POWERS OF CORPORATIONS
Sec. 60. In general. The corporation has only such powers as
are expressly conferred upon it by the state. The state may grant
any power to a corporation that it desires, if such grant is not lim-
ited by the state or federal constitution. The express powers of a
corporation are found within its corporate charter and the statute
which created it. It can do no acts which are not specifically set
forth in the charter, unless such acts are impliedly inferred as rea-
sonably necessary and proper for carrying out the express powers
Sec. 61. Incidental powers. Under general incorporation acts
now in force in most states, the powers incidental to corporate ex-
istence are generally enumerated. The following incidental pow-
ers have at various times been said to exist, as necessary for corpo-
rate existence: (1) to have a corporate name, to control, to own, to
convey property, to sue and to be sued therein; (2) to have con-
tinued existence during the period for which created; (3) to have
a common seal; (4) to make by-laws; (5) to purchase and to hold
real estate for the purpose of the corporation, unless forbidden by
its charter or statute; (6) to borrow money when necessary to carry
out the corporate purpose.
The corporate name may not be deceptively similar to those of
other business enterprises and by the law of many states must con-
clude with either the word "Company," "Corporation," or "Incor-
porated." The name may be changed by charter amendment at
any time without affecting corporate contracts or title to corporate
property in any way.
Sec. 62. To purchase and hold property for corporate pur-
poses. A corporation has implied power to take and to hold title
to real and personal property for all purposes that are not foreign
to the objects for which it is created. 2 Such power is usually ex-
pressly given by statute or in its charter. In the absence of express
restriction, it has implied power to purchase any real or personal
property that is reasonably necessary for carrying on its business.
For example, a manufacturing corporation has implied power to
purchase all the materials necessary for the production of the arti-
cle which it is to manufacture. But it cannot buy material for the
1 Williams v. Johnson, 1911, 208 Mass. 544, 95 N.E. 90; p. 691.
2 Williams v. Johnson, 1911, 208 Mass. 544, 95 N.E. 90; p. 691.
270 BUSINESS ORGANIZATIONS CORPORATIONS
purpose of resale. Likewise, a railroad owning animals for the pur-
pose of carrying out its business may purchase grain, but it cannot
purchase grain for the purpose of transportation and sale.
Sec. 63. Power to take and to give mortgages or to pledge
property. A corporation has implied power to take a mortgage on
real estate to secure a debt, or to hold personal property as a se-
curity. Likewise, a corporation has implied power to mortgage or
to pledge its own property when necessary in order to borrow
money or to secure debts which have been created in accomplishing
its corporate object. 3 The officers cannot, in absence of statutory
authority, mortgage the assets of the company without the consent
of the stockholders. The officers may, with the consent of a ma-
jority of the stockholders, when the corporation is insolvent, make
an assignment of all the property for the benefit of creditors. In
the absence of statutory authority, a corporation cannot sell or
mortgage its franchise or charter.
Corporations vested with the public interest, such as public util-
ities, cannot mortgage or sell their property without authority from
the state creating them.
Sec. 64. To borrow money when necessary to carry out the
corporate purpose. In order to secure money for the purpose of
carrying out its corporate objects, a corporation, in the absence of
express restrictions, has power, with the consent of the stockhold-
ers, to issue bonds. The statute usually specifies the procedure
necessary for issuing such bonds, and if the statute is not complied
with, the bonds are invalid. Corporate bonds are merely a form
of negotiable instruments.
A corporation likewise has implied power to take or to indorse
promissory notes and to accept or to indorse bills of exchange in the
usual course of its business. A corporation has no implied power
to loan money or become a surety or guarantor, in absence of ex-
press authority, unless it is strictly necessary for the purpose of
carrying out the objects of the corporation. 4
Sec. 65. Power to enter into partnership agreements. A cor-
poration is without power to enter into a partnership or combina-
tion with other corporations for the purpose of bringing the man-
agement of the partnership or corporations under one control. A
corporation does not have authority to share its corporate manage-
ment with natural persons in a partnership because it would expose
the stockholders to risks not contemplated by the stockholders' con-
tracts, although it may enter a joint-venture. A corporation may,
3 Brown v. Citizens' Ice and Cold Storage Co. et al., 1907, 17 N.J. Eq. 437, 66 Atl
181; p. 691.
