Every State now has general statutes authorizing and providing for the formation of corporations. Many of these statutes are broad, permitting the formation of corporations to engage in practically every form of lawful activity. Some State statutes, however, permit the incorporation of only particular types of corporations or limit corporations to engage in only certain lines of business. Even though a business is lawful, corporations cannot be incorporated to engage in that business unless the State statute authorizes it.

Those who wish to form a corporation must meet the terms and conditions prescribed by the State. The power of the State in this matter is supreme. 35 The legislature can grant just as little or just as much power to corporations, within constitutional limits, as it desires. 36

A cooperative was incorporated under a statute of Pennsylvania which, among other things, provided that all business of associations incorporated under it, except certain enumerated types, should be for cash, and that all persons who extended credit to such associations, except for specified purposes, should forfeit the amount of the credit thus extended. The statute required that notice to this effect be published on the letter and billheads, advertisements, and other publications of associations incorporated thereunder. Debts for purposes not contemplated by the statute were incurred by an association and the creditors sought to throw the association into bankruptcy. They failed, the court holding that they had no claims which could be recognized in bankruptcy, owing to the provision in the statute referred to.37

The validity of a statute providing for the forfeiture of the charters of all corporations that failed to pay a certain tax by a specified date was upheld in a California case.38 A State can determine under what conditions corporations formed in other States may do an intrastate business within its borders.39 A

35 City Properties Co. v. Jordan, 163 Cal. 587, 126 P. 351 (1912). 36 Kansas Wheat Growers' Association v. Schulte, 113 Kan. 672, 216 P. 311 (1923); Rifle Potato Growers' Co-op Association v. Smith, 78 Colo. 171, 240 P. 937 (1925).

37 In re Wyoming Valley Coop. Association, 198 F. 436 (M.D. Pa. 1912). See also Sterling v. Trust Co. of Norfolk, 149 Va. 867, 141 S.E. 856 (1928). 38 Kaiser Land & Fruit Co. v. Curry, 155 Cal. 638, 103 P. 341 (1909).

39 Burley Tobacco Growers' Coop. Association v. Rogers, 88 Ind. App. 469, 150 N.E. 384 (1926).

corporation engaged in interstate commerce may enter any State for all the legitimate purposes of such commerce without the leave or license of the State.40

Each State now has one or more statutes providing for the formation of cooperatives.41 The right of States to enact statutes providing for the formation by farmers of cooperatives and containing no authority for these engaged in other occupations to organize under them appears to be established. The Supreme Court of the United States has said: "Undoubtedly the State had power to authorize formation of corporations by farmers for the purpose of dealing in their own products."42

Although corporations are now, as a rule, formed under general statutes, the act involved in bringing them into existence is regarded as a legislative one, and the rules relative to statutes are applied by the courts in construing charters.43

Blue Sky Laws

A cooperative should ascertain if any plan it intends to follow in obtaining capital is subject to the "blue sky laws" of a State in which sales or contracts will be made. "Blue Sky Law" is a popular name for an act providing for the regulation and supervision of investment securities sold to the public.

In a number of States, the securities issued by marketing and farm supply associations are not subject to the requirements of the blue sky laws, and in some States, statutory provisions exempt securities issued by both electric and telephone cooperatives. In the absence of a specific statutory exemption, the

40 Dahnke-Walker Milling Co. v. Bondurant, 257 U.S. 282 (1921); Nebraska Wheat Growers' Association v. Norquest, 113 Neb. 731, 204 N.W. 798 (1925); Dark Tobacco Growers' Co-op Association v. Robertson, 84 Ind. App. 51, 150 N.E. 106 (1926).

41 Copies of the statutes of a particular State on this subject can usually be obtained by writing to the secretary of state of that State. Good examples of revisions are the short form statute enacted in New York in 1950 and the more detailed statute enacted in Wisconsin in 1955. In 1966, Kentucky repealed the Bingham Act and adopted a new Agricultural Cooperative Associations Act. KRS 272.101 et. seq. For an analysis of this new law see Dewey, Revising State Cooperative Marketing Acts, American Cooperation-1966, 190.

