§326. (7) To Do All Things Necessary A corporation organized for some specified purpose has the legal right to make all contracts and do all proper things necessary to carry out that purpose. For instance, a corporation organized to build and operate a factory would without special authorization thereto have the right to buy and hold the real estate required for the erection of its plant. § 327. Charter Powers-Special The special powers of a corporation are those specifically mentioned in its charter which, if not so mentioned, it would not possess. The usual purposes for which corporations are formed, with their amplifications, are included among these, but in most states the law allows many further powers that add much to the value of the corporate system. Among these may be mentioned provisions as to the issue of preferred and other special stocks, the system of cumulative voting, the power to hold stock of other corporations, etc. Also restrictions of various kinds may be embodied in the charter, such as limitations on salaries to be paid officers, or restrictions on the power to mortgage the corporate property or to contract indebtedness generally. § 328. Things Ultra Vires An individual or firm may do anything not forbidden by the law. A corporation may do only those things expressly permitted to it under the law. All other things are beyond its powers, or in legal parlance, ultra vires. Contracts not yet carried out by the other party, involving matters ultra vires, cannot be enforced by the corporation; but if these other parties to a contract have performed their part, the contract may be enforced against the corporation—that is, a corporation cannot evade its obligations by the plea of ultra vires. Directors and officers may make themselves personally liable either to the corporation, to its stockholders, or to third persons, if they involve the corporation in transactions of this nature. $329. Amendment of Charter Any corporate right or privilege that might have been secured in the original charter of a corporation may, in most of the states, be secured by charter amendment, and such amendment may be made at any time, even before the organization of the corporation is completed. As a preliminary step, amendments of the charter usually require the assent of at least two-thirds of the outstanding stock of the corporation in the manner prescribed by lawusually by vote at a regularly called meeting. The amendment so authorized is then as a rule filed in the same offices and with the same formalities as the original charter, becoming effective as soon as allowed and filed. REVIEW QUESTIONS 1. What is the basic agreement that forms a corporation? Who are the parties to it? Give different kinds of charters. 2. What are the usual corporate powers? Give examples. 4. What are things ultra vires? What is the effect if a corporation exceeds its powers? 5. Distinguish between acts of directors resulting in personal liability and such as are merely ultra vires. 6. The president of a corporation in your state went to a bank in Chicago and requested the loan on his note of $10,000 for his personal benefit. The bank president said that he would make the loan if the directors of the borrower's company would authorize the borrower to indorse it in the name of the company. They did so, the indorsement was made, the bank discounted the note, and paid the proceeds to the maker. He failed to pay it; proper demand was made and notice of non-payment given. Is the indorsement binding on the company? Give reasons for your answer. 7. What is the procedure for amending a charter in your state? If a corporation to secure a debt took property that its charter did not authorize it to hold, what should it do? 8. 9. If suit were brought against a corporation, upon whom would the papers be served? 10. By whom are directors elected? Who choose the executive officers? II. Could a railroad company operate a telegraph line? 12. If a corporation issues stock in excess of its authorization, is the excess stock valid? CHAPTER L INCORPORATION1 $330. Application for Incorporation In former days a grant of a special charter would be made to specified persons, authorizing them to conduct some particular enterprise under the corporate form. Usually these charters conferred some franchise or special privilege, as the right to erect a toll bridge, establish a bank, construct a railroad, or build a dam. The abuses arising from this method of granting charters have resulted in most states in the establishment of general laws under which corporations may be formed for any legitimate purposes, by any qualified persons upon compliance with prescribed formalities. In some few states special charters are still granted on occasion. The form of application for a charter under these general laws is usually merely a copy of the charter desired. It may be called a "certificate of incorporation," "articles of association," or other similar name. It sets forth the names of the applicants and the name, purposes, and other required details of the projected corporation. It usually also includes the proposed capital, the par value of the shares, the principal office of the corporation, its duration, the number and names of its first directors, the subscribers to its stock and any special provisions that are desired. The charter application when allowed becomes itself the charter. It is executed by the 'ncorporators, and, after its allowance by the Secretary of State, is filed in his office. It must also 1 For incorporation forms, see Chapter CVI, Forms 53, 57. usually be filed in the office of the clerk of the county in which the corporation is domiciled or has its home. If the proposed corporation is for proper purposes, if all fees have been paid, and the application is in due form, it is accepted and filed as a matter of course and the incorporation is accomplished. The details of incorporation as given are the simple forms used for ordinary business corporations. The formalities and requirements for organizing a public utility corporation are more complex and more onerous. §331. Incorporators The parties applying for a charter must be competent persons of full age, and ordinarily some proportion of them must be citizens of the state in which the application for charter is filed. Minors, firms, or corporations, and generally persons not able to contract, are not competent parties, though they may usually hold stock after the corporation is formed. Persons acting in a representative capacity cannot act as such in incorporating a company. The minimum number of applicants is in most states three, though in some few states five are required. Each incorporator must ordinarily subscribe for one or more shares of stock and all must sign and acknowledge the application. § 332. Name of Corporation Names like, or nearly like, those of corporations already rightfully doing business in the particular state may not be selected as the corporate name. In some states all corporate names must begin with "The" and end with "Company." In others the name must be followed by "Limited" or "Incorporated." In many states, firms may become incorporated under the partnership name without change or addition of any kind. |