A corporation is an association of individuals authorized by law to act under a corporate name as a legal being. It is by far the most convenient and effective form of combination where a number of persons wish to unite their efforts, their resources, or any part of either for some common purpose. Hence there are corporations of many kinds, business, municipal, religious, charitable, educational and others, each with features peculiar to itself. The business corporation and the usages relating to it are of recent growth and were called into being to avoid the many and serious disadvantages of the common partnership
There are practically only two ways in which persons can associate themselves for business purposes, incorporation and copartnership. The great advantages of incorporation are: (1) The limited liability of stockholders in case of the insolvency of the corporation; (2) the ease and simplicity with which an interest in the business is acquired or disposed of by the purchase or sale of stock certificates; its permanency, notwithstanding the change, death or insolvency of its members.
A business corporation is one formed to carry on some manufacturing, mining, or mercantile enterprise. In New York, transportation, banking, and insurance companies are excluded from this classification and have laws and usages of their own. In most of the other states the same distinction exists, although not so sharply outlined. The restricted application of the term "business corporation," makes the laws relating to it comparatively well defined and easily understood. While details may vary in the different states, the general system is the same in all. The general characteristics of the business corporation or company are as follows: (1) It is created by a charter granted by the state and cannot come into existence by mere agreement among its members. Its peculiar advantages can be had only through a charter, and this charter is secured by following the forms prescribed by the state laws. (2) It has a stock capitalization divided into shares- usually of a like amount - and evidenced by transferable certificates of stock. These are issued to its members- termed stockholders. (3) The liability of the stockholders is limited to the amount of their subscriptions to its stock, and after this has been once paid, no further claim can be made upon either of them by the corporation or its creditors - though there are minor exceptions to this general rule.
A charter, or certificate of incorporation (the terms are equivalent), authorized by the state, is necessary to create a corporation. It is an instrument granting to certain specified persons and their successors the right of acting as a corporate being or corporation. Under general laws all applicants complying with the prescribed forms and requirements may become incorporated for any of the usual business purposes. An individual or firm may do anything not forbidden by the law but a corporation has no such legal right. If it were incorporated to manufacture bicycles, it could not lawfully without amendment of charter, undertake the manufacture of automobiles. Any contract made by a corporation in excess of its charter powers cannot be enforced in the courts and the execution of the same might be prevented by injunction at the suit of any of its stockholders. As a matter of fact and ordinary practice corporations do go beyond their powers very frequently, and unless some stockholder or creditor of the company objects, the state alone has the right to interfere. Also, of late years, particularly within the states of New York, New Jersey, Delaware and West Virginia, so much latitude is allowed in specifying charter powers that almost any possible contract would be within the charter bounds.
A modern business corporation under a liberal charter will have all the following powers: (1) To have continuity of existence under its corporate name for the term stated in its charter (2) to litigate, to sue and be sued, in all respects as an individual; (3) to use a corporate seal; (4) to buy, sell and hold property, real and personal, as may be necessary or convenient in its business; (5) to appoint directors, officers, and agents to manage and conduct its affairs; (6) to make by-laws for the management of its affairs and the conduct of its business; (7) to have a capital stock, divided into transferable shares- usually of equal amount; (8) to dissolve itself; (9) to carry on its special business.
The first step in organizing a business corporation is to prepare the formal application for incorporation. While the details of this vary in each state, the essential features are the same. The parties applying must be able to contract. They must be natural persons, hence a corporation, being an artificial person could not join in an application to charter another corporation. Some states impose re strictions as to citizenship. In some states but three persons need join; in others five or more are required. The essential features of the application are as follows: (1) The name of the corporation; (2) the location of the principal office or place of business (3) the object or objects of the corporation; (4) the amount of the capital stock; (5) the names and addresses of subscribers and amounts subscribed by each; (6) the duration of the charter; (7) any special provisions.
Corporations are liable for contracts made by their duly authorized agent within the scope of his authority, as well as for trespasses or torts committed by such agent under authority of such corporations.
Directors of a corporation are liable to the stockholders whenever there has been gross negligence or fraud, but not for unintentional errors.
The stockholders are individually liable to the corporation's creditors to extent fixed by statute under which the company is incorporated. Usually they are not made liable beyond the amount of stock held by them.