If this appears hard on the profession, it is nevertheless true and is a self-inflicted fault. The writer can cite many cases of business failure due to the financial advice of lawyers, and yet the victims would never have thought for a moment of reversing the process and seeking legal advice from a financial expert. The fault lies as much with the business man who seeks such advice in the wrong place as with the lawyer who thinks he has learned finance by studying law. Of course, our reader, if he be a lawyer, will understand that he is the one out of a hundred, above referred to, who gives sound financial advice.
5. Powers of the corporation.—The corporation receives limited powers from the constitution and laws of the state and from its, charter, including the power to engage in a specific line of business, to contract, sue and be sued, borrow, and own certain kinds of property. Unlike an individual, who has general power to do anything not prohibited by law and custom, the corporation is restricted to powers specifically granted or reasonably implied.
A corporation does not extend, except by courtesy, beyond the jurisdiction of the state which chartered it. A New York corporation, for instance, cannot own property or conduct a branch in Pennsylvania, unless the latter state chooses to extend these privi leges. Outside the state of its creation, it is called a foreign corporation. Foreign corporations, by the comity existing between states, are recognized in every state of the Union; in fact, are welcomed because of the business which they bring into the state and the taxes which they pay there.
If corporations exceed their powers, they may be punished by forfeiture of charter, fines, forfeiture of right to sue and recover, or other appropriate penalty. The corporation must abide by the laws both of the state which chartered it and the one in which it does business as a foreign corporation.
6. Capital stock.—The stockholders of a corpora tion are its owners, subject, of course, to the claims of creditors for advances to the company. A share of stock is one of many equal parts of, or divisions of interest in, the corporation, and the interests of vari ous stockholders are in proportion to the number of shares owned. Stock certificates are issued as evi dente of the ownership of the stock itself. The earn ings of the corporation available for distribution are paid to the stockholders in the form of dividends upon the stock. These may be at the rate of so many dol lars a share or a percentage of par value; thus, if the par value of a share is one hundred dollars, the divi dend may be either five per cent on par or five dollars a share.
Par value is the price which the original subscriber is supposed to have paid, in cash or property, for the share. It has no necessary relation, as we shall see later, to the actual value of the share or the actual amount paid for it. It is usual for all shares of the same issue to possess the same par value. The par value of the stock of the corporation is limited by the state at the time of charter and is called the authorized capitalization. The authorized capitalization may be increased from time to time with permission from the state, so that new securities may be sold to obtain ad ditional capital.
Capital stock may be of different classes, so that some holders are preferred over others in the extent of risk assumed, control granted, or priority of divi dends. Stock with any such preference is called pre ferred stock, and all other issues are called common stock. It is customary to limit the return upon pre ferred stock to a certain rate, usually six or seven per cent, in exchange for the preference which it enjoys in the distribution of assets, earnings and voting powers.
7. Management of the corporation.—Altho the stockholders are the owners of the corporation, they are not its managers, this being one of the essential differences between a partnership and a corpora tion. Management of the corporation is vested in a board of directors, and in certain officers chosen by the board or the stockholders. The officers and 'di rectors are limited in the exercise of their duties by the provisions of by-laws which the stockholders have enacted. The individual stockholder, acting • alone, has no power whatever in the management. Acting together, however, stockholders may, in meetings duly assembled and formally conducted, direct or control the management in important matters of policy, such as the material enlargement of the business, issue of new securities, mortgaging of assets, sale of capital assets, merger, dissolution, receivership, etc. Out side such formal meetings, in which each stockholder may vote directly or by proxy in proportion to his interest, the stockholders have no power in manage ment. Even in meeting assembled, their power is limited to the election of directors and to voting upon certain important policies which vitally affect their interests.