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VI

GENERAL CORPORATIONS 194

CORPORATION LAWS

The purpose of this chapter will be to indicate the development of corporation legislation in Iowa as reflected in the statutes and codes. Furthermore, only those corporations which are established and conducted for pecuniary profit will be treated in this connection. It is a fact that the corporation laws in Iowa contain very few fundamental features which are not found in the legislation of other States. Moreover, the regulatory legislation in this State has neither been extreme nor hostile to corporations.

There was no general incorporation law enacted during the Iowa Territorial period, although many corporations were formed for a variety of purposes. Canal, turnpike, milling, and insurance companies were incorporated. All corporations, whatever their purpose, were chartered by special acts of the legislature. This is not surprising, since it had been the practice of the Wisconsin Territory to incorporate business enterprises by special acts.

One of the most important measures relative to corporations enacted during the Territorial period was "An Act relative to limited Partnerships" 195 This law which was passed by the First Legislative Assembly of the Territory was taken directly from the laws of the original Territory of Wisconsin. It provided for the formation of limited partnerships in much the same manner as ordinary business corporations are now organized, and was the first act which attempted, in a general way, to provide for the organization and control of ordinary business enterprises other

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than simple partnerships or individual enterprises. The purposes for which a limited partnership could be formed under this act were "for the transaction of any agricultural, mercantile, mechanical, mining, smelting, or manufacturing business and for no other purpose whatever". Such partnerships were to be composed of two classes of partners-general general and special. General partners had authority to transact the business, to sign for the partnership, and to bind the same. Such partners were to be jointly and severally responsible as ordinary general partners. Special partners were to contribute actual cash as capital to the common stock. They were limited in their liability for the debts of the enterprise to the amount of capital which each contributed.

Persons wishing to form a limited partnership were required to make and severally sign a certificate containing the following information: the name under which the partnership was to be conducted; the general nature of the business to be transacted; the names of all the general and special partners, specifying which were general and which were special and noting their respective places of residence; the amount of capital contributed by each special partner to the common stock; and the period for which the partnership was to endure, specifying the date of beginning and the date of termination.

This certificate was to be acknowledged and certified in the same manner as deeds were then certified. It was then to be recorded in the office of the register of deeds in the county in which the principal place of business of the partnership was located. Such certificates were to be recorded in a book kept for that purpose, and were to be open to public inspection. Furthermore, it was necessary for one or more of the general partners to file an affidavit stating that the sums specified in the certificate as having been contributed by the special partners to the common stock were

actually paid in cash. Failure to comply with the provisions relative to organization rendered all the interested parties liable as general partners.

The terms of the partnership were to be published; and subsequent alterations in the names of the partners, in the character of the business, in the capital or shares, or in any matter specified in the original certificate served to dissolve the partnership and rendered each partner individually liable as a general partner. Special partners were permitted to examine into the progress of the business and to advise as to its management, but they could neither transact any of the firm's business themselves nor be employed for that purpose as agent or attorney. Other sections of the law provided protection to creditors and prescribed the duties and liabilities of the partners in greater detail. The form of organization provided for in this statute presents many features similar to the business corporations of the present day, but it differs from them in several important points, the most noticeable of which are the non-transferability of shares and the limited duration of the partnership. Besides the limited partnership law there were twentyfive special incorporating acts passed during the Territorial period. These special acts provided for the organization of as many separate concerns, of which sixteen were milling or manufacturing companies, five were insurance companies, one was a bridge company, one a turnpike company, one a mining company, and one a land company.196

An examination of these incorporating acts reveals the evils of special incorporation legislation. No two of the laws were alike. Some of the charters provided in detail for the organization and management of the concern, while others simply stated that the company was authorized to exercise the usual and necessary powers of a corporate body. There was no established policy: corporate privileges were granted and regulations imposed as the mood of the particular legislature might dictate.

The corporators in some of the companies thus formed were specifically deprived of limited liability, which is one of the chief advantages of incorporation. The personal liability of the stockholders for the corporate debts was in some instances to be applied only in case of insolvency or failure of the company. In some charters there is nothing said about the personal liability of the stockholder, while others plainly incorporate the doctrine of limited liability. The principle of control by the majority of the stock was developed in some instances, but not as a rule. Neither was the method of voting stock uniform. Some of the charters were of limited duration, and the time varied from twenty to fifty years. The regulations imposed in the various charters were not uniform. Several acts contained a clause to the effect that the act was subject to alteration, amendment, or repeal by any future legislature. Taken all together these special incorporating acts reveal a recognition of the principles of limited liability, of the law of shares, of time limit, and of regulation. All of these principles were not, however, incorporated in any one charter.

The practice of granting charters to corporations by special acts of the legislature proved to be very unsatisfactory and there was inserted in the Constitution of Iowa, adopted in 1846, the provision that "Corporations shall not be created in this state by special laws, except for political or municipal purposes; but the general assembly shall provide by general laws, for the organization of all other corporations". 197 This same article of the Constitution prohibited the formation of banking corporations.

In accordance with the constitutional provision the First General Assembly passed a law entitled "An Act to authorize General Incorporations", which was approved on February 22, 1847. This law was not only the first general legislation on the subject of corporations enacted in the State, but has formed the basis of all subsequent legislation

pertaining to corporations. The full text of the statute is as follows:

Section 1. Be it enacted by the General Assembly of the State of Iowa, That any number of persons may hereafter incorporate themselves for the transaction of any business which may be the lawful subject of a general partnership, including the establishment of ferries, the construction of railroads, and other works of internal improvement.

Sec. 2. They may make such regulations as they please in relation to the management of their business, not incompatible with an honest and legal purpose.

Sec. 3. They may render their individual interest in the corporation transferable.

Sec. 4. The death of any of its members shall not terminate the corporation.

Sec. 5. They may sue and be sued in their corporate name, and have a common seal.

Sec. 6. They may exempt private property from corporate debts, and may hold, buy and sell real estate: Provided, The requisitions of this act are substantially complied with.

Sec. 7. Previous to commencing business they shall adopt articles of incorporation, which shall be recorded in the office of the recorder of deeds in the county where the principal place of business is; and, further, all corporations for the purpose of constructing railroads, canals and other works of internal improvement, shall file a certified copy of their articles of association in the office of the secretary.

Sec. 8. A notice shall be published four weeks in succession in some newspaper in such county, or, if no newspaper be printed therein, then such publication shall be made in some newspaper as convenient as practicable thereto.

Sec. 9. A failure to comply with either of the requisitions contained in the two preceding sections, shall render their individual property liable on all contracts.

Sec. 10. The notice required by the eighth section shall contain: First-The name of the corporation, and the principal places of transacting business.

Second-The general nature of the business to be transacted.

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