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 federal census of 1909

The Business Corporation. 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.

money sum divided into units or shares, the relative holdings of different individuals being measured by the number of shares they own.

Corporation stock is divided into two general classes, preferred stock and common stock, although many corporations issue only the latter. Preferred stock represents a prior claim on the earnings of the corporation. A corporation which has " 6 per cent preferred stock" outstanding can pay no dividends to its common stockholders until it has paid 6 per cent dividends on its preferred stock. Preferred stock may be cumulative (in which the prior claims to dividends accumulate from year to year, if unpaid) or non-cumulative. It may or may not have any claim on any part of the surplus profits remaining after a stated rate of dividend has been paid on the common stock.

In the popular use of the word the capitalization of a corporation includes also its funded debt. The funded debt is represented by bonds, which are interest-bearing promises to pay certain sums of money at definite times in the future. There are many different kinds of bonds, but three principal classes are: (1) ordinary mortgage bonds, (2) collateral trust mortgage bonds, (3) income and debenture bonds. The first class is based on a mortgage of all or of a specific part of the real property of a corporation. Collateral trust mortgage bonds are secured by the pledge of securities issued by other corporations, but owned by the corporation issuing the bonds. They have been much used in financing railway consolidations. Income and debenture bonds are usually secured only by the earning capacity of the business. Industrial corporations make less use of bonds than do railways, and confine themselves usually to the mortgage bond type, of which, however, there are many subordinate varieties. In the case of many corporations the mortgage security behind an issue of bonds is in itself not of great importance, for the property mortgaged is apt to be worthless except as an integral part of a unified business establishment. The mere power of foreclosure, however, gives mortgage bondholders a position of strength in the reorganization of insolvent corporations.

Bonds are sometimes said to represent "creditor interests,"