Corporation

an association or company authorized by law to act as though it were one person. A corporation possesses several advantages over a partnership, and is now the usual arrangement by which banks, railroads, manufactures, and commercial enterprises are managed. A corporation must have a name and must operate under so-called articles, setting forth the kind of business proposed, the manner in which it is to be conducted, and the amount of money, that is to say, capital stock, to be invested. The capital stock is sold to members who thus become shareholders. The management of a corporation is intrusted usually to a board of directors elected annually by ballot, each shareholder being entitled to as many votes as he holds shares of stock. The directors are empowered usually to appoint a president, vice-president, a secretary, and a treasurer from their own number; to fix salaries; and to employ, if necessary, a manager for the business.

Beyond taking part in the annual election of directors the stockholders cannot control the management of the business. This is one of the great advantages of a corporation. In a partnership, a partner who becomes dissatisfied can call for a division and interrupt seriously an enterprise in hand; but a dissatisfied shareholder cannot interfere with the management of a corporation. He may sell his stock, or labor for a change of management; but cannot step in and interfere with what the manager is doing. It would be very awkward, for instance, if seventy-five people owning a railroad in partnership were to become dissatisfied and demand a division of the property, one taking a locomotive, another half a dozen freight cars, a third, two passenger coaches, and others again different sections of the railway, depots, stations, etc.

Another advantage of the corporation is that it permits many people to invest their money in the same business, and yet keeps the management in the hands of a few. It is pretty difficult for half a dozen partners to agree as to the details of a business; yet several thousand shareholders in a corporation find no difficulty in managing a business efficiently through a simple method of electing officials from whose decision there is no appeal. The large amount of capital required to carry on such an enterprise as a transcontinental railway, for instance, is beyond the means of a single individual; and even if brought together it could not be held together by any form of partnership. Incorporation seems to be the only practical method of carrying out a large enterprise.

In the eye of the law a corporation is a single individual. It can sue and be sued. It can sell, buy, and hold property. Stockholders may die, but the corporation lives. Stockholders may change, but the corporation is the same. It possesses a certain individuality or personality of its own, independent of its shareholders. A shareholder cannot be sued for the debts of the corporation, nor be held liable for its acts. A corporation may steal timber; its officials may, indeed, be punished, as officials; but the shareholders are not personally answerable to the law. The property of the corporation may be taken to pay for trespass or other damage, but the shareholder's private property may not. One's share in a corporation may be seized and sold for debt, just as his horse or farm may be taken; but a corporation cannot be made to pay the debts of a shareholder. The shareholder and the corporation are two entirely distinct individuals. Profits may be divided among shareholders according to the number of shares held by each. Such payments are called dividends. By general agreement a loss may be made up by an assessment; but ordinarily a corporation has no authority to call upon stockholders to make losses good, any more than a man has a right to call on his neighbors to make up his losses.

The exemption of stockholders from responsibility for corporation debts is subject to two exceptions. In case the original stockholder has purchased his stock for less than par value, he may be required, in case of need, to pay into the treasury the rest of the sum represented by his stock. This is a principle of common law designed to protect creditors who had reason to suppose the corporation had received the face value for stock sold. Some states make stockholders liable for debts twice or three times the amount of stock held.

There are disadvantages connected with corporations. It is hard to right a wrong done by a company of this sort. The stockholders, who may have instigated unlawful acts, hide behind a board of directors, and it is difficult to hold them responsible. Large shareholders not infrequently elect themselves to official positions in which they draw large salaries or otherwise manipulate the business in such a way that the interests of the smaller shareholders are neglected. Dividends may be deferred until the small holders are forced to sell their shares at a ruinous price.

The laws of New Jersey are particularly favorable to the incorporation of the large companies known as trusts. The fees of the state from that source are very large, amounting to $3,500,000 for the year 1904. In 1909 Congress imposed an income tax on corporations designed to produce a revenue and to give the general government an opportunity to know more of the business done by corporations.

See Trusts; Partnership