Corporation

Corporation (from Lat. corporare, to form into a body, corpus, corporis), in English law, an association of persons which is treated in many respects as if it were itself a person. It has rights and duties of its own which are not the rights and duties of the individual members thereof. Thus a corporation may own land, but the individual members of the corporation have no rights therein. A corporation may owe money, but the corporators as individuals are under no obligation to pay the debt. The rights and duties descend to the successive members of the corporation. This capacity of perpetual succession is regarded as the distinguishing feature of corporations as compared with other societies. One of the phrases most commonly met with in law-books describes a corporation as a society with perpetual succession and a common seal. The latter point, however, is not conclusive of the corporate character.

The legal attributes of a corporation have been worked out with great fulness and ingenuity in English law, but the conception has been taken full-grown from the law of Rome. The term in Roman law corresponding to the modern corporation is collegium; a more general term is universitas. A collegium or corpus must have consisted of at least three persons, who were said to be corporati—habere corpus. They could hold property in common and had a common chest. They might sue and be sued by their agent (syndicus or actor). There was a complete separation in law between the rights of the collegium as a body and those of its individual members. The collegium remained in existence although all its original members were changed. It was governed by its own by-laws, provided these were not contrary to the common law. The power of forming collegia was restrained, and societies pretending to act as corporations were often suppressed. In all these points the collegia of Roman closely resemble the corporations of English law. There is a similar parallel between the purposes for which the formation of such societies is authorized in English and in Roman law. Thus among the Roman collegia the following classes are distinguished:—(1) Public governing bodies, or municipalities, civitates; (2) religious societies, such as the collegia of priests and Vestal Virgins; (3) official societies, e.g. the scribae, employed in the administration of the state; (4) trade societies, e.g. fabri, pictores, navicularii, &c. This class shades down into the societates not incorporated, just as our own trading corporations partake largely of the character of ordinary partnerships. In the later Roman law the distinction of corporations into civil and ecclesiastical, into lay and eleemosynary, is recognized. The latter could not alienate without just cause, nor take land without a licence—a restriction which may be compared with modern statutes of mortmain. All these privileged societies are what we should call corporations aggregate. The corporation sole (i.e. consisting of only a single person) is a later refinement, for although Roman law held that the corporation subsisted in full force, notwithstanding that only one member survived, it did not impute to the successive holders of a public office the character of a corporation. When a public officer in English law is said to be a corporation sole, the meaning is that the rights acquired by him in that capacity descend to his successor in office, and not (as the case is where a public officer is not a corporation) to his ordinary legal representative. The best known instances of corporation sole are the king and the parson of a parish. The conception of the king as a corporation is the key to many of his paradoxical attributes in constitutional theory—his invisibility, immortality, &c.

The term quasi-corporation is applied to holders for the time being of certain official positions, though not incorporated, as the churchwardens of a parish, guardians of the poor, &c.

The Roman conception of a corporation was kept alive by ecclesiastical and municipal bodies. When English lawyers came to deal with such societies, the corporation law of Rome admitted of easy application. Accordingly, in no department has English law borrowed so copiously and so directly from the civil law. The corporations known to the earlier English law were mainly the municipal, the ecclesiastical, and the educational and eleemosynary. To all of these the same principles, borrowed from Roman jurisprudence, were applied. The different purposes of these institutions brought about in course of time differences in the rules of the law applicable to each. In particular, the great development of trading companies under special statutes has produced a new class of corporations, differing widely from those formerly known to the law. The reform of municipal corporations has also restricted the operation of the principles of the older corporation law. These principles, however, still apply when special statutes have not intervened.

The legal origin of corporation is ascribed by J. Grant (Treatise on the Law of Corporations, 1850) to five sources, viz. common law, prescription, act of parliament, charter and implication. Prescription in legal theory implies a grant, so that corporations by prescription would be reducible to the class of chartered or statutory corporations. A corporation is said to exist by implication when the purposes of a legally constituted society cannot be carried out without corporate powers. Corporations are thus ultimately traceable to the authority of charters and acts of parliament. The power of creating corporations by charter is an important prerogative of the crown, but in the present state of the constitution, when all the powers of the crown are practically exercised by parliament, there is no room for any jealousy as to the manner in which it may be exercised. The power of chartering corporations belonged also to subjects who had jura regalia, e.g. the bishops of Durham granted a charter of incorporation to the city of Durham in 1565, 1602 and 1780. The charter of a corporation is regarded as being of the nature of a contract between the king and the corporation. It will be construed more favourably for the crown, and more strictly as against the grantee. It cannot alter the law of the land, and it may be surrendered, so that, if the surrender is accepted by the crown and enrolled in chancery, the corporation is thereby dissolved. Great use was made of this power of the crown in the reigns of Charles II. and James II.

Every corporation, it is said, must have a name, and it may have more names than one, but two corporations cannot have the same name. And corporations cannot change their name save by charter or some equivalent authority.

The possession of a common seal, though, as already stated, not conclusive of the corporate character, is an incident of every corporation aggregate. The inns of courts have common seals, but they are only voluntary societies, not corporations. Generally speaking, all corporate acts affecting strangers must be performed under the common seal; acts of internal administration affecting only the corporators, need not be under seal. The rule has been defended as following necessarily from the impersonal character of a corporation; either a seal or something equivalent must be fixed upon so that the act of the corporation may be recognized by all.

A corporation may be abolished by statute, but not by the mere authority of the crown. It may also become extinct by the disappearance of all its members or of any integral part, by surrender of charter if it is a chartered society, by process of law, or by forfeiture of privileges.

