Charter Or Certificate Of Incorporation
( Originally Published 1918 )
General Form.—The different states have prescribed the general form of corporate charters or certificates of incorporation, and the matters that must be set forth therein. In each state may be found printed blanks drawn in conformity to the provisions of the local statutes, and in the main they should be followed in the preparation of the charter.
Signing and Acknowledging.—It is necessary that each of the incorporators sign and acknowledge the charter application. If there are but three or four, and they all come together in one place at one time, the matter is a simple one, for all acknowledgments are taken at the one time and a single notarial certificate suffices for all. But if the incorporators sign at different times and in different places, then there must be a separate notarial certificate as to each signature. If the signers live in different states, then to the notarial certificate of the officer taking the acknowledgment, there must be affixed by the -clerk of the country wherein the same was taken, his certificate as to the due appointment and authority of such officer.
Filing.---In some states it is necessary to secure the approval of the proposed incorporation by some court or judge thereof before presenting the same for filing. The different states have their own regulations as to where and how the applications are filed, and these must be followed. In most states the proposed charter or certificate of incorporation is sent direct to the Secretary of State, together with the necessary fees. In other states, while the application is sent to the Secretary of State, the state fees are paid to the State Treasurer and he in turn notifies the Secretary of State that the same have been paid, whereupon the Secretary of State admits and files the document. Again, it is provided that the charter shall be filed with the Clerk of the county wherein the corporation shall have its principal office before filing with the Secretary of State, while other states provide exactly the reverse.
Not infrequently inadmissible provisions are inserted in charters, and these make it necessary for the Secretary of State to return the application so that the objectionable matter may be eliminated.
Certified Copies.—In certain of the states a certified copy of the charter or certificate of in-corporation is issued by the Secretary of State under the great seal of the state as a part of the regular routine, while in others all that is done is for the Secretary of State to acknowledge the receipt and acceptance of the charter. Many corporations prefer to have a certified copy of their charter issued to them, and which may be had, even in states where that is not a part of the regular routine, upon the payment of the necessary fees therefor. If, under the law, certified copies are to be filed in local public offices, they may be secured from the Secretary of State.
Charter Amendments.—Provision is made in the corporation laws of all the states for amendments to the charters or certificates of incorporation of incorporated companies. Most of these are the result of too hasty or careless preparation of the original charter, while in other cases, some modification of the business of the corporation makes such an amendment desirable. It usually requires the action of two-thirds of the stock-holders to effect an amendment, and in some states application must be made to the courts and in others publication is required. At such meetings of the stockholders it must be clearly stated in the notice of the meeting what the proposed amendment is to cover or consist of, and the meeting must be called in conformity to the pro-visions of the by-laws. The papers on such amendment must be filed as provided for filing the charter.
Specimen Charters.—In order to more fully set forth the various elements embraced in corporation charters or certificates of incorporation, and the form in which they are to be prepared, there are subjoined specimen charters or certificates of incorporation under the laws of the States of New York, New Jersey and Illinois. A careful examination of them will show the relation between the foregoing text and the necessary matter to be included, so as to conform to the provisions of the statutes of the different named states, which may be taken as illustrative of the requirements throughout the country.
We, the undersigned, all being of full age, and two-thirds being citizens of the United States and one of us a resident of the State of New York, for the purpose of forming a corporation under and pursuant to the provisions of the Business Corporations Law of the State of New York, do hereby certify, in duplicate, as follows :
First: The name of the said proposed corporation shall be
HOPKINS MANUFACTURING COMPANY
Second: The purposes for which said corporation is to be formed are as follows :
To manufacture, buy, sell, deal in and deal with hardware of all kinds, tools, implements, parts, appliances and appurtenances of every kind and nature.
To buy, sell, deal in and deal with any or all of the raw materials entering into the manufacture of tools, implements, hardware of all kinds and the like, whether iron, steel, brass, copper, lead, wood or other substance.
To erect, maintain and operate any and all factories, works, plants, stores, offices, warerooms, warehouses, depots or other structures necessary or convenient to the conduct of the business for the corporation as herein set forth.
To apply for, obtain, register, lease or other-wise acquire, and to hold, use, own, operate, and to sell, assign or otherwise dispose of any trade-marks, trade names, patents, inventions and processes used in connection with or secured under letters patent of the United States, or elsewhere or otherwise; and to use, exercise, develop, grant licenses in respect of, or otherwise turn to account the same or any of them.
