CORPORATION, in English law, an association of persons which is treated in many respects as if it were itself a person. It has rights and duties of its own which are not the rights and duties of the individual members thereof. Thus a corporation may own land, but the individual members of the corporation have no rights therein. A corporation may owe money, but the corporators as individuals are under no obligation to pay the debt. The rights and duties descend to the successive members of the corporation. This capacity of perpetual succession is regarded as the distinguishing feature of corporations as compared with other societies. A corporation differs from a partnership (q.v.) in that it is a legal person distinct from the sum of its members and in that the members can escape personal liability.
Many of the legal attributes of an English corporation are to be found in the universitas and collegium of the law of Rome. In the later Roman law the distinction of corporations into civil and ecclesiastical, into lay and eleemosynary, is recognized. English law has invented another classification—corporations aggregate and sole. The normal corporation is aggregate, i.e., it consists of several persons united in one society maintained by perpetual succession. Corporations sole consist of one person only and his successors; if a public officer in English law is a corporation sole, the rights acquired by him in that capacity de volve upon his successor in office, and not upon his ordinary legal representative. The best known instances of corporation sole are the king and the parson of a parish. The conception of the king as a corporation is the key to many of his paradoxical attributes in constitutional theory—his invisibility, immortality, etc. Parliament has found it convenient to confer the character of a corporation sole upon the official heads of departments which have rights and property—e.g., the postmaster-general, the Min istries of Agriculture, Health and Transport, the Treasury solicitor and the public trustee.
The corporations known to the earlier English law were mainly the municipal, the ecclesiastical, and the educational and eleemosy nary. To all of these the same principles, borrowed from Roman jurisprudence, were applied. The different purposes of these in stitutions brought about in course of time differences in the rules of the law applicable to each. In particular, the development of trading companies, checked by parliament after the South Sea Bubble crisis, produced in the i9th century a new class of special statutory corporations, differing widely from those formerly known to the law. The reform of municipal corporations, as well as the statutory incorporation of many units of local government, has also restricted the operation of the principles of the older corporation law. These principles, however, still apply when spe cial statutes have not intervened.
The legal origin of corporation is usually ascribed to five sources, viz., common law, prescription, act of parliament, charter and implication. Prescription in legal theory implies a grant, so that corporations by prescription would be reducible to the class of chartered or statutory corporations. A corporation is said to exist by implication when the purposes of a legally constituted society cannot be carried out without corporate powers. Cor porations are thus ultimately traceable to the authority of charters and acts of parliament. The power of creating corporations by charter is a prerogative of the Crown, nowadays exercised of course upon the advice of ministers responsible to parliament. The power of chartering corporations belonged also to subjects who had jura regalia; e.g., the bishops of Durham granted a charter of incorporation to the city of Durham in 1565, 16o2 and 1780. The charter of a corporation is regarded as being of the nature of a contract between the king and the corporation. It will be construed more favourably for the Crown, and more strictly as against the grantee. It cannot alter the law of the land, and it may be surrendered, so that, if the surrender is ac cepted by the Crown and enrolled in chancery, the corporation is thereby dissolved. Great use was made of this power of the Crown in the reigns of Charles II. and James II. (See CHARTER and CHARTERED COMPANIES.) Every corporation, it is said, must have a name, and it may have more names than one, but two corporations cannot have the same name. And corporations cannot change their names save by charter or some equivalent authority.
The possession of a common seal, though not conclusive of the corporate character, is an incident of every corporation ag gregate. The inns of courts (q.v.) have common seals, but they are only voluntary societies. Generally speaking, all corporate acts affecting strangers must be performed under the common seal; acts of internal administration affecting only the corpora tors, need not be under seal. The rule has been defended as fol lowing necessarily from the impersonal character of a corporation; either a seal or something equivalent must be fixed upon so that the act of the corporation may be recognized by all.
A corporation may be abolished by statute, but not by the mere authority of the Crown. It may also become extinct by the disappearance of all its members or of any integral part by surrender of charter if it is a chartered society, by process of law or by forfeiture of privileges.
The power of the majority to bind the society is one of the first principles of corporation law, even in cases where the cor poration has a head. It is even said that only by an act of parlia ment can this rule be avoided. The binding majority is that of the number present at a corporate meeting duly summoned.
In corporations which have a head (e.g., mayor and com monalty or dean and chapter), although the head cannot veto the resolution of the majority, he has been deemed an integral part of the society; his death was thought to suspend its existence, so that a head could not devise or bequeath to the corporation, nor could a grant be made to a corporation during vacancy of the headship. Doubts as to the effect of such a vacancy, or of a vacancy in the office of a corporation sole, are set at rest by sec. 18o of the Law of Property Act, 1925.
