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ORGANIZATION EXPENSES, INCLUDING ORGANIZATION TAX, IN PRINCIPAL INCORPORATING STATES.

PENNSYLVANIA

SOUTH DAKOTA

WEST VIRGINIA

charter may be exercised by the corporation and all the world has constructive notice of their extent and limitations. The interior government of a corporation is regulated by a set of by-laws which in most states the shareholders and directors are conclusively presumed to know. A corporation has power to make by-laws, provided they are not inconsistent with its charter, with the laws of the United States or with the laws of the state in which the corporation is formed. By-laws usually may be adopted or in any way amended by a majority of the stockholders, though in many jurisdictions a two-thirds or even three-quarters vote is necessary for this purpose.

429. Corporate meetings.-Meetings of stockholders and directors may be regular or special, depending upon whether they occur at stated periods or at irregular periods. The prevailing view in the United States is that a meeting of stockholders held without the borders of the corporation's home state is void, or at least voidable, by the creditors and perhaps by nonattending stockholders. There are some exceptions, notably Delaware. The statutes usually provide what notice must be given to the stockholders or directors to make a meeting valid, but in the absence of statutory regulation the certificate of incorporation or the bylaws govern. In the absence of any provisions, reasonable notice of the time, place and objects of a meeting should be given. While the procedure at shareholders' and directors' meetings may be informal, the business must be definitely transacted.

EXAMPLE

388. A motion was proposed at a meeting and the chairman stated the proposition and said, "If there is a single person

present who is dissatisfied with this, I wish you to say so fully and frankly." Thereupon several persons spoke in favor of the proposition, but the rest, numbering about one hundred, remained silent. The motion was not carried, for some method of obtaining assent was necessary.1

430. Voting at corporate meetings.—Earlier in the history of corporations each shareholder had one vote irrespective of the number of shares held by him. At. the present time, however, the usual rule is that each stockholder has one vote for each share of stock. Under the laws of many states, the rule known as cumulative voting obtains. This rule provides that each stockholder shall have as many votes as he has shares, times the number of directors to be elected, and that he may cast these votes for one director or distribute them as he sees fit.2

1 114 N. Y. 626.

2 In the following jurisdictions the state constitution guarantees the right of cumulative voting: California, Idaho, Illinois, Mississippi, Missouri, North Dakota, Pennsylvania, South Carolina, South Dakota, and West Virginia. Kentucky's Constitution provides for cumulative voting, but this provision has been held not to be compulsory. (Schmidt v. Mitchell, 101 Ky. 570.)

In the following jurisdictions cumulative voting is prescribed in the corporation statutes: Colorado, Kansas, Michigan, Montana, Ohio, and the Philippine Islands.

The statutes of Maine and Maryland provide that the by-laws may prescribe cumulative voting.

In Minnesota, New Jersey, New Mexico, New York and Porto Rico cumulative voting is allowed by statute if provided for in the certificate of incorporation.

The law of Nevada prescribes cumulative voting unless otherwise directed by the certificate of incorporation.

The statutes of Virginia permit cumulative voting.

In North Carolina cumulative voting may be provided for in the certificate or the by-laws, and is mandatory whenever one-fourth of the capital stock is in the hands of one person.

See an article by the author on the "Mathematics of Cumulative Voting" in the Journal of Accountancy, January, 1910.

431. Proxies.-In stockholders' meetings, but not in directors' meetings the right to vote may be delegated under the laws of most states by a power of attorney known as a proxy, an illustration of which follows:

PROXY

KNOW ALL MEN BY THESE PRESENTS:

That I,

holder of

shares of the capital stock of the
do hereby appoint

a

my true and

meeting of the stock

191-, and at

corporation of the State of lawful attorney [with full power of substitution and revocation], for me and in my name to vote as my proxy, at the holders of said company, to be held on the any adjournment thereof; hereby ratifying and confirming all that said attorney [or substitute], may lawfully do in the premises. WITNESS my hand and seal, this

day of

day of

191-.

In presence of

(L. S.)

Proxies usually are not irrevocable. Where, however, all the stockholders of a corporation who so desire transfer their shares of stock to a trustee and receive in exchange transferable "certificates of beneficial interest," which entitle the holders to the dividends paid on the stock in the hands of the trustee, a voting trust is created. In New York voting trusts are permitted by statute, but in other jurisdictions the question has been left to the courts whose decisions have differed widely.

432. Who is entitled to vote. As between the vendor and vendee of stock, the vendor is entitled to vote until the shares have been transferred on the books of the company. In some states the rule is that the vendee may vote if the corporation has notice of his interest, even before the formal transfer has been made. As between bankrupt and assignee the former is entitled to vote until the latter registers his ownership with the company, in spite of the fact that the Bankruptcy Act vests in the assignee the title to all the bankrupt's property. A surviving partner may vote on the stock standing in the name of the firm and usually an executor or

administrator may vote on stock before a transfer is made on the company's books by exhibiting his letters of appointment or a certified copy thereof. Where shares are owned by two or more persons all must agree or the shares cannot be voted, but anyone may vote all the shares, if the others do not object. If the corporation should become the owner of some of its own stock, it will have no right to vote thereon, but where a corporation is permitted by statute or by the decisions to hold shares of stock in another company the board of directors may vote these shares.

Statutes and by-laws often provide for the closing of books during a certain period, usually about two weeks immediately preceding the annual meeting. Transfers during that time cannot be registered and the vendors are entitled to vote.

433. Transaction of corporate business.-Where a motion is made, seconded and carried which involves the formation of a contract with another party it may be rescinded at any time before the session is ended or adjourned, but not thereafter, except with the consent of the other parties.

Unless some local statute or the certificate or by-laws otherwise provide, the majority has power to act within the scope of the company's authority. Should the majority, however, attempt to exceed this power, a dissenting shareholder will have the right to seek equitable relief by injunction and to set the transaction aside.

In most states special statutory provisions are made for the transaction of certain kinds of business by the corporation; for example, in New York two-thirds of the stockholders must consent to a mortgage of the corporate property, and so in many cases more than a bare majority is necessary to carry a proposition to alienate

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