To transact its said business in the State of New York and in such other states, territories, countries or possessions as may seem advisable, and therein to acquire, own, hold, use and dispose of property both real and personal as may be necessary or advantageous for the prosecution of the business of the corporation as in this Certificate set forth.
Third: The amount of the capital stock of the said corporation shall be one hundred thousand dollars ($100,000).
The amount of capital with which the said corporation will begin business is one thousand dollars ($1,000).
Fourth: The number of shares of which said capital stock shall consist is one thousand (1,000) shares each of the par value of one hundred dollars ($100).
Of said capital stock five hundred (500) shares of the par value of fifty thousand dollars ($50,-000) shall be cumulative preferred stock, entitled to an annual dividend of six per cent (6%) from the net profits of the corporation, payable semi-annually, on the 10th days of each and every January and July in each year, before any dividends are declared or paid on the common stock, and to share equally with the common stock in any excess paid in any one year upon all the stock over and above the rate of six per cent (6%), and in the event of the liquidation or dissolution of the corporation from any cause, said preferred stock shall be entitled to be paid in full from the assets of the corporation before any payment is made upon the common stock. The holders of such preferred stock shall not be entitled to vote in any meeting of the stockholders or election of directors, but the entire voting power of the corporation shall be and hereby is vested in the common stock.
Of said capital stock five hundred (500) shares of the par value of fifty thousand dollars ($50,000) shall be common stock of the corporation.
Fifth: The principal place of business of the said corporation shall be located in the Borough of Manhattan, in the City, County and State of New York.
Sixth: The duration of the said corporation shall be perpetual.
Seventh: The number of the directors of the said corporation shall be five, and it shall not be required that they be stockholders of the said corporation in order to entitle them to become eligible to or to hold such or other office in said corporation to which directors may be elected.
Eighth: The names and post-office addresses of the directors of the said corporation for the first year are as follows :
John W. Hopkins, 253 Broadway, New York City; Samuel J. Smith, 45 West 23rd St., New York City; Richard J. Brown, 267 Canal St., New York City; Howard Thompson, New Rochelle,. N. Y.; Henry P. Truman, 97 Beaver St., New York City.
Ninth: The names and post-office addresses of the subscribers to this certificate, and a statement of the number of shares of the capital stock of said corporation which each agrees to take are as follows:
IN WITNESS WHEREOF, we have made and signed this certificate in duplicate, this 3rd day of March, 19 John W. Hopkins, (L. S.) in the presence of William J. Hall. Samuel J. Smith, (L. S.) Richard J. Brown, (L. S.) Howard Thompson, (L. S.) Henry P. Truman, (L. S.) State of New York City and County of New York.
On this 3rd day of March, 19 , before me, the undersigned, personally came and appeared John W. Hopkins, Samuel J. Smith, Richard J. Brown, Howard Thompson and Henry P. Truman, to me severally known and known to me to be the individuals described in and who executed the foregoing Certificate of Incorporation, and they duly severally acknowledged to me that they executed the same for the uses and purposes therein set forth.
William J. Hall,
Special Preferred Stock Provision.—In the above charter or certificate of incorporation, as it is called in New York, it will be noticed that provision is made for the holders of the preferred stock to share in dividends equally with the holders of the common stock, when each class shall have received dividends equal to six per cent. This provision is often made so that the preferred stock shall be a more inviting investment than would be possible where the returns are limited to just the six per cent and with no provision for even a contingent increase out of the extra earnings of the corporation.
Where a certain portion of the common stock is granted to the holders of the preferred, as a bonus, to induce their subscription to the preferred, if the preferred stock is limited to the fixed dividends, then these preferred stockholders have the same participation in the earnings of the corporation over such fixed rate as do the other holders of common stock only. It is in such cases as this that often the common stock of corporations becomes the most valuable and commands the highest price in the market.
Directors Not Being Stockholders.—In the above certificate of incorporation it will be noticed that the provision of the New York laws to the effect that directors shall not be required to be stockholders of the corporation, if waived in the certificate, has been employed. If it is desired that they shall be stockholders in order to make them eligible to such office, then the "Seventh" paragraph should end after the statement as to the number.
New Jersey Charter.—In order to show to what lengths corporations may go in their charter provisions under the laws of New Jersey, that of the United States Steel Corporation is given. It is instructive in showing how the great corporation lawyers secure to their clients the widest possible range of corporate action, even transcending the rights of the corporation, were they to be exercised in the state of their incorporation.
