The New Student's Reference Work/Corporations
Corporations. Corporations were known to the laws of ancient Rome; but it is only of late, and especially in the United States, that their value as an instrument of commerce as well as their danger to the public welfare has been fully realized. We seem to be in a fair way to preserve the use and to prevent the great abuse of corporate power. A corporation is distinguished from the ordinary partnership in that it is, in the eyes of the law, a distinct person, created by the act of incorporation. It continues, though all the original shareholders have died, its acts are to be considered quite distinct from those of the shareholders, it may sue or be sued in the courts. In one sense it is even a citizen, for it has in general the privileges guaranteed by the constitution of appealing to the supreme court against any state action which the constitution forbids. But this citizenship it does not possess in one matter. It cannot claim the right to do business in any state under the same conditions as those that govern citizens of that state. Thus Texas may pass one set of laws for corporations incorporated within its limits, and another for all other corporations, and forbid their entrance to the state on any other conditions. However, by the interstate commerce provision of the constitution, the products of a corporation of another state may not be excluded from any state, except under conditions that apply to all persons alike. A partnership, on the contrary, is not a distinct person, and the several members are liable to suit for the actions of their partners in whatever business they have agreed to be partners. A joint-stock company, in like manner, is not a separate person, and the members are liable to be sued for its acts, though they are not held to be responsible for all the acts of the company's officers as a partner is responsible for his partner's acts.
At present the Federal government does not incorporate; that is left to the several states. In some states every corporation must be established by a special act of the legislature; but it is now common to lay down by statute the conditions of incorporation and then, whenever those conditions have been fulfilled, the corporation is by that fact established. The act of incorporation has been held by the supreme court to be a contract between the state and the corporation, and it cannot therefore be broken. The state must therefore arrange for the control that it desires to exercise over corporations, before the corporation comes into existence. It is here that we have failed. New Jersey, above all other states, offered exceptionally favorable terms to corporations if they would incorporate under her laws, so as to give her the benefit of the taxes that might be imposed on them. New York was compelled to follow suit, in part, for the same purpose. Other states have joined in this attempt to offer favorable terms with the result that proper provisions for control have not been inserted. The failure to insert proper provisions when incorporating many of the railroads has been especially injurious. It is largely as a result of these mistakes of the state governments, and also because of their inability to agree upon a single line of action toward corporations, that the Federal government has been obliged to take action in the matter. Practically all great trading corporations deal in interstate commerce, and Congress has control over such commerce and thus, indirectly, over such corporations. It has been proposed that all corporations that have interstate commerce be required to receive incorporation from the Federal government.
Corporations may be divided into sole and aggregate. A sole corporation exists where, for example, the Secretary of War in England with his successors is a corporation. Most corporations have many members and are aggregate. These are divided into public and private corporations, of which the former include, for example, cities and villages, which are conducted by the public for the public good. There also are eleemosynary corporations which are run by private individuals for the public good, as colleges, churches. The savings-banks in like manner are eleemosynary.