or sale of stock is a financial rather than a legal question.

Bondholders' Interest. Bonds, which constitute a first claim on the property of a corporation, give better security than stock, and can be sold to advantage while paying a low rate of interest. With good earnings the stockholders may thus receive a larger percentage of profit on the smaller amount of stock required. On the other hand, if the earnings are unsatisfactory, the interest on the bonds, as it becomes due, must necessarily be paid, and a failure to pay interest usually means a receivership and perhaps foreclosure of the mortgage, which may result in a total loss to the stockholders; whereas if there were no bonds, meagre earnings would result only in a loss of dividends on the stock, which need not be paid if unearned, and would not imperil the property so long as the earnings covered expenses of operation. It is a matter of good financial judg

ment to determine, in each case, what proportion of bonds and stock to issue.

Special Information Required for Incorporation. In the case of railroads and many other corporations, it is sometimes provided by law that the articles of incorporation shall state: (a) the total amount of its capital stock; (b) the par value of a share; (c) the amount of stock subscribed and by whom; (d) the amount actually paid in; and, sometimes also, (e) if more than one class of stock (common stock), the name, quality, and privileges of any additional classes of stock. In this matter, also, the specific requirements of the statute must be followed; these differ in different States, as well as for different kinds of corporations in the same State.

Amount of Capital Stock. In some States there are also requirements as to: (a) the amount of capital stock already paid in at the time of the "first meeting"; (b) the percentage of the capital stock already subscribed; (c) the percentage of the capital stock already paid in; or (d) the percentage of the capital stock already subscribed which has been paid in. Sometimes such a requirement must be fulfilled before the incorporation is effected. In other cases, it must be fulfilled before starting business.

Stock: How Acquired. Stock may be acquired in several ways; by subscription at the start, by later purchase from the corporation, or by transfer from some other stockholder. Although transfer of stock is allowable, certificates of stock are held not to be properly "negotiable instruments." A stock certificate is a written acknowledgment of the interest of the stockholder, and a transfer of stock must be registered on the books of the company.

Subscriptions: Privileges and Responsibilities. The subscriber, before incorporation, not only secures some privileges, but he also incurs legal responsibilities. In general, a subscriber must pay his subscription. In some States the subscription stands as an offer which may be withdrawn before the charter is secured, but which is accepted and becomes a contract the moment the charter is secured; in other States the subscription, once made, cannot be withdrawn unless for fraud or similar adequate cause. Sometimes subscriptions are conditional, but commonly not; sometimes, or in some States, there is an implied condition that all the shares shall be subscribed for unless otherwise specified; but a subscriber may waive this if he sees fit. No general rule of universal application can be laid down here as to the responsibility of the subscriber.

Subscription Agreements. In some States a formal subscription agreement is necessary. Whether necessary or not, an agreement "in consideration of the subscription of others hereto, I promise " forms a contract which probably would be enforced.

The contract of the subscriber is with the corporation and not with the other subscribers; it must be enforced through the corporation, and it has been held that the subscriptions are valid commonly not only by virtue of the statute, but also as a matter of Common Law.

Full Paid Stock. In some States it is unlawful to issue stock to stockholders except on payment of its par value. In other States corporations of certain classes may issue stock on payment of less than par value under some circumstances. When par value has been paid, the stock is nonassessable. National Banks are a notable exception to this rule; holders of full paid stock of National Banks are liable to an additional assessment equal to the par value if this be required to pay depositors or other creditors. In some States a similar rule prevails as to all corporations.

Additional Assessment. Where stock has not been paid in full, the stockholder, in most States, may be called upon for additional assessments up to a point where his total payments shall equal the par value of the stock. His liability is primarily to the corporation, although eventually to creditors in case the assets should be insufficient; but in many States this is true only in case of insolvency or its substantial equivalent. The liability of stockholders has been held sometimes to be jointly and severally, sometimes proportionally.

Where a corporation is clearly solvent and in successful operation, stocks not fully paid for will not be assessed because there is no occasion for such action. The statutes relating to corporations have been changed frequently and vary so much in different States that a careful reading of statutes, as well as an examination of decisions, is necessary to ascertain what are the liabilities of stockholders.

Special Liabilities of Stockholders. In some States the stockholder is liable beyond the full paid stock for the wages of employees of the corporation. He is also liable for any refund which has impaired the security of creditors. In some cases there has been a limitation on the period for enforcing the liability of stockholders. In the case of transfer of stock, the rule as to the liability of transferor and transferee is variable. In California, stockholders are liable for all debts of a corporation.

Stock Issued other than for Cash. While stock is commonly issued for cash, the law countenances its issue for labor or other services or for property if its purchase would not be "ultra vires," a term to be explained later. In some cases practically the only way in which a railroad can be constructed is by paying the contractor in the securities of the corporation. The measure of value of services or property must be, in general, the equivalent of reasonable value, or just valuation, but in a very few States an agreed value, or an arbitrary value fixed, is held to be legal; and in the absence of fraud, the judgment of the board of directors as to value is con

clusive. Stock thus issued other than for cash has been held to be nonassessable.

Stock as Bonus. In some States, in payment of a debt when the credit of the company is poor, payment may be made in bonds with a bonus of common stock, provided the market value of bonds and stock be not less than the par value of the bonds. It is not uncommon, too, to finance corporations by issuing a block something as follows: bond, $1000; 8 shares preferred stock; 4 shares common stock; the selling price for the block being perhaps $1100.

Preferred Stock. Preferred stock is sometimes issued in addition to common stock; the word "preferred" means little or nothing unless the preference is explained. Ordinarily such stock is specified to be preferred, or to have priority, both as to assets and dividends; the provision then is that the preferred stock shall have first claim on assets in case of liquidation, and shall receive its full specified dividend before any dividend is paid on the common stock. Preferred stock usually has a specified rate of dividend; if "cumulative " preferred stock, then in case a dividend is omitted in any year, it shall be paid later whenever money is earned in excess of fixed charges and current preferred requirements, and before any dividends can be paid on the common stock. Unless the quality of preference is in some way explained or specified, the use of the word appears to have no effect.

Unless the statutes authorize the issue of preferred stock, its legality is doubtful. When the statutes authorize it, it is not altogether clear whether the corporation has a right to issue it after the common stock is subscribed, but the weight of authority favors its legality. It is often issued when reorganization of a railroad becomes necessary, sometimes in place of bonds upon which it was found difficult or impossible to pay interest, and which were retired in favor of preferred stock.

Stock of Other Corporations. Although at Common Law a corporation could not in general hold stock in other corporations, yet in most States this is now authorized. This seems almost necessary in the case of insurance companies with much money to invest, and also in the case of trust companies for the investment of trust funds. At present it is not uncommon for " holding companies" to own the stocks of several companies operating in a single line of corporate work, and this seems not unlawful now unless it is a combination in restraint of trade, which is unlawful not only under the Common Law, but often directly under Statute Law also.

The federal anti-trust law, the so-called Sherman Anti-Trust Law, not only defines the offence, but also attaches a penalty which includes possible imprisonment. This law is not on its face directed at corporations, but most action under it is likely to be against large corporations, and its terms