against an individual. Aside from the rights of creditors to proceed against the property belonging to the corporation, there are cases in which the creditor may also look to the stockholder, notwithstanding the general rule that a stockholder is not individually liable for the debts of the corporation.

Liability of Stockholders. The first of these cases is where the original purchaser of stock from a corporation has not paid to the corporation the full par value of his stock, and the payment of the amount is necessary to pay the creditors. It is held that such a stockholder must contribute the full amount of his subscription for stock if the amount is needed by the creditors. This amount is a part of the capital stock of the company, and the capital is held by the courts to be in the nature of a trust fund for the payment of the corporate debts.

Where a person subscribes for a certain number of shares of bank stock, but does not fully pay for it, he cannot afterwards by an agreement with the bank diminish the number of his shares so as to affect the creditors of the bank. Stock subscribed to a bank is in the nature of a trust fund for the payment of its liabilities. Payne v. Bullard, 23 Miss. 88.

Creditors of a corporation who have exhausted their remedy against the corporation can, in order to satisfy their judgment, proceed against a stockholder to enforce his liability to the company for the amount remaining due upon his subscription for stock. - Hatch v. Dana, 101 U. S. 205.

The stockholder is also liable to the creditors of the corporation if any part of the capital assets has been unlawfully distributed or paid out to him, either directly or indirectly, leaving creditors unpaid. This may be accomplished by distributing funds as dividends when there are no surplus profits or in other ways, but, however accomplished, the stockholder may be compelled to refund for the benefit of the creditors the amount so received.

The stockholders of a corporation sold all the assets of the corporation and received and kept the proceeds of the sale. It was held that the stockholders were liable for the value of the goods sold, as their act was prejudicial to the rights of creditors, leaving certain creditors unpaid.

The statutes, which in some of the states have imposed additional liabilities upon the stockholders, vary greatly. Some make the stockholder liable for all debts until the whole capital stock is paid in. Others make him liable for a sum equal to the amount

of stock held by him in addition to the amount yet due on his stock, and so on, many different provisions being found in the different states.

In Alabama it was held that by statute a stockholder in a life insurance company was liable for the debts of the company, not only for the amount of his unpaid subscription for stock, but also for an additional sum equal to the amount of his stock.

McDonnell v. Alabama Gold Life Insurance Co., 85 Ala. 401.

In case of the failure of an incorporated bank (national or state bank) each stockholder may lose the amount he has invested in the stock and is liable to creditors for an additional amount equal to the par value of his stock.

QUESTIONS

1. What is the general rule as to the rights of creditors of a corporation?

2. To what extent is a stockholder liable for the debts of the corporation? Explain in full.

3. Is the liability of a stockholder in a national bank greater than the liability of a stockholder in a manufacturing concern? Explain.

6. DISSOLUTION OF A CORPORATION

A private corporation may be dissolved in any one of four

ways:

1. By the expiration of its charter.

2. By the surrender of its charter with the consent of the state.

3. By an act of the legislature repealing its charter, under the power reserved by the state when granting the charter.

4. By the forfeiture of its franchise or charter, upon the judgment of a proper court, for misuse or non-use of its powers.

1. Expiration of Charter. The charter usually stipulates that the corporation shall be formed for a certain time, as for twenty or fifty years. When this period expires, the association no longer has an existence, and is therefore dissolved.

Where the existence of a corporation was for a term of years, the corporation is dissolved upon the expiration of the time limited without further action. Merges v. Altenbrand, 45 Mont. 35.5.

2. Surrender of Charter. The dissolution may be effected by the association surrendering its charter, but, the charter being a contract between the state and the association, this can be done only with the consent of the state. The statutes generally provide certain formalities which must be complied with before the dissolution will be granted.

3. Repeal of Charter. - A charter when granted to the corporation and accepted by it, constitutes a contract between the state and the corporation. This contract exists under the clause in our federal constitution prohibiting any state legislature from passing a law impairing the obligation of the contract. The state cannot, therefore, repeal the charter of a company unless it has expressly reserved that right or unless the corporation assents thereto.

