The ease of issuing and transferring corporate shares in small amounts makes them a favorite form of investment and enables corporations to draw funds from many thousands of small and scattered investors. Large organized markets for trading in shares have naturally grown' up to supply the demands of in vestors, the chief of these being the London and New York Stock Exchanges, Paris Bourse, and other ex changes of similar type. Thousands of banking and brokerage houses are engaged in the business of buy ing and selling stocks and bonds, a business which depends entirely for existence upon the great utility, convenience and popularity of corporate stock as a form of investment.
11. Powers of directors and must not be supposed that officers and directors are unre stricted in their powers of management. Legally speaking, they are the agents of the stockholders in the management, but not subject to detailed inter ference on the part of stockholders. Directors are usually elected annually by the stockholders, who may thus exert control by removing incompetent or dis tasteful directors from office.
The directors in turn usually choose the officers, who hold office during the pleasure of the directors. Both directors and officers are subject to the provi sions of the by-laws, and, in certain leading matters, to the direction of stockholders, upon formal resolu tion in meeting assembled. The by-laws govern the internal organization and distribution of authority. They are usually subject to change by the stock holders upon some majority vote, such as two thirds of all shares outstanding, or some other proportion.
The directors have individually no powers of man agement, but possess full access to the affairs of the company. To be binding, all acts of directors require formal resolution in meeting duly assembled, unless the board has in this manner previously delegated au thority in certain matters to individual directors. In this manner, by resolution properly recorded, the di rectors may, but seldom do, regulate the actions of officers to the minutest detail. Directors meet peri odically, and also hold special meetings to transact im portant business and determine matters of policy, leaving the officers in charge of all details.
The officers, as paid servants of the company, are not responsible for losses arising from ordinary busi ness mistakes, so long as they exhibit integrity, good faith and reasonable care in the affairs of the com pany. The directors, who are usually not paid for
their services, are bound only to exert ordinary dil igence and prudence in directing the company.
Both officers and directors, however, may become individually responsible to stockholders or creditors for fraud, gross negligence, or exceeding their au thority. Officers are usually directors, and their knowledge of the affairs of the corporation frequently enables them to dominate the board. From the finan cial viewpoint, this fact is important, and the reader is asked to note carefully that the control of corpora tions is customarily pyramided into the hands of the directors and officers, the board of directors control ling the policy of the company, and the administra tive officers dominating the board.
12. Advantages of the corporation.—From what has been said, the business and financial advantages of the corporation must be apparent. The principal ones may be summarized as : (a) Perpetual existence, without regard to the lives of stockholders. If a stockholder dies, his in terest merely passes to his descendants, and the cor poration continues without interruption.
(b) Limited liability of stockholders, making it unnecessary for them to choose their associates or to participate directly in the management.
(c) Transferability of interest, creating a broad market for corporate shares.
(d) Divisibility of interest, making it possible for stockholders to have large or small interests in the corporation, divided according to their means or de sires, including wide distribution of shares among ab sentee owners, and making possible large aggrega tions of capital under centralized management.
(e) Delegated and centralized management by di rectors and officers, representing stockholders in the aggregate, relieving individual owners from the cares of administration and the risks of partnership associa tion.
Other advantages of the corporate form might be mentioned, but the above will suffice here.
13. Disadvantages of the disadvantages of the corporate form, most of them of small importance, may also be mentioned: (a) Lower credit, due to the limited liability of stockholders. California affords an interesting ex ception, for in that state, stockholders are liable to creditors beyond their investment in the capital stock.