(e) Determination of the time for holding, and the manner of calling, meetings of the directors.

(f) Determination of the times, places and method of payment for capital stock, in case it is not fully paid.12

(g) Approval of the bond of the treasurer.13

(h) Authorizing the treasurer to issue stock in accordance with the subscription or with the terms prescribed.

(i) Authorizing the treasurer to procure certificate and transfer books, and seal.

(j) Specifying what officers shall execute contracts on behalf of the corporation, and sign its checks and notes, unless provided in the by-laws.

(k) Authorizing and instructing a majority of the directors to make, sign and make oath to the articles of organization; to submit the same with the records of the meeting of the incorporators to the Commissioner of Corporations; and to pay the organization fee.

(1) Adjournment.

The directors should then proceed to make out, sign and swear to, the articles of organization.14

F. Submission of articles of organization to commissioner Payment of fees - Filing of articles.

The clerk, or treasurer, or one of the directors, should then submit the articles of organization and the records of the first meeting to the Commissioner of Corporations, to get the certificate of his approval.15 The Commissioner's office is in the back part of the State House, entrance opposite Ashburton Place. As soon as the approval of the Commissioner has been obtained, the organization fee should be paid. This is onetwentieth of one per cent. of the total amount of the authorized capital stock, as fixed by the articles of organization, in no case less than twenty-five dollars.16 In practise, this fee is

12 Ibid., §§ 15, 16.

13 Ibid., § 13.

14 Ibid., § 11.

15 Ibid., § 12.

16 Ibid., § 88; St. 1907, c. 396.

paid at the office of the Commissioner of Corporations. Thereupon the articles of organization should be filed in the office of the Secretary of the Commonwealth (which is above that of the Commissioner), and he will cause them to be recorded, and will issue a certificate of incorporation in the form provided by the act.17

The existence of the corporation begins as soon as the articles of organization are filed. The certificate or a certified copy, or the record of the certificate, is conclusive evidence of the existence of the corporation.18

17 Ibid., § 12. In practice the articles are left with the Commissioner of Corporations, and the certificate of incorporation is usually mailed from the Secretary's office to the corporation's attorney.

18 Ibid.

CHAPTER IV.

PROMOTION.

So many questions arise as to the rights and liabilities of promoters, and there is so little Massachusetts law on the subject, that it has been thought well to give a brief summary of

the matter.

A. Definition of promoter.1

A promoter is one who actively engages in the formation of a corporation and in inducing other persons to become members of it. A promoter stands in a fiduciary relation to the corporation which he promotes.2 The fact that one buys property, contemplating the formation of a corporation to take it off his hands does not make him a promoter, no matter how soon after the purchase the corporation is formed.3 Nor does a promise to pay for property wholly or partly in stock of a corporation to be formed make one a promoter.*

One does not necessarily cease to be a promoter when the corporation is formed, for he may dominate it after its formation.5

B. Liability of promoters who have sold property to the corporation.

As promoters frequently form corporations to take over and develop property in which they are interested, it becomes important to consider in what cases they are liable in so doing.

1 See Alger on Promoters; Conyngton on Corporate Organization; 1 Clark & Marshall, Corp., Chap. V.

21 Morawetz, Corp., 2d ed., § 545; Hayward v. Leeson, 176 Mass. 310; Old Dominion, etc., Co. v. Bigelow, 188 Mass. 319; Plaquemines, etc., Co. v. Buck, 52 N. J. Eq. 219.

3 23 Am. & Eng. Enc. Law 232; Gover's Case, 1 Ch. D. 182; Old Dominion, etc., Co. v. Bigelow, 188 Mass. 319, 321; Sombrero Phosphate Co. v. Erlanger, 5 Ch. D. 73, 118, 119; Erlanger v. New Sombrero Phosphate Co., 3 App. Cas. 1218, 1242, 1255, 1267, 1268; Ladywell Mining Co. v. Brookes, 35 Ch. D. 400; Lydney, etc., Ore Co. v. Bird, 33 Ch. D. 85; Re Hess Mfg. Co., 21 Ont. App. 66; Densmore Oil Co. v. Densmore, 64 Pa. St. 43.

4 Gover's Case, 1 Ch. D. 182.

5 Russell v. Gas Co., 184 Pa. St. 107.

In considering promoters' liability it is important to remember who it is who wishes to enforce liability. The question arises principally in three classes of cases: 1. where stock is issued wholly to the promoters, and the plaintiff is a purchaser from one of them; 2. where stock is issued partly to promoters and partly to the public and the plaintiff is one of the public; 3. where the plaintiff is the corporation itself.

