advantages: one director in New Mexico required; stock and transfer books required to be kept in territory; minimum capital stock, $2,000; stockholders' meetings required to be held in registered office in the territory-but may be held by agent through proxies. This act (approved March 15, 1905) was copied in general from the New Jersey laws. Filing fees are about onehalf those in New Jersey.

Porto Rico, also, has a liberal incorporation law based on the New Jersey code.

§ 24. Relation to the Creating State of a Corporation Whose Principal Office and Business are Located in a Foreign State.

The legal side of this subject has already been touched upon. A corporation is governed by the laws of the state which creates it, but is subject to the legal restrictions of the states where it does business. In order that the parent state may continue to exercise jurisdiction over its corporations, they are usually obliged to maintain in that state an office where, and a resident agent upon whom, process may be served. Where a resident director is necessary under the law, process may be served on him. In some of the states where there are such requirements as these, certain persons make a business of acting as resident agent or director for domestic corporations whose principal business office and manufacturing or other kind of plant or business is located in a foreign state. Certain "trust companies," organized for this particular service, furnish their place of business as the resident office of such corporations and designate some member of their company as the resident agent or director, charging a yearly fee of about ten dollars. The office maintained in the creating state is the domiciliary office of the corporation in the sense that it is the parental home office, though not any of the actual commercial business of the corporation may be conducted from it. In those parent states where stockholders' meetings are required to be held within the boundaries of the state, stockholders' meetings may be held in the domiciliary office. Otherwise the office may be of no use except as a place designated to the secretary of state

where a summons may be served. If a portion of the business of the corporation is transacted in the parent state, the business office of the corporation will serve every purpose, provided there is a resident agent connected with it. Some states require that correct books of account of business transactions and a book containing an up-to-date list of stockholders, their residence, and their number of shares, listed severally, shall be kept at the office in the parent state; that the corporation shall report annually such items as the amount of capital stock and the proportion actually issued; how much was paid in cash, how much otherwise, and in what way; the amount of debts, and of assets; the amount of dividends made, declared, and paid; the amount of capital employed or represented in the state, etc. Such nonresident domestic corporations, organized under the laws of the liberal states, pay an existence franchise tax and may in addition be taxed on the capital represented by property located and business transacted in the state. So far as the capital represented by the business transacted is concerned, however, the liberal states have not generally exercised their right to impose a tax thereon in the case of non-resident domestic business corporations. Railway, insurance, banking, and other transportation and financial corporations are taxed according to special statutes. The expression, "existence" franchise tax, a tax paid to maintain the right of existence, is used to distinguish the tax placed by the parent state on domestic corporations from the business franchise tax, or license tax, placed on foreign corporations by foreign states, by payment of which tax the corporations maintain the right to do business in the foreign states.

$25. A Corporation's Relation to Foreign States.

A foreign state is any state other than the one under whose laws a corporation is formed. Since a corporation can have no legal existence outside the boundaries of the state in which it was created, it can exercise none of its business functions or privileges in any other states except through the courtesy and consent of the other states. The "rule of comity" is the prevailing

courteous and consenting recognition of corporations foreign to the state in which they are exercising a right to do business. The rule of comity is part of the common law and is binding except where modified by the statutory law of the several states. Subject to the limitations imposed by the national constitution, a state may prescribe any conditions upon which a foreign corporation may do business within its territory. Most of the states have put a statutory limitation on this rule for the protection of their citizens from the acts of irresponsible foreign corporations and for the purpose of raising revenue for granting the right to do business. The kind of business referred to is the commercial business out of which a corporation makes its profit and not those acts which the stockholders or corporators perform in creating or maintaining the corporate existence. Where a company maintains an agency or warehouse and sells goods in a foreign state, it is considered as doing business in that state. Part of the corporate assets are represented in the state, materially in the case of manufacturing and mercantile corporations, and by business transacted and protected in the case of insurance and other financial companies. The mere taking orders for goods by a traveling salesman, or isolated and largely fortuitous transactions of business without the intention of continuing business, do not constitute "doing business" in the legal sense. Where, however, a traveling salesman carries articles which he sells. direct, without referring an order to the home office to be filled, that act comes within the meaning of "doing business." Sometimes the business is such that a state requires that the foreign corporation shall maintain an office in the state and provide an agent or agents upon whom process may be served. The object of requiring a resident agent is to bring the corporation within the jurisdiction of the state in which it is seeking to do business, so that it may sue and be sued there. The object of requiring an office is that a place may be furnished where the agent may be found and where a summons may be served on him. These provisions facilitate legal actions against a foreign corporation, which might otherwise be able to make the service of process extremely difficult. It is provided that corporations may have

