In the legal aspect the obligations of a business conducted by an individual entrepreneur are the personal obligations of the entrepreneur. All of his possessions of whatever kind1-are jeopardized by his business risks. If the entrepreneur conducts two distinct business undertakings, the assets of one may be seized, if necessary, to secure the liabilities of the other. The personal liability of the individual entrepreneur is accordingly Isaid to be unlimited. The usefulness of this kind of business organization is limited, obviously, to small undertakings, where the capital and credit of the individual man are adequate.

Partnerships. A " firm " or partnership represents a joint undertaking by individual entrepreneurs. Partnerships are most common in mercantile undertakings of moderate size, in small manufacturing establishments, and in the professions. This joining of interests makes larger undertakings possible, but relatively increases the personal liability of the individual members of the firm. For each member is personally liable for all of the obligations contracted by the firm, including those contracted in the ordinary course of business by any other one member of the firm. The partners may have a contract binding among themselves as to their respective contributions (of money or time), shares in profits, and liabilities. But a member released from personal liability by an agreement of this kind is still liable for all obligations incurred by the firm. The agreement only gives a basis for instituting legal proceedings to recover the amount of his personal losses from the other members of the firm.

Aside from (1) the excessive personal liability involved, the partnership is open to objection from the business man's point

1 The "exemption laws" of some states constitute an exception which does not affect the principle involved.

? This refers to the status of the ordinary partnership under common law. The statutes of most of the states provide for a special form of limited partnership, in which one or more of the partners are special partners, who are not personally liable, save for their investment in the business, and who are allowed to take no active part in the management of the business. In a few states there is a special form called a limited partnership association, in which the liability of all the partners is limited. These are practically joint-stock companies with non-transferable shares. The partnership in commendam, which still exists in Louisiana as a heritage of the civil law, is essentially like the statutory limited partnerships of other states.

of view, because: (2) It is impossible for a partner to retire from a firm without dissolving the partnership and, possibly, breaking up the business. The death or insolvency of any partner has the same effect. (3) A new member cannot enter the firm nor can a member transfer his interests to another person without the consent of all the members of a firm, requirements which naturally follow from the nature of a partnership. (4) The partnership form of organization is not adapted to undertakings requiring large investments of capital and hence requiring the coöperation of a large number of persons. What advantages the partnership has come from the ease with which it can be organized and dissolved, and from its elasticity, that is, the ease with which the contractual relations among the partners, binding as among themselves, can be altered to suit any contingencies that may arise.

The Business Corporation. The federal census of 1909 showed that, although only about one fourth of the manufacturing undertakings included in that enumeration were organized as corporations, yet these produced nearly four fifths of the total manufacturing product (measured in money value). Most banks and insurance companies are corporations, while in the field of railway transportation corporations are in almost exclusive control. And a large and growing number of mercantile undertakings are organized as corporations.

In the case of the corporation the legal view and the accounting view of the business unit are practically identical. While the ordinary partnership is in law merely a group of individual entrepreneurs, the corporation is regarded, for some purposes, as a" person." To the incorporated business unit, an abstract thing, as we have seen, the law imputes some of the attributes of personality, and of a personality distinct from that of the individual men who are the stockholders of the corporation.1

1 Several states authorize the organization of "joint-stock companies" which are like corporations in many particulars In theory they are partnerships with transferable shares and (in some cases) with limited liability. Joint-stock companies are also organized under the common law in some states. In England and the English colonies the name "joint-stock company" is applied to a statutory

Municipalities, universities, monasteries, guilds, etc., were commonly incorporated by royal charter long before business corporations of the modern kind arose, for this did not occur until the rise of "capitalism" in the sixteenth and seventeenth centuries. The great trading and colonizing companies, such as the British East India Company, the Virginia Company, the Guinea Company, etc., were the prototypes of the modern business corporation. In connection with these trading companies the joint-stock principle, which had already been used in a few isolated instances of banking, was developed. This was the practice of issuing certificates to those who made contributions to the "joint stock" (or capital) of a company, which entitled the holder to a proportionate share in the profits accruing to the joint stock. The modern business corporation, like these early trading companies, is based essentially on the combination of the joint-stock principle with the legal recognition of the business unit as a distinct entity.