AMENDED CERTIFICATE OF INCORPORATION OF UNITED STATES STEEL CORPORATION
We, the undersigned, in order to form a corporation for the purposes, hereinafter stated, under and pursuant to the provisions of the Act of the Legislature of the State of New jersey, entitled "An Act Concerning Corporations (Re-vision of 1896)," and the acts amendatory thereof and supplemental thereto, do hereby certify as follows :
I—The name of the corporation is
UNITED STATES STEEL CORPORATION
II.—The location of its principal office in the State of New Jersey is at No. 51 Newark Street, in the City of Hoboken, County of Hudson. The name of the agent therein and in charge thereof, upon whom process against the corporation may be served, is Hudson Trust Company. Said office is to be the registered office of said corporation.
III.—The objects for which the corporation is formed are; To manufacture iron, steel, manganese, coke, copper,, lumber and other materials, and all or any articles consisting or partly consisting of iron, steel, copper, wood or other materials, and all or any products thereof.
To acquire, own, lease, occupy, use or develop any lands containing coal or iron, manganese, stone or other ores, or oil, and any woodlands, or other lands, for any purpose of the company.
To mine or otherwise to extract or remove coal, ores, stone and other minerals and timber from any lands owned, acquired, leased or occupied by the company, or from any other lands.
To buy and sell, or otherwise to deal or to traffic in, iron, steel, manganese, copper, stone, ores, coal, coke, wood, lumber and other materials and any of the products thereof, and any articles consisting or partly consisting thereof.
To construct bridges, buildings, 'machinery, ships, boats, engines, cars and other equipment, railroads, docks, slips, elevators, water works, gas works and electric works, viaducts, aqueducts, canals and other waterways, and any other means of transportation, and to sell the same, or otherwise dispose thereof, or to maintain and operate the same, except that the company shall not maintain or operate any railroad or canal in the State of New Jersey.
To apply for, obtain, register, purchase, lease or otherwise to acquire, and to hold, use, own, operate and introduce, and to sell, assign, or otherwise dispose of, any trademarks, trade names, patents, inventions, improvements and processes used in connection with or secured under letters patent of the United States, or else-where, or otherwise, and to use, exercise, develop, grant licenses in respect of, or otherwise turn to account any such trademarks, patents, licenses, processes and the like, or any such property or rights.
To engage in any other manufacturing, mining, construction or transportation business of any kind, or character whatsoever, and to that end to acquire, hold, own and dispose of any and all property, assets, stocks, bonds and rights of any and every kind, but not to engage in any business thereunder which shall require the exercise of the right of eminent domain within the State of New Jersey.
To acquire by purchase, subscription or other-wise, and to hold or dispose of stocks, bonds or any other obligation of any corporation formed for, or then or theretofore engaged in or pursuing any one or more of the kinds of business, purposes, objects or operations above indicated, or owning or holding any property of any kind herein mentioned, or of any corporation owning or holding the stocks or the obligations of any such corporation.
To hold for investment, or otherwise to use, sell or dispose of, any stock, bonds or other obligations of any such other corporation, to aid in any manner any corporation whose stock, bonds or other obligations are held or are in any manner guaranteed by the company, and to do any other acts or things for the preservation, protection, improvement or enhancement of the value of any such stock, bonds or other obligations, or to do any acts or things designed for any such purpose; and, while owner of any such stock, bonds or other obligations, to exercise all the rights, powers and privileges of ownership thereof, and to exercise any and all voting-power thereon.
The business or purpose of the company is from time to time to do any one or more of the acts and things herein set forth, and it may con-duct its business in other States and in the Territories and in foreign countries, and may have one office or more than one office, and keep the books of the company outside of the State of New Jersey, except as otherwise may be provided by law, and may hold, purchase or mortgage and convey real and personal property either in or out of the State of New Jersey.
Without in any particular limiting any of the objects and powers of the corporation, it is here-by expressly declared and provided that the corporation shall have power to issue bonds and other obligations in payment for property purchased or acquired by it, or for any other object in or about its business, to mortgage, or pledge any stock, bonds or other obligations, or any property which may be acquired by it, to secure any bonds or other obligations by it issued or incurred, to guarantee any dividends or bonds or contracts or other obligations; to make and perform contracts of any kind and description; and in carrying on its business, or for the purpose of attaining or furthering any of its objects, to do any and all other acts and things, and to exercise any and all other powers which a copartner-ship or natural person could do and exercise, and which now or hereafter may be authorized by law.