42 Liberty Warehouse Co. v. Burley Tobacco Growers' Co-op Marketing Association, 276 U.S. 71 (1928), affirming 208 Ky. 643, 271 S.W. 695 (1925).

43 Casper v. Kalt-Zimmers Mfg. Co., 159 Wis. 517, 149 N. W. 754 (1914); Lord v. Equitable Life Assurance Soc. of United States, 194 N. Y. 212, 87 N.E. 443, 22 L.R.A. (N.S.) 420 (1909).

securities issued by cooperatives would probably be regarded as subject to the blue sky laws.

The blue sky laws generally are comprehensive in scope, and cover stock as well as various kinds of certificates or agreements issued or made to raise money.44

In Oregon, it was held that the State's blue sky law, by its terms, did not apply to certain transactions involving cooperatives.45

In Utah, it was held that the blue sky law was applicable to a corporation which claimed to be a cooperative and in which no one could acquire stock unless he agreed to raise sugar beets.46

Some of the blue sky laws apply to unincorporated as well as incorporated associations and some apply to nonstock corporations.47 An association obtained a permit, under the Corporate Securities Act of California, to enable it to sell membership certificates for $200 each. Because the association failed to exhibit and deliver to a producer the permit issued by the Commissioner of Corporations as required by its terms, it was held, at the suit of the member, that his membership and marketing agreement were void.48

Generally speaking, a note given for the purchase of a security of an organization that has not complied with the blue sky laws is at least voidable in the hands of any person who is not a bona fide holder.49

44 Hamlin County Livestock Sales Pavilion Company v. Karlstad, 48 S.D. 82, 202 N.W. 141 (1925); Farm Products Company of Michigan v. Jordan, 229 Mich. 235, 201 N.W. 198 (1924); Hill v. Campbell, 90 Ind. App. 687, 169 N.E. 865 (1930); State v. Gopher Tire & Rubber Company, 146 Minn. 52, 177 N.W. 937 (1920); State v. Hudson, 214 Mo. App. 260, 259 S. W. 877 (1924). In State ex rel. Arn v. Consumers Coop. Association, 163 Kan. 324, 183 P. 2d 423 (1947), it was held that common stock, preferred stock, and securities entitled "certificates of indebtedness" issued by the cooperative had to be registered under the Kansas "Blue Sky Act," but that "Deferred Patronage Refund Certificates" issued to patrons did not have to be registered since their issuance for savings did not constitute a "sale" of a security.

45 Kirk v. Farmers' Union Grain Agency, 103 Ore. 43, 202 P. 731 (1921); Cannon v. Farmers' Union Grain Agency, 103 Ore. 26, 202 P. 725 (1921). 46 National Bank of the Republic v. Price, 65 Utah 57, 234 P. 231 (1923). 47 State v. Hudson, 214 Mo. App. 260, 259 S. W. 877 (1924).

48 Klombies v. Weeks Poultry Community, Inc., 121 Cal. App. 175, 8 P. 2d 940 (1932).

49 National Bank of the Republic v. Price, 65 Utah 57, 234 P. 231 (1923); Hill v. Campbell, 90 Ind. App. 687, 169 N.E. 865 (1930); Weisendanger v. Lind, 114 Kan. 523, 220 P. 263 (1923).

