function of corporations in modern economy, and have devised elaborate schemes of law to control their creation, management, and operation.

I. In the beginning of our history it was the practice of the state legislature to create each corporation by a separate law, but the abuses connected with this method were so great that, as a general rule, the legislature is now forbidden to create corporations by special act, and is authorized to pass only general laws providing equal terms for all corporations. According to the constitutionof New York corporations may be formed under general laws and will be created by special act only for municipal purposes or in cases where, in the judgment of the legislature, the objects of the corporation cannot be attained under the general law. Delaware has sought to control the process of chartering corporations by stipulating that general and special corporation laws must have the approval of two-thirds of all the members elected to each house of the legislature. Georgia has provided that all corporate powers and privileges granted to banking, insurance, railroad, canal, navigation, express, and telegraph companies shall be issued by the secretary of state in accordance with the provisions of law laid down by the legislature. In Virginia the corporation commission, appointed by the governor of the state, issues all charters and amendments of charters for domestic corporations and all licenses to foreign corporations authorizing them to do business in the state. Whatever may be the device adopted to control the creation of corporations the aim is always the same to obstruct the state legislature in granting special favors to particular corporations.

2. In order to prevent corporations once chartered from claiming perpetual rights under that clause of the federal Constitution forbidding states to impair the obligation of contract,2 our state constitutions now make provision for the future amendment, repeal, or alteration of general and special laws under which. corporations may be created. Some states expressly forbid the irrevocable grant of any franchise, privilege, or immunity. "No law," declares the constitution of Alabama, "making any irrevocable or exclusive grants of special privileges or immunities, shall be passed by the legislature; and every grant of a franchise, privilege, or immunity shall forever remain subject to revocation, 1 See Readings, p. 86 and p. 458. See above, p. 434.

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alteration, or amendment." Nevertheless, some provision is included in many state constitutions to the effect that the right of repealing and amending corporation charters and privileges cannot be so exercised as to impair or destroy vested rights or work injustice to the parties concerned. Subject to the limitation that vested property rights must not be impaired, the state legislature possesses the power to regulate the operations of corporations after they have once been created.

3. The internal management of corporations is controlled by the constitutions and laws of most states. In order to secure to stockholders their individual rights, several states — California, Illinois, Missouri, and Nebraska, for example have declared that each stockholder shall have one vote for each share. According to the Nebraska constitution the "legislature shall provide by law that in all elections for directors or managers of incorporated companies every stockholder shall have the right to vote in person or by proxy for the number of shares of stock owned by him for as many persons as there are directors or managers to be elected, or to cumulate said shares and give one candidate as many votes as the number of directors multiplied by the number of his shares of stock shall equal, or to distribute them upon the same principle among as many candidates as he shall think fit and such directors or managers shall not be elected in any other manner." In some instances the directors of corporations are made liable, jointly and severally, both to creditors and to stockholders for all moneys embezzled or misappropriated by the officers of such corporation during their term as directors or trustees.

4. To prevent stock-watering it is frequently provided by law that corporations shall not issue stock except for money, labor done, or property actually received to the amount of its par value; that stock and bonded indebtedness shall not be increased except in accordance with the general law and the consent of the persons holding the larger amount in value of the stock; and that fictitious