A corporation has power to make such regulations (by-laws) as are necessary for carrying out its purposes, and these are binding on its members and on persons within its local juris diction if it has any.
The power to acquire and hold land was incident to a cor poration at common law, but its restriction by the statutes of mortmain (q.v.) dates from a very early period. The law was consolidated by the Mortmain and Charitable Uses Act, 1888, and the result is simply that corporations cannot take land for any purpose without a licence, and no licence in mortmain is granted by the Crown, except in certain statutory cases in the interests of religion, charity or other definite public object. The first statutes of mortmain were prompted by the vast increase in his lands of ecclesiastical corporations.
The power of corporations at common law to alienate their property is usually restricted, as is their power to lease it for more than a certain number of years, except by sanction of a public authority. The more important classes of corporations, however, are now governed by special statutes which exclude or modify the operation of the common law principles. The most considerable class of societies still unaffected by such special legislation are the livery companies (q.v.). Under COMPANY will be found an account of the important enactments regulating joint-stock companies.
Corporations, brought into being for definite purposes, are re stricted to actions concerned in furthering those purposes; actions outside that field are ultra vires and can be restrained and de clared void. This rule is most rigid when the purposes are defined in a memorandum of association under the Companies Acts (see COMPANY) ; it is based on public policy as well as on the pro tection of corporations themselves and those who deal with or belong to them.
The general capacity of a corporation has sometimes been enlarged by statute ; thus a corporation can now be an executor and administrator. Mention may here be made of "trust cor porations," an expression which appears in the Law of Property legislation of 1925. Though the Trustee Act of that year re quired that for many trust purposes there should be at least two trustees, an exception was made for "trust corporations," which are allowed to act alone. This expression (enlarged by statute in 1926) includes trustees in bankruptcy, the public trustee and other approved bodies and officials.
In its treatment of corporations, as elsewhere, English law has been inspired by convenience rather than dogma. Even the funda mental principle that a corporation is a person distinct from its members was somewhat shaken when in 1915 the national danger made the law-courts willing in the Daimler case to look through the screen of corporateness at the members behind it. The ab stract nature of corporate personality has been discussed by Gierke, Maitland and others. To some the corporation is a fic tion, a thing which cannot exist till the State creates it; to others it is a real person, a group-unit with a group-will, capable of existence even if the State does not concede life to it. Uncon cerned with metaphysical speculation, English law has treated the corporate person as much as possible like an individual. The treatment is consonant with popular ideas and speech wherein corporate bodies are freely personified. The Interpretation Act of 1889 frankly declares that in any subsequent statute the word "person" shall, unless the contrary intention appears, include cor porations. Plainly the assimilation of corporate and individual personality, however convenient and acceptable, has its limits; a corporation cannot marry or commit murder or be imprisoned or hanged. In 1245 the pope had said that it could not be excom municated; having neither mind nor soul, it could not sin. But English law, by a simple extension of the legal principles of agency, has managed to hold a corporation liable for the wrongs committed by its servants—trespass, assault, negligence, false imprisonment and even libel and malicious prosecution. Criminal liability presented less difficulty because corporations had long been held indictable for non-repair of highways and bridges and because there are certain offences in which the existence of criminal intent is not an essential element. Difficulties of pro cedure and of punishment may be inevitable ; the former were lightened in England by sec. 33 of the Criminal Justice Act of 1925; the latter are sometimes met (for example in the Official Secrets Act of 192o) by providing that, if a corporation is guilty of an offence under a particular statute, each of its directors and officers shall be deemed guilty unless he proves that the offence was committed without his knowledge or consent.
As corporate bodies escape death duties, an equivalent duty was imposed upon their property by the Customs and Inland Revenue Act of 1885. This must not be confused with the War time "corporation profits tax" imposed by the Finance Act of 1920 and terminated by that of 1924. (C. T. C.) Corporation, in the law of the United States, has two accepted meanings. The term is used in a generic sense to indicate any body of persons treated in law as a unit ; more commonly a com pany organized for profit, corresponding to the English joint stock company. Corporations organized for profit are often re ferred to as stock corporations, because the interest of the share holder is represented by shares of stock. Again, they are private corporations, since their object is gain for the individual as dis tinguished from the public corporation whose object is to serve the community. As in English law the corporation derives its existence from authority granted by the sovereign and may not exist without such authority. Sovereignty in this respect rests in the United States with the several States, though within a limited field the Federal Government may create corporations. This right was early exercised by Congress in the creation of the Bank of the United States. After the Civil War, many railroads sought Federal charters, some of which are still retained. More recent instances are the creation by Congress during the World War of the War Finance Corporation and the Emergency Fleet Corporation.
