Sec. 360. A corporation is an artificial person created by a number of natural persons complying with the laws of some State or Territory in respect to incorporation. A corporation organized by persons residing in California to do business in that State is called a "domestic" corporation, and a corporation organized under the laws of some other State, such as New Jersey, to do business in California, is called a "foreign" corporation. The laws of the several States differ with regard to incorporating, and the laws most favorable to corporations are those of New Jersey, Delaware, West Virginia, South Dakota, Arizona and Nevada.
Sec. 361. In a partnership, each partner is liable for the entire debts of the firm, and each partner may contract debts in the name of the firm, and the death, incapacity or withdrawal of a partner terminates the partnership. By incorporating, the following advantages over partnership are secured: The liability of a stockholder is limited. In California, for instance, each stockholder in a domestic incorporation is liable for such portion of the debts and liabilities of the corporation contracted or incurred during the time he was a stockholder as the amount of his stock or shares bears to the whole of the subscribed capital stock of the corporation, and the liability of the stockholder in a foreign corporation, doing business in California, is the same as that of a stockholder of a domestic corporation. By incorporating, continuity of existence is secured. Each of the stockholders of the corporation may sell his shares to other persons, who will be substituted in the places of the original stockholders, and the life of the corporation will not be affected. The property, assets, good will and prestige of the business belong to the corporation, and not to its component parts, the stockholders. A corporation is conducted, managed and controlled by a Board of Directors, and the combined wisdom and counsel of three or more persons are thus secured. By incorporating, greater undertakings may be exploited, as the capital therefor may be more easily obtained by means of sale of stock and bonds. Furthermore, the interests of the several stockholders are evidenced by certificates of stock, which can be passed from hand to hand by endorsement and delivery and be used as collateral security in borrowing money.
Sec. 362. In creating a corporation, the incorporators execute and file an instrument called "Articles of Incorporation," or "Articles of Association." These articles provide for the name of the corporation, the purposes for which it is created, how long it is to continue, the principal place of business, the names and residences of the Directors chosen for the first year, the amount of the capital stock, the par value and number of shares into which it is divided, and the amount actually subscribed, and by whom. Blank printed forms of Articles of Association may be obtained from leading stationers, but the purposes for which the Association is created will ordinarily have to be drafted by the incorporators themselves, or their attorney. The following is a suitable form for the purposes of a real estate company, and, with some slight variations, will answer as well for a hotel company, a land and improvement company, or an investment company, namely:
(1) To buy, purchase, lease, exchange or otherwise acquire real or personal property, and to own, hold, sell, lease, rent, encumber by mortgage or deed of trust, or otherwise deal in, utilize or dispose of real and personal property, and rights and interests in any such property; also to acquire, improve, construct, build, own, operate and maintain, lease and sell dwelling houses, apartment houses, business blocks, store rooms and other structures and improvements; also to maintain and conduct a general real estate agency and brokerage business, and to act as agent, broker or attorney-in-fact for any person or corporation, and to do any and all things incidental or auxiliary thereto, and to the same extent that a natural person might or could do in and about said business.
(2) To subscribe for, purchase or otherwise acquire, and to own, hold, sell, hypothecate and dispose of shares of the capital stock or bonds or other securities or obligations of any person or corporation, and, while such owner, to exercise all the rights and powers incidental thereto, including the right to vote thereon.
(3) To do all and every thing necessary, suitable or proper for the accomplishment of the foregoing purposes or which the Board of Directors of the corporation may, from time to time, deem to be conducive or expedient for the protection or benefit of the corporation.
Sec. 363. The bonded indebtedness which a corporation can create must not exceed its capital stock, and such indebtedness is secured by deed of trust, executed to the corporation, called the "Trustor," in favor of a trust company, called the "Trustee," and thereby certain property, in said deed described, and also all property thereafter acquired by the trustor corporation, arc conveyed in trust for the pro rata benefit or security of each and every person or corporation that then or thereafter may become the owner or holder of the bonds secured by the deed of trust. The bonds are issued in various denominations, those of $500 and $1,000 each being the most popular, and run for terms ranging from ten years to thirty years. Form No. 138 is an excellent model of a five per cent., sinking fund, 20-year gold bond. The interest is evidenced by coupons attached to the bonds, and, in case of the bond just mentioned, there are forty such coupons, each for $25.00, payable semi-annually for twenty years, amounting in all to $1,000. Bonds which are to be listed on New York Stock Exchange must be steel engraved, and the cost of engraving on steel and issuing one thousand bonds will average $1.25 per bond. Lithographed bonds cost much less. In issuing bonds, all of the prerequisite steps and proceedings, acts and things essential to the proper, due and legal authorization of the bonds and deed of trust, must be taken by the proper bodies, officers and persons in due and proper form, time and manner.