Gehl IN Russell 6-15-33 LAW GOVERNING MANUFACTURING AND MERCANTILE CORPORATIONS AND CORPORATIONS FOR OTHER LAWFUL BUSINESS. [Act 232, P. A. 1903.] AN ACT to revise and consolidate the laws providing for the incorporation of manufacturing and mercantile companies or any union of the two, and for the incorporation of companies for carrying on any other lawful business, except such as are precluded from organization under this act by its express provisions, and to prescribe the powers and fix the duties and liabilities of such corporations. The language of the title indicates an intention to include in the act con- sistent with For prior legislation see Act 144 of 1851, Act 41 of 1853, Act 187 of 1875, Act 274 of 1881 (held unconstitutional because mercantile business was not included in the title), and Act 232 of 1885. Act 42 of 1867 amended Act 41 of 1853 by providing for companies engaged in manufacture of salt. Such companies were excepted from Act 232 of 1885. But Act 41 was repealed by Act 252 of 1897. The People of the State of Michigan enact: corporate and SECTION 1. Any three or more persons desiring to become Who may inincorporated for the purpose of carrying on any manufactur for what. ing or mercantile business, or any union of the two, or for buying, selling and breeding cattle, sheep and horses, or other live stock, or for engaging in maritime commerce or navigation, or for the purchasing, holding and dealing in real estate, or for conducting a warehouse and storage business, or for erecting and owning buildings to be occupied or leased for dwelling houses, halls, or business purposes, or for the production and supplying of gas and electricity for lighting, fuel or other purposes, or for printing, publishing and bookmaking, or for carrying on any other lawful business, except such as are excluded by section thirty-six of this act, may, by complying with the provisions of this act, with their successors and assigns, become a body politic and corporate. The charter of a private corporation is a contract between the government and the corporators.-Mich. State Bank v. Hastings, 1 Doug., 224, 234; Flint & F. P. R. Co. v. Woodhull, 25/99. Articles of association, blanks for. To state name. name. V. A corporation and its members are distinct persons, and not in any legal sense identical.-Talbot v. Scripps, 31/268; Hanson v. Donkersly, 37/186. Rights of membership in a corporation can be obtained only in compliance with its charter or governing law, and if they prescribe any conditions or special methods of becoming a member, the law is imperative.-Carlisle S. V. & St. L. R. R. Co., 27/315. The ownership of stock constitutes the holder a member of the corporation.-Dexter & M. P. R. Co. v. Millerd, 3/91. Mandamus will lie to compel the restoration of a member to rights of which he has been unjustly deprived.-Roehler v. Mechanics' Aid Soc., 22 / 86. Private corporations can be formed only under general laws, and in strict conformity with the provisions regulating their organization.-Const., art. XV, sec. 1; Doyle v. Mizner, 42/332. A corporation is an artificial being, created by law, with limited powers and for specified purposes, with a tacit condition annexed to its charter, that it will exercise its franchise in the manner and for the purposes specified therein, and not otherwise.-Atty. Gen. v. Oakland Co. Bank, Walk. Ch., 90, 97; and that it shall act up to the end or design for which it was created. People v. Bank of Pontiac, 12/537. V. Corporations can exist only by force of express law. Scheutzen Bund Agitations Verein, 44/ 313. Their legal existence, by force of obligatory law, is confined to the state creating them.-Thompson v. Waters, 25/214. SEC. 2. The articles of association of every such corporation shall be made on suitable and uniform blanks which it is hereby made the duty of the Secretary of State to furnish on application free of charge, or upon blanks substantially uniform approved by the Secretary of State, which articles shall be signed by the persons associating in the first instance and acknowledged before some person authorized by the laws of this State to take acknowledgments of deeds, and shall state: Proceedings to incorporate must be in strict conformity with the requirements of the statute. Articles of association are not valid, nor entitled to be filed in the office of the Secretary of State unless acknowledged.-Doyle v. Mizner, 42/332; Carmody v. Powers, 60/ 29. For forms of acknowledgment, especially by attorney in fact, see Sec. 9020, First, The name assumed and by which the corporation shall be known in law: Provided, No name shall be assumed already in use by any other existing corporation of this State, or corporation lawfully carrying on business in this State, or so nearly similar as to lead to uncertainty or confusion; But The object of a corporate name is for the purposes of identification. a corporation may be known by several names as well as a natural person.— Walrath v. Campbell, 28/111, 122. As to when the identity may be shown by parol.-Ibid. A corporate name is regarded as in the nature of a trade-mark, even though composed of individual names, and its simulation may be restrained.—Williams v. Farrand, 88/ 473. In Lamb-Knit-Goods Co. v. Lamb Glove & Mitten Co., 120 / 159, and in Penberthy Injector Co. v. Lee-Penberthy Manufacturing Co., 120/174, the defendants were enjoined from use of names. See also Myers v. Buggy Co., 54/215. In Supreme Lodge Knights of Pythias V. Improved Order Knights of Pythias, 113/133, there was no evidence that any person had been misled, and while the case is near the line, the court held that the rights of the complainant had not been infringed. In a suit in equity to enjoin the use of a name similar to the name of another corporation carrying on business of the same character, relief may be granted if the public is misled, and the corporation first established is defrauded on account of the similarity. The use of properly descriptive geographical words in a business name will not be enjoined in the absence of estoppel, actual fraud or misleading of the public.-Michigan Savings Bank v. Dime Savings Bank, 162 / 297. Complainant did not complain simply because of the use of the words "People's" and "Company" but of the arrangement of the words in the name of the defendant corporation, claiming the result is so similar to the name of complainant as to be misleading in fact, in the actual business life of the complainant. Injunction affirmed.-People's Outfitting Co. v. People's Outlet Co., 170/398. Right of a foreign corporation to take a name so closely resembling the name used by "any other organization of this state" as to mislead the public as to its identity.