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7. What is next necessary?
For these persons to elect directors or trustees, each of whom must be a stockholder unless otherwise provided in the by-laws or in the certificate of incorporation.
8. What is next required?
To prepare a certificate of incorporation and file it with some authorized official, as the Secretary of State.
9. What are some of the things set forth in these articles of association?
The name, the purpose, the location of the principal office, the time to continue, the number of directors, their names, their post office addresses, the names and the post office addresses of the stockholders, the number of shares each has agreed to take, the capital stock and the number of shares and the par value of each.
10. What is required in some states?
Notice must be given to the public that a charter will be applied for. In other states no notice is required and the corporation becomes entitled to all its privileges as soon as the certificate is filed with the proper officer.
II. Who is a promoter?
A person who attempts to interest others in the forming of a corporation, as for instance to secure their subscription for shares of stock.
12. What are some of the general powers of a corporation?
First, to have succession. Since the corporation has a legal existence apart from its individual members, the death of a shareholder or a change in ownership of his stock in no way interferes with its continuation.
Second, it may acquire and hold property in its corporate name regardless of its individual members. It may acquire property by grant, gift, purchase, devise or bequest, to hold and to dispose of such property as the purposes of the corporation shall require, subject to such limitations as may be prescribed by law.
Third, it may sue or be sued in the same manner as a natural person under its corporate name.
Fourth, for debts created or contracts made in the corporate
name only the assets of the corporation may be taken. Hence the members are not individually liable for corporate debts unless there be some special legislation to the contrary.
Fifth, it may either sue or be sued by a member and may make contracts with a member.
Sixth, it may adopt and use a common seal.
Seventh, may make by-laws for the management or guidance of its business affairs.
13. Can a corporation be a partner in a co-partnership? It cannot unless expressly provided in its certificate of incorporation.
14. Can it make or indorse negotiable or commercial paper for the accommodation of others?
It cannot. Such an endorsement, however, though not enforceable by parties taking it with notice that it was accommodation paper may be enforced by bona fide holders.
15. How are corporations classified?
In a general way into public and private.
16. What is a public corporation?
One organized for the welfare of the public at large. The city, the county and the town are examples of the above.
17. What is a private corporation?
One organized for the benefit of the individual members composing it, or to accomplish some private end, as the banking institution, the railway, the manufacturing plant, the church, etc.
18. How are private corporations divided? Into eleemosynary, ecclesiastical and lay.
19. How are the above defined?
An eleemosynary corporation is one formed for some charitable purpose as a hospital. An ecclesiastical corporation is any religious organization having corporate privileges. All corporations formed for purely business enterprise are known as lay corporations.
20. What other classification is there of corporations?
Sole and aggregate. The former is instanced by the monarch or ruler who is possessed of corporate powers, while the latter is any corporation composed of a number of persons.
21. How may one become a member of a stock corporation?
First, by contracting to take a share or shares of the stock at the time of organization.
Second, by lawfully coming into the ownership of a share or shares previously held by the corporation or by a member thereof.
22. How may one subscribe for shares of stock?
In general by signing an agreement, as by subscribing one's name on the books of the organization or upon the articles of incorporation.
23. When must a subscriber pay for his shares of stock? Whenever such payment is properly demanded by the corporation.
24. What is necessary before suing a stockholder to enforce payment?
A "call" must be made unless a definite time of payment is set.
25. What is a "call?"
A "call" is a statement from the board of directors or other properly authorized officers setting forth that all or some part of the stock required is to be paid into the treasury.
26. What is the result of a "call?"
That the stock asked for becomes a debt enforceable at law.
27. What is required in a "call?"
That it be made impartially and in proportion to the number of shares each stockholder owns.
28. How is the unpaid stock of the shareholders regarded?
As an asset of the corporation which may be taken by creditors for the payment of debts if there is no other corporate property. In this case no "call" is necessary.
29. In what must payment for shares of stock be made? As a rule in money or in labor done or in property actually received by the corporation.
This rule is strict and cannot be varied by a contract between the shareholder and the officers of the corporation, as that would be unfair to the other shareholders and also depreciate the fund to which creditors may look for payment.
30. What is watered stock?
Stock based on no real value, paid or to be paid, is called watered stock. Issues of such stock may be set aside by stockholders who do not assent to such issue. To shareholders who have paid up the full value of their stock this is unjust because it would work a diminution in their proportion of the profits.
31. Can stock be paid for in labor or property?
Unless there is some law to the contrary, it can be paid for in such property as the corporation could purchase lawfully, or in such labor as the corporation may properly use or require.
32. May a corporation release its stockholders from payment of stock subscriptions?
No, except by forfeiture of their shares, for this is a source to which creditors may look for payment of claims, hence any release from payment would work an injury to the creditors.
33. What is a certificate of stock?
It is an instrument setting forth that the holder is the owner of so many shares of stock and is evidence that he is entitled to all the rights and privileges of a shareholder.
34. What kind of property are shares of stock?
Personal property and they may be made the subject matter of a sale the same as other kinds of personal property.
35. What is the result of a sale of stock?
If the sale be properly executed the buyer becomes a member of the corporation and is entitled to share in the dividends, vote, etc., while the former owner loses all his rights.
36. What is necessary for a proper transfer of stock?
First, that the stock be properly assigned by a writing, usually on the back of the instrument, signed by the party transferring and the certificate then delivered to the purchaser. This is called assignment.
Second, it is usually provided by law or rule of the company that all transfers of stock must be registered on the books of the company, hence the next step is to procure registry. By this means it is possible to locate the stockholders of any corporation, a very necessary precaution when dividends are to be shared or "calls" are to be issued.
Third, the old certificate must be cancelled and a new one issued in its stead.
37. What rights do creditors have where the registry has not been made?
If the creditor had no notice of the sale he can hold both the transferrer and the transferee.
38. Are certificates of stock negotiable?
They are said to be quasi negotiable, that is, they have some of the elements of negotiability. The purchaser of lost or stolen certificates would get no title, while on the other hand an agent in possession of stock assigned in blank and entrusted to him, might in breach of trust sell such stock to an innocent purchaser who would get a good title.
39. What should the owner of a lost stock certificate do? He should offer to indemnify the company from loss if the old certificate should appear in the hands of an innocent purchaser and he should then obtain a new certificate.
40. What if the corporation has registered a forged certificate or one with a forged assignment?
If a new certificate has been issued under such circumstances an innocent purchaser of the certificate becomes a lawful stockholder.
41. To what does every stockholder in a corporation agree?
That he will be bound by a vote of the majority as long as the proceedings are within the scope of their authority.
42. What is the source of a corporation's authority?
It is always prescribed by the terms of the charter and the majority has no power to bind the corporation beyond that. It is necessary also that the vote or action be taken at a regular meeting of the stockholders.
43. What are some things that the majority of the stockholders by vote may do?
They may elect the board of directors, who in turn may elect a president and other officers.
They may make regulations for the business management