4. Forfeiture of Charter. The state may institute a suit in the proper court to cause a corporate charter to be forfeited. The ground for such a suit is the abuse or misuse of the corporate powers, or the neglect or non-use of the same. But the mere abuse or misuse alone does not work a forfeiture of the charter. This results only from the judgment of the court after a hearing in which the corporation has a chance to appear and present its side of the case. A forfeiture will be decreed by the courts when the corporation is guilty of acts or has omitted to do certain things which by statute are expressly made a cause of forfeiture of its franchise.

In one of the cases under the famous" Anti-Trust "laws, it was held that when a corporation has been guilty of misconduct in the exercise of its franchise, which restricts or stifles competition, such acts will be regarded as contrary to public policy and sufficient ground for forfeiting the corporate franchise, even without proof of evil intent or injury to the public, since the inevitable tendency of such acts is injury to the public.

State v. Standard Oil Co., 224 U. S. 270.

When a railway company without authority of law leases its road to another railway company with all of its rights, property, and franchises, for a long period of time, it thereby abandons the operation of its road and is subject to forfeiture. State v. Atchison Railroad Co., 24 Nebr. 143.

Combining with other corporations to form an unlawful trust or monopoly is sufficient ground for a dissolution. This is illustrated in the case of the State v. Standard Oil Co., above quoted.

Effect of Dissolution. The effect of the dissolution is that thereafter the corporation no longer exists for any purpose, but the statutes in practically all of the states now make provisions under which the business of dissolved corporations may be liquidated and settled and the rights of stockholders and creditors may be adjusted. The usual method of doing this is the appointment of a receiver to wind up the corporate affairs, collect bills due to the corporation, and pay its creditors, after which the remainder is divided among the stockholders, according to the amount of stock they hold.

Held, that on the dissolution of a corporation at the expiration of the term of its corporate existence, each stockholder has the right, as a general rule, to have the corporate property converted into money, whether it be necessary for the payment of debts or not.

Mason v. Pewabic Mining Co., 133 U. S. 50.

QUESTIONS

1. In what four ways may a private corporation be dissolved? 2. Explain the usual method of dissolution.

Definition.

7. JOINT STOCK COMPANIES

A joint stock company is a form of association in appearance resembling a corporation while in reality it is nothing more than a partnership.

Incorporation is expensive in England, and there the joint stock company is common, but in the United States the joint stock company is seldom found, as corporations generally are more satisfactory.

As has been said, joint stock companies resemble corporations in form. They have officers and by-laws. Their capital is divided into shares which under their by-laws are transferable. Their by-laws generally regulate the mode of conducting their business and electing their officers. A member of a joint stock company, although he may style himself but a stockholder, is a partner, and as such is liable to the same extent and in the same manner as any ordinary partner.

Holden and others associated themselves together without incorporation under the name of the Bridgeport Coöperative Association for the pur

pose of procuring meat and provisions at a lower rate for the members of the organization. Sales were made to persons not members at a higher rate, but no profit was expected beyond the expense of management. The members held meetings and elected officers. Held, that the individuals composing the association were liable personally as partners for goods purchased by the managers of the association for its benefit. It made no difference that they did not intend to become individually responsible or that they did not know or believe that they would be. Davison v. Holden, 55 Conn. 103.

Sale of Shares. It is generally held that under the by-laws of the company a member may sell or transfer his shares without working a dissolution of the company as would be the result in a partnership. And the death of a member does not work its dissolution. In some of the states joint stock companies are given certain privileges by statute; as, for instance, allowing them to sue or be sued in the name of their president or treasurer. The business of a joint stock company cannot be changed or extended without the consent of all the members, although in its ordinary business arrangements a majority will govern.

QUESTIONS

1. What is a joint stock company?

2. Why is it that join ́ stock companies are not common in this country? 3. In what ways does a joint stock company resemble (a) a corporation? (b) a partnership?

5. Are shares of stock in a joint stock company transferable? Explain. 6. What is the liability of a stockholder in a joint stock company?

IMPORTANT POINTS

A corporation is an artificial person created or authorized by law. A corporation is composed of a number of natural or corporate stockholders.

Stockholders as individuals do not represent the corporation.

A stockholder may deal with the corporation, may sue it and may be sued by it.

Change in the membership of a corporation does not affect its existence.

The special powers of a corporation are granted by its charter.

The capital stock or share capital is the total amount of stock the corporation is authorized by its charter to issue.

The capital is the actual assets or property owned by the corporation.