IV.—The total authorized capital stock of the corporation is eleven hundred million dollars ($1,100,000,000), divided into eleven million shares of the par value of one hundred dollars each. Of such total authorized capital stock five million five hundred thousand shares, amounting to five hundred and fifty million dollars, shall be preferred stock, and five million five hundred thousand shares, amounting to five hundred and fifty million dollars, shall be common stock.
From time to time the preferred stock and the common stock may be increased according to law, and may be issued in such amounts and proportions as shall be determined by the Board of Directors and as may be permitted by law.
The holders of the preferred stock shall be entitled to receive, when and as declared, from the surplus or net profits of the corporation, yearly dividends at the rate of seven per centum per annum, and no more, payable quarterly on dates to be fixed by the by-laws. The dividends on the preferred stock shall be cumulative, and shall be payable before any dividends on the common stock shall be paid or set apart; so that, if in any year dividends amounting to seven per cent. shall not have been paid thereon, the deficiency shall be payable before any dividends shall be paid upon or set apart for the common stock.
Whenever all cumulative dividends on the preferred stock for all previous years shall have been declared and shall have become payable, and the accrued quarterly installments for the current year shall have been declared, and the company shall have paid such cumulative dividends for previous years and such accrued quarterly installments, or shall have set aside from its surplus or net profits a sum sufficient for the payment thereof, the board of directors may declare dividends on the common stock, payable then or thereafter, out of any remaining surplus or net profits.
In the event of any liquidation or dissolution or winding up (whether voluntary or involuntary) of the corporation, the holders of the preferred stock shall be entitled to be paid in full both the par amount of their shares and the unpaid dividends accrued thereon before any amount shall be paid to the holders of the common stock; and, after the payment to the holders of the preferred stock of its par value and the unpaid accrued dividends thereon, the remaining assets and funds shall be divided and paid to the holders of the common stock according to their respective shares.
V.—The names and post-office addresses of the incorporators, and the number of shares of stock for which severally and respectively we do hereby subscribe (the aggregate of our said subscriptions, being three thousand dollars, is the amount of capital stock with which the corporation will commence business), are as follows.
VI.—The duration of the corporation shall be perpetual.
VII. The number of Directors of the company shall be fixed from time to time by the by-laws; but the number, if fixed at more than three, shall be some multiple of three. The Directors shall be classified with respect to the. time for which they shall severally hold office by dividing them into three classes, each consisting of one-third of the whole number of the Board of Directors. The Directors of the first class shall be elected for a term of one year; the Directors of the second class for a term of two years, and the Directors of the third class for a term of three years; and at each annual election the successors of the class of Directors whose terms shall expire in that year shall be elected to hold office for the term of three years, so that the term of office of one class of Directors shall expire in each year.
The number of Directors may be increased as may be provided in the by-laws. In case of any increase of the number of the Directors the additional Directors shall be elected as may be provided in the by-laws, by the Directors or by the stockholders at an annual or special meeting; and one-third of their number shall be elected for the then unexpired portion of the term of the Directors of the first class, one-third of their number for unexpired portion of the term of the Directors of the second class, and one-third of their number for the unexpired portion of the term of the Directors of the third class, so that each class of Directors shall be increased equally.
In case of any vacancy in any class of Directors through death, resignation, disqualification or other cause, the remaining Directors, by affirmative vote of a majority of the Board of Directors, may elect a successor to hold office for the unexpired portion of the term of the Director whose place shall be vacant, and until the election of a successor.
The Board of Directors shall have power to hold their meetings outside of the State of New Jersey, at such places as from time to time may be designated by the by-laws or by resolution of the Board. The by-laws may prescribe the number of Directors necessary to constitute a quorum of the Board of Directors, which number may be less than a majority of the whole number of the Directors.
Unless authorized by votes given in person or by proxy by stockholders holding at least two-thirds of the capital stock of the corporation, which is represented and voted upon in person or by proxy at a meeting specially called for that purpose or at an annual meeting, the Board of Directors shall not mortgage or pledge any of its real property, or any shares of the capital stock of any other corporation; but this prohibition shall not be construed to apply to the execution of any purchase-money mortgage or any other purchase-money lien. As authorized by the Act of the Legislature of the State of New Jersey, passed March 22, 1901, amending the 17th section of the Act Concerning Corporations (Revision of 1896), any action which heretofore required the consent of the holders of two-thirds of the stock at any meeting after notice to them given, or required their consent in writing to be filed, may be taken upon the consent of, and the con-sent given and filed by the holders of two-thirds of the stock of each class represented at such meeting in person or by proxy.
