The above outlined general statement of the objects, powers, and work of the Bureau leads to the consideration of the legal conditions which constitute the problems before the Bureau.


A number of classes of statutes are now applicable to commercial conditions. These classes are considered in detail as follows:

(a) Corporation law.

(b) Arti-trust laws.

(c) Unfair competition laws.
(d) Tax laws.

(e) General laws, including police regulations, factory legislation, and rate-fixing commissions.


The greater portion of business is transacted under the corporate form. It is obvious that the corporate form is the result of economic necessity, and that its present predominance will inevitably tend to increase.

Historical development of corporation law. The need of essential reform in corporation law is admitted. Compared with other branches of law, corporation law is relatively new and untried-an experiment only just begun-while general business laws have passed through a long process of evolution. Its development has been abnormally rapid in some directions by imperative economic forces. In the haste of its creation it has been molded disproportionately by special interests, has grown extensively in special directions, and has not taken the form necessary to adapt it permanently for the proper protection of all the interests involved.

A study of the present body of corporation law shows the impress of the forces that have shaped it. First in prominence is the force represented by the masters of industry, the interests that are peculiarly connected with production, transportation, and exchange. Second, the purely financial interests as distinguished from production, in which class the organizer or promoter, so called, is conspicuous. Third, the creditor class, whose interest is in the security for loans or credit; and in somewhat similar position those stockholders who under present forms of combination, by preference or other device, have taken stock in exchange for property, and, in effect, consider themselves creditors rather than responsible owners of corporate stock. Fourth, the labor interests, and finally, the State as a taxing body and, to a very limited extent, as a guardian of public welfare. The interests of the consumer have so far had very little effect upon legislation of this sort.

In brief, the evolution of corporation law, as regards the properly balanced interests of the entire community, has been accidental rather than designed.

Fundamental theory of corporation law. The law of corporations is based upon the establishment of a form of doing business; i. e., the creation of an artificial entity, the conferring upon it of such powers as are necessary to give it proper business efficiency, while placing upon it such restrictions as will properly safeguard the interests of those peculiarly concerned in the corporation, as well as the public.

Peculiar characteristics resulting in peculiar evils.-A study of corporation law makes it clear that many of the existing evils of commercial conditions are directly due to certain features of corporation law peculiarly characteristic of the corporate form. The peculiarities may be summarized as follows:

(a) Legal immortality, or permanence of succession.

(b) Impersonal nature.

(e) Divisibility of interest by creation of stock.

(d) Limited liability.

(e) Artificial character; existence by act of the State.

Of these features the divisibility of interest and limited liability have far-reaching effects on commercial conditions, as follows:

Divisibility of interest: This is of primary importance. It results in majority rule; allows the abuse of minority interests; greatly reduces, and often eliminates, the sense of personal responsibility on the part of the managers; allows the exploiting of one company for the benefit of another; permits divergent and clashing interests within the company, by the creation, of special classes of stock; in connection with the limitation of liability it has brought into existence the small investor, he who has no accurate source of information, and whose necessary ignorance of business affairs is a standing temptation to "insiders"; permits the creation of stock and its use as a sort of currency; taken in connection also with the transferability of stock interests, it allows speculative manipulation; creates great practical confusion in the incidence of taxation.

Limited liability: This renders possible very large enterprises; encourages over-capitalization; taken in connection with divisibility of interest, reduces greatly, and often destroys, the interest of the managers in the success of the business and their feeling of personal responsibility therefor, and affects greatly the moral factor in business management; allows extreme concentration of commercial power; reduces the security of creditors.

Ground for governmental regulation. -Governmental action having created the artificial corporate form with the above outlined peculiar characteristics, it is logical and necessary that governmental regulation of corporations should be much more stringent and detailed than the

regulation of individual businesses. The concentration of business that has resulted from the use of the corporate form has produced entities that are almost equal in power to the state itself; that can meet the state on equal terms and influence it accordingly. By their size and legal permanence and their peculiar privileges they have crossed the line that divides private from public interests and their operations affect the public in much the same manner as the operations of government.

The great reduction of personal responsibility that has followed the corporate form, the divisibility of stock interests, and the separation of the laborer, stockholder, and creditor from contact with and control of the instruments of industry, has left a very large gap to be filled by government control, and has left more or less unprotected various important interests which must have the supervision and intervention of the state for the following purposes:

(a) To protect property rights in corporations held by those now unable to protect themselves by reason of lack of information or power. (b) To protect those dealing with corporations as employees, creditors, or consumers.

(c) To protect the public from the abuse of great economic power coupled with little personal responsibility.

