A final disadvantage which the entrepreneur sees as arising from the broadened management is a new element of risk and responsibility. This grows from the legal fact that each partner is, in all ordinary affairs, an agent for the firm. Each partner may, in matters that relate to the general business of the firm, make contracts binding on the firm. This becomes a serious consideration in view of the liability of partners. The obligations of a partnership are the joint obligations of its members—that is, the action to enforce it is brought against all jointly. But, although the creditor brings an action for his debt against all the members of the partnership jointly, he may satisfy his judgment out of the individual property of one partner, and is not bound to levy upon the joint partnership property.

It is obvious that this obligation for debts makes partnership a form of business organization into which a man will go only after a careful consideration of the type of men with whom he is joining. From this great liability for debts, however, arises one additional advantage to the partnership form of organization. This is the ease with which a partnership can borrow money. People are willing to lend where the liability reaches so far.

3. The corporation.-It should be needless, in discussing the corporation, to clear the mind of such dusty impressions as the notion that a corporation is necessarily a large and usually a vicious organization. Many corporations are capitalized for only a thousand dollars, and the American Bible Society and several boards of foreign missions find it convenient to transact their business through the corporate form.

The corporation, like the individual organization and partnership, is simply a type of business organization which has grown up because society needed it as a device through which social energy could be effectively directed in satisfying wants. A corporation is sometimes. defined as an artificial entity, created by statute law under a special name, with the liberty of perpetual succession, acting in many respects as an individual. The point to be held clearly in mind is this, that the corporation is a separate person. Nine persons in a room, to use a common illustration, form a corporation. There are then ten individuals in the room. A corporation is a distinct legal entity, separate from the people who compose it.

Some of the advantages of the corporation are quite obvious. Most notable of these perhaps is the readiness with which it adapts itself to the raising of large amounts of money. Shares of ownership

in corporations may bear a face or par value set at prices ranging from hundreds of dollars to a few cents. There is ordinarily no limit to the amount for which a corporation may capitalize, and no limit in either direction to the amount an individual may subscribe to the capitalization provided he is willing to subscribe for at least one share. It thus becomes possible to interest many persons and to accumulate gigantic sums of money.

If the individual who is contemplating the formation of a new business has in mind an undertaking which will require a great deal of capital the corporation plainly lends itself to his needs. In the matter of capital possibilities the corporation is no less advantageous to society. It is not enough to say that such vast undertakings as railroads, steamship lines, and large manufacturing plants would have been difficult without the corporate type of business organization. It is not too much to say that the whole new technology, which was the wonder of the nineteenth century, and which was made possible by the scientific discoveries of the earlier centuries, would not have been so quickly and so fully available to man had it not been for the corporate type of business organization. In several other ways society finds advantage in the capitalizing methods of the corporate form. The small savings of many people are brought into productive use. These might lie idle were it not for the possibility of investments. of small amounts.

As the individual views the corporation it has a further advantage in the matter of liability, an advantage which also reflects favorably upon the amassing of capital. Ordinarily there is no liability or chance for loss beyond the amount invested in the stock of the corporation. The debts of the corporation, being those of an artificial but distinct personality, are quite separate from the property of the individual shareholders. Now it should be noticed that there is nothing here in the law that is new or that is more favorable to corporations than to private persons. The corporation is absolutely liable to the extent of all of its assets for all of its debts. But the corporation is an individual. The people who own shares are no more the corporation than they are each other. Thus their property cannot be applied to the obligations of the corporation. National banks, where double liability attaches, are the principal exception to this rule. The advantage of this situation to society as a whole is somewhat more doubtful. Complaints that responsibility cannot be located, and that reckless action has often been taken by corporations because of this

limited liability, are not uncommon. So far as the limited responsibility leads to unwise direction of the social energy under control these complaints are a justifiable objection to the corporate form. It must be recognized, however, that those who deal with corporations are generally fully aware of this limited liability and guide themselves and grant credit accordingly. It must also be recognized that this limited liability has been of tremendous benefit in drawing the money of investors into profitable enterprise.

A final consideration in viewing the corporation as a type of business organization is its scheme of management. Control is usually vested in the stockholders in proportion to the number of shares which they own. Frequently only stockholders of a certain type, as the holders of preferred stock or of common stock, may have the right to vote. This control is almost invariably turned over to a board of directors who may delegate it in turn to an executive committee, who may redelegate it to a general manager. Where the interests of the corporation are large it is usually possible and profitable to secure the most able managers. If managers are not good it is easy to remove them. It is interesting in this connection to compare the difficulty and friction of removing or changing the management of a partnership.