Any officers elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the whole Board of Directors. Any other officer or employee of the company may be removed at any time by vote of the Board of Directors, or by any committee or superior officer upon whom such power of removal may be conferred by the by-laws or by vote of the Board of Directors.
The Board of Directors, by the affirmative vote of a majority of the whole Board, may appoint from the Directors an executive committee, of which a majority shall constitute a quorum; and to such extent as shall be provided in the by-laws, such committee shall have and may exercise all, or any of the powers of the Board of Directors, including power to cause the seal of the corporation to be affixed to all papers that may require it.
The Board of Directors, by the affirmative vote of a majority of the whole Board, may appoint any other standing committees, and such standing committees shall have and may exercise such powers as shall be conferred or authorized by the by-laws.
The Board of Directors may appoint. not only other officers of the company, but also one or more Vice-Presidents, one or more Assistant Treasurers, and one or more Assistant Secretaries; and to the extent provided in the by-laws, the person so appointed respectively shall have and may exercise all the powers of the President, of the Treasurer and of the Secretary, respectively.
The Board of Directors shall have power from time to time to fix and determine and to vary the amount of the working capital of the company; and to direct and determine the use and disposition of any surplus or net profits over and above the capital stock paid in; and in its discretion the Board of Directors may use and apply such surplus or accumulated profits in purchasing or acquiring its bonds or other obligations, or shares of its own capital stock, to such extent and in such manner and upon such terms as the Board of Di-rectors shall deem expedient; but shares of such capital stock so purchased or acquired may be re-sold, unless such shares shall have been retired for the purpose of decreasing the company's capital stock, as provided by law.
The Board of Directors from time to time shall determine whether and to what extent, and at what times and places, and under what conditions and regulations the accounts and books of the Corporation, or any of them, shall be open to the inspection of the stockholders, and no stock-holder shall have any right to inspect any account or book or document of the Corporation except as conferred by statute or authorized by the Board of Directors, or by a resolution of the stockholders.
Subject always to by-laws made by the stock-holders, the Board of Directors may make by-laws, and, from time to time may alter, amend or repeal any by-laws, but any by-laws made by the Board of Directors may be altered or repealed by the stockholders at any annual meeting, or at any special meeting, provided notice of such proposed alteration or repeal be included in the notice of the meeting.
IN WITNESS WHEREOF, we have hereunto set our hands and seals the 23rd day of February, 19' .
Charles C. Cluff. (L. S.)
Signed, sealed and delivered in the presence of
Francis Lynde Stetson.
Resident Agent.—The naming of a resident agent within the state where the incorporation is had, upon whom process against the company may be served, is one of the uniform requirements in all the states that are seeking incorporation of companies under the more or less liberal provisions of its laws.
A corporation organized under the provisions of the laws of any state is technically a resident of that state, and in the eye of the law cannot be-come absent therefrom. Hence, where it is understood that the residence (incorporation) is solely for the purpose of taking advantage of some attractive and liberal provision of the law regarding corporations, and that the business of such corporation is to be transacted. in another state, the requirement that there be at all times within the state of incorporation an agent to rep-resent the corporation, and upon whom process may be served, is to preserve the fiction of law that the corporation can never be absent from the state, but at all times amenable to the process is-sued from its courts and to the provisions of its laws.
Business in Other States.—Where corporations are organized under the laws of states other than the one in which its principal business is to be transacted, it is customary, as in the case of the United States Steel Corporation, to state clearly in the charter that the corporation shall have the right to transact its business in other states.
Powers Prohibited in State of Incorporation. —The charter of the Steel Corporation affords an illustration of the authorization of the corporation to engage in lines of business even prohibited in the state of its incorporation, as the building, operation and conduct of railways, canals and the like, which may become necessary to the full and successful furtherance of its business. As to such powers there is an express pro-vision that it shall not have the right to exercise them within the state. This does not mean that New Jersey, for instance, can authorize a corporation organized under its laws, to carry on a business in another state contrary to the provisions of the laws of such other state, whether prohibited in New jersey or not. The corporation is nevertheless subject to the provisions of statute in each and every state in which it shall do business, irrespective of its charter provisions and powers, for every state is the sole judge of what rights and powers and privileges a corporation shall have, as well as to the admission of foreign corporations to do business within its boundaries, and upon what terms and conditions such admission may be had.
