public. Created by the state for a fixed period, it is not liable to sudden or unexpected termination. The rights and liabilities of all concerned are defined by law and well settled by custom. It permits investment to a definite extent without indefinite or continuing liability and without the necessity of the investor becoming identified with the management.

$317. Disadvantages of the Corporate Form

The disadvantages of incorporation result from the fact that special reports and special taxes are required of corporations, above those required of sole traders or partnerships. Most states require reports as follows:

5. Reports in each state outside the home state in which the corporation does business.

The taxes paid by corporations at various times are as follows:

1. Organization taxes payable to the state for incorporation.

2.

Annual franchise taxes paid to the state under the laws of which it was incorporated.

3. Annual taxes on property.

4.

Federal income and excess profits taxes.

5. Inheritance taxes on stock.

7. Taxes and license fees in each state outside the home state in which the corporation does business.

8. Excise taxes.

I.

REVIEW QUESTIONS

What is a corporation? Distinguish a corporation from its membership.

2. Distinguish between public and private corporations. What are public utility corporations? What is a moneyed or financial corporation?

3. Distinguish between stock and non-stock corporations. To which class do all business corporations belong?

4. What are shares of stock? What are stock certificates? 5. What is a moneyed corporation? What is a corporation sole? What is a corporation aggregate?

6.

7.

8.

9.

IO.

What are the seven distinctive features of a modern stock corporation?

How is a corporation formed in your state, and what are the legal requisites for incorporation?

What is the difference between the powers of a corporation and the powers of a partnership as to what business it engages in? In case a corporation is insolvent, to what extent are subscribers liable? What remedies has a corporation on an unpaid subscription to capital stock?

What is meant by "the distinct legal entity" of the corporation? How does a partnership sue? How does a corporation sue? II. Why is a corporation more permanent than a partnership? How can an interest in a corporation be transferred? How can an interest in a partnership be transferred?

12.

13. Explain the stock system.

14.

What is meant by the corporate mechanism?

15. Why is the corporation form attractive to investors? Why is the corporate form used for most large business enterprises? 16. What disadvantages attach to the corporate form?

CHAPTER XLIX

THE CHARTER'

$318. Definition-Synonyms

The terms, certificate of incorporation, articles of association, etc., are synonymous with the older and briefer word, charter. A charter is the formal authority from the state for the existence of a corporation. It is to the corporation what a constitution is to a civil government. It is the foundation upon which the corporate structure is built.

The charter creates the corporation and authorizes certain specified individuals to organize it and conduct its operations. Charters were formerly granted only by special legislative enactment. Now they may be secured under general laws and in many states can be secured in no other way.

Charters are granted under different statutes varying in terms and requirements according to the purposes of the corporation. The simplest charter is usually that provided for a manufacturing or mercantile business. The requirements and limitations for the charter for a bank, a railroad, a telegraph company, or a college would differ widely.

$319. Charter Powers-General

The grant of a charter bestows upon a corporation all the powers properly specified in the application for a charter. In addition to these specified powers-which are usually those necessary to conduct the business or enterprise to be undertaken by the corporation—the charter confers certain general

1 See also Chapter L. For form of charter, see Chapter CVI, Form 54.

powers, whether specified or otherwise. These general powers are as follows:

7. To do all things necessary.

These are discussed in order in the following sections:

$320. (1) To Sue and Be Sued

When a partnership is sued each partner must be named separately and be made a party to the action. A corporation may sue or be sued under its corporate name just as may an individual. No mention need be made of its stockholders. A summons may be served on any managing officer, on any director, or on an agent in charge of the corporate affairs.

§321. (2) To Use a Seal

Formerly the seal was the essential feature of the corporate signature. Now the corporate signature may be affixed by any properly authorized agent without the use of the seal, save in those cases where even an individual must use a seal, as in the conveyance of real estate or the execution of a bond.

The custody of the seal usually rests with the secretary of the corporation.

§ 322. (3) To Buy, Sell, and Hold Property

This power must be taken with some qualifications. The property must be such as pertains to the business of the corporation and such as it is permitted to hold under the laws. In some states the ownership of land by corporations is re

stricted. Also in many states a corporation may not hold shares of stock in another corporation. A corporation must dispose of property taken for debt, if it has no charter right to hold that kind of property.

§ 323. (4) To Appoint Directors, Officers, and Agents

This power is absolutely necessary as the corporation can act only through such representatives. The stockholders at their annual meeting elect directors who have charge of and manage the corporate affairs. These directors then meet and elect a president, a treasurer, a secretary, and such other officers as may be desired. Agents may be appointed by the directors or by the officers, when authorized thereto.

$324. (5) To Make By-Laws

The by-laws are adopted by the stockholders. They are the working rules of the corporation and provide for the details of its operation. The by-laws are subordinate to the laws of the state and to the charter of the corporation, and their provisions must not be inconsistent with either. Under this limitation, however, the by-laws have wide scope.

$325. (6) To Dissolve Itself

When a corporation has failed in its object, or has become unprofitable, or has completed its intended purpose, or has disposed of its business and property, its dissolution may become desirable. Formerly the unanimous consent of all the stockholders was generally required for dissolution. Now in most states some specified majority of the stockholders by simple statutory proceedings may dissolve the corporation. In such case the assets are sold, and, after payment of any corporate debts, any remaining funds are divided pro rata. among the stockholders.