Why are partnerships formed? May one person invest money while another invests skill? Is a person who receives a percentage of his sales by way of salary a partner?
Why cannot a partner sell his interest without consulting the other members of the firm? Why may the fraudulent act of a partner dissolve the firm? Why does the death of a member end the firm—that is, why not let his heir succeed to his right in the firm as he succeeds to his real estate?
May the private property of a partner be taken to satisfy the debts of his firm? May the firm's property be taken to satisfy the debt of one of its members? Can men dissolve their debts by dissolving their partnership? If one partner continues the business agreeing to pay all indebtedness of the firm, is the retiring partner released from obligation in relation to the debts? Show the justice of each requirement in case of special partners.
CHAPTER XXXIV.
CORPORATIONS.
Purpose—Partnership enables a number of persons, as we have seen, to accomplish by combining their property and skill what would be unattainable by them acting individually.
But the individual responsibility involved in partnership, and the difficulty of transferring interest, render necessary some other mode of combining capital for carrying on enterprises requiring vast resources, and, from their nature, demanding long time and freedom from interruption for their accomplishment. For instance, no one would dare to assume personal responsibility for the debts of a railroad, nor could such an enterprise be managed if every transfer of interest dissolved the company. The desired limitation of responsibility and facility of transfer of interest are secured by the formation of corporations.
Nature.—But responsibility there must be, or the combination could transact no business. And responsibility depends upon personality—a thing cannot be held responsible. As this personality does not exist aside from the persons of those uniting their resources, it must be created. The creative power is the legislature. The personality created is the corporation. [Footnote: From the Latin corpus, corporis, a body.] A corporation is, therefore, an artificial or fictitious person, created under general law or by a special act of the legislature, [Footnote: This special act defining the powers and duties of the corporation is called its charter.] and capable of acting within prescribed limits as if it were a natural person, but beyond those limits incapable of acting at all.
Management.—The persons who contribute to the capital of the corporation, or company, receive certificates of stock, that is, pieces of paper certifying that said persons own so many shares in the company. The capital, be it remembered, is the property of the corporation, not of the individuals. The number of these stockholders may be large or small, a dozen or a thousand. The general management of corporate business is necessarily entrusted to a small number of persons called directors. These are elected by the stockholders, each share having one vote. The directors select from their own number a president, a secretary, and other necessary officers. These persons and the other agents of the corporation carry out the policy determined upon by the directors.
Why Limited in Powers.—The question suggests itself, Why can a corporation do only certain things? The most obvious answer is, that this is consequent upon its mode of creation. Being a creature of the legislature, it can have only those powers which are specifically or impliedly granted to it. But pushing the matter farther, it may pertinently be asked, Why doesn't the legislature endow it with power to do anything that may properly be done by a natural person? Two reasons, at least, appear. First, from the corporation's standpoint, it is a matter of business prudence to have its purpose and powers defined: (a) to enable it to secure subscribers to its stock, as no one would like to risk his money blindly; and (b) because thus only can the directors be held to accountability. Second, from the standpoint of the public, for whom the legislature acts, the defining is necessary in order that corporations may be controlled and dangerous combinations prevented.