If, for example, the charter right of the Steel Corporation to build and operate railroads and canals in other states than New Jersey be repugnant to the laws of the states in which the corporation might desire to exercise such powers, it would, undoubtedly be required to organize a separate, but subsidiary corporation under the transportation laws of such states, or otherwise conform to the provisions of local laws.
Offices and Books Outside State.—It will be noted that in the charter of the Steel Corporation provision is made for the maintaining of one or more offices without the State of New Jersey and to keep therein its books, but subject to the provisions of the laws of New Jersey. In almost all of the states seeking the incorporation of companies from other states, provision is made that the corporation maintain an office in the state of its incorporation, and therein keep certain of its record books.
Classification of Directors.—The charter of the Steel Corporation gives a very carefully worked out illustration of the provisions for the classification of dirèctors, so that but one-third of the board shall retire each year.
Limitations on Mortgages.—It will be noted that the Board of Directors is restricted in regard to placing any lien or incumbrance upon the property of the corporation except as authorized by vote of the stockholders at annual meetings or at special meetings, and then only provided that notice of the proposed incumbrance be included in the notice of the meeting.
Directors' Meetings Outside State.—In order to avoid any question as to whether directors' meetings shall be required to be held within the state of incorporation, in the foregoing charter it is expressly provided that such meetings may be held outside the State of New Jersey. Similar provisions should be made in all cases where corporations are organized under the laws of states other than where the business is to be conducted.
Appointment of Committees.—In most of the larger corporations, especially where there are a considerable number of directors and their attendance at meetings may not be readily had, charter provisions are made authorizing the board to appoint executive and other standing committees which shall have and exercise the powers of the whole board as to the special matters and duties prescribed in their appointment. In the smaller corporations this may not be necessary where the directors are the principal owners and regularly engaged in the conduct of its business, and therefore always available.
Directors' Control Over Surplus.—One of the fruitful sources of disagreement and dispute in regard to corporate finances is as to the disposition of the surplus earnings, and as to the rights of stockholders to have all, or if not, what portion set aside for dividends and so paid to them.
The expansion of a corporation is governed by the amount of its available working capital, and this may be increased only in one of two ways : either by the sale of additional stock, or by the application of its surplus earnings to such expansion. It is here that many stockholders feel that their rights to dividends to the extent of the net earnings of the corporation are impaired and infringed where all or a portion of such earnings applicable to the declaration and payment of dividends are appropriated by the directors to the enlargement of the business of the corporation. The law reports are full of adjudicated cases bearing upon this question and with great uniformity, the acts of the directors, where shown to be within safe and reasonable limits, have been upheld.
In the case of the Steel Corporation, with its thousands of stockholders, so widely scattered, it was decided that all questions as to the right to control the use of surplus earnings, and to settle what proportion should be added to its working capital and what proportion, if any, should be set aside for dividends, should be delegated specifically to the board of directors, so that every stock-holder would be bound, by the very acquisition of stock therein, to these provisions.
It is always considered the better practice to apply surplus earnings to the increase and development of a business than to raise additional capital, and thus reduce proportionately the interests of the present stockholders.
Inspection of Corporate Records.—In most of the states there are provisions as to the rights of stockholders to inspect the books and records of the corporation in which they own stock. This is because each stockholder is recognized, in a way, as a partner in the business, and thus entitled to know what is being done, and how the business of the corporation is being conducted.
With the growth of competition, it is becoming more and more vital to a corporation, as to any other business, that its plans, purposes and operations be kept from and not communicated to its rivals. It is a very common practice for those interested in one corporation to acquire, often through a dummy, shares in a rival corporation, and for the sole purpose of gaining, through the exercise of the rights of a stockholder, all the in-formation possible as to what the plans, purposes, financial standing and other facts and conditions of such rival may be.
On the other hand, with a great number of stockholders, even though the inquiries be in good faith and for the personal information and satisfaction of the individual stockholders, it would easily be too great an interruption of the business of a corporation to permit unlimited inspection of its books and papers. Hence the various states have provided what shall be the rights and privileges of stockholders in regard to such inspection, and in the larger corporations a power, similar to that given the directors of the Steel Corporation, is given to the directors, but with the limitation that no such regulation of the board shall interfere with the statutory rights of inspection granted by the statutes of the state wherein the corporation was organized.
