(3) The corporate form affords stability and permanency of organization.

The death of the owner of a business, or of one of the partners in a business, necessitates a reorganization if the business is to continue. And where a business is owned by several as partners, none of them has any right to transfer his interest without the consent of all the others and such transfer without consent results in dissolution. But corporate shares are freely transferable, and the sale of shares or the death of a shareholder does not in any sense affect the existence of the corporation.

(4) Incorporation encourages systematic organization.

It can readily be seen that the incorporation of a company means in itself, almost necessarily, a systematic organization. The very permanency of the corporate life encourages the introduction and maintenance of system. Officers are to be elected, the authority of each one of them is to be determined, by-laws are to be adopted, shares are to be issued, and all of this encourages systematic organization.

(5) The incorporation of a company often furnishes better facilities for raising capital and borrowing money.

Many a person will become a subscriber to shares of stock who would not in that particular business take upon himself the more onerous liability of a partner. Corporate shares may therefore be sold where shares in the same business unincorporated could not be marketed. This is a matter of every day observation. And capital may be secured also by the issuance of preferred shares, defined and described later in the text, which give the holder a

So the

certain assurance of return of a certain amount. corporate form becomes a necessity if the borrowing of money is to be accomplished through a bond issue, which may be widely distributed and yet every bondholder have his security in the same trust deed or mortgage upon the property of the borrower.

(6) A corporation furnishes a legal unity for purposes of suit, holding title, making contracts, etc.

This is a matter of great convenience especially where the corporation is of any considerable size or has many interested in it.

Sec. 7. KINDS OF CORPORATIONS.

Corporations

may be divided into public or municipal corporations and private corporations. The latter may be divided into stock and non-stock corporations.

We may classify corporations as follows: 13

(1) Public corporations, or such as are founded by the government for public purposes.

A. Municipal, as cities and towns.

B. Quasi municipal, as counties, school districts, etc. (2) Private corporations, or corporations not owned by the public, although (as in the case of railroads), touched with a public use.

A. Stock corporations organized for purposes of financial profit. All industrial corporations fall under this heading. Railroads, street railways, telephone and telegraph companies, etc. (public service corporations) are sometimes called public or quasi-public corporations, but are really private corporations formed for a public purpose.

13a. State v. Carr, 111 Ind. 335.

B. Non-stock corporations, organized for purposes of charity, learning, pleasure, mutual assistance, etc.

Sec. 8. PURPOSES FOR WHICH CORPORATIONS MAY BE FORMED. A business corporation may have as its charter object any activity of a legitimate business nature; except that local public policy may forbid incorporation for certain purposes.

It is a frequent provision of general incorporation laws that corporations may be formed thereunder to carry on "any lawful business." It is of course true that corporations for certain purposes must be formed under laws peculiarly applicable to them rather than under the general corporation law, as bank business, surety business, insurance business, railroad business and so on. But that is merely by way of statutory direction how such corporations shall be formed rather than any limitation upon the purposes for which they may be formed.

It is, however, true that some business or professional activities which are legal for natural persons cannot be made the charter objects of corporations, either because of statutory inhibition, or public policy of the state. is also true that some activities must under local statute be incorporated, as (for instance) banking, transportation,

etc.

(1) Charter objects forbidden by local policy or statute.

It

It is generally held in the American states that corporations cannot be formed for the purpose of dealing generally in real estate,14 unless the statute specifically so provides. The right of a corporation which is organized for another purpose, to own real estate is another question 14. People v. Shedd, 241 Ill. 155, 89 N. E. 332.

entirely and is considered elsewhere. The statute may permit organization for real estate purposes, under specified restrictions.

(2) Incorporation for purpose of practicing learned profession.

It is contrary to public policy that a corporation shall engage in the practice of law,15 or medicine or dentistry.16 Although in some states physicians or dentists are permitted to form corporations which may employ physicians or dentists to practice their profession for it.17 And it has been held that a corporation may contract to provide services of a licensed architect and collect the fees therefor, notwithstanding a statute forbidding corporations to be licensed as architects.18

15. In re Co-operative Law Co., 198 N. Y. 479, 32 L. R. A. N. S. 55.

16. People v. John H. Woodbury Dermatological Institute, 192 N. Y. 454.

17. State Electric Medical Institute State, 74 Nebr. 40, 103 N. W. 1078.

18. People v. Rodgers Co.. 258 TU. 144

CHAPTER 2.

PRELIMINARY OBSERVATIONS IN ORGANIZA

TION OF CORPORATION.

Sec. 9. WHETHER TO INCORPORATE.

We have already considered the question of the advantages to be gained by incorporation; but it does not follow that it is the wisest plan to incorporate every business. Against the advantages following incorporation may be mentioned a number of disadvantages. In the first place there must be taken into consideration the fact that corporations are frequently under a disadvantage from standpoints of taxation, and franchise licenses; so much so in fact that there has been considerable impetus given to the "Massachusetts Trust" idea, discussed later in these pages; and not infrequently existing corporations have dissolved to become partnerships.

Aside from unfair or at least heavy incidence of tax and aside from unfair prejudices which corporations in general must operate against, there are other considerations which must be entertained in deciding whether to incorporate. A stockholder in a corporation does not have that immediate and direct control over the business which a partner has. The stockholder, as we have noticed, is not even an agent of the corporation, unless specially made such; ; but partner is an agent of very general and wide powers. So, it is a fundamental principle in the law of partnership that the relation is a highly personal one. No