LIMITED.—We often see also in print, so and so "Ltd." This does not mean a limited partnership. The word "limited" is used in the name of an English or Canadian company organized under the English or Canadian statutes, but such companies are rather analogous to corporations than to limited partnerships. The liability in such companies is limited altogether to the assets in the company's hands. There are no general partners. The liability of all stockholders is limited. The English and Canadian law requires that the word Limited be added to the name, so that the public may not be deceived into believing that the company is a partnership.
CHAPTER VI
Corporations
THE NATURE OF A CORPORATION.—The nature of a corporation is perhaps best understood by an illustration. In the case of People's Pleasure Park Co. v. Rohleder, 109 Va. 439, the facts were as follows: There was a large tract of land divided up into a number of lots, and in each deed, when a lot was sold, there was a covenant providing that title to the real property should never vest in a person of African descent, or in a colored person. Later, after the lots had been sold, several of them were conveyed to a corporation composed exclusively of negroes. The corporation knew, when it purchased the tract of land, of this restriction in the deed, and the land was bought by it for the purpose of establishing an amusement park for colored people. Suit was brought in a court of equity to compel the cancellation of the deed to the corporation. Stated boldly, the decision of the Virginia court amounts to an assertion that a corporation has no color. In other words, the corporation is an entity separate and distinct from its members, and so, although all the stockholders in this corporation were colored, that did not make the corporation a colored person. Thus, if A, B, and C, as incorporators, organize the X Corporation, although they are the sole stockholders, there are four persons, A, B, C, and the X Corporation.
THE ENTITY THEORY.—It may be doubted if any court would carry the entity theory to the extent that it would allow an individual who was the owner of a piece of real estate, which he was not permitted by the deed to sell to negroes, to deliberately go to a prospective negro purchaser and say: "I cannot sell my property to you because of a restriction in the deed, but I will pay the necessary expenses, if you, with two of your friends, will form a corporation to take title to this property, in which corporation each of your friends will own one share and you the balance, thus retaining control yourself. I will then deed the property to the corporation and will thereby get around the covenant in my deed preventing a transfer to negroes." We must not allow the entity theory to work a manifest injustice, as was said in Erickson v. Revere Elevator Co., 110 Minn. 443: "Where the corporate form is used by individuals for the purpose of evading the law, or for the perpetration of fraud, the courts will not permit the legal entity to be interposed so as to defeat justice."
RESULTS OF THE ENTITY THEORY.—Flowing from the entity theory is the result that the property of a corporation is owned by the corporation and not by the individual members. Therefore, all conveyances of such property, whether it is real property or personal property, must be made by the corporation, and cannot be made by the members or shareholders as individuals. It also follows that all suits against or by the corporation must be brought against the corporation or by the corporation as an entity and not against the individual members. Again, a corporation may take property from one of its individual members, and it may make a contract with one of them, and it may sue them and be sued by them.
KINDS OF CORPORATIONS.—Corporations are divided into public, quasi-public, and private corporations. The private corporation is such as is created for private enterprises, such as manufacturing, banking, and trading corporations. Religious and eleemosynary corporations are also included in this classification. The public corporation is such as is created for the purposes of government, such as cities, towns, villages, and institutions founded by the State, and managed by it for governmental purposes. Quasi-public corporations are such as are engaged in a private business which is affected with a public interest, such as railroads, both steam and electric, gas companies, water companies, lighting companies, and the like. The public, and generally the quasi-public, corporations possess the right of eminent domain, that is, the right to take private property for public purposes upon payment of just compensation to the owner. It is the private corporation with which we are usually concerned in commercial law, and this chapter will be devoted largely to a discussion of that class.
THE CREATION OF A CORPORATION.—A corporation must be created by legislative authority. Formerly, a corporation was created by special act of the legislature, but in recent years the growth in the number of corporations, and also the political wire-pulling necessary to get an incorporation bill through a legislature, have resulted in the almost universal practice of having the legislature pass a general corporation act, and then without further reference to the legislature, any group of persons, of the requisite number, may become incorporated by complying with the provisions of such an act. The formation of corporations under the laws of most States is a simple process, requiring in general the preparation of an official document sometimes termed the "certificate of incorporation" or the "charter," which paper sets forth the facts which are required under the laws of the State wherein the corporation is to be formed. These laws, while not uniform, generally require a statement as to the name to be used by the corporation, the names of the proposed directors and incorporators, a statement of the general purposes or objects of the corporation, the location of its principal office and place of business, how long it is to last, the amount of its authorized capital, the par value of its stock, as well as a statement in regard to any preferred stock which may be contemplated. Other details are sometimes required under the various State laws. This official document must generally be signed or executed by those persons who are the incorporators of the corporation. As a rule, three or more incorporators are required, although in some States five is the minimum. This official document, after it has been duly executed, is usually to be filed in the office of the Secretary of State, and usually also in that of the county clerk of the county wherein its principal office is to be. This procedure, however, is subject to some variations and the statutes of the State involved must always be closely followed. As soon as the official document has been properly filed and the other necessary steps taken the incorporators hold the first meeting and effect an organization, after which time the corporation is generally in a position to transact business, although in some States it is provided in effect that corporations should not commence business until a certain share of the capital has been paid into the corporation in cash.
CITIZENSHIP OF A CORPORATION.—Although a corporation is a separate entity, entirely distinct and apart from its members, such separate entity is not a citizen in the sense in which we use the term ordinarily. At a general election a corporation has no right to vote. Again, Article 4 Section 2, of the United States Constitution, provides that "citizens of each State shall be entitled to all of the privileges and immunities of citizens in the several States." A corporation is not a citizen in this sense. Hence a State may keep all insurance companies, incorporated outside of its area, from doing business in that State by discriminating legislation against foreign insurance corporations. Insurance is not looked upon as interstate commerce, about which the individual States may not legislate, and as a corporation is not a citizen within the meaning of Article 4, Section 2, such insurance companies have no redress. In one sense, however, a corporation is looked upon as a citizen. Where a suit is between citizens of different States, and the amount involved is over the prescribed sum, either party may bring the action in the Federal courts, if he so desires, instead of in the State courts. In this sense, a corporation is to be regarded as if it were a citizen of the State in which it is created. If I live in New York and the American Tobacco Co. is incorporated in New Jersey, suit between us may be brought in the Federal courts on the ground of diversity of citizenship on the part of plaintiff and defendant.