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a corporation is duly created, all other incidents are tacitly annexed.” “And,” he further says, “for direct authority in this point in 22 E., 4, Grants, 30, it is held by Brian, Chief Justice, and Choke, that corporation is sufficient without the words to implead and be impleaded, etc., and, therefore, divers clauses subsequent in the charters are not of necessity, but only declaratory, and might as well have been left out.” Then he proceeds to enumerate the attributes of every corporation with which it is invested upon its coming into existence. But these attributes, much more limited than are the "unalienable rights” of the individual, are further restricted in their exercise, to the business in which the corporation by its charter is allowed to engage; whereas the natural rights of the individual may be exercised in all the various businesses and transactions of life in which men may lawfully engage.
It is very important that the capital stock of a joint stock company, incorporated for the transaction of business of a private character, should not be too large, and the statutory regulations for the consolidation of two or more of such companies should be definite and strict. It is only the great corporations and aggregations of corporations that are dangerous to the public interest. Amongst other evils incident to large corporations is that of watering the stock. The larger the capital stock of a corporation the greater is the opportunity and also the temptation to increase its shares to an amount beyond, and frequently far beyond, the actual value of the basis on which they rest. The object of the last section of the article of the new Constitution on corporations is to protect original shareholders and investors in stock and also the public at large, against fraud and deception, by requiring every corporation, whether private or public, before issuing any stock or bonds to file with the State Corporation Commission a stateinent, verified by the oath of its president or secretary, setting forth fully and accurately the basis, or financial plan, upon which the stock or bonds are to be issued, and where such basis includes services or property (other than money) such statement shall accurately specify the services and property, together with the valuation at which the same are received or to be received. This is an excellent provision, and very wisely it also provides that other restrictions may be added by the Legislature to accomplish the object in view. In some of the States, notably in Massachusetts, a statement of the value of the property and things, other than money, which it is proposed shall constitute, in part, payment for the stock of the company, is required to be made and sworn to, not only by its president and treasurer, but also by a majority of the managing board of the corporation, describing such property and things, and the value at which they are to be taken in payment for stock--. the valuation contained in the statement to be further verified by the certificate of the Commissioner of Corporations, that'he is satisfied the same is fair and reasonable; and there is usually a further provision that should the property or other things be taken at more than a fair valuation, the president, treasurer and directors signing the statement shall be liable for the debts of the corporation to the extent of the excess in valuation.
Under existing industrial conditions corporations are really necessary for the conduct of many business enterprises, which, to be conducted with profit, require more capital than an individual or partnership is willing or can put into them. And, as already stated, a State or community which would keep pace with the march of material progress must make use of them.
But to be really valuable, they must be constructed and maintained on solid foundations.
For any number of individuals to be allowed to associate themselves together for the conduct of an important business enterprise upon a capital, large iv itself, but made up of comparatively small contributions for each one, without liability beyond the actual impui or sum agreed to be contributed, the profits and losses to be shared and borne by them in proportion to the amount of stock held by them respectively, is a very valuable privilege. It is also a valuable privilege for each member of the association to have the right to dispose of his stock at any time, and thus sever his connection with it. And so is the continuity of the association, without interruption by the death of members or other cause, a great privilege. These are privileges which can be conferred only by the State, which, in conferring them, is under the highest obligation to do so without detriment to any of the people, of all of whom it is in this, as in all other governmental matters, the representative and agent. In return for these privileges, which are conferred upon the association by a grant or charter constituting it a corporation, the association owes to all the people of the State important duties.
The business of the corporation must, of necessity, be managed by a board of directors or other managing body of a similar character, with the assistance of a president or other chief executive officer, a treasurer, a secretary and other officials and agents. It is not practicable for the shareholders to participate in the everyday management of the business, and it is only at annual meetings, or at other stated times, that they are informed of the results of the management.
It is, therefore, essential to their interests that the management be conducted with diligence and with the utmost honesty and fidelity. In order to insure this, the managing board and other officials and agents should be held to a rigid accountability, and in all cases of intentional misconduct or of serious neglect, they should be visited with certain punishment. This is absolutely essential to the success of the corporate enterprise and the consequent security of those who own its capital stock. A majority of the shareholders can usually protect themselves against protracted mismanagement on the part of the directors and other officials by changing these officials at stockholders' meetings, but it too often happens that the managing board and a majority of the shareholders fraudulently combine to deprive the minority shareholders of their just rights. The ways and methods of doing this are many and various. Usually, in such cases, the net earnings of the corporation are improperly diverted year after year, so that no dividends are paid, and the 'stock is thereby depreciated to an extent that forces the minority holders to dispose of their shares at a sacrifice. Stringent laws should be enacted for the protection of the rights of the minority in such cases; the majority, as well as the directors, should be treated as trustees for the minority, and no freezing out or squeezing out should be permitted. The equity courts can be relied on to enforce legislation for this purpose if the law inaking power will provide it.
A minority of the stockholders should also have the right to comrel the winding up of an insolvent or failing corporation, or a corporation which is manifestly unable, from any cause, to accomplish the object of its creation.
But the outside public, all who come in contact with a corporation in business matters, are also entitled to protection, or rather to the means of protecting themselves; and these means should be provided by the Legislature. When an individual on the outside is about to enter upon dealings with an incorporated association, whose liability is limited to the corporate assets, the individual is entitled to know from a trustworthy and reliable source the amount of those assets and the shape in which they exist, and also what are the existing corporate liabilities. This information can be best supplied by reports made at stated intervals to the State Corporation Commission, or to some bureau under its supervision, and these reports should be published or recorded in such convenient place or places as will give the public free access to them. The reports could be frared in such way as to give all needed information as to assets and liabilities, without entering into such specifications as would give undue publicity to the business relations of the reporting company with other parties. Every national bank is required to make such reports, and so is every insurance company. Justice and fair dealing require that these reports should be made, and, moreover, should be verified by the affidavits of at least a majority of the directors, as well as of the president and treasurer. And false swearing in the verification of the reports, whether intentional or the result of gross neglect, should meet with substantial punishment. It is within the knowledge of every man of any business experience that a number of men acting together will indulge in practices and take risks that no one of them acting alone could be persuaded to do. And this is true of conduct alike in its moral and in its legal aspects. A divided responsibility is at once a temptation and a danger. This idea is embodied in the injunction of the Mosaic law—.“Thou shalt not follow a multitude to do evil”— an injunction of equal force whether applied to the civil or religious life of a people.
Under the new Constitution, no foreign corporation can hereafter come into this State to do the business of a public service corporation, nor can any foreign corporation engage in private business or exercise any powers or privileges here that cannot be exercised by a domestic corporation of similar character; and every foreign corporation is to be subject to the rules and requirements applicable to domestic corporations when the same can be made applicable to the foreign corporation without discriniinating against it. And the new Constitution further provides that the property of foreign corporations within this State shall be liable to attachment, the same as that of non-resident individuals; and there is a still further provision that nothing contained in that instrument shall be construed as restricting the power of the General Assembly to discriminate against foreign corporations whenever and in whatever respect it may deem wise or expedient.
These provisions are just as they should be. They are politic and wise.
The work of corporations in Virginia should, so far as practicable, be done by domestic corporations—by corporations formed under the constitution and laws of the State. and subject to them in all respects. It should be made convenient and easy for every one proposing to deal with a corporation to ascertain its condition; and business contracts with a corporation will be entered into with much less hesitation and with a more assured sense of security if its managing officials are residents of Virginia, or otherwise directly amenable to the laws of the State regulating the management of corporations and imposing penalties for their violation.
It should be the legislative policy of the State to encourage the formation of domestic corporations under general laws,