DIRECTORS; DUTIES OF OFFICERS; BY-LAWS; RECORDS.
The owners of the stock of a private corporation, as soon
as the charter is granted by the state and the corporation fully
organized, proceed to choose and elect a board of directors, and
the board of directors, after their election, proceed among them-
selves to elect the officers of the corporation. It is generally neces-
sary that at least a portion of the directors must
ke resi dents of the state which granted the cor-
porate charter. The number of directors ranges
from three up to practically as many directors as is considered
necessary to conduct the business of the corporation.
It is usual in large corporations doing an extensive business
to elect directors in three classes, one-third to be
elected for one year, one-third for two years and one-third for
three years. The reason for this is to prevent a complete change
in the board of directors at any one election. Good business
prudence demands that a large proportion of the directors re-
main in office because of their familiarity with the details of the
business being conducted. If this method is adopted, at the
expiration of one year from the first election an election would
be held to elect directors to fill the places of those elected for
one year, thus retaining in office the two remaining classes
whose terms have not expired, and so on with the other classes
of directors as their terms of office expire.
The directors, immediately after their election, hold a meet-
ing called a "directors' meeting." At this meeting the directors
elect the officers of the corporation, which usually consist of
a president, secretary and treasurer. Other officers of the cor-
poration are frequently a number of vice presidents, an assistant
secretary and an assistant treasurer. These are customary officers
of large corporations and not usual in small concerns.
It is generally the duty of the board of directors to formulate
and adopt by-laws which are made for the government of the
officers, directors and affairs of the corporation.
By-Laws These by-laws are required by law to be reason-
able and to be in conformity with the provisions
of the charter and the statutes of the state under which the
corporation is organized. The by-laws should prescribe the
number of directors, the offices to be filled by election, the
mode and manner of calling general and special stockholders'
meetings, general and special meetings of directors, general and
special elections of the directors and officers, and the duties of
the individual directors, officers and agents of the corporation,
and should provide for the term of office of the directors and of-
ficers to be elected.
The president of a corporation is usually considered the
legal head of the corporation, and when an act pertaining to
the business of the corporation is performed by
President him, it is considered that he has binding authority
to act as the agent of the corporate body. The
president, however, is subject to the regulation of the board of
directors and also to the restrictions and regulations prescribed
in the by-laws.
The general duty of the secretary is that of custodian of the
books and records of the corporation and the corporate seal,
and to attach the corporate seal to written instruments when
required. The president and secretary are the
secretary officers usually authorized by the board of direct-
ors to execute any instrument, note, bond, bill of
sale, etc., in the corporate name, and under the corporate seal,
that may be necessary to be executed by the corporation.
The usual duties of the treasurer are those of a fiscal agent,
to keep the funds of the corporation in some safe depository,
to keep the officers and directors informed as to the financial
condition of the corporation and the amount of funds in its
treasury, and to prepare and keep the financial records of the
corporation. The treasurer is the officer usually empowered to
sign checks and to pay out the funds of the cor-
Treasurer poration, but, like the president and secretary, he
is bound by the by-laws and should never pay
out money in any large amount unless specifically authorized
by the board of directors to do so, or unless the corporate business
is such and the by-laws so stipulate, that such payment should
be considered one of the regular duties of the treasurer.
The by-laws of a corporation should provide for frequent
stated meetings of the directors, who should assemble at the
general offices of the company under parliamentary rules of
order, and in such manner transact the business of the corpora-
tion. The president of the corporation, by virtue of his office,
presides as chairman of the meeting. Reports from the treas-
urer and secretary and of the general manager (in
Directors ' corporations where there is such officer) are read,
and from the reports and recommendations of
those officers the business is taken up. It becomes the duty of
the secretary to keep full and complete "minutes" of what trans-
pires at the directors' meetings as well as at the stockholders'
meetings. These "minutes" should be transcribed fully into a
book kept for that purpose, known as a "minute book." The
business should be transacted by resolutions voted upon by the
president putting the question and calling for "Yeas" and
"Nays." The majority favoring or disapproving a resolution
generally decides the action of the directors upon the matter.
The duty of the secretary in keeping and in transcribing
these "minutes" is a very important one, as often very important
transactions are invalidated or made uncertain by carelessly or
mistakenly transcribed "minutes." Every reasonably important
act of a corporation should be first voted upon by the board of
directors and the resolution correctly transcribed into the "min-
ute book" by the secretary. The "minutes" when
Secretary transcribed into the minute book should show
what directors and officers were present and
those that were absent, and should always show that a "quorum''*
was present. A quorum is the number of stockholders or
directors, usually a majority, prescribed by the laws of the
state and the by-laws of the corporation as being necessary for
the holding of a valid meeting for the transaction of corporate
business, and if a meeting is called and there is not a quorum
present, the meeting has no power to transact any business ex-
cept to adjourn to some particular time and place. A very im-
portant duty of the board of directors, which is frequently
neglected and omitted, is the auditing of current bills owing
by the corporation, and ordering the treasurer to make proper
payment. Great evils have grown out of the practice of allowing
a treasurer to audit and pay bills at his own discretion. The
best regulated corporations always strictly observe this rule.
