§ 333. Purposes

The purposes for which a corporation is to be formed must be set forth in the application. They must be permitted by the laws of the particular state. Ordinary business corporations are allowed much latitude in stating their purposes and are not usually confined to one business or line of activity. (See Chapter LI.)

§ 334. Capitalization

The capital stock of the proposed corporation must be specified in the application and may be changed thereafter only by amendment of the charter. (See § 349.)

$335. Shares

In most states of the Union the par value of shares of stock may be fixed by the incorporators at discretion. In some few states there are general restrictions, as in New York where the par value of the share must be not less than $5 nor more than $100. In New York and some other states shares may also be issued without any par value.

One hundred dollars is the most convenient and most generally adopted par value for shares of stock. (See § 349.)

$336. Location

A corporation must have its principal office in the state in which it is incorporated. The location must usually be specified in the application for its charter.

In the state of its incorporation the company is a "domestic" corporation. Elsewhere it is a "foreign" corporation. In its own state it has certain legal rights as an incident of incorporation. In other states it has no such rights except as a matter of courtesy or as may be granted there by legislation.

$337. Duration

In some states the duration of corporations is limited to some fixed maximum as twenty, thirty, or fifty years. In most states, however, while a corporation may be limited to any term specified by its charter, it is permissible to make its duration perpetual.

$338. Number of Directors

The number of directors of the corporation must in most states be specified in the charter application. The minimum allowed by law is usually three. (See § 371.)

$339. Classification of Stock

Under the laws of most of the states, stock may be classified in various ways. The customary classification is into common and preferred stock. Another frequent classification is that of voting and non-voting stock. Sometimes stock is classified so that each class of stock elects one or more directors. (See § 356.)

$340. Cumulative Voting

The cumulative system (see § 367) is employed only in the election of directors.

$341. Execution of Certificate

The charter application, having been duly made out in conformity with the laws of the state of incorporation, is signed, usually in duplicate, by the incorporators. It is then acknowledged before some officer authorized to take acknowledgments to deeds, and is ready for filing.

§ 342. Filing and Recording

Under the usual procedure, the duly executed application, accompanied by the proper fees, is sent to the office of the

Secretary of State, while another copy is filed with the county clerk of the county in which the proposed corporation is to have its principal office. Each state has its own minor variations in procedure, which will be found in its statute law.

In New York the state fees must be sent to the State Treasurer. When these fees are received, the Treasurer certifies that fact to the Secretary of State, who will not file the charter until this certification is received. In New Jersey the application is filed with the county clerk first, and a copy certified by him is then filed with the Secretary of State. In some states, the application must receive the approval of the judge of a specified court before it will be filed.

If the application for charter is in due shape and all fees are paid, it is accepted and filed as a matter of course. The application becomes, when filed, the charter of the corporation. The existence of the corporation dates from such filing.

As the procedure for incorporation varies in each state, it is best to study the statutes and the forms prescribed in the reader's own state. In most states these statutes are published in a pamphlet and the blank forms are usually sent out on application to the Secretary of State.

§ 343. De Facto Corporation

Sometimes an attempted incorporation may fail and then a question may arise as to the liability of the members. The elements of a de facto corporation are:

I. A general law under which the corporation could be legally formed.

2.

A bona fide attempt to comply with the provisions

of that law.

3. The exercise of corporate powers.

When these elements exist the liability of members will be the same as if the incorporation had not been defective.

Otherwise the members will be liable as partners. In some states the doctrine of de facto corporations is not recognized.

§ 344. Contracts Prior to Incorporation

When contracts are entered into in expectation of the formation of a corporation and on its behalf, the status of the trustees or parties in charge, if the corporation fails of incorporation, depends upon the nature and condition of the contract. A subscription to stock would be terminated, and if payment had been made thereon to a trustee, any unexpended amount might be reclaimed; and if the trustee were to blame for the failure to incorporate, he might be responsible for the portion expended as well.

Other contracts, if clearly made on behalf of the proposed corporation, would in most cases be terminated. If not clearly made for the new corporation, the parties contracting for the corporation might be held to specific performance or for damages for non-performance. (See § 146.)

If the incorporation proceeds without misadventure, such contracts would be ratified and adopted by the new corporation. The promoters usually control the first meetings and look out for this. If the company without formal adoption took advantage of a contract, or used services contracted for by promoters, it would be liable for a fair compensation.

I.

REVIEW QUESTIONS

What is the usual procedure in incorporating a company in your state? Prepare the required application for charter of a manufacturing corporation.

2. May persons acting in a representative capacity be incorporated? Can a corporation be a party to an incorporation?

3. Where must the principal office of a corporation be? How is

it fixed?

4. How may stock be classified?

5. How is the application for a charter executed? Where is it filed in your state?

6. What is a de facto corporation?

7. How many incorporators are required in your state to organize a business or a manufacturing corporation?

8. Why are shares without par value desired?

9. The promoters of a company before its incorporation employ an accountant to prepare the prospectus, which the company makes use of. May he recover for his services against the company?

10. When persons associate themselves together as a corporation and the corporation is defective or incomplete, what is their position as against the creditors of the corporation?

II.

What is the distinction between foreign and domestic corporations?