Out of this form of management there arise situations to which society as a whole may fairly raise some objection. The control of the corporation by stockholders is likely to be a merely nominal matter; because of the disinterest, distance, lack of knowledge, and the like, many stockholders do not vote. This enables the few who are interested to direct the control of the corporation. There are various other ways in which this can be done. Through stock manipulation the actual direction of policy of a corporation is likely to be concentrated in a few hands. An objection closely allied to this is the impersonal relations which grow out of the type of business organization having this form of management. The stockholders are easily duped. Managers are not always honest, and stockholders, hundreds or thousands of miles away from the real activities of the corporation, are in no position to judge of the service being rendered them. Closely allied with this also is the lack of ethical sense often charged in the term "soulless corporation." The actual owners of the social energy which has been concentrated into such a potent force are scattered and innocent of the acts of their company. Their sole point of contact is likely to be through the dividend check. This is not calculated to stimulate an interest in the ethics of the company. The corporation

in this respect contributes its share to the impersonal relations flowing from the exchange organization of industrial society.

Some hybrid types of business organization.—The discussion of the types of business organization has held definitely to the three distinct, clearly marked, well-defined forms. All of these, however, have been modified into dozens of varieties. Worth notice perhaps as examples (there are plenty of others) are the joint-stock company and the limited partnership. The joint-stock company is somewhat of a cross between the partnership and the corporation. In form of organization it is like the corporation, shares being issued and sold to a wide number of owners. These shares are transferable without the consent of other owners. The management is also like the corporation in that it is usually delegated to a board of directors. Liability, however, in the joint-stock company is ordinarily the liability of partnership.

The limited partnership is another example of a hybrid type. The limited partnership has some features of the general partnership and some of the features of a corporation. Such a partnership can usually be created only under special provision of state law. In the limited partnership certain members must be general partners, that is, they must have all the liabilities and rights of members in the ordinary partnership. The limited partners, however, have a liability limited to the amount of money invested.

All of the other varieties of partnership, such as the dormant partner, the silent partner, and the secret partner, are modifications of these three types, which attempt to merge in a business organization some of the qualities which we find in two or more of the distinct types. A multiplying device.-When the individual entrepreneur organizes his business it is possible that he will find two things desirable. One of these is multiplicity of effort. The other is co-operation. He may need co-operation in two different ways-in management, in finance. If co-operation is the thing needed it is likely to develop either into a partnership or a corporation. The partnership will add co-operation in management and considerable co-operation in finance. In the corporation there is the possibility of limitless co-operation in finance, and of any degree in management.

It may be, however, that this business does not need co-operation, but multiplicity of effort. If this is true another device is likely to be called into use. This is agency. Agency does not change the liability of the enterpriser. It adds no capital. It does not change the motive of the enterpriser himself, but it does multiply the effort which

he can exercise. Agency viewed in its functional aspect might, therefore, be properly called a multiplying device. Agency is equally useful to the individual organization, the partnership, or the corporation.

All of these types of business organization, hybrid as well as definite, together with the other relations, such as agency, which spring from them, grow out of a need in which industrial society finds itself. In the regulation of the relationships which arise society lays down law. The law views all of them typically from two aspectsone, the relation between the parties who have entered the relationship; the other, the relations between these parties and the rest of society. The law, in taking this double view, is quite in harmony with the thought that types of business organization present to those interested commercial advantages and disadvantages, while society may justify them as proper devices and instruments only when they work a public service rather than a public harm.

137. THE IMPORTANCE OF THE CORPORATION1

From the

One of the striking features of the evolution of modern industrial society has been the development of the corporation. The statistics in this field are of such very recent origin that, except for the last few years, no quantitative study of the growth of this form of organization can be presented which can lay any claim to accuracy. United States Census we find that, during the decade 1899-1909, the fraction of the mineral output produced by corporation-owned mines increased from about 85.0 to 92.2 per cent, while, in the manufacturing field, during the same period, corporations increased their share of the value added by manufacturers from approximately 63.3 to 77.2 per cent. We know that transportation by water, rail, and wire has been mainly carried on by corporations for several decades. In commercial enterprises, the general impression is that the stock company is gradually playing a more important part than formerly. Only in the field of agriculture does the individual entrepreneur-the man who controls and directs his own business-still remain dominant and almost without corporate rivals. A rough estimate indicates that, of the total products of American industry in 1899, some 39 per cent, or approximately seven billion dollars' worth, and, in 1909, about 44 per cent, or thirteen billion dollars' worth, were turned out by corporation-owned plants.

'Adapted by permission from W. I. King, The Wealth and Income of the People of the United States, pp. 208-11. (The Macmillan Co., 1915.)