formation relative to such grants. These records are open to inspection by the public.

Because of the peculiar arrangement of our political system, any state may authorize a limited liability business organization which, however, may do business in other states only on sufferance of those states. Each state has the right and power of defining under what conditions the limited liability organizations of other states shall be permitted to do business within its boundaries; and in order to assure itself of full compliance with its laws, it requires the filing of detailed annual reports, and the payment of an annual license tax, as precautionary measures. It follows that organizations of this type, doing business in many states, may find themselves obliged to prepare and file with each of the several states annual reports on their financial condition, including assets, earnings, liabilities, etc., and to pay annually to each a franchise tax as a prerequisite to doing business.

In addition to requirements pertaining to reports and taxes, there are also, in the case of the higher forms of organization, certain other obligations such, for example, as prescribe a course of procedure that must be followed in directing the activities of the business, namely, in directors' meetings, stockholders' meetings, etc. These regulations are intended, not only to protect those that have a proprietary interest in the business, but also those who have extended credit to it. The onerous obligations imposed upon the business, are seen to exhibit great variation, dependent upon the type of entrepreneurial organization adopted by those who establish themselves in business.

(g) Legal status. — The legal status of the business organization also, is of considerable importance to the entrepreneur. The question that he must ask himself in this connection is "Will the business, as such, have a standing at law, and can it sue and be sued in its own name?"

It is held, where the organization has been established by simple contractual agreement among the entrepreneurs, such as is employed to form the partnership, that the resulting organization has, in itself, no standing at law that will enable it to sue or to be sued as an entity or person distinct from the persons of the partners.

(h) Sphere of activity. - Business organizations viewed from the standpoint of their legal sphere of activity, that is, the latitude that they enjoy of exploiting a field of business and of changing, extending or narrowing their operations, fall into two general classes: (1) those that are unlimited in their freedom of action and (2) those that are obliged to confine their operations to specific objects.

(1) The type of business organizations that enjoy unlimited freedom of action, may enter any field of business that is not specifically withdrawn from private enterprise, and that is otherwise lawful. Within these limits, they may shift from one type of enterprise to another, or expand and contract at will, or discontinue the undertaking at will without formal procedure of any kind and without specific sanction of the state. They have the same right and freedom of action, in this respect, as a natural person. (2) Those that are limited, and must confine their activities to such objects as they have been specifically authorized to undertake and pursue, are such whose legal status is that of artificial persons, like the corporation. As artificial persons created by act of law, their powers and freedom of action are confined to those specifically granted in the act creating them. Thus, a corporation given authority to go into the paint manufacturing business, may not, of its own free will, go into the lumber business. If it chooses to do so, it must secure that authority from the same source from which it originally

sprang.

The importance of this characteristic of ownership types,

as well as others that have been considered in the preceding paragraphs, may easily be overemphasized. They are almost purely of legal significance and serve, not only as a means to measure and compare the efficacy of the several types of entrepreneurial organizations that are to be treated in this text, but also, in part, as a basis of classification.

Classification of Ownership Organizations. - A proper classification of entrepreneurial organizations must take cognizance, first, of the broad economic principles laid down in the first chapter and, second, of the legal characteristics peculiar to each type.

The first well-defined basis of classification rests upon the kind of capital directly employed in the business venture. From this standpoint, two groups are distinguishable, (1) operating organizations which own, direct and manage a business plant and equipment consisting of real and money capital, and (2) combination organizations that employ capital in business through the medium of operating organizations.

Next must be considered the intimacy with which the organization is attached to the life and financial soundness of the entrepreneur. A careful study of the legal characteristics of ownership organizations will lead, as in the preceding case, to a division into two well defined classes, (a) personal ownership organizations and (b) securities-issuing organizations. The former are those that the law does not distinguish from the person of the entrepreneur, and which are legally terminated and dissolved by the death or insolvency of any entrepreneur actively interested in them. They include the individual proprietorship, the participation association and the partnership. The other class includes those that continue to live as business organizations in the eyes of the law even though one or more of the entrepreneurs should

die or become bankrupts. The joint stock company, the corporation and the securities trust make up this class. The classification of primary types may now be recapitulated in tabular form as follows:

Operating organizations:

a. Personal ownership

1. The individual proprietorship

2. Participation association

3. Partnership

b. Impersonal ownership (securities-issuing organizations):

4. The joint stock company

5. The corporation

6. The securities-issuing trust