Directors' Power to Amend By-Laws.--The power of the directors to alter, amend or repeal the by-laws of the corporation, as granted in the charter of the Steel Corporation, is one that should be exercised sparingly in smaller corporations. The by-laws are the fundamental basis of operation of the corporation, and in general, any change therein is a matter that vitally concerns the entire body of the stockholders. Where the stockholders can be readily gathered together, such right should be left entirely with that body. Even in the case of the Steel Corporation, the action of their Board of Directors is subject to the subsequent action of the stockholders at any annual or special meeting called for that purpose.
Illinois Charter.—Illinois is one of the states in which the organization of a corporation is made more formal and not consummated simply by the making and filing of a charter or certificate of in-corporation, and accordingly the steps and forms used therein are given, that the difference may be more clearly seen.
Contract to Form a Corporation. The first step in Illinois is the application to the Secretary of State for a "license to open books of subscription to the capital stock," etc., and for the appointment of commissioners who will complete the organization.
This application is known as the Contract to Form a Corporation, and is substantially as follows :
This Agreement, made this 5th day of March, A. D. 19 , by and between the undersigned, William H. Jones, George W. Farnsworth, John J. Donovan, Henry A. Smith, and Robert M. Fuller, all of the City of Chicago, in the County of Cook and State of Illinois, Witnesseth:
That in consideration of the mutual undertakings and agreements of the parties hereto, as hereinafter set forth, and in the further consideration of the sum of one dollar to each of the parties hereto in hand paid by the other at or before the execution of this agreement, the receipt whereof is hereby severally acknowledged, the said parties herto do hereby covenant and agree to and with each other as follows, to-wit:
First:—That a corporation shall be formed by as under the laws of the State of Illinois, substantially as follows :
(a) The name of the said corporation shall be the Dealers Mercantile Company.
(b) The capital stock of the said corporation shall be Two Hundred Thousand ($200,000) Dollars, divided into two thousand (2,000) shares, each of the par value of One Hundred ($100) Dollars, the said stock all to be Common Stock of uniform character and usual form.
(c) The purposes for which the said corporation is to be formed are the buying, selling, trading, dealing in and dealing with goods, wares and merchandise of all kinds, and in connection there-with to manufacture, or cause to be manufactured, all or any part of the goods, wares and merchandise in and with which the corporation may deal, as may be found to the best interests of the corporation to do.
(d) The said corporation shall have a Board of Directors of five in number, all of whom shall be stockholders of the corporation of record at the time of their election and during the continuance of their office as such.
(e) The officers of the said corporation shall be a President, Vice-President, Secretary, Treasurer and General Manager.
(f) The location of the principal business office of the said corporation is to be in the City of Chicago, in the County of Cook, in said State of Illinois.
(g) The duration of the said corporation shall be ninety-nine (99) years.
Second:—We hereby agree to and with each other that we will take the number of shares of the capital stock of the said corporation set opposite our respective names hereunto subscribed, and will pay to the commissioners duly appointed by the Secretary of State of the State of Illinois in that behalf, fifty (50%) per cent of the par value of the said shares so subscribed by us respectively at the time of holding the first meeting of the said subscribers to elect a Board of Directors for the said corporation; and we further agree to pay the balance of our said several subscriptions as and whenever called upon so to do by the said Board of Directors of the said corporation after the same shall have been duly formed.
Third:—We further and do hereby nominate, constitute and appoint ( ) as our attorney and the attorney of the said corporation so to be formed, to create or cause to be created the said corporation in accordance with the provisions of the statutes of the State of Illinois and this agreement, and to do and perform all things necessary to bring the said corporation into legal existence ; and we further hereby authorize and empower our said attorney to draw on the funds in the hands of the legally constituted officers or agents of the said corporation, for the necessary expenses attending said incorporation, and we further agree that any and all contracts which our said attorney may make in such matter shall be binding upon the corporation and also upon us jointly and severally.
IN WITNESS WHEREOF, we, the undersigned, hereby severally bind ourselves, our heirs, executors and administrators.
Name Address Shares Amount
The successive steps in completing the organization of corporations under the laws of Illinois will be taken up in the succeeding section.