CHAPTER III.-CORPORATE POWERS, RIGHTS AND LIabilities.

We do not find anything in Mexican law which prevents a corporation from being formed for more than one purpose, but the purpose or purposes must be set forth in the articles of incorporation.

In Mexico certain kinds of business can be carried on only with the express authority of the federal or state government. These include public utilities, or the development of such natural resources as water-power, minerals, oil lands. Under the Constitution a State cannot confer on a corporation the right to issue legal tender, nor to conduct the postal, telegraph or wireless telegraph service. Furthermore, the Constitution vests the right to issue bank bills in the Banco Unico de Emisión which is controlled by the federal government.

In Mexico, as in the United States, there are special laws applying to certain kinds of corporations; for instance, the "Ley Federal de Instituciones de Crédito" of the 19th of March, 1897, relates to emission banks, refaccionaire banks and mortgage banks; and the "Ley Minera" of the 25th of November, 1909, relates to mines, while the "Ley Federal sobre Ferrocarriles" of the 29th of April, 1899, states the law of railroads. There are also special statutes relating to the conduct of private or public charities.

In America corporations have the right of perpetual succession for the entire time limited by the articles of incorporation and the life of the corporation may be perpetual, subject to the power of the legislature to curtail its existence. The Mexican Code requires the duration of a corporation to be determined in the articles of incorporation, yet it can be terminated before the time there prescribed by agreement among the shareholders under the rules that we shall point out when speaking of voluntary dissolution in Chapter V.

There are several powers which statutes in the United States grant to corporations which all business corporations in Mexico possess by implication of law. Thus in the Mexican Code it was not found necessary to state the power of the corporation to institute and maintain judicial proceedings, to make

or use the company's seal or to enter into any obligations which may be necessary for the transacting of its ordinary business. These legal attributes follow naturally and inevitably from the declaration of law that the corporation is a juristic person. But the legal right to take, hold and convey real and personal property is distinctly set forth in the Mexican Constitution. Thus, sub-division IV of Article 27 of the present Constitution of Mexico provides:

"Mercantile associations by shares (which includes business corporations, limited partnerships and other associations in which the capital is divided into shares) cannot acquire, possess or hold real property in rural districts. Associations of this kind, when constituted to carry on factories, mines, oil wells or for any purpose other than agricultural, may hold such lands only as are strictly necessary for the conduct of their business, the amount of land to be held to be determined in each case by the administrative authority of the Federal government or of the government of the respective state."

It should be said in explanation of the latter provision that in Mexico some of the land in the states belongs to the federal government and where these lands are used by manufacturing and mining corporations the federal rather than the state authorities must determine the amount of land which can be so used.

In regard to the distribution of the powers of the general meeting Rudolph Rousseau says: "The general meeting names and revokes the appointment of the directors, officers and vigilance committee, examines the accounts of the directors, approving or disapproving them, fixes and determines the dividends to be paid. It has also other powers; it makes certain rules prior to the formation of the association. It examines into the truthfulness of the statement of the organizers, approves the contributions of the members and any particular advantages which have been granted to any member. It names the first board of directors and the members of the first vigilance committee. It is also within the power of the general meeting to modify the by-laws within the limits of general law."

The general meeting has the amplest power of carrying out and ratifying the acts of the corporation. The resolutions adopted at a general meeting must be approved by votes representing at least an absolute majority of the shares belonging to persons represented at the meeting. Unless the articles of incorporation or by-laws provide otherwise, a representation of threefourths of the capital stock, and the unanimous vote of members or stockholders representing one-half of the capital stock are needed at a meeting which passes a resolution to dissolve the corporation before the time set in the articles of incorporation, except when dissolution becomes necessary because of a loss of capital. A similar attendance at the meeting and favorable vote is necessary to extend the duration of the corporate existence, to consolidate it with another corporation, to increase or decrease the capital stock, to change the purpose for which it was incorporated, or to make any other modification of the articles of incorporation or the by-laws.