When the minutes of the corporation are transcribed by
the secretary into the minute book they should be signed by the
president of the corporation and "attested" by the secretary.
These signatures are very strong marks of authenticity and
should never be omitted. Under no circumstances should min-
utes be transcribed upon loose sheets of paper
Minutes and kept unbound or pasted into the minute
book instead of having them written therein in
regular manner. It is usual at the next succeeding meeting of
the directors or stockholders to "approve" or order "corrections"
in the minutes of the preceding meeting as the case may re-
quire, and the subsequent approval of the minutes confirms
the prior resolutions and the acts of the various officers perform-
The secretary of a corporation should keep a book, called
a "stock certificate book/' from which book stock certificates
should be issued and a record kept of the date, the number of
shares, and to whom issued, and where stock is
certfficates transferred from a stockholder to any person the
original certificate should be surrendered and the
secretary should issue a new certificate in lieu of the old one,
which should be canceled and attached to its former stub in
the certificate book and proper record kept of the transaction.
It is usual to include in the by-laws a provision for the
removal from office of directors or officers in the event that
the majority may deem it for the best interests of
the corporation. This provision is usually fol-
lowed by a further provision giving directors the
power of appointing a successor or of calling a special election,
to fill the vacancy caused by such removal.
The officers and directors of a corporation are required to
be particularly careful that no act is done by the corporation
which is in violation of the laws of the state or of
niegai Acts the powers conferred by the charter. The direct-
ors and officers are personally liable for such illegal
acts, and it frequently subjects the corporation to the liability
of a forfeiture of its charter.
The directors of a corporation must act as a board and not
singly. Several directors cannot bind the corporation by their
several acts unless the acts are directly within the scope of their
authority. All contracts conveyances of corporate property
the creation of corporate liability should be authorized by the
board of directors in meeting assembled. The authority should
be by resolution, which should be fully transcribed into the
minute book by the secretary. Directors who
Acts* see k ^0 bind the corporation by their individual
acts, subsequently repudiated by the corporation,
are personally liable to the aggrieved party. It sometimes be-
comes necessary, on account of some emergency, that the officers
of a corporation consisting usually of president, secretary and
treasurer, are called upon to perform an important act before
it is possible to convene a meeting of the board of directors.
Such acts are excusable under the circumstances, but should
immediately be ratified by the board of directors in regular
manner. If power to perform important acts is conferred by
the by-laws upon any of the officers of the cor-
signature poration, the board of directors at frequent inter-
vals should call a meeting and ratify, approve and
confirm the acts of the officers, letting the minutes show in
detail the acts and transactions confirmed.
Where the corporate signature is required to be signed to
written documents, it should be the name of the corporation
"by its president" and "attested" by its secretary and sealed with
the corporate seal. An example of a proper corporate signature
is as follows:
'The Chicago Coal Mining & Quarrying Co.,
By John Doe, President.
Attest: Eichard Roe, Secretary.
[Imprint of corporate seal.]
The seal of a corporation is generally a device embossed
upon the document to be signed, being the name of the corpora-
tion, with the location of its principal place of business, as
"Chicago, 111." and the word "seal." The "attaching" or "affix-
ing" of the seal is the act of imprinting the device upon the
document to be executed.
Seals were in olden times used as signatures by individuals,
and originated from the ignorance of the masses of the common
people, who were unable to write their signatures. Upon the
advent of corporations, which, being unable to phy-
Seai sically do any act, or to write a signature, a "cor-
porate seal" was used as the supreme designation
of a corporate signature, the signatures and attestations of its
officers being considered of less consequence than the "affixing"
of the corporate seal. At the present time it is not always neces-
sary, but advisable, to attach or affix the corporate seal to all
documents executed in the name of the corporation. The "adop-
tion" of a corporate seal is one of the first acts of the directors of
a corporation. The by-laws should prescribe the style of seal
and designate the officer, universally the secretary, to be the
custodian of it and affix it.
The existence of a corporation can be terminated at the will
of the stocknolders, who may, by voting so to do, surrender the
charter of the corporation to the Secretary of State to be can-
celled. Before this can be done, however, proof
Ex^ce 00 must be furnished the Secretary of State that all
the corporate debts have been paid and the remain-
ing assets and property distributed to the shareholders. This
plan often becomes advisable when the corporate enterprise is no
longer considered profitable, and to further maintain the cor-
poration would mean an unprofitable expenditure of time and
money by the stockholders.