and they require a fair rather than hypercritical view of well-intended provisions in them. Those public bodies must be presumed to act from public considerations, being in a high public trust; and when their measures relate to matters of general interest, and can be vindicated under express or justly implied powers, and more especially when they appear intended for improvements, made in the true spirit of the age, or for salutary reform in abuses, the disposition in the judiciary should be strong to uphold them.1

Or, as stated more recently by Justice Brown in 1896:

Where the police power is invoked in good faith for the prohibition of a practice which the legislature has declared to be detrimental to the public interests, it will be sustained, wherever it can be done without the impairment of vested rights. . . . The general rule holds good that whatever is contrary to public policy or inimical to the public interests is subject to the police power of the State, and within legislative control, and in the exertion of such power the legislature is vested with a large discretion, which, if exercised bona fide for the protection of the public, is beyond the reach of judicial inquiry.2

1 Planters' Bank vs. Sharp (1848) 6 How. 301, 319.

2 L. & N. R.R. vs. Kentucky (1896) 161 U.S. 677, 700-701.

.

IV

CORPORATIONS

THE ABUSE OF THE CORPORATION CHARTER

BY DON E. MOWRY OF THE MILWAUKEE BAR

(From Central Law Journal, January 18, 1907)

The corporation is the almost universal form of organization used in conducting business to-day; and in one sense the corporation problem is the business problem of our country. The question is a very wide one, and only a few phases of corporate control can be presented here. - EDITOR'S NOTE.

The wave of legislative reform, which has taken on such gigantic proportions within the last few years, has finally culminated in an active, aggressive, and altogether too zealous campaign against the industrial corporation. We appear to have gone "reform mad," and in our efforts to curb the power of capital and allied corporate interests, we have failed, utterly, to realize that the trend of modern business makes the corporation an imperative necessity. This outcry is largely due to the fact that public policy has not taken the proper steps towards bringing about a regulation of corporate interests. The transformation from the partnership to the business corporation has been so rapid that we, who are vitally interested in legislative reform, have failed to see that the real danger lies not so much in the corporation itself as in the granting of the corporation's charter. To-day five men can sit around a table, put one dollar in the center, organize a corporation calling for a million dollars worth of capital, repocket the dollar, and go home after sending a certificate of incorporation to the secretary of state, with a million dollar enterprise ready to launch. Such are the laws of every state of the union with the exception of Massachusetts. Some states have gone even a step farther. They have made their laws so general in character that companies have been organized for the express purpose of incorporating enterprises which do not intend to do business within the particular state. These states do not hesitate to put the great seal of the state upon a concern which

lies, deliberately lies, the moment it leaves the office of the secretary of state. Such states are, in particular, New Jersey, Delaware, West Virginia, South Dakota and Nevada. There are many other states which favor corporations, more or less, but these states are the most bold, the most open in their methods, and the most eager to obtain corporation fees.

In Delaware, the secretary of state referred the writer's letter of inquiry concerning the laws of incorporation in that state to the Delaware Corporation Company, of Wilmington. Are not the laws of Delaware self-explanatory? Why is it necessary for the secretary of state to refer such a general letter to a company making it a practice to "guarantee incorporation," unless, perhaps, he was interested in some way with the company? In South Dakota, the secretary of state has drawn up a letter of recommendation for the South Dakota Corporation Charter Company. He says, in part:

The company has organized a large number of corporations under the laws of this state, and I have had and now have frequent opportunity to examine incorporation papers prepared and filed in this office by said company and find that it is very particular in all cases to comply with the requirements of the statutes of this state.

These are some of the open and above-board methods which are being used by officers of the states in order to further their own personal welfare. The incorporation companies in these several states have been over-anxious to secure the incorporation of companies within their respective states. The legal press is filled with advertisements, encouraging suspicious enterprises to avail themselves of the cheap cost, liberal laws, and freedom from liability, which the particular state in question offers. Such conspicuous phrases as: "Incorporate in South Dakota," "The Corporation Laws of the State of Nevada offer the greatest inducements," and "We beat New Jersey," are not uncommon advertisements of our enterprising western states.