4 Woods Lumber Co. v. Moore, 1920, 183 Cal. 497, 191 Pac. 905; p. 692.
POWERS OF CORPORATIONS 271
however, provide in its charter, when authorized by statute, that it
has authority to become a partner.
Sec. 66. Power of a corporation to subscribe and to hold stock
in another corporation. A corporation, in absence of statutory au-
thority, has no implied power to subscribe to, purchase, or hold the
stock of another corporation whose chartered purpose is totally for-
eign to its own. To permit such action would subject the stock-
holders to risks not anticipated by them. By court decision or
statute, the corporations of most states are now empowered to sub-
scribe for, or purchase, the stock of other corporations for the pur-
pose of furthering their own objectives. It may invest idle funds
in the stock of other corporations or accept such shares in settle-
ment of an indebtedness owing to it. A certain phase of its busi-
ness may be transacted by means of a subsidiary for whose organ-
ization it is responsible or whose control it has acquired by stock
purchase. 5 In such cases, the parent company may, or may not, be
a holding company organized for the express purpose of acquiring
stock of other corporations. A corporation is forbidden, however,
to acquire the stock of a competing corporation for the purpose of
eliminating or restraining competition.
Sec. 67. Power to hold its own stock. A corporation is some-
what restricted in its power to purchase its own stock, because the
purchase of its own stock might effect a reduction of its capital to
the detriment of creditors and stockholders. In most states a cor-
poration is permitted to purchase shares of its own stock only out
of accumulated profits or surplus. 6 This retains an investment in
the corporation by stockholders equivalent to the original capital
as a protective cushion for creditors in case subsequent losses de-
velop. A few states, however, permit a corporation to acquire
treasury stock as long as the corporation is not insolvent. A cor-
poration may also acquire its own stock in payment of or in se-
curity for an antecedent debt due the corporation. It may also
take its own stock for nonpayment of an authorized assessment
made by the company on the stock, or it may take it as a gift. A
corporation which has issued preferred stock has the power to re-
deem such stock, where there is no injury to, or objection by, cred-
itors. Here again, many of the states require the preferred stock
to be redeemed out of surplus or demand that authority to reduce
the capital stock be obtained from the state.
Treasury stock stock of its own issue acquired by a corporation
is not automatically canceled. It lies dormant in the treasury
of the corporation without the right to vote or to share in dividends
5 State v. Missouri Pac. Ry. Co., 1911, 237 Mo. 338, 141 S.W. 643; p. 694.
e Eraser v. Ritchie, 1881, 8 111. App. 554; p. 695.
272 BUSINESS ORGANIZATIONS CORPORATIONS
until it is again sold and transferred to a stockholder. The cap-
italization of a corporation can be reduced only with the authority
of the state which approved the original capital, and the procedure
outlined in the state corporation laws must be followed in effecting
Review Questions and Problems
1. T & Company is incorporated for the purpose of manufacturing and
selling jewelry. It is incorporated as a manufacturing concern. Has T
& Company a right to purchase jewelry manufactured by others and to
2. A corporation is formed under the name of Maybe Butter Company.
Promoters for another concern desire to incorporate under the name of
Mayby Butter Company. Will those responsible for granting charters
grant them one under that name?
3. May the name of a corporation be changed without affecting title to
property owned by it?
4. A literary society was incorporated for the purpose of "advancing
the mental development of its members by means of literary exercises,
debates, and lectures, and to foster sociability among its members/'
Later, the members adopted by-laws which pledged their support to a
certain presidential candidate. Can a member who refuses to support
that candidate be expelled?
5. A y the treasurer of the X Company, borrowed $5,000 from Y Bank
and gave a mortgage on the property of the X Company as security.
The stockholders contend that the mortgage is ineffective, because they
had not authorized the officers to issue or to sign any mortgage. Are the
6. The X Company was incorporated for the purpose of conducting a
lumber mill. A, its president, desired to borrow money, and caused the
company to become surety upon his obligation. Assuming the contract
of suretyship to be signed by the treasurer of the X Company, the proper
officer, is the company liable?
7. Has a corporation power to enter into partnership with a firm or
another corporation? May such act be provided for in the charter?
8. Has a corporation power to purchase stock in another corporation?
Why? What are holding companies? What is their purpose?
9. Under what conditions may a corporation purchase its own stock?