Shares. Paid in. paid in cash or other prop erty. Itemized description of property. Valuation. A subscription for stock, made after the organization of the corporation, is a transaction between it and the subscriber.-Carlisle v. S. V. & St. L. R. R. Co., 27/315. And to be effectual, all the statutory requirements as to the manner of subscribing must be complied with.-Schurtz v. Three Rivers, etc., Co., 9/269. Subscriptions, to be valid, must be so made as to bind both the company and the subscriber.-Parker v. Northern Central, etc., Co., 33/23; Wright v. Irwin, 35 / 347. Although a subscriber to stock may not question the validity of the corporate organization, he may contest the legality or binding obligation of his subscription.-Swartwout v. Michigan Air Line R. R. Co., 24/389. Subscribing for stock imports a promise to pay therefor.-Carson v. Arctic Mining Co., 5/288. And an assignee of shares assumes the like undertaking to pay the corporation any balance due to it for the stock.-Merrimac Mining Co. v. Bagley, 14/501. In stock corporations organized for trade, manufacture, or other objects. where it is expected that the investment of the capital stock will yield a return of profits by way of dividends or otherwise, the authorized capital stock is the life-blood of the corporation, and the means through which the object of organization is to be accomplished; hence said stock, and the shares into which it is divided, are required to be fixed by the articles of associa tion.-Association v. Walker, 88/64. Fifth, The number of shares into which the capital stock is divided, which shall be of the par value of ten dollars or one hundred dollars each; Sixth, The amount of capital stock paid in at the time of executing the articles, which shall not be less than ten per cent of the authorized capital, and in no case less than one thousand dollars, except in case of a capitalization of two thousand dollars or under, when it shall be twenty-five per cent thereof, and the amount so paid in shall not be reduced Stock may be below such per cent of its capital. Such capital stock may be paid in, either in cash or in other property, real or personal; but where payment is made otherwise than in cash there shall be included in the articles an itemized description of the property in which such payment is made, with the valuation at which each item is taken, which valuation shall be conclusive in absence of actual fraud: Provided, That only such property shall be so taken in payment for capital stock as the purposes of the corporation shall require, and only such property as can be sold and transferred by the corporation, and as shall be subject to levy and sale on execution, or other process issued out of any court having competent jurisdiction, for the satisfaction of any judgment or decree against such corporation: And Provided further, That there shall be made and attached to any such articles of association an affidavit by at least three of the organizers of such corporation, that they know the property described in such articles. of association and that the same has been actually transferred to such corporation, and that such property is of the actual value therein stated; Proviso was added by Act 146 of 1907. A patent right may be subjected by bill in equity to the payment of a judgment debt of the patentee.-Ager v. Mueray, 105 U. S. 126; Erie Mfg. Co. v. National Wringer Co., 63 Fed. R. 248. It must be considered as well settled that corporators cannot agree among themselves that property worth only $80,000 shall be treated as worth $422,000, and count, at that sum, as so much capital stock paid in, and then proceed to make their shares as fully paid up and non-assessable upon such false basis, as such action would be clearly a fraud upon the creditors. But it is equally well settled that such corporators are not responsible for an honest error of judgment, or a mistake in placing a valuation upon property appropriated or used as capital by a manufacturing or mining company.— Young v. Erie Iron Co.. 65/111. It is a universal rule that where corporators transfer property to a cor poration, for which they receive stock, they must act in good faith and put in the property at its fair worth. Creditors have the right to rely upon the good faith of the stockholders, and to assume that they have contributed to the stock subscribed in money or money's worth, or are liable therefor. This liability cannot be evaded by the issuance of fully paid stock when it is not, or by putting in property grossly in excess of the real value.-Moore v. Universal Elevator Co., 122 / 48. Is a revocable commission agency, yielding from $300 to $1,400 a year, worth $10,000 as part of the capital stock of a corporation organized for another and entirely different purpose? If this contention were sustained, it would result that three or more agents, having no tangible property, might form a manufacturing corporation of $20,000 to $100,000, fully paid up, by simply putting in their revocable agencies as salesmen. This is not the tangible property which the statute requires to constitute a part of the paidup capital stock of a corporation. It was an intangible asset, of no value whatever to the creditors of the elevator company.