Problem 8. A and B are partners and owe C $650. A gives C a mortgage in the firm name on the personal property of the firm to secure this debt. Is this binding on B or on the firm A and B?

Problem 9. A gave the above mortgage to secure his individual debt. Does this bind B?

Problem 10. B and C are partners in the conducting of a theater. B borrows money for the business and gives a promissory note in the firm name. Is C bound?

141. State the liabilities of a partner. How is an action brought on a debt against a firm? How is a judgment satisfied? What is contribution? Is an incoming partner liable for debts contracted before he became a member of a firm? How may an action for tort be brought against a firm?

142. State the rule as to the relative rights of creditors of the partnership and creditors of a partner.

Problem II. A, B, and C are equal partners. The partnership property is worth $10,000. A has $5000 individually, B $4000, and C no assets. The partnership debts amount to $12,000. A's debts amount to $3000, B's to $6000, and C's to $2000. Adjust these sums among the firm and individual creditors.

Problem 12. Same problem if firm debts were only $8000.

143. How is a partnership dissolved? What should be done after dissolution? What interest have the representatives of a deceased partner in a partnership of which the deceased was a member? What is done with a surplus after firm debts are paid?

144. How do joint-stock companies differ from partnerships? 145. How do they resemble partnerships?

CHAPTER XIII

CORPORATIONS

146. Definition and classification. A corporation is an artificial entity created by statute law and endowed with many of the legal capacities of individuals, as the power to take, hold, and convey property, make contracts, sue and be sued, and the like.

It is a legal entity distinct from its members, individually or collectively. It may, for example, sue a member or be sued by a member. It may sue any person without joining its members, and may be sued by any person without joining its members. The title to property vests in it and not in its members. Were all the members to unite in one deed, they could not convey the property of the corporation. It is, within its charter powers, regarded for all purposes as an artificial person, a distinct member of the business community.

Public corporations are political entities created for governmental purposes, as counties, cities, and the like.

Private corporations are created for the promotion of some interest in which their members are concerned. These fall into two main classes, stock corporations, which are for private pecuniary gain, and membership or nonstock corporations, which are for a variety of purposes, as clubs, charitable societies, educational institutions, and the like.

Stock or business_corporations are those with which we are concerned. They are intended to enable a number of persons to unite their capital in one enterprise with two important results first, the power to transfer their shares to other holders without affecting the business, and second, an exemption from any personal liability for the debts, contracts, or torts of the corporation. A partnership accomplishes neither of these results. A joint-stock company accomplishes the first but not the second.

147. How a corporation is formed. A corporation is created by legislative grant. Some are created by a special statute which names the corporation and defines its powers, but state constitutions very generally prohibit the legislatures from chartering private business corporations by special act. Business corporations are now usually created under a general statute which permits a number of persons to form a corporation by executing and filing with some designated public official articles of association or incorporation. The certificate contains the name of the corporation, its object, the amount of capital stock, the number of shares into which the capital stock is divided, the place where its principal business office is to be located, the duration of the corporation, the number of its directors with the names and addresses of those who are to serve at the outset, and in some states the names and addresses of the subscribers to the stock with the amount subscribed. Often the statute requires that a specified number of the incorporators shall be citizens of the United States, and a specified number citizens of the state under whose statute the certificate is filed. Some statutes require that the name of an officer or agent upon whom legal process may be served shall also be specified.

The statute under which a certificate is made and the certificate itself constitute together the charter of the corporation and define and limit its powers.

EXAMPLE OF NEW YORK CERTIFICATE

We, the undersigned, all being persons of full age, and at least two thirds citizens of the United States, and at least one of us a resident of the state of New York, desiring to form a stock corporation, pursuant to the provisions of the Business Corporation Law of the state of New York, do hereby make, sign, acknowledge, and file this certificate for that purpose, as follows: First. The name of the proposed corporation is Cayuga Manufacturing Company.

Second. The purposes for which it is to be formed are to manufacture, sell and trade in agricultural implements and machinery.

Third. The amount of capital stock is one hundred thousand dollars. Fourth. The number of shares of which the capital stock shall consist is one thousand, and the amount of capital with which said corporation will begin business is twenty thousand dollars.

Fifth. The principal business office is to be located in the city of Ithaca, in the county of Tompkins, state of New York.

Sixth. Its duration shall be fifty years.

Seventh. The number of its directors is to be five.

Eighth. The names and post-office addresses of the directors for the first year are as follows:

[Here insert five names and addresses.]

Ninth. The names and post-office addresses of the subscribers, and a statement of the number of shares of stock which each member agrees to take in the corporation, are as follows:

[Here insert names, addresses and amounts subscribed.]

IN WITNESS WHEREOF, we have signed, acknowledged and filed this certificate in duplicate.

Dated this 10th day of January, 1905.

JOHN DOE.
RICHARD ROE.

HENRY FENN.

JOHN S. DALE.

WM. BLACKHEATH.

On the 10th day of January, 1905, before me personally appeared John Doe, Richard Roe, Henry Fenn, John S. Dale, and Wm. Blackheath, to me personally known to be the persons described in and who made and signed the foregoing certificate, and severally duly acknowledged to me that they had made, signed and executed the same for the purposes therein set forth. GEORGE REDBANK, Notary Public.

[This is filed and recorded in the office of the Secretary of State, and a certified copy or duplicate original is filed and recorded in the office of the clerk of Tompkins county. Fees are required for filing and recording. An organization tax must also be paid to the State Treasurer.]

148. Members. The members of a business corporation are those who hold its stock; they are called stockholders or shareholders. The relation of stockholders to a corporation and to each other is contractual. At the outset individuals subscribe for shares of stock, that is, contract to take them when issued, and thereby agree to associate themselves as stockholders according to the provisions of the charter and the terms of the subscription. They also agree to pay for the stock when issued

or when payment may be called for. When a stockholder has fully paid for his stock he is under no further liability unless the stock is by statute or contract made subject to assessments.

When a stock certificate has been issued the owner may transfer it and the transferee becomes a stockholder. The transfer is not complete until the new holder's name is substituted on the books of the corporation. It is usual to indorse on the certificate of stock a power of attorney to the new holder to make the transfer. When a certificate is so indorsed with the name of the transferee left blank, the certificate may pass from hand to hand until some holder chooses to insert his name and have the transfer made to him upon the books. But such stock certificates do not have the characteristics of negotiable paper. Infants and others not competent to contract may become transferees and holders of stock in a corporation.

A stock certificate is the written evidence issued by the corporation that the person named in it is registered on the books of the company as the owner of a specified number of its shares of capital stock, each of a certain par value.

FORM OF STOCK CERTIFICATE

No. 38.

No. of shares, 10.

Par value of each, $100.

The Cayuga Manufacturing Company.

This is to certify that John Doe is the owner of ten shares of the capital stock of the CAYUGA MANUFACTURING COMPANY, transferable only on the books of the company by the holder thereof, in person or by attorney, upon the surrender of this certificate properly indorsed.

In Witness Whereof, the said Company has caused its corporate seal to be affixed hereto and this certificate to be signed by its president and treasurer.

Corporate
Seal

ITHACA, New York, Jan. 24, 1905.

HENRY FENN, President.

WM. BLACKHEATH, Treasurer.