The State of New York was the pioneer in enacting a general corporation law eliminating the necessity of passing an act of the legislature for each new corporation. This act of 1811 antedates similar legislation in England. The method was rapidly adopted by the other States. Later, abuses in granting special charters led to amendments to the State Constitutions forbidding such charters except where the objects of the corporation could not be attained under the general law. Each State has its own corpora tion act and these often differ in many essentials. In general the law governing incorporation, promoters, directors, shares, allot ment of shares, meetings of stockholders, payment for shares, and dividends is the same as for the English joint-stock company. The transfer of shares is regulated in an increasing number of States by the Uniform Stock Transfer Act. One of the most note worthy provisions of this act is that one who has purchased shares without knowledge that the seller obtained them by fraud, may beep them as against the defrauded party. Recognition is thus given to the fact that in practice shares are freely traded in without inquiry as to the circumstances under which they were acquired by the seller.
The liability of the shareholder is ordinarily limited to the amount which he agreed to pay for the shares subscribed for by him. It is illegal, however, for a corporation to issue shares for less than par; i.e.; to issue a $1oo share for less than that sum or its equivalent in property. This requirement is often evaded by overvaluing contributions of property. Minnesota and Cal ifornia have unusual laws respecting shareholders' liability. In many of the other States the liability of shareholders of banking and insurance companies is not limited to the par value of the shares. Perhaps the most marked difference between the corpora tion laws of the United States and other countries is the share without par value. Although a share of stock is merely an ali quot part of the c4pital of a corporation the certificate issued by the corporation to the shareholder does not indicate that fact. The certificate states that the person named therein is the owner of so many $Ioo shares or £5 shares or whatever unit may have been adopted by the company. The amount of money stated or the par value, represents the least amount which the law requires the shareholder to pay to the company. But the retention of this figure despite subsequent changes in the financial condition of the company makes possible the deception of future purchasers. To avoid this danger the share without par value was devised. Instead of stating that it represents an investment of so much money it states that it represents so many shares of the corporation out of a fixed total of shares which the corporation is authorized to issue. The laws of a majority of the States now allow the issuance of no par value shares. In most cases both ordinary shares and shares entitled to preferences may be without par value. In the case of preferred shares the dividend preference is expressed in a stated number of dollars rather than the percentage customary with par value shares. The price at which such shares may be issued is determined by the stockholders, though they may in most cases delegate the determination of the price to the direc tors.
As a rule the statutes do not require that a company issuing shares publish a prospectus. In practice, however, it is almost invariably the case that the bankers who underwrite the issue publish a statement giving the outstanding facts concerning the corporation's property and business. In doing so the bankers assume the grave risk that they may be held liable in case the statements are untrue. The bankers often seek to protect them selves by declaring that the representations made are believed by them but are not guaranteed, but the courts in recent decisions have shown an inclination to hold the bankers liable where they have been negligent in ascertaining the truth of the statements which they publish.
Because of the great diversity in the provisions of the various State laws regarding corporations there is a proposal that a uni form act be adopted by all the States. In the analogous fields of partnerships and limited partnerships such acts have been framed by the National Conference of Commissioners on Uniform Laws and have been adopted by numerous States. This Conference is now engaged (1928) in the preparation of a Uniform Business Corporation Act and has tentatively approved a draft which if finally accepted will be presented to the legislatures of the States for their adoption. It is likely that in the course of time uniform legislation on the subject may be secured. This is especially im portant since so many of the corporations do business in States other than those in which they are incorporated, often having their principal place of business elsewhere. In recent years a number of States have adopted liberal and what are supposed more desirable provisions for the regulation of corporations, and there is a widespread practice for promoters to select some such State as the place to incorporate, although the corporation to be formed is to transact no business there. The great weight at tached to such laws is indicated by the fact that many corpora tions, hitherto organized elsewhere, have abandoned their char ters and incorporated anew in one of the more liberal states, such as Delaware, Maryland and Maine. This movement is comparable to the organization of the "trusts" such as the United States Steel Corporation at the end of the last and beginning of the present century. At that time the State of New Jersey was almost invaria bly chosen as a domicile. However, the passage of more stringent laws in that State in 1913 has directed attention elsewhere.
In most States separate acts have been enacted to deal with companies organized not for profit and other acts to deal with transportation, insurance, banking corporations, and other special types. Corporations organized not for profit are frequently re ferred to as membership corporations because shares are dis pensed with and the participants merely become members. In the case of membership corporations, as well as the other types covered by separate acts, special permission of some judicial or administrative authority is frequently required before incorpora tion is allowed. (J. L. WE.)