-Grant J. in McBryan v. Universal Elevator Co., 135/111. In same case, Grant J. in reference to the item "Business Incidental with mechanical engineering, $10,750," says: No tangible property whatever was included in this asset. One of the parties testified that this item "was for our business as experts; our ability to carry on the business; our skill. It didn't represent any tangible property. There was no contract made by which we were to work for the company." He computed the value, "As to the possibility there was in the business we were doing." What is the cash value of a possibility, and that a possibility which Schoonmaker Bros. & Co. had not contracted to continue for the benefit of the corporation? Grant J. further says, "If the statute required the articles of association to state the property put in as capital stock, it might be held that creditors should deal with the corporation at their own risk. But until the legislature sees fit to enact such a provision, incorporators must be required to act in good faith in placing values upon property put in as a part of paid-up capital stock, and the right of those dealing with the corporations to rely upon these solemn statements must be preserved. Seventh, The place in the State of Michigan where the Office. office of the company is located; Eighth, The term of years the corporation is to exist, which Duration. shall not be to exceed thirty years; Ninth, The names of the stockholders, their respective resi- Stockholders, dences, and the number of shares subscribed for by each; etc. creased or of increased The amount of the capital stock and number of shares of How stock every corporation organized under this act may be increased may be inor diminished at any annual meeting of the stockholders, or diminished. at a special meeting expressly called for that purpose, by a vote of two-thirds of the capital stock of the corporation. In May fix price voting upon the increase of the capital stock, the stockholders stock to stockshall have power, by the same statutory majority, to fix the holders. value of, and the price at which, the increase of the capital shall be subscribed and paid for by the stockholders, but not less than par, as well as the time and manner of the subscription and payment, and by the same vote to authorize the directors of the corporation to sell, at not less than the price so fixed, any part of such increase not subscribed by the stockholders, after they have had a reasonable opportunity to make subscription of their proportionate shares thereof; and to make provision for calling in and cancelling the old and issuing new certificates of stock; but nothing herein contained shall in any way operate to discharge any company, which may diminish its capital stock, from any obligation or demand that may be due from said company. When a corpora- Certificate of tion shall so increase or diminish its capital stock, the presi- tion to dent and a majority of the directors shall make a certificate be recorded. thereof, which shall be signed by them and recorded and returned as provided herein for recording and returning the increase or Proviso. Regulating business and defining powers. Proviso. First meeting of stockholders. Waiver of notice. original articles of incorporation, and such increase or diminution shall commence and be operative from the date when such certificate is recorded in the office of the Secretary of State: Provided, That in order to entitle such certificate to be recorded it must show that at least fifty per cent of the total authorized stock, after such increase, has been subscribed, and that at least ten per cent of the total authorized capital has been actually paid in. The articles of incorporation, besides defining the purposes for which the corporation is formed, as provided in sub-section second above, may also contain any provision which the incorporators may deem advantageous for the regulation of the business and for the conduct of the affairs of the corporation and any provision creating, defining, limiting and regulating the powers of the corporation, the directors and the stockholders, or any class or classes of stock and stockholders: Provided, The same be not inconsistent with this act, or the general statutes of this State regulating corporations. Am. 1907, Act 146. If the corporation desires to increase its capital stock, and. at the same time, to provide for two kinds, it must proceed under Sec. 2, and present a certificate to be filed as required by that section. Sections 17 and 38 do not nullify the provisions of section 2 as to increasing the capital stock. They refer to other amendments than those increasing or diminishing the stock.