In Illinois, when the blue sky law of the State had not been complied with, a purchaser of stock in a cooperative recovered the sale price of the stock from the agent of the cooperative after it became insolvent.50

Where a corporation issued stock without complying with the blue sky law, which provided that contracts entered into for the sale of stock were void if the law was not complied with, it was held that inasmuch as the stockholder had accepted dividends and attended meetings of the corporation, he was estopped from asserting that he was not a stockholder, 51

The action of the State Securities Commission of South Dakota was upheld in refusing to grant permission to a corporation to sell stock where "the contents of plaintiff's articles of incorporation are of a nature fitted to deceive the unwary, and to lead to the perpetration of a fraud upon those who would purchase its stock in reliance upon some of its provisions."52

Where a cooperative sold stock without complying with the blue sky law of the State, on its liquidation by a receiver, the purchaser and holder of such stock, was to be treated as a general and not as a preferred creditor on tendering it back. 53

When conveyances of property were made to a cooperative enterprise in exchange for its stock, without the corporation's complying with the blue sky laws of the State, it was held in Oklahoma54 that such conveyances could not be set aside because of the grantor's acquiescence in the transaction for a number of years and his acceptance and retention of profits distributed by the corporation. Furthermore, the rights of the other stockholders would be adversely affected.

Name of Association

It is essential, for purposes of identification, that a corporation have a name under which it will transact its business.

50 Morrison v. Farmers' Elevator Co., 319 III. 372, 150 N.E. 330 (1926). 51 Winfred Farmers' Company v. Smith, 47 S.D. 498, 199 N. W. 477 (1924). 52 National Cooperative Farm Loan Company v. Hirning, 40 S.D. 448, 167 N.W. 1055 (1918).

53 Howard v. Corn Belt Farmers' Cooperative Association, 225 Ill. App. 449 (1922). See also Coe v. Portland Farmers' Elevator Company, 236 Mich. 34, 209 N.W. 829 (1926).

54 Farmers' Union Co-operative Royalty Co. v. Little, 182 Okla. 178, 77 P. 2d 33 (1938). See also Farmers Union Co-operative Royalty Company v. Southward, 183 Okla. 402, 82 P. 2d 819 (1938).

Generally speaking, the incorporators may select any name they choose for their corporation that is not an imitation of a name already used by a corporation. Statutory provisions with reference to this subject now exist in many States.

State laws frequently require that the corporate name shall clearly indicate the corporation is incorporated. Sometimes the statutes require that the name shall include the word "corporation," "incorporated," or the abbreviation "Inc."

Restrictions prohibiting the adoption of a name already in use, or so similar thereto as to be easily mistaken for it, exist in many States. In the presence of such restrictions, the Secretary of State of Washington was justified in refusing to file articles of incorporation for the "Kennewick Fruit Exchange" because of the similarity of its name to that of the "Kennewick District Fruit Growers' Association," an existing corporation.55

Independent of statute, for one corporation to imitate the name of another corporation may constitute unfair competition. If such is the case, the courts will enjoin the corporation that is guilty of such imitation.

In an Oregon case, it was said, “In any case, to entitle the complaining corporation to an injunction, the name used by defendant, when not the same as that of plaintiff, must be so similar thereto that, under all the circumstances of locality, business, etc., its use is in itself reasonably calculated to deceive the public and result in injury to plaintiff, or else it must be used fraudulently in such a way as to have that effect." The court further said: "Injunction will be refused where no probability of deception by reason of the name is shown. Priority in adoption and use usually confers the superior right."

A number of State statutes providing for the incorporation of farmer cooperatives contain provisions requiring the use of the word "cooperative" in the corporate name.57 Many others permit

55 State ex rel. Collins v. Howell, 80 Wash. 649, 141 P. 1157 (1914). 56 Umpqua Broccoli Exch. v. Um-Qua Valley Broccoli Growers, 117 Ore. 678, 245 P. 324 (1926). See also Terry v. Cooper, 171 Ark. 722, 286 S. W. 806, 48 A.L.R. 1254 (1926); Drugs Consolidated, Inc. v. Drug Incorporated, 16 Del. Ch. 240, 144 A. 656 (1929).

57 The Oregon Supreme Court, construing the 1913 cooperative law of that State, held that a provision forbidding the use of the term "cooperative" by a corporation already organized was unconstitutional as an impairment of the obligation of contract. Lorntsen v. Union Fishermen's Co-op Packing Co., 71 Ore. 540, 143 P. 621 (1914).