The power of the majority to bind the society is one of the first principles of corporation law, even in cases where the corporation has a head. It is even said that only by an act of parliament can this rule be avoided. The binding majority is that of the number present at a corporate meeting duly summoned.

In corporations which have a head (as colleges), although the head cannot veto the resolution of the majority, he is still considered an integral part of the society, and his death suspends its existence, so that a head cannot devise or bequeath to the corporation, nor can a grant be made to a corporation during vacancy of the headship.

A corporation has power to make such regulations (by-laws) as are necessary for carrying out its purposes, and these are binding on its members and on persons within its local jurisdiction if it has any.

The power to acquire and hold land was incident to a corporation at common law, but its restriction by the statutes of mortmain dates from a very early period. The English law against mortmain was dictated by the jealousy of the feudal lords, who lost the services they would otherwise have been entitled to, when their land passed into the hands of a perpetual corporation. The vast increase in the estates of ecclesiastical corporations constituted by itself a danger which might well justify the operation of the restricting statutes.

The Mortmain Acts applied only to cases of alienation inter vivos. There was no power to devise lands by will until 32 Henry VIII. c. 1 (1540), and when the power was granted corporations were expressly excluded from its benefits. No devise to a corporation, whether for its own use or in trust, was allowed to be good; land so devised went to the heir, either absolutely or charged with the trusts imposed upon it in the abortive devise. A modification, however, was gradually wrought by the judicial interpretations of the Charitable Trusts Act 1601, and it was held that a devise to a corporation for a charitable purpose might be a good devise, and would stand unless voided by the Mortmain Acts; so that no corporation could take land, without a licence, for any purpose or in any way; and no localised corporation could take lands by devise, save for charitable purposes. Then came the act of 1736, commonly but improperly called the Mortmain Act. Its effect was generally to make it impossible for land to be left by will for charitable uses, whether through a corporation or a natural person1. The Wills Act 1837 did not renew the old provision against devises to corporations, which therefore fell under the general law of mortmain. The law was consolidated by the Mortmain and Charitable Uses Act 1888, and the result is simply that corporations cannot take land for any purpose without a licence, and no licence in mortmain is granted by the crown, except in certain statutory cases in the interests of religion, charity or other definite public object.

The power of corporations at common law to alienate their property is usually restricted, as is their power to lease it for more than a certain number of years, except by sanction of a public authority. The more important classes of corporations, however, are now governed by special statutes which exclude or modify the operation of the common law principles. The most considerable class of societies still unaffected by such special legislation are the Livery Companies (q.v.). Under Company will be found an account of the important enactments regulating joint-stock companies.

The question to what extent the common law incidents of a corporation have been interfered with by special legislation has become one of much importance, especially under the acts relating to joint-stock companies. The most important case on this subject is that of Riche v. The Ashbury Railway Carriage Company, 1875 (L.R. 9 Ex. 224; L.R. 7 H.L. 653), in which, the judges of the exchequer chamber being equally divided, the decision of the court below was affirmed. The view taken by the affirming judges, viz. that the common law incidents of a corporation adhere unless expressly removed by the legislature, may be illustrated by a short extract from the judgment of Mr Justice Blackburn:—

“If I thought it was at common law an incident to a corporation that its capacity should be limited by the instrument creating it, I should agree that the capacity of a company incorporated under the act of 1862 was limited to the object in the memorandum of association. But if I am right in the opinion which I have already expressed, that the general power of contracting is an incident to a corporation which it requires an indication of intention in the legislature to take away, I see no such indication here. If the question was whether the legislature had conferred on a corporation, created under this act, capacity to enter into contracts beyond the provisions of the deed, there could be only one answer. The legislature did not confer such capacity. But if the question be, as I apprehend it is, whether the legislature have indicated an intention to take away the power of contracting which at common law would be incident to a body corporate, and not merely to limit the authority of the managing body and the majority of the share-holders to bind the minority, but also to prohibit and make illegal contracts made by the body corporate, in such a manner that they would be binding on the body if incorporated at common law, I think the answer should be the other way.”

On the other hand, the House of Lords, agreeing with the three dissentient judges in the exchequer chamber, pronounced the effect of the Companies Act to be the opposite of that indicated by Mr Justice Blackburn, “It was the intention of the legislature, not implied, but actually expressed, that the corporations, should not enter, having regard to this memorandum of association, into a contract of this description. The contract in my judgment could not have been ratified by the unanimous assent of the whole corporation.” In such companies, therefore, objects beyond the scope of the memorandum of association are ultra vires of the corporation. The doctrine of ultra vires, as it is called, is almost wholly of modern and judicial creation. The first emphatic recognition of it appears to have been in the case of companies created for special purposes with extraordinary powers, by act of parliament, and, more particularly, railway companies. The funds of such companies, it was held, must be applied to the purposes for which they were created, and to no other. Whether this doctrine is applicable to the older or, as they are sometimes called, ordinary corporations, appears to be doubtful. S. Brice (Ultra Vires) writes:—

“Take, as a strong instance, a university or a London guild. Either can undoubtedly manage, invest, transform and expend the corporate property in almost any way it pleases, but if they proposed to exhaust the same on the private pleasures of existing members, or to abandon the promotion, the one of education, the other of their art and mystery, it is very probable, if not absolutely certain, that the court of chancery would restrain the same, as being ultra vires.”

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1 Devises to colleges are excepted from the operation of the act, but such devises must be for purposes identical with or closely resembling the original purposes of the college; and the exception from this act does not supersede the necessity for a licence in mortmain.

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