-Continental Varnish & Paint Co. v. Secretary of State, 128 / 621. Where a corporation increases its capital under 2 C. L. sec. 7038, sub, 4, an existing stockholder is entitled to subscribe for his pro rata share of the increase at par notwithstanding any attempt on the part of the other stockholders to set a premium on the new stock.-Hammond v. Edison Illuminating Co., 131/79. (Changed by Act 232 of 1903.) The provision relative to regulating business and creating and defining The right "to create" is limited to the establishing of or regulating a power to be exercised by the corporation through its directors, which power shall not be inconsistent with the terms of the general act. To hold that the legislature of our state, by the adoption of our general corporation act, intended to confer upon individuals an indefinite power of legislation, would require the adoption of a liberality of construction which the act does not warrant, and which upon every known principle, is contrary to public policy. The creating of corporate powers is an inherent right of the state exercisable by the legislature only. It cannot be delegated.-Isle Royal Land Co. v. Secretary of State, 76 / 163. SEC. 3. When any number of persons shall have associated according to the provisions of this act, any two of them may call the first meeting of the stockholders, at such time and place as they may appoint, by giving notice thereof by publishing the same in some newspaper published in the county in which its office is located, and if there is no newspaper published in such county, then by publishing the said notice in some newspaper published in an adjoining county, at least two weeks before the time appointed for such meeting. But said notice may be waived by a writing signed by all the subscribers to the capital stock of said corporation, specifying the time and place for said first meeting, which writing shall be entered at full length upon the records of the corporation; and the first meeting of any such corporation, which has been held pursuant to such written waiver of notice, shall be valid. SEC. 4. The stock, property, affairs, and business of every Directors. manufacturing or mercantile corporation shall be managed by not less than three directors, who shall be chosen annually by the stockholders, at such time and place as shall be provided by the by-laws of said corporation, and who shall be stockholders, and shall hold their offices for one year, and until others shall be chosen in their stead. The majority of the directors, when assembled in legal meeting, constitute the board. Cahill v. K. M. Ins. Co., 2 Doug.. 124. A person named as director in the articles of association, and who has acted as such, cannot be removed by parol. Proceedings by the board, without notice, to declare the office vacant, are invalid.-Copland v. Minong Mining Co., 33 / 2. Agreements made by the stockholders severally, on behalf of the corporation, will not bind it.-Finley S. & L. Co. v. Kurtz, 34 / 89. Individual directors cannot bind the company by contracts.-Lockwood v. Thunder Bay, etc., Co., 42 / 536. Corporate management is, in general, confided to the directors. But stockholders may act in directing investigations of the management and superintendence of the directors.-Star Line v. Van Vliet, 43 / 364. The directors or other board of management having general authority to manage the company concerns, are vested with the only discretionary powers that can exist in any one to carry on corporate business; and such management cannot be assumed by a court of chancery, or vested in a receiver, and cannot be taken from the board except under proceedings to wind up the affairs of the corporation under the statute.-Port Huron & G. Ry. Co. v. Judge of St. Clair, 31/456: LaGrange v. State Treasurer, 24/468, 471. The directors of a corporation are required to act in the utmost good faith, and in accepting the office they impliedly undertake to give to the enterprise the benefit of their best care and judgment, and exercise the powers conferred solely in the interest of the corporation.-Ten Eyck v. Railroad Co., 74 / 227. Courts of equity will not interfere in the management by the directors of the affairs of a corporation unless it is clearly made to appear that they are guilty of fraud or misappropriation of the corporate funds, or refuse to declare a dividend when the corporation has a surplus of net profits which it can, without detriment to its business, divide among its stockholders, and when a refusal to do so would amount to such an abuse of discretion as would constitute a fraud, or breach of that good faith which they are bound to exercise towards the stockholders.