At the beginning of the nineteenth century what few corporations there were in America were, for the most part, banks, insurance companies, or canal and turnpike companies. The introduction of railways in the third decade of the century greatly stimulated the organization of corporations, because these new undertakings required larger investments of capital than could be furnished by any individual or firm. State enterprise, it is true, promised at one time to be an important factor in canal and railway building, but such state undertakings were usually planned with the purpose of developing natural resources, attracting immigration, and building up the trade of particular districts and particular cities rather than of getting money profits. Most of these state undertakings had succumbed by 1840, so that the field was left open for business enterprise. In the general expansion and reorganization of business that followed the Civil War the corporation form of organization began to be more generally used for all kinds of business undertakings. The growing importance of corporations in business life is partly an effect and partly a cause of the growing size of the business unit.

The Corporation Charter. The corporation is a creature of the state, its right to exist being dependent on a charter or on articles of incorporation, granted or approved by the state. Incorporation formerly necessitated a special act of the legislature in each case. This gave opportunity for favoritism and monopoly and subjected corporations of all kinds to hostility and suspicion. Most corporations are now organized under general laws, whereby any group of men can secure a corporation

limited-liability association, essentially like the American business corporation, while the word "corporation" is usually applied only to municipal corporations and certain long-established companies, created by special charters.

charter by complying with certain prescribed conditions. In fact, all but six states now have constitutional provisions against the granting of charters to business corporations by special act.

It was formerly a common practice to grant corporation charters in perpetuity, but the decision of Chief Justice Marshall in the Dartmouth College case (1819), whereby the corporation charter was declared to constitute a binding contract between the state and the corporation, which could not be altered or amended by the state except with the consent of the corporation, has led to the general practice of limiting the life of corporations to terms of from twenty to one hundred years, fifty years being a common period. The corporation may, of course, secure a new charter at the expiration of the old, but the limited term gives the state the opportunity to change the requirements of the charter from time to time, or to refuse reincorporation altogether, as may seem most desirable. Most states, moreover, now specifically reserve the right to alter or amend the corporation charter at pleasure.

Corporation charters, or articles of incorporation, usually contain details relating to such matters as the purpose or purposes for which the corporation is formed, its principal place of business, the number of its directors, and the amount of its capitalization.

Lack of Uniformity in State Laws. Many difficulties in the public control of corporations have arisen from the fact that while charters are granted by individual states, the activities of many business corporations extend over the boundaries of many states. Moreover, some states are much more lenient than others in such matters as the control of capitalization, requirements as to publicity, limitations on the scope of activity of a single corporation, taxes and fees, etc. New Jersey has become known as the "home of corporations "despite the fact that some states have had even more lenient laws than New Jersey. New Jersey has been favored, however, on account of the proximity. of New York City - the real home of most of the greater corporate interests of the country — as well as on account of its

early start and the adaptability of its laws to great combinations of corporations.1

Other states, with stricter laws, could not prevent corporations organized under lax laws from doing business within their territory so far as that business is interstate. So far, however, as a corporation organized under the laws of one state carries on any part of its business wholly within the borders of another state, the latter state has the right of refusing to recognize it as a corporation; that is, the right to treat it as a mere partnership. In practice, however, one state freely recognizes the corporations of another state under the rule of "interstate comity." In fact, many corporations transact practically all of their business outside the borders of the state which chartered them. The real standards, therefore, are the laxest standards, not the highest. More use on the part of American states of the power of exacting certain standards from "foreign corporations," as they are called, is much to be desired.

Corporation Capital and Capitalization. The business world uses the term " capital" in two ways. It speaks of the total permanent investments- the amount of money "tied up" in a business unit as its capital. This is the better and more common usage. But it also speaks of the total selling value of the business unit as a whole as its capital. This last will depend not so much upon the amount of the investment as upon its profitableness. It is roughly measured by the "capitalized” earning capacity of the business, or by the market value of the corporation's stock and bonds.

The capitalization of a corporation should not be confused with its capital. In a strictly legal sense its capitalization is the amount of its authorized capital stock. The capitalization corresponds, in theory, to the amount of money actually invested in the business by the original stockholders. As a matter of fact, the full amount of the authorized capital is rarely paid in at the organization of a new corporation. The capitalization is apt to be, in practice, a somewhat arbitrary thing, — a nominal

In 1913 the corporations laws of New Jersey were revised so that they offer fewer advantages to large corporations than they previously did.