-See Home Life Ins. Co. v. Home Life Assurance Co., 111 / 405. Second, Distinctly and definitely, the purpose or purposes Purpose. for which the corporation is formed, and it shall not be lawful for said corporation to divert its operations, or appropriate its funds to any other purpose, except as hereinafter provided; The purposes of a corporation are to be determined by the statements contained in its articles of association.-Detroit Driving Club V. Fitzgerald, 109 / 670. The provisions of 3 How. Stat., Sec. 4161a1, that the articles of association of a manufacturing corporation shall state the purposes for which it is formed, and that it shall not be lawful for it to divert its operations or appropriate its funds to any other purpose, was incorporated for the protection of the public, and does not operate on the contracts of the corporation so as to prevent it from foreclosing a mortgage given to secure it against liability under a contract of guaranty, which, although ultra vires, was entered into with the assent of all of its stockholders, and which it has fully performed by paying the obligations guaranteed.-Butterworth & Lowe v. Kritzer Milling Co., 115/1. Where corporations are organized under general laws, the organic act, together with the articles of association made in pursuance of it, constitute the charter.-Van Etten v. Eaton, 19/194. See Dexter & M. P. R. Co. v. Millerd, 3/91. And the powers and privileges of the corporation depend upon the general law and articles, the same as they would upon the charter, if the incorporation were by special act.-Dewey v. Cent. Car. Mnfg. Co., 42/399. All their powers and the purposes for which they are formed must have the legislative assent and sanction, and the acts creating them cannot be extended by construction, to cases not reasonably within their terms.Stewart v. Father Matthew Society, 41/74. Where one of the purposes set forth in the article is beyond the scope of the statute, the articles ought to be rejected.-Attorney General's Report for 1891-2, 54. If the articles do not state a purpose for which the statute authorizes a corporation to be formed, it would not be legally incorporated, and its articles would afford no warrant for the exercise of corporate action.-Attorney General v. Lorman, 59/157. No corporation can exist except by force of express law. We have not been referred to any statute of this State under which the plaintiff had or could have organized as a corporation, nor do we know of any under which a corporation with such objects and aims could be formed.-Schuetzen Bund v. Agitations Verein, 44/313. A corporation was organized under a law afterwards declared unconstitutional. The court says: "There was no law authorizing the parties to file their articles of association, or to become incorporated; and there could, under such circumstances, be no corporation de facto. There was no statute under which defendants could lawfully incorporate as a mercantile company, and their actions as such are wholly void.-Eaton v. Walker, 76 / 579. It is undoubtedly well settled that a person who has entered into contract relations with a de facto corporation cannot, in an action thereon, deny its corporate character, or set up any informality in its organization, to defeat the action. But there is no law under which the powers they assume might lawfully be created; and the mere fact that they assumed to act as such, even in the full belief that they were legally incorporated, would not constitute them a corporation de facto.-Id. Where an attempt has been made to organize a corporation under a valid act, and the question is one of regularity merely, parties recognizing its legal corporate existence by dealing with it have no right to object to any irregu larity in such organization.-Newcomb-Endicott Co. v. Fee, 167/582. Third, The principal place or places at which its opera Operations, tions are to be conducted; It has been uniformly held in this State that corporations cannot remove from place to place, or establish branches for the transaction of their regular corporate business, unless authorized by law. Chapman v. Colby, 47/46. A private corporation must be held to reside in the town where its principal offices, as a local inhabitant.-Detroit F. & M. Ins. Co. v. Judge, etc., 23 / 492. And such location cannot be changed without legislative assent.People v. Aud. Gen., 17/161, 170. When a corporation is located by its charter in a particular place, the exercise of its franchise elsewhere is illegal and a cause of forfeiture.-People v. Oakland Co. Bank 1 Doug., 282; Atty. Gen. v. Same, Walk. Ch. 90; Underwood v. Waldron, 12/73; Thompson v. where conducted. Capital stock. must be sub scribed. Waters, 25/214, 241. But a distinction seems to be made between the place where the principal office is located and other places where much of the company's business may be done.--Van Etten v. Eaton, 19/187; 23 / 492-4. A corporation must have a local habitation. It cannot fix a nominal domicile in the country while its actual domicile for business is in the city; and its local existence must be held to be in some place in the State where its business is carried on.-Detroit Trans. Co. v. Board of Assessors, 91 / 382. Fourth, The amount of the total authorized capital stock, which shall not be less than one thousand dollars, and not Fifty per cent more than twenty-five million dollars; the amount of capital stock subscribed, which shall not be less than fifty per cent of the authorized capital stock; the articles may provide for common and preferred stock subject to section thirty-five, and in that case shall contain an exact statement of the terms upon which the common and preferred stocks are created, and the amount of each subscribed, and the amount of each paid in; Common and preferred stock. Shares. Paid in. paid in cash or other prop 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 association. Association v. Walker, 88/64. A proposed amendment to the articles of association of a corporation providing for the issuance of additional capital stock, to be known as option stock, to be issued to employes, subject to the right of the corporation to repurchase it on specified terms, operates as an unlawful restraint upon the right of transfer, and is unauthorized by statute.-Lufkin Rule Co. v. Secretary of State, 163/30. Subscription to capital stock, see Foote v. Greilick, 166/ 636. 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 prop erty. Itemized description of property. Valuation. Proviso. proviso. erty 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 Further 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 corporation, 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., 130/111. 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. may be indiminished. The amount of the capital stock and number of shares of How stock every corporation organized under this act may be increased creased or or diminished at any annual meeting of the stockholders, or at a special meeting expressly called for that purpose, by a |