-Hunter V. Roberts, Throp & Co., 83/63. elect at SEC. 5. If an election of directors in any such corporation Failure to shall not take place at the annual meeting thereof, in any annual year, such corporation shall not thereby be dissolved, but an meeting. election may be had at any time thereafter to be fixed upon, and notice thereof to be given by the directors: Provided, Proviso. That in case the directors shall refuse or neglect so to do, any three of the stockholders may call a meeting of the stockholders for the election of directors, by giving the notice as prescribed in section three of this act. treasurer to SEC. 6. The board of directors shall elect one of their num- Officers. ber to be president of the corporation and board, and one or more of their number to be vice president, and shall also choose a secretary and treasurer, and assistants if deemed necessary. The secretary and treasurer shall reside and trans- Secretary and act the corporation's business at its office within this State, be residents. unless the articles, or an amendment thereof duly made, provide for the location of the principal office of the corporation without this State. The directors shall appoint such other officers and agents as the by-laws of the corporation shall prescribe, who shall hold their offices according to their contracts, or until others are appointed in their stead. If the stockholders so direct the same person may hold the office of secretary and treasurer. Vacancy in directors. Where cor Failure to elect officers does not dissolve the corporation.-Cahill v. K. M. Ins. Co., 2 Doug., 140. Old officers hold over until new ones are elected.Ibid. Official character is not destroyed by mere lapse of time.-Kimball v. Goodburn, 32/10. The acts of officers de facto bind the corporation.-Jhons v. People, 25/499. The person holding the office de facto is the only officer known to the law until he is ousted.-People v. Marion, 29/31. Except in proceedings to try title to office, the official character of persons acting as officers, may be proved by parol.-Scott v. Detroit Y. M. Soc., 1 Doug., 119; Facey v. Fuller, 13/527; Druse v. Wheeler, 22 / 439. The official character and authority of persons acting as officers is not to be questioned collaterally.—Aud. Gen. v. Benoit, 20/176. Proceedings against officers after the expiration of their terms, for money misappropriated, or withheld, should be at law and not in chancery.-Bay City Bridge Co. v. Van Etten, 36 / 210. Acceptance of office in an association does not estop one from denying its corporate existence in the absence of corporate acts on his part.-Fredenburg v. Lyon Lake M. E. Church, 37/476. SEC. 7. The directors of such corporation shall have power to fill any vacancy which may happen in their board by death, resignation, or otherwise, for the current year. A resolution of appointment to office is not a contract until accepted; but may be shown as tending to prove the officer's claim for salary, etc.-Kalamazoo, etc., Co. v. Macalister, 40/84. SEC. 8. It shall be lawful for any corporation organized or poration may existing under the provisions of this act to conduct its business in whole or in part at any place or places within the United States or any foreign country. conduct its business. Prior to commencing business articles must be recorded. Duty of secre tary of state and county clerk in matter of recording. Am. 1907, Act 51. SEC. 9. Before any corporation, organized under this act to operate in this State, shall commence business, the president of association shall cause the articles of association to be recorded, at the expense of said corporation, in the office of the Secretary of State of this State, and in the office of the county clerk of the county in which such operations are to be carried on, and before any corporation organized hereunder, to operate outside this State, shall commence business, the president shall cause the articles of association to be recorded at the expense of the corporation, in the office of the Secretary of State and in the office of the county clerk of the county in this State where the Office of the corporation is located. The Secretary of State and the county clerk, in whose office such articles of association shall be recorded, shall each certify upon every such articles of association recorded by him, the time when it was received, with a reference to the book and page where the same is recorded, and the record, or transcript of the record, certified by the Secretary of State of this State, and under the seal thereof, shall be received in all the courts of this State as prima facie evidence of the due formation, existence and capacity of such corporation in any suit or proceedings brought by or against the same. And in case of companies organized panies organ- under act number forty-one, laws of eighteen hundred and fifty-three and amendments thereto, and whose original articles of association and amendments are filed in the office of the Secretary of State, copies of such articles of association or amendments duly authenticated by the Secretary of State Prima facie evidence of organization. As to com ized under act 41, laws of 1853. |