(11) State the various taxes commonly paid by a life assurance company. If a tax were assessed on the net profits of the year in a life assurance company, how would you calculate the amount of the tax? (12) Draft a form of annual report to the directors of a life assurance company informing them of the results of the business of the year. (13) What particulars are called for in the annual statements from life assurance companies by the various States? (14) State reasons why the surplus of a company may appear at a different figure in different State reports. CHAPTER XIV. ORGANIZATION OF OLD-LINE COMPANIES. Proprietary A vast number of new companies have been Companies. formed in the United States during the past ten years, most of them as Stock or Proprietary Companies, referred to in Chapter I. The laws of most of the States provide that a corporation to transact life assurance may be formed if the subscribers pay into the Treasury a sum of not less than $100,000; and so long as the Company has this amount of capital unimpaired, and has assets in addition equal to all its other liabilities, it can continue the transaction of its business along the lines permitted by law. In two or three States a higher, and in others a lower capitalization is permitted; while in one or two instances a certain proportion of impairment of capital is permitted before a company is compelled to cease the transaction of new business, or must be liquidated through a receiver. Recent companies have mostly been formed on a stock basis because of the difficulty now experienced in starting companies on Mutual Plans through the lack of an expense fund for promotion and early development. Mutual The laws of many States provide that a Mutual Companies. Company, in addition to having a fixed minimum number of applicants for life assurance of an acceptable kind, which frequently must represent as much as $1,000,000 of sums assured, must also raise what is called a Guaranty Fund for the protection of policy-holders, frequently as much as $100,000, being the amount of the capital stock required in the case of a Proprietary Company. This Guaranty Fund can be repaid to the guarantors out of the profits of the Company in later years; but it is not easy to get a body of men to risk their capital in thus forming a Mutual Company when they know there is no chance of gaining anything more than an interest return on such capital if the venture should prove a success, whereas they run a chance of losing what they subscribe if the Company prove a failure. Accordingly very few mutual companies have been formed in recent years. Procedure It was formerly a common practice to secure a in special charter from a State Legislature in the Organization. formation of a corporation, and this troublesome method is still followed in one or two cases; but most States have now introduced a code of laws whereby a company can be organized much more easily. The Laws generally specify the purposes for which a corporation may be formed, as for example-trading, manufacturing, banking, insurance, etc.; and the Insurance Laws define the classes of insurance, or combinations of classes, which are permitted. The corporation must have a minimum number of members, such as five or seven, and these original promoters, or incorporators then prepare a Certificate of Incorporation setting forth the name of the proposed company, the location, the objects or business to be undertaken, the manner in which the powers of the Company will be exercised, the amount of capital stock, the number of shares, and the duration of the corporation which in some States may be perpetual, in others for a fixed period of years. This Certificate of Incorporation which becomes the Charter of the Company must then be filed with a public official-frequently the Secretary of State-and on receiving his approval, making public advertisement and paying the proper fees, steps can be taken for disposing of the capital stock, and completing the organization. In forming a life assurance company it is necessary to file copies of all such papers with the Insurance Department and obtain a license from the Insurance Commissioner before transacting business. Limit of Powers. A corporation has to be very careful to act only within the powers which are directly conferred upon it; otherwise those who perform any act ORGANIZATION OF OLD-LINE COMPANIES. 201 outside of those powers, i.c.: ultra vires, incur personal and individual liability for the acts so undertaken. The powers of a corporation are defined in the laws of the State in which it has been organized, and are further limited by the charter of the company; in other words, a corporation cannot undertake any business which is not clearly authorized by the law and by the charter. If some action outside of the Charter powers should seem desirable, steps should be taken to have an amendment of the Charter approved in legal form. Directors. When a corporation has been organized, it has usually to apply to the Insurance Department for a license to do business, submitting copy of its Charter and By-Laws, paying certain license fees, proving that it has the necessary capital, and has in all other respects complied with the requirements of law. The affairs of a corporation are managed by a Board of Directors. Full power to act on behalf of the corporation is vested in the Board whose acts bind the Company within their Charter powers as fully as if every member of the Company joined in the act. In most instances the Directors of a proprietary company must be stockholders, and those of a mutual company, policy-holders; but in New York State a policy-holder is qualified to act as a Director even if he holds no stock, while under the recent laws of Canada a proportion of the Directors in each proprietary company must be "policy-holders' Directors", to be elected solely by the participating policy-holders. The stockholders in case of a Proprietary Company, or the policyholders in the case of a Mutual Company, are generally called together once a year for the election of Directors and to consider any unusual piece of business which may be brought before them. Generally speaking, the Directors have power to determine the principles on which the Company shall operate within the powers conferred on them by the Charter; they also approve contracts, elect or appoint Officers, and even declare dividends either to stockholders or to policy-holders. In Great Britain the declara⚫tion of a dividend is made at the stockholders' meeting and not by the Directors. Delegated The Directors delegate their powers to committees of themselves and to the Officers. For example it is usual for the Directors to appoint such committees as:— An Executive Committee, supervising all general questions of management; I. 2. A Finance Committee, supervising investment of the funds and financial transactions generally; 3. An Assurance Committee, to supervise policy forms, determine such questions as the risks to be accepted, approve of policy claims as they mature, etc. 4. An Auditing Committee, to supervise the bookkeeping arrangments and see that accounts are correctly kept. The acts of these committees are reported to the Board of Directors from time to time at the regular meetings of the Board and their actions ratified or criticised. Two A life assurance organization, apart from the Important directorate and general control, consists of two Divisions. divisions whose work, although of different character, must be in complete harmony if success is to be attained, namely, the Home Office and the Field, the latter being represented by the Branch Offices and Agencies whose principal function lies in the procurement of new business and the collection of renewal premiums at the agencies and branches. HOME OFFICE. The work at the Home Office deals with general principles, and supervision; it is subdivided into many departments each having a certain well defined duty, yet all of them fitting together and making one complete organization. The course of an application sent to the Home Office and its progress through the various departments may help to make the system clear; this illustrates. the relationship which each department bears to the others. Application The application, medical report, and other Department. papers are received by the mail department and |