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powers so enumerated and given." See post, subject Powers.

CORPORATIONS BEFORE THE CODES

Sections 287 and 288 make provisions for corporations organized before the adoption of the Civil Code, reorganizing under the provisions of the code, if they so desire, but if they do not, that they shall continue to exist under the laws under which they were organized. So few corporations, not subject to the code provisions, now exist that these provisions are of no general interest, and reference only is made to these sections for particulars.

It has been decided, however, that the only provisions of the codes which do not affect corporations organized before the codes took effect, where the corporation does not elect to continue its existence thereunder, are those which relate to the formation and existence of the corporation.28

28 McGowan v. McDonald, 111 Cal. 57, 52 Am. St. Rep. 149, 43 Pac. 418.

CHAPTER II

ARTICLES OF INCORPORATION

Section 289 of the Civil Code is as follows:

§ 289. The instrument by which a private corporation is formed is called "Articles of Incorporation." (Enacted March 21, 1872.)

WHAT THEY SHOULD CONTAIN

Section 290 of the Civil Code is as follows:

§ 290. Articles of Incorporation must be prepared, setting forth:

1. The name of the corporation.

2. The purpose for which it is formed.

3. The place where its principal business is to be transacted.

4. The term for which it is to exist, not exceeding fifty years.

5. The number of its directors or trustees, which shall not be less than three, and the names and residences of those who are appointed for the first year;

Provided, that the corporate powers, business, and property of corporations formed or to be formed for purposes other than profit may be exercised, conducted, and controlled by a board, consisting of such number of directors as may be in the constitution and by-laws provided; and corporations so formed may, in their constitution or by-laws, provide for the length of time that the directors, or any number thereof, shall act, and may in like manner provide that certain directors, or a certain number of the board of directors, to be selected by the corporation or the board of directors, in the mode and manner provided in the constitution or by-laws, shall act for any specified length of time,

or otherwise, as shall be in the constitution or by-laws set forth.

6. The amount of its capital stock, and the number of shares into which it is divided and the par value thereof.

Corporations formed for profit, pursuant to the provisions of this code, may, by their Articles of Incorporation, provide for the classification of their capital stock into preferred and common stock. In the event that the Articles of Incorporation shall provide for such classification the same must contain a statement of the number of shares of stock to which preference is granted, and the number of shares of stock to which no preference is granted. The Articles of Incorporation shall also state, in clear and succinct manner, the nature and extent of the preference granted, and except as to the matters and things so stated, no distinction shall exist between said classes of stock or the owners thereof;

Provided, however, that no preference shall be granted nor shall any distinction be made between the classes of stock either as to voting power or as to the statutory or constitutional liability of the holders thereof to the creditors of the corporation; and provided, further, that the preferred and common shares shall be of the same par value.

7. If there is a capital stock, the amount actually subscribed, and by whom. (Stats. 1915, p. 1481.)

The amendment of 1915 simplified the phraseology of this section, but left out the provision for increasing or decreasing the number of directors by a very simple proceeding; therefore the relief afforded by the Los Banos1 decision is lost.

All things considered, this is the most important document ever executed by, or more strictly speaking in behalf of, a corporation, for the validity of all the busi

1 Bank of Los Banos v. Jordan, 167 Cal. 327, 139 Pac. 691.

ness it can ever do will rest upon it. Especially is this true in California, where Articles of Incorporation are so strictly construed.

There must be a substantial compliance with the statutory requirements concerning the organization of corporations, and that can not be dispensed with. But an act incorporating a water company providing that it shall lay a certain amount of pipe within a year, does not make the construction of this work a condition of its existence as a corporation; a strict, literal compliance with all requirements of the statute is not essential, slight defects or omissions will not render the proceedings invalid.3

The Articles must not only be signed and acknowledged by at least three persons, a majority of whom must be residents of this state, but also by all the persons who are made directors therein for the first year. See Civil Code, section 292, infra.

In case of two corporations incorporated under special acts of the legislature, when such acts were permitted, both public service corporations, it was held that whenever there is serious doubt as to the interpretation of the law conferring the franchise it should be construed most strongly against the corporation,* and that it must be construed most beneficially to the public interests. But this degree of strictness is not applied to ordinary business corporations as the following pages will show.

In the absence of any contrary provision in the charter of an ordinary corporation, or as to water com

2 Mokelumne Hill M. Co. v. Woodbury, 14 Cal. 424, 73 Am. Dec. 658; Harris v. McGregor, 29 Cal. 124.

3 Spring Valley Water W. v. San Francisco, 22 Cal. 434.

4 Spring Valley W. W. v. San Francisco, 22 Cal. 434.

5 Welsh v. Plumas County, 94 Cal. 368, 29 Pac. 720.

panies in the by-laws, resolutions or certificates of stock, all stockholders are equal in right."

Where the majority of the members of an association form a corporation under the same name and for the same purposes and take over its books and much of its property, but the old association continues its existence (by the minority of the members) and holds some of its property, the old association can not exclude the membership of the corporation from any interest in the property of the old association."

It is a well settled rule that private corporations can exercise no powers but those expressly granted, and such as are incidental thereto. It was said by Crockett J. in a concurring opinion that "the rule in construing statutes granting franchises (in this case the charter) to private corporations is that all doubts are to be resolved in favor of the public. An incorporation was held invalid because not in conformity with the statutory requirements." But after such an organization had been carrying on business as a corporation for sixteen years it became at least a de facto corporation, and it is stated the legality of its organization can not be attacked collaterally, and that, although many of the acts required to be performed in order to make a complete organization of the corporation may have been irregularly performed or entirely omitted, yet such irregularities and defects will not defeat the incorporation when the questions are raised collaterally.10 Articles of a corporation to run a sawmill and manufacture lumber are not rendered invalid by reason of including power to operate railroads, etc. (not being

6 Richey v. East Redlands Water Co., 141 Cal. 221-228, 74 Pac. 754.

7 Strong v. Los Nietos etc. Ass'n, 137 Cal. 607, 70 Pac. 734.

8 Spring Valley W. W. v. San Francisco, 52 Cal. 111, 125.

9 McCallion v. Hibernia etc. Soc., 70 Cal. 163, 167, 12 Pac. 114.

10 Los Angeles Holiness Band v. Spires, 126 Cal. 541, 544, 58 Pac. 749.

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