Corporate law

“ B. Given the significance of these considerations, application of the internal affairs doctrine is not merely a principle of conflicts law. It is also one of serious constitutional proportions -- under due process, the commerce clause and the full faith and credit clause -- so that the law of one state governs the relationships of a corporation to its stockholders, directors and officers in matters of internal corporate governance. The alternatives present almost intolerable consequences to the corporate enterprise and its managers. ”

“ The shareholders of the corporation, including, if there is one, its parent corporation, are not responsible This is a conscious decision made by the law of every state to encourage business in the corporate form. ”

“ In such circumstances, if the outsider with whom the corporation assumed to make the contract does in fact rely reasonably upon the corporate power to make it, having been deceived by appearances and having no warning that the corporation actually lacked power, and having paid over money or delivered goods or performed services or parted with other value under the contract, he may generally enforce the contract against the corporation. ”

“ When the litigants are natural persons the conceptions underlying venue present relatively few problems in application. But in the case of corporate litigants these procedural problems are enmeshed in the wider intricacies touching the status of a corporation in our law. The corporate device is one form of associated enterprise, and what the law in effect has done is to enforce rights and duties appropriate for collective activity. ”

“ When a company is incorporated under general laws, as the New Albany and Sandusky Railroad Company was, and the law prescribes that a certain amount of stock shall be subscribed before corporate powers shall be exercised, if subscriptions, obtained before the organization was effected, may be subsequently rendered unavailable by conditions attached to them, the substantial requirements of the laws are defeated. ”

“ There can be no effective control of corporations while their political activity remains. To put an end to it will be neither a short nor an easy task, but it can be done.
We must have complete and effective publicity of corporate affairs, so that people may know beyond peradventure whether the corporations obey the law and whether their management entitles them to the confidence of the public. ”

“ Philosophy may have gained by the attempts in recent years to look through the fiction to the fact and to generalize corporations, partnerships, and other groups into a single conception. But to generalize is to omit, and, in this instance, to omit one characteristic of the complete corporation, as called into being under modern statutes, that is most important in business and law. A leading purpose of such statutes and of those who act under them is to interpose a nonconductor, through which, in matters of contract, it is impossible to see the men behind. ”

“ A corporation without shareholders, without officers to manage its business, without property with which to do business, and without the right lawfully to do business, is dissolved by the operation of the law which brings this condition into existence. ”

“ All contracts made by a corporation beyond the scope of those powers are unlawful and void, and no action can be maintained upon them in the courts, and this upon three distinct grounds: The obligation of every one contracting with a corporation to take notice of the legal limits of its powers; the interest of the stockholders, not to be subjected to risks which they have never undertaken; and, above all, the interest of the public that the corporation shall not transcend the powers conferred upon it by law. ”

“ THEORY OF LEGISLATION RECOMMENDED The history of corporations, as well as the logic of the case, shows that there are possible two general theories as to the State's duty in creating corporations: first, the old theory that, being creatures of the State, they should be guaranteed by it to the public in all particulars of responsibility and management; and the modern quite opposite theory that, in the absence of fraud in its organization or government, an ordinary business corporation should be allowed to do anything that an individual may do. ”

“ We think it is clear that corporations organized for the purpose of doing business, and actually engaged in such activities as leasing property, collecting rents, managing office buildings, making investments of profits, or leasing ore lands and collecting royalties, managing wharves, dividing profits, and in some cases investing the surplus, are engaged in business within the meaning of this statute, and in the capacity necessary to make such organizations subject to the law. ”

“ Fifty years ago, the great majority of business operations were conducted either by individuals or by partnerships. To-day, especially in conducting large business [Pg 122] enterprises, corporations have replaced individuals and partnerships. Although (as we shall see later in the chapter on corporations) in law a corporation is deemed a separate, legal entity, distinct from the stockholders, in actual practice we know that there is no such distinct physical being as a corporation. It follows, therefore, that every act performed by a corporation must be performed through an agent. ”

“ V. observed, that the restriction contended for by the gentleman as the result of his objection, would annihilate the most essential rights and privileges of the citizens of the United States. He then observed, a corporation is nothing more than constituting a body with powers to effect certain objects in a combined capacity, which an individual may do in his individual capacity, agreeable to the usage and customs of common law. ”

“ The general rule is that corporations have only such powers as are granted, and the powers incidental thereto; and, in arriving at a conclusion as to the powers of this corporation, the applicable provisions of the title under which it was organized must be considered,-legislation which will be found to be in harmony with the common law. ”

“ Corporations created by the several states are necessary to the conduct of the business of the country; and it is a startling proposition that a state may permit a corporation to do business within its limits, and by that act acquire the right to subject the corporation to regulations that may be inconsistent with the supreme law of the land. ”

“ There is nothing in the nature of the corporations or associations exempted in the present act, or in their method of doing business, which can be claimed to be of a public or benevolent nature. They differ in no essential characteristic in their business from 'all other corporations, companies, or associations doing business for profit in the United States.' Section 32, Law of 1894. ”