The economic powers of the Government and of public officers are checked by a corresponding publicity and responsibility to the voters, while the economic powers of great corporations, although often governmental in their size and scope, have no such publicity or responsibility.

(d) To protect the Government itself from the pressure of great commercial and financial powers directed upon it for the attainment of purely private ends.


Investigation of the State corporation laws has not been completed, but enough facts have been gathered to make possible a number of general conclusions as to this system. Substantially all the corporations of to-day are the creatures of the different States. This is so to such an extent that for all practical purposes it is proper to say that the corporate business of the country is carried on under the "State system."

The present situation of corporation law may be summed up roughly by saying that its diversity is such that in operation it amounts to anarchy. The States which by reason of their commercial activity are important differ very widely in the principles upon which their corporation legislation is based.

This situation, taken in connection with the principle of the comity of States, has had a singular and far-reaching effect on commercial

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conditions. This principle of comity has had the practical result of giving to the organizers of a proposed corporation the choice of all the corporation laws of the various States. Many such organizers represent one of the peculiar interests above referred to, namely, that of the financial or speculative type. Each State naturally desires, chiefly for the purpose of revenue, to attract incorporation to itself by lax corporation laws. The ground has been cut from under the feet of objectors to such laws by the unanswerable proposition that if incorporators or organizers were not accommodated in the given State they could incorporate in a more complacent State and easily come back to the first State to do business. The logical result has been an inevitable tendency of State legislation toward the lowest level of lax regulation and of extreme favor toward this special class of incorporators, regardless of the interests of the other classes properly concerned.

A further peculiar phenomenon also arises-that, as to the vast majority of business done, the corporation doing it is a foreign corporation. The ordinary large corporation does only a small proportion of its entire business in the State which chartered it. All the rest of its business it does as a foreign corporation, and under the peculiar conditions applicable thereto.

This is largely the natural result of subjecting concerns whose area of operations covers many States to the legal conditions imposed by one out of those many States. In other words, matters which rightly affect the whole are, to a certain extent, directed and shaped by a small part of the community.

The net result of this State system is thoroughly vicious. In the bidding of State against State for corporation revenue, only one of the numerous interests involved in corporate business is regarded. The proper relation of the corporation to the State is almost wholly lost sight of in "broad" corporation laws. Corporations themselves are hampered by the "foreign corporation" relation which they must hold toward most of their business. Constant change and instability of law is inevitable, and finally, in the struggle for preferences, privileges, and discriminations, the two contestants, to-wit, the corporation which seeks and the State which should withhold, are unequally balanced, and upon the wisdom and patriotism of a single State is placed the pressure of forces that are national in their power.


A careful compilation and tabular summary has been made of all the Federal and State "anti-trust" legislation. The word "anti-trust" in this connection has of necessity been loosely used. This legislation can be divided into two classes of subject-matter, the one which is

aimed at the prohibition of monopoly and restraint of trade, and which is more properly "anti-trust," and the other, which is aimed at improper rebates, discrimination, and unfair competition, and which has no necessary connection with combinations.

The theory of the first class of "anti-trust" legislation is the prevention of monopoly and the maintenance of a condition of competition. Taken as a whole, this legislation (with a few marked exceptions) has been singularly futile. It seems likely that the reason for its failure is due to two facts, (a) that it is an attempt to stop the operation of strictly economic law by statutory enactment, and (b) the attempt to maintain a state of competition by prohibiting all combination, reasonable or unreasonable, is wrong in principle.

Apparently the only exceptions to this conclusion lie in the case of public-service corporations which are, by their nature, largely agents of the State, and exercise powers not granted to the ordinary corporation or individual.


The second class of legislation, usually a part of "anti-trust" laws, but having no necessary connection with combinations or trusts, is that which prohibits rebates, discriminations, and unfair competition. This legislation is based on an entirely different principle and is fundamentally correct. It is aimed not at the restraint of combination as such, or the maintenance of competition, but at regulating the methods of competition. It recognizes the irresistible tendency toward combination, and its purposes are to make certain that combination is reached only through just, fair, and proper means. Recognizing that the tendency to combine can not be stopped by statute, its object is to see that this process shall be attended with as little injustice as may be, and to this extent is correct in theory.


Other general laws affecting corporate business are State tax laws, which are at present in a state of great confusion, based upon wrong or conflicting principles, resulting frequently either in double taxation or in total escape from taxation, and being often so obscure and complex as to defy interpretation, even by the State officials charged with their execution.


A further class includes the general and miscellaneous legislation, instances of which are laws establishing rate-fixing commissions, “factory acts," general forms of business, etc., and a large class of legislation that is based upon the police power.

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