license to do business upon compliance with certain conditions. The laws of the states are not uniform in their treatment of foreign corporations. Progressive legislation is in the direction of imposing on foreign corporations the same restraints and qualifi cations for business that apply to domestic corporations. Justice to domestic corporations demands this. Among the qualifications necessary in one or more states are that a certified copy of the articles of incorporation and the by-laws, and a list of names and residences of the officers and directors, the location of the domiciliary or principal office, the date of the annual meeting and meeting for election of officers and directors, shall be filed with the secretary of state, or other proper state or county officer; that a statement shall be made of the capital stock paid in in cash, and of that otherwise paid in, and how it was paid, and the capital represented in the state by corporate property located and by business transacted in the state; that an annual report shall be made which shall include the amount of debts, or an amount which they do not exceed, the amount of assets, or an amount which they at least equal, and the amount of dividends declared or paid; that any substantial changes in any of the foregoing shall be reported to the secretary of state; that the books of account of business transacted by the corporation shall be kept at the state office or be forthcoming from it (seldom); that a stockbook, with complete information as to stockholders and stock, must be kept at the corporation's office or at the office of a transfer agent in the state, and that the book shall be open to inspection by any stockholder, judgment creditor, or authorized officer of the law; that a resident agent shall be appointed and that an authenticated copy of his appointment and of his acceptance and a certificate of the location of his residence or office shall be filed with the secretary of state or other proper officer; that certain sundry fees or other qualifying fees shall be paid, and also annual taxes on the amount of corporate property or capital represented by corporate property located and business transacted in the state, or on some other basis; that a corporation cannot transact business in the state nor sue without having obtained a certificate of authority to do business. Some states have passed what are known

as retaliatory statutes, which provide that foreign corporations seeking to do business in the territory of those states shall pay the same fees and taxes and comply with the same conditions that the domestic corporations of those states would be required to meet in the domiciliary states (the states under whose laws corporations are created) of those foreign corporations. Some states provide that a foreign corporation shall appoint in writing their secretaries of state or commissioners of corporations attorneys upon whom process may be served, dispensing with the necessity of any other agent. The fractional proportion of capital represented by property located in a foreign state and by the business transacted there, where that is the basis on which incorporation fees are based, may be computed by taking the business in that state in a given period, plus the property located therein, as a numerator, and the entire business of the company for the same period plus the entire property, as a denominator. The fraction represents the proportion of the capital stock on which incorporation fees or taxes must be paid in that state. If all the business of a company is transacted in a foreign state, the entire capital stock will form the basis for charging fees.

§ 26. Capitalization: Definition.

(1) In a general sense, the capitalization of a corporation means the par, or face, value of all the stocks, common and preferred, which it has been authorized to issue, and of the bonds which are issuable; that is, all the apparent funding resources of the corporation. (2) But in a stricter sense, it is all the actual capital realized from the sale of stocks and bonds, the capital with which the corporation equips itself for business and which it uses in operating. Thus, a company capitalized for $1,000,000 may sell all its securities, stocks and bonds, at such prices that the average price will be but sixty cents on the dollar of nominal capitalization. It will thus have for equipping and operating $600,000 instead of $1,000,000. Or, it may sell $800,000 of securities at par and keep $200,000 of stock unissued, or turn it into treasury stock. It still has a nominal capi