By-laws must not make it possible to show prefer-. ence for one stockholder or group of stockholders rather than for another, for if they did they would be an instrument of. oppression in the hands of a ma jority. They must not set unreasonable limitations upon the right of stockholders to transfer their stock, altho this does not include the denial of the company's right to demand payment of a stockholder's indebted ness to the company before releasing him. By-laws which are contrary to any provision of law, or which seek to prevent minority stockholders from applying to the courts to correct a wrong, are void.
By-laws are adopted, or amended in any way, by a. vote of the stockholders. Usually a majority vote is all that is necessary tho in many jurisdictions a two thirds or even a three-fourths vote is required. Di rectors are frequently given the right to add new by laws, so long as they do not conflict with by-laws already passed by the stockholders. The practice in Canada frequently is for a by-law to authorize the directors to amend or repeal by-laws or make new ones, their action in these respects to have effect until the next general meeting of the company, when the action of the directors may be approved or disap proved.
G. Where to incorporate.—If a company is to do business in several different states, the question of where it will incorporate will be determined largely by the nature of the corporation laws of the several states. Ordinarily, however, when most of the business of the company is to be done in one state and most of its property is located in that state, it will be expedient to incorporate there unless the laws of that state pre sent some very definite hindrance to an important part of the plan of organization. This question need hardly arise in Canada, because, as we have already seen, under a Dominion or Federal charter the com pany may operate anywhere in the country.
7. Questions to be considered before choosing a the choice of a state depends largely upon the character of the corporation laws, very care ful study should be made of the following questions : (1) Is there any restriction in regard to the cor porate name? In New York ordinary business cor porations are forbidden to use any one of a long list of designated titles. The prohibited names would not ordinarily be chosen, however, by the projectors of a general business company.
(2) Are there any restrictions as regards the pur poses for which the company can be formed? In some states corporations are not allowed to carry on certain lines of business unless they organize under special acts ; and in other states, like Pennsylvania, a corpora tion cannot be organized to carry on more than one line of business.
(3) May the stock be conveniently arranged in dif ferent classes so as to distribute the control, income and risk in different ways among different groups of own ers? (4) Is there any limitation on the amount of in debtedness? In some states bonds may not be issued to an amount greater than a certain proportion of the capital stock.
(5) May the number of directors be fixed in the by laws? In New York, for example, the certificate of incorporation must be amended if the number of di rectors is to be changed. To obviate this difficulty, however, a large number may be provided for in the certificate of incorporation, while a, smaller number only may be elected, the other positions being left va cant.
(6) Need any of the directors be residents of the state? A great many mining corporations were formed in Delaware, but at one time a local represen tative always had to be made a member of the board; this was a serious disadvantage. In 1915 the law was changed.
(7) Is it necessary to have a local agent? If so, the requirement is not so burdensome as that last men tioned, for in a great many states so-called incorporat ing companies exist for the sole purpose of providing the necessary agent.
(8) Must directors' meetings be held within the state? A provision to this effect is particularly bur densome, since directors cannot vote by proxy.
(9) Must the company maintain a principal office in the state, and must stockholders' meetings be held there? Such a requirement is quite frequently found in the statutes, but it is not objectionable since stock- holders vote by proxy.
(10) Is it necessary for directors to be stockhold ers? In a great many states, including New York and Massachusetts, by-laws may provide that direc tors need not be stockholders.
(11) Do stockholders have any unusual liabilities? In some states they are held strictly liable for wages, and in other states, such as Minnesota and California, there is some general liability to &editors in addition to the liability to pay for the par value of the stock.