tury. In this country the Adams Express Company and others began business as joint stock companies a few years prior to 1860 and, in 1919, were still operating under this form of organization.

Value and Use of the Joint Stock Company. - The heyday of the joint stock company was the great period of colonial expansion beginning during the latter part of the sixteenth century and closing with the end of the eighteenth century. We are told that the great trading companies of that period were nearly all organized as joint stock companies through grant of a charter by the crown giving them trading monopolies in certain sections of the world. It was not until after the industrial revolution and the growth of large scale industrial enterprises, that they were organized for industrial, as distinct from commercial, purposes. They exist to-day in large numbers in England and the countries of continental Europe, but are extremely rare in the United States. One reason for this is that in this country, corporations could be easily and inexpensively formed and were given limited liability as early as 1819, while in England the cost of incorporation was heavy and limited liability was not generally given to corporations until 1862; and a similar condition prevailed on the conti

Even to-day in many countries of Europe it still is more difficult and costly to form a corporation than a joint stock company; but even so, the former is gradually displacing the latter. Thus, according to the German Official Commercial Register, we find that there were, in use in 1909, 16,508 corporations as against 5,222 joint stock companies.

On the whole, it may be said that although the joint stock company has quite generally given way to the corporation as the favorite type of securities-issuing organization, it nevertheless still has marked advantages over the partnership. If properly organized the danger from part

nership liability is too remote to act as a serious drawback; and the freely transferable interest represented by shares of stock as well as the stability of the organization are advantages that cannot be overlooked. It can be successfully used where the persons originally interested in the project subscribe to all of the stock and hold it until the business is on a sound, paying basis. However, the unlimited liability accepted by the shareholder has worked as a deterrent, preventing the company from finding a ready market for its securities, particularly if the business is only in the course of establishment, and has not yet been fully built up and put into operation. Another disadvantage applicable to companies of this type organized in the United States, is the fact that any special statutory privileges granted them in any given state have no force or effect in other states. These disadvantages - moderate though they are leave little doubt concerning the ultimate fate of the joint stock company. It has already been put in a position of minor importance and the probability is strong that it will continue to lose favor, and, in time, will practically be driven out of use by the corporation.

CHAPTER VII

THE CORPORATION - ITS NATURE AND ESSENTIAL CHARACTERISTICS

THE Corporation is the second, and by far the most important one of the securities-issuing, entrepreneurial organizations that are before us for consideration. Because of its great importance in modern business, it will be necessary to devote several chapters of this text to an explanation of its intricate features and characteristics. It is perhaps better to outline its broad, general features first, and then to take up in greater detail its mechanism and methods of operation.

The corporation did not spring spontaneously into general use as a form of entrepreneurial organization. Only through the slow process of a change in social custom did it win for itself the place that it now holds in the business world. As a legal institution it was known to the Romans, who, however, made little use of it for business purposes. During the middle ages, in England as well as on the European continent, it came into general use as a political institution. The boroughs and towns of that period were granted corporate charters by the crown or suzerain lord and were operated as municipal corporations. Its use in business developed gradually, beginning about the sixteenth century. By the close of the eighteenth century it had fairly well established itself in that field as a common law institution. But even at that time it enjoyed a bad repute, as is evidenced by the fact that some of the early books on political economy condemn it in no uncer

tain language. Even as late as 1840, the governor of the State of Massachusetts in a message to the legislature requested the passage of stringent laws against the use of corporations, because they were so generally organized for fraudulent purposes. To-day, however, it stands unchallenged as the leading form of entrepreneurial organization in the business world.

Definition. Blackstone, in his Commentaries on English Law, published in 1765, defines the corporation in the following words: "A corporation is an artificial person created for preserving in perpetual succession certain rights, which being conferred on natural persons only, would fail in the process of time." Another definition, and one that has become the most famous in the annals of American jurisprudence, is that given by Chief Justice John Marshall of the United States Supreme Court in his decision in the Dartmouth College case in 1819. There he defines the corporation as "an artificial being, invisible, intangible, and existing only in contemplation of law." The first of these definitions lays emphasis upon the continuous life of the corporation, which endures under common-law rules in perpetuity, and therein differs materially from natural persons whose rights expire with them on death. The second definition describes, in admirable terms, this artificial person that has a legal being and legal rights, powers and privileges of its own, apart and distinct from those of the natural persons, who, as entrepreneurs, avail themselves of it for the purpose of owning and conducting a business enterprise. It is invisible and cannot be seen. It is intangible and cannot be touched. And yet it is a real legal person that can in its own right own and operate a business whose capital may consist of real economic goods, as plant and equipment, of money capital or of

1 See Harvard Studies, History of English Monopolies, Seventeenth Century.

securities. But even in view of all this, it is, nevertheless, an impersonal type of organization; for it cannot function, but through the agency of natural persons.

Legal Entity. The fact that the corporation is an artificial person, fixes its status as a legal entity, a being with all of the rights, privileges and obligations of a person before the law. Herein, it differs fundamentally from the partnership and joint stock company. The latter can sue and be sued only in the names of their several members, but the corporation may sue and be sued through its officers or agents, in the same way as any natural person. It may own real estate and any other property in its own name. In fact, it may be granted the right to enjoy and to exercise, within reasonable limits, all rights and powers and privileges that a natural person might avail himself of when engaged in a similar business undertaking.

Creation. As an artificial person, the corporation is a creature of the state. It is created through the exercise of sovereign power by the state, within lawful constitutional limitations. Certain natural persons, desiring to form a corporation, petition the sovereign state, through the state's secretary, or some other designated official, for a charter a document that is evidence of the creation and existence of the corporation, and, at the same time, circumscribes and defines its powers, rights and privileges. The grant of such a charter to the petitioners, who are called incorporators, constitutes when acted upon by them-a legal contract between the state on the one hand, and the incorporators as agents of the corporation on the other. Once having granted such a charter the state, in this country, is estopped by a provision in the Federal Constitution from revoking or in any way impairing the obligation of such a contract. Thus, it cannot subsequently alter the provisions of the charter, unless by specific reservation or general statute it reserves that right as a condition of the