a corporation let us, for the time being, think of a private business corporation, with which in fact this book is chiefly concerned.

From an accounting standpoint, every business has a separate existence as a business establishment. It has its contributed capital, its acquired property, and its liabilities. Those who own it, and those who deal with it think of it in this light. It ought to be possible under the law that this separate existence shall be a legal fact if it is so desired. It should be possible for one man or a group of men in effect to say: "We have organized a business. It has a capital of $10,000. We have other business affairs, and we have personal fortunes (large or small) which we wish in no way to involve in the new enterprise. That enterprise must stand or fall on its own merits or demerits, and all who deal with it must do so on this basis." If this is possible a person need not hazard everything he has merely because he contributes capital, perhaps a very small sum, to a business, managed, it may be, by others.

To bring this about the state grants a franchise or charter permitting men to organize a business having an identity distinct from those who organize or own it. Unless this franchise or charter is obtained, that which a person does in a business way is that which he does as a person. The liability is personal, the contracts made, whether by him in person, or by agents for him, are his contracts, and though in his system of keeping books he regards that business as utterly distinct from his home or other personal affairs, and distinct from what other business affairs he may have, yet in the law no such distinction can be made. If suit is brought, he is sued; if property is purchased, he owns it; if the business goes into bankruptcy, he goes into bankruptcy. And what is true of him if he is in business by himself is also true of him if he is

in business with others as partners. But if this charter from the state is secured the business may be made a thing apart, as above explained.

This separate, well defined existence of the corporation is a legal fact permitted for the legitimate purposes of trade and commerce. A number of men are seen working together; they are using a name arbitrarily chosen by them for their common designation in tradal association; and yet they say that it is not their name, but the name of an "artificial person," for whom they are working, with whom they have a contract, from whom some of them draw salaries or whose profits they take and divide among them. Where is this individual, of whose identity they are so sure? It does not think, will, speak, act, except through them; and yet it has an existence that stands apart, limited and certain.

It is because the state gives sanction that this child of the imagination can come forth and be a substantial member of the business community. Its legal standing is derived from political fiat; and this fiat we find expresesd in the corporate charter. Without a charter, that is to say, without the franchise of the state, there cannot be a corporation.

Sec. 2. THE CORPORATION AS A DISTINCT ENTITY. The corporation is an entity having an existence legally separate from the existence of its members.

We may now pursue the thought of the last section into some of its manifestations or illustrations. As there pointed out, the corporation is a being with its separate powers and its completely separate legal existence.

Example 1. F, owning all the stock of the B. Hotel Co., used its property as his own for a period of seven

years, leasing it, collecting the rents, etc. He then in his own name conveyed the property to a trustee for the benefit of his personal creditors. He had also borrowed money from other creditors not included in this deed to the trustee and had given them shares in the corporation as security. These creditors now file a bill to set aside the deed of trust, to dissolve the corporation, and to sell its assets and divide the proceeds among the holders of the stock. F claimed that he owned and could convey the assets by reason of having been the sole owner of the stock. Held, that the title to the property was in the corporation, and did not legally belong to the stockholders, or to a sole stockholder. "A corporation and its stockholders are distinct legal entities." Therefore the deed by F did not convey any title to the trustee, for the property was not his to convey.3

Example 2. A conveyed land by deed containing a restriction, "The title of this land never to rest in a person or persons of African descent." The land is thereafter conveyed to a corporation whose members are negroes. Suit to set aside the deed on the ground of violation of the restriction. Held, that ownership by the corporation in question was not ownership by persons of African descent.4

Example 3. A died owning shares in a corporation whose principal property was real estate. A's widow claimed one-third of the shares as hers under a statute giving a widow one-third of her husband's personal property. The heirs of A claimed that the widow had but a life estate in these shares under a statute giving a widow such life estate in her husband's real property. Held,

3. Parker v. Bethel Hotel Co., 96 Tenn. 252, 31 L. R. A. 706. 4. People's Pleasure Park Co., Inc. v. Rohleder, 109 Va. 439.

that corporate shares are personal property regardless of the nature of the property owned by the corporation.5

Sec. 3. THE CORPORATION AS A "PERSON." A corporation, having an individual existence, is deemed a person wherever that word is used in law, except where the content expressly or by reasonable intendment restricts it to natural persons.

A corporation is "an artificial person." That is, it exists in the community as a body having a separate legal existence, with powers of its own and assets and liabilities of its own. Whenever the word "person" is used in a statute, such word refers to both natural persons and corporations unless the context limits it to either, or the evident meaning thereof limits it to natural persons.

Example 4. A statute forbidding employment of children under a certain age by any "person" applies to corporations as well as to natural persons.6

Any statute referring to rights, powers or liabilities normally possessed by natural persons, would of course not be extended to mean corporations where that would violate the reasonable intendment thereof.

Sec. 4. CORPORATE ENTITY NOT ALLOWED TO DEFEAT RESPONSIBILITY OF REAL PRINCIPAL. If the corporation form is used for purposes of evading re

5. Russel v. Temple, 3 Dav. Abridg. (Mass.) 108.

6. The Overland Cotton Mill Co. v. The People, 32 Col. 263. 7. A corporation is a "person" as indicated, but not a "citizen." Therefore it has no rights under the Federal Constitution (Article 4, Sec. 2) which declares that the citizens of each state shall be entitled to all the privileges and immunities of the citizens of several states. In re Estate of Speed, 216 Ill. 23.

sponsibility for obligations which ought to be fixed upon the real actors, the law will ignore the form and fix the responsibility as substantial justice requires.

(1) In general.

A corporation is a creature of the law for purposes of legitimate commerce. Through the fact of its existence contracts may be made by men for whose performance they are not expected to be, and are not, responsible. Corporate debts are not the debts of the members. The corporation owns its property, as its members do theirs. There is a distinct, sharp cleavage between the legal rights and responsibilities of the corporation, and the legal rights and responsibilities of the members thereof. Now it is but natural that this fact of distinction, this legal independence of the corporation from its members, should be seized upon for purposes for which the law never intended it. The idea is legitimately a shield to protect members of enterprises from personal liability, but it is not legitimately a shield for the accomplishment of fraud. The corporate form or shell, in so far as it serves for purposes of evasion of responsibilities for whose evasion the corporate scheme was not invented, will not serve to prevent the law from searching out the real author of an act whether the corporation be that author acting ostensibly through its members, or whether the members be the author acting through the corporation.

(2) Corporation as party to trust through agreement of its members.

A corporation may be regarded as becoming a party to an illegal trust though the agreement is by its stockhold

ers.