The New Jersey laws relating to business corporations began to . show the influence of special interests in 1896 when the general corporation act was passed. This act makes it possible for any company, wherever located, to secure a charter through agents within the state. A residence office must be maintained, and one director must be a legal resident of the state. The trust companies, organized for that specific purpose, act as the local agent, the home office, and furnish the required resident director. While it is necessary for the state director to hold three shares of stock, the organizing company generally gives such agent of the trust company the necessary stock, with the understanding, however, that it is to be transferred back to the owners who are residents of other states in many instances. A complete set of forms, necessary for incorporation, including proxies, transfers of

subscription, waiver of notice of meeting of incorporators and subscribers, etc., are furnished by the guarantee and trust companies. The New Jersey law requires that the corporation must place in a conspicuous place before its home office, which must be in the state, the name of the company. At the entrance of the New Jersey Corporation Agency, in Jersey City, there are over 700 such names. The stockholders' meeting must be held at the registered office in New Jersey, but inasmuch as the law allows absent stockholders to vote by proxy, this provision has little or no effect. The most striking provision in the New Jersey law is that foreign corporations must pay the same taxes, fines, penalties, licenses, fees and other obligations, as are required of New Jersey corporations in other states. In this provision, New Jersey has greatly favored her own corporations, and has practically silenced other states in their efforts to impose stringent requirements upon her corporations.

The corporation laws of Delaware were revised some years after those of New Jersey went into effect, with the avowed purpose of outwitting the various corporation companies in New Jersey. It is clearly evident that the promoters of the present vicious law have succeeded in so doing. Any company incorporated under the laws of the State of Delaware may hold all of the meetings of its stockholders and directors outside of the state, wherever it is provided in its by-laws, and furthermore, all of the original records of the company may be kept at its principal office outside of the state. The company may issue all the bonds it desires without any further authority from the state than that granted in its charter, and without being subject to tax thereon. All or any part of the capital stock may be made full paid for real or personal property, or for services as well as for cash, and stock that is once made full in this or any other manner is not subject to any further assessment, not even for wages and taxes. The private property of the stockholders is not liable for corporate debts to any extent whatever. Nothing is required to be paid in when the company is organized. Merely $1000 has to be subscribed, and this may be made full paid for property as above suggested, paid in one lump sum or paid in such amounts and installments as called for by the board of directors after the company is organized. Charters once granted under the laws of the State of Delaware are absolutely perpetual and unalterable, except at the instance of the parties owning the franchise, and Delaware is the only state in the union that grants such charters. A Delaware charter does not limit one to a single object, but one may have authority in the same charter to transact as many different branches of business as one may desire, in fact, one may carry on any and every branch of business except banking. The company may even have trust company powers.

The annual tax upon companies incorporated under the laws of

Delaware is as follows: In the case of telephone, telegraph, oil, pipe line, railroad, electric light, heat, light and power, water power, canal, cable and express companies, there is no tax upon the capital stock or bond issues of the company, or on business done outside of the state. In the case of other companies, such as mercantile, mining and manufacturing companies, there is no tax upon the amount of capital authorized in the charter, nor upon the stock issued, but simply a tax of fifty cents on each $1000 of capital actually paid in. The annual state tax is, therefore, just one-half that of New Jersey. The local trust companies maintain the Delaware office, the Delaware director, keep the company advised on all the requirements of the law, look after its annual report, and, in fact, perform all the duties incumbent upon a local representative.

J. G. Guy, of the Delaware Trust Company, writes me as follows:

If you will send us on the enclosed form, entitled, "Memoranda for Preparing the Certificate of Incorporation and By-Laws," the name of your proposed company; the names and addresses of at least three parties who will act as incorporators (none of whom need be residents of this state), the amount of authorized capital you desire, par value of the shares, and a brief statement of the object and purpose of the company, we will prepare you a charter and all the papers connected with the organization of your company, and forward to you for execution by your parties. After they are executed and returned to us, we will have the charter granted, organize your company by proxy here, electing the board of directors whom you will designate and then forward the records of organization to you, with a draft of directors' minutes outlining the action necessary to be taken by your directors at their first meeting, which may be held wherever you desire. This will complete the organization of your company.

The prime movers in such procedure believe that a corporation organized in Delaware commences business with a charter entitled to respect; that the laws are based upon the experience of all states affording opportunity to form corporations, and are framed so as to invite confidence and investment. Broad and liberal powers are conferred upon corporations, at a "minimum cost," making it possible for them to do business in any part of the world. This is essential from the incorporation company's point of view.

The general corporation laws of West Virginia are more elaborate than either those of New Jersey or Delaware, but their character and purport is about the same. The present secretary of state, if he is in league with corporation-promoting companies, has succeeded in 'covering his tracks to good advantage." Inasmuch as the tone of the West Virginia laws runs parallel to those of the two states just mentioned, it will not be necessary to go into details concerning the law and its workings.

In Nevada, where the state bank and trust company of Carson City