The provision above described differs in detail from most of the state statutes in the United States. There a two-thirds stock vote is usually necessary for an amendment of the articles of incorporation. Differences also exist as to the proceedings necessary to legalize an amendment. In Mexico the amendments to the articles of incorporation merely have to be produced in writing before a Notary and recorded in the office of the Register of Commerce, while in the United States an amendment must be filed in the office of the Secretary of State and a certificate of the amendment must be issued by that office or by the Governor and the certificate so issued recorded in the office of the Secretary of State. This last official is usually required to certify the change to the Auditor General and we often find the additional requirement that a certified copy of the certificate of amendment be filed in the office of the Recorder of Deeds, or other registering office of the county in which the corporation has its principal place of business. It is clear, therefore, that the formalities requisite in the United States are much greater than in Mexico.

To increase the capital stock in Mexico the same procedure

as must be performed on the original organization of the corporation is required. Thus, the capital must be subscribed in full and 10 per cent. of the subscription paid in, in cash. An amendment authorizing the increase of capital must be adopted by the general meeting, acknowledged before a Notary, recorded by him and the certificate which the Notary also issues, must be recorded in the office of the Register of Commerce. It is here advisable to note that for purposes of organization as well as for the increase of capital in all banking institutions, the original or, in the latter case, the increased capital must be subscribed in its entirety and 50 per cent. of such capital must be paid in cash. It is also necessary to obtain the approval of the treasury department (Secretaria de Hacienda).

In the United States some statutes permit a corporation to purchase shares of its own capital stock, but decisions have practically limited this right to a purchase of full-paid capital stock, which may be paid for only out of the surplus of the corporation. The Mexican law requires not only that the shares purchased by the corporation shall be full-paid shares, but that the purchase shall be authorized at a general meeting of the corporation. Furthermore, the funds with which the purchase is made must be such profits as are not part of the reserve fund. Shares purchased by the corporation cannot be represented at a general meeting nor voted by the corporation.

In America the corporation has power to hold its own shares whenever such shares have been forfeited for the nonpayment of calls or assessments or whenever they have been purchased from a dissenting stockholder under a statute requiring the purchase of shares of dissenting stockholders whenever there is a consolidation with another corporation or any change in the original purpose of the corporation. In Mexico, when a share is forfeited for non-payment of an assessment, unless the bylaws give the corporation a right to purchase such shares, the stock must be offered for sale and if there are no purchasers the corporation is obliged to go through the formalities requisite for reduction of the capital stock.

Where a purchase of stock is made by the corporation in

violation of law, or of the by-laws of the corporation, both American and Mexican law make the Directors who authorized the purchase personally liable. In addition to this, the Mexican law declares such purchases void if the seller knew that the corporation had no right to make the purchase. In the United States it has been decided that a corporation may receive its own capital stock in consideration of a debt due the corporation where the debt cannot be collected in any other manner. The same rule exists in Mexico though there is no express provision in the Mexican law to that effect because the Commercial Code prohibits a corporation only from purchasing its own shares, and it is a rule of the interpretation of statutes that a restrictive or prohibitive law is given a strict interpretation, under the Roman maxim, "quae non probantur prohibita licita et permissa censentur". The Mexican Commercial Code expressly prohibits any corporation from making loans or advances on its own shares.

In Mexico a corporation cannot issue bonds unless there is a special authorization in the by-laws or in the original articles of incorporation, or an amendment thereto.

Special laws in both countries cover the banking business. Under state legislation in the United States providing that a corporation may be formed for any lawful purpose, it is possible to incorporate for the purpose of conducting a bank. A banking corporation, however, is not only subject to special state laws but the state banking corporations which emitted paper notes circulating as money have been legislated out of existence by the taxing provisions of the federal statutes of the United States.

In Mexico, the Constitution prevents any corporation becoming a bank of emission. In addition special statutes provide for what are known as mortgage banks, that is, banks lending money on mortgage, and refaccionaire banks which are banks organized for the purpose of paying the creditors of applicants who are unable at the moment of application to pay their debts themselves. The Constitution of Mexico vested in the Congress the right to create a bank of emission and to prescribe the conditions under which its business is conducted. So in Mexico