It may be premised that in any case where the promoter makes a full disclosure of the facts, including the facts as to his profits in the transaction, to the person who afterwards brings an action to enforce liability, the latter is estopped. And, on the other hand, where a promoter resells to a corporation of which he is an officer, he may be liable without any express misrepresentation."

In any case where a promoter is liable to his fellow promoters for secret profits, the organization of the corporation 8 is no bar to a bill in equity for an accounting.

1. Where all the stock is issued to promoters, and the plaintiff is a purchaser of stock from one of them

In this case the doctrine applies that the transferee is bound by the action of his transferor, except where there has been an actual fraud upon the corporation. Mere overvaluation, unless fraudulent, is not enough to make the issue of stock to the promoters open to attack.

• Lagunas Nitrate Co. v. Lagunas Syndicate, [1899] 2 Ch. 372, 422; Battelle v. N. W. Cement, etc., Co., 37 Minn. 89 (1887). Cf. Milwaukee Cold Storage Co. v. Dexter, 99 Wis. 214.

'Old Dominion Copper, etc., Co. v. Bigelow, 188 Mass. 315, 322; New Sombrero Phosphate Co. v. Erlanger, 5 Ch. D. 73; Erlanger v. New Sombrero Phosphate Co., 3 App. Cas. 1218. See generally, See v. Untermeyer, 69 N. J. Eq. 36.

8 Dole v. Wooldredge, 135 Mass. 140.

⚫ Old Dominion, etc., Co. v. Lewisohn, 136 Fed. 915; Foster v. Seymour, 23 Fed. 65; McCracken v. Robison, 57 Fed. 375; Old Dominion, etc., Co. v. Bigelow, 188 Mass. 319, 325; Re Ambrose, etc., Mining Co., 14 Ch. D. 390; Re Postage Stamp, etc., Co., [1892] 3 Ch. 566; Battelle v. N. W. Cement, etc., Co., 37 Minn. 89; Seymour v. Spring Forest Cemetery Assoc., 144 N. Y. 333. Cf. Pittsburg Mining Co. v. Spooner,

74 Wis. 307.

In special cases of express fraudulent representations there may be an action for the deceit.

The general principle above stated applies where, at the time of the issue of stock to promoters, it was not contemplated that there should be any stock sold to the public but the scheme is subsequently modified in good faith, so that other stockholders are taken in.1 Such a modification does not bring the trans

10

action within the class of cases considered under 2.

2. Where stock is issued partly to promoters and partly to the public, and the plaintiff is one of the latter. In this case the rule applies that a promoter cannot buy property and sell it to the corporation at an advanced price unless the corporation is represented by an independent board of directors.11 Even a vote of the corporation will not make the transaction valid any more than a vote of the directors, where the corporation is in the sole control of the promoters before capital has been issued to the public.12

"It

Of course, if a full disclosure of all the facts is made to intending stockholders, as by a prospectus, there can, on the general principles discussed above, be no liability. This duty of disclosure has been stated as follows, in a leading case: is a fraud for promoters to undertake to decide for the future stockholders in the corporation to be organized that one-third of the whole capital stock of that corporation is a fair re

10 Re British Seamless Paper Box Co., 17 Ch. D. 471; Old Dominion, Copper, etc., Co. v. Bigelow, 188 Mass. 315, 326.

11 1 Mor., Corp., 2d ed., § 546; 1 Thompson, Corp., § 457; New Sombrero Phosphate Co. v. Erlanger, 3 App. Cas. 1218; Lydney Ore Co. v. Bird, 33 Ch. D. 85; Hayward v. Leeson, 176 Mass. 310; Old Dominion Copper, etc., Co. v. Bigelow, 188 Mass. 319, 322; Gluckstein v. Barnes, [1900] A. C. 240; Re Olympia, [1898] 2 Ch. 153; Burbank v. Dennis, 101 Cal. 90; Simon v. Oil Co., 61 Pa. St. 221; Plaquemines Tropical Fruit Co. v. Buck, 52 N. J. Eq. 219; See v. Untermeyer, 69 N. J. Eq. 36. See Pittsburg Mining Co. v. Spooner, 74 Wis. 307.

12 Old Dominion, etc., Co. v. Bigelow, 188 Mass. 319, 326; Hayward v. Leeson, 176 Mass. 310, 320; New Sombrero Phosphate Co. v. Erlanger, 5 Ch. D. 73; Erlanger v. New Sombrero Phosphate Co., 3 App. Cas. 1218; Re Olympia, [1898] 2 Ch. 153; Re British Seamless Paper Box Co., 17 Ch. D. 467, 471, 472.