“ These individuals change at will; and, even while members of the corporation, can, in virtue of such membership, perform no corporate act, but are responsible in their natural capacities, both while members of the corporation, and after they cease to be so, for every thing they do, whether in the name of the corporation or otherwise. The corporation being one entire impersonal entity, distinct from the individuls who compose it, must be endowed with a mode of action peculiar to itself, which will always distinguish its transactions from those of its members. ”

“ DE FACTO AND DE JURE CORPORATIONS.—It sometimes happens that a group of persons may attempt to organize a corporation and fail to comply with all the provisions of the law in the State in which they attempt to organize. ”

“ One has but to contemplate the varied and often antagonistic legislation promulgated by the several States, relating to corporation management, and the many rulings and decisions of the different courts and commissions on the subject of regulation, assessment, and adjudication of corporate rates, revenues, taxes, and tolls, to become convinced of the complicated and tangled condition of the situation, and to realize the necessity for the early establishment of some logical basis on which to establish the fabric of corporate control. ”

“ But a corporation might be created for the very purpose of doing, and would of course be competent to do what no individual member of the corporation would be competent to do, yet it would not follow that the corporation had no members, or that an action against the corporation would not be an action against the members in their corporate character. ”

“ Corporations being the mere creatures of the law, they possess only those properties which the charters of their creation confer upon them. Under the decision to which we have referred, and from which we have quoted, corporations are created by statute, and are subject to the control of the power creating them. ”

“ A further word should be given to the origin of the business corporation, an almost accidental event, which has affected the world of trade and affairs more than the invention of printing, of the bill of exchange, and the Law Merchant combined. It would have been perfectly possible for the world to get on and do business without the modern corporation—without the invention of a fictitious person clothed with the enormously powerful attributes of immortality and irresponsibility. ”

“ It is apparent that the corporation within the limits prescribed by statute has most of the attributes and powers of a person—it can sue and be sued, can hold and pass title to property, real and personal, can carry on business in its own name, is responsible to the extent of its entire property for the payment of its debts, etc.
Growth of the Corporate Form of Organization.—The corporate form of organization is being increasingly utilized for the conduct of business of almost every kind. ”

“ While the purpose may not always be mentioned in the indenture, nevertheless it must accord with the charter of the corporation and the laws of the State. The company cannot exceed the powers that have been granted to it. ”

“ One might almost say that they are a device under which parties make their own corporation code. Business concerns so organized have come to occupy a large field in industry and in finance. At least two substantial text-books have been written on the law concerning such organizations and dealing with their advantages for general business purposes. ”

“ Among the powers which such corporations may exercise are 'to make contracts, acquire and transfer property, possessing the same powers in such respects as private individuals now enjoy,' and 'to establish bylaws, and make all rules and regulations deemed expedient for the management of their affairs in accordance with law, and not incompatible with an honest purpose.' Section 1151. ”

“ Extension of corporate activities, distribution of corporate personnel, stockholders and directors through many states, and the diffusion of corporate ownership, separated from corporate management, make the integrity of the conduct of large business corporations increasingly a matter of national rather than local concern (cf. A. A. Berle, Jr. and Gardiner C. Means, The Modern Corporation and Private Property (1932) ) , to which the federal courts should be quick to respond when their jurisdiction is rightly invoked. ”

“ The great carrying trade by land is governed by substantially the same principle; being in the hands of corporate associations, whose members are not personally liable for acts of the employees, but risk only the amount of their capital stock in the corporation. ”

“ CORPORATIONS.—A corporation may contract as freely as an individual so long as its contracts are within the business powers and scope of the business which its charter authorizes it to conduct. And even if a corporation has made a contract outside of the scope of its business, and the contract has been acted upon so that either party has had the benefit of the contract, an action will lie in favor of the other for the benefits so conferred. ”

“ The typical business corporation of the last century, owned by a small group of individuals, managed by their owners, and limited in size by their personal wealth, is being supplanted by huge concerns in which the lives of tens or hundreds of thousands of employees and the property of tens or hundreds of thousands of investors are subjected, through the corporate mechanism, to the control of a few men. ”

“ The modern question, therefore, has become really the question of the large corporation, its regulation and its control; further complicated, of course, by the fact that hitherto there has been no power to control such large corporations except the very State which creates them, which is usually quite indifferent to their acts so long as they pay the corporation tax. It is therefore a question not only of the large corporation, but of the powers of the States over each other's corporations and of the Federal government over all. ”

“ It is quite essential that we know in what State a corporation was incorporated, as its rights and privileges are determined by the statutes of the State which created it and by the charter which has been granted to it. ”

“ The statute does not say under the law of the United States, or a state, or lawful in the United States or in any state, but is made applicable to such as are organized under the laws of the United States, etc. The description of the corporation or joint stock association as one organized under the laws of a state at once suggests that they are such as are the creation of statutory law, from which they derive their powers and are qualified to carry on their operations. ”