This section is from the book "Popular Law Library Vol8 Partnership, Private Corporations, Public Corporations", by Albert H. Putney. Also available from Amazon: Popular Law-Dictionary.
Section 2. The universally recognized fundamental classification of corporations is into Public and Private. Corporations are largely distinguished from each other by the difference in the character of the persons who compose the corporation and the nature of the rights created by such incorporation. The line of demarcation between this division of corporations is broad and easily discernible; while in the case of private corporations, a contract is created between the legislature representing the government and the incorporators, public corporations are not the result of any contract between the incorporators and the State.5 The public constitutional, unless the power to alter it was reserved when the grant was made."7
4 Lowell on Transfers of Stocks, Par. 2.
5 "The purpose in making all corporations is the accomplishment of some public good. Hence, the division into public and private has a tendency to confuse and lead to error in the investigation; for, unless the public are to be benefited, it is no more lawful to confer 'exclusive rights and privileges' corporation is created for the purpose of receiving a share in the management or control of the local government, and there existing no compact or contract between the incorporators and the government, the charters of public corporations are subject in very large measure to the almost unrestricted control of the legislature, and may be modified, enlarged or diminished, as to powers and extent of territory, according to the pleasure of the legislature.6
It will be observed, that the paramount distinction between public and private corporations is the contractual feature between the State and the latter, which principle was enunciated in the celebrated Darmouth College case, "That privileges and franchises granted by legislative act to a private corporation, when accepted, constitute a contract within the meaning of the clause of the constitution which secures inviolability of contracts by declaring that no State shall pass any law impairing their obligation; and hence a law materially altering the charter of such a corporation is unupon an artificial body, than upon a private citizen. The substantial distinction is this: some corporations are treated by the mere will of the legislature, there being no other party interested or concerned. To this body a portion of the power of the legislature is delegated to be exercised for the public good and subject at all times to be modified, changed, or annulled. Other corporations are the result of contract. The legislature is not the only party interested; for, although it has a public purpose to be accomplished, it chooses to do it by the instrumentality of a second party. These two parties make a contract. The legislature, for and in consideration of certain labor and outlay of money, confers upon the party of the second part the privilege of being a corporation, with certain powers and capacities. The expectation of benefit to the public is the moving consideration on one side; that of expected remuneration for the outlay is the consideration on the other. It is a contract, and therefore, cannot be modified, changed or annulled without the consent of both parties. The division of the State into counties is an instance of the former and a railroad is one of the latter." Mills vs. Williams, 33 N. C. (11th Ired.), 561. 6 See Tiedeman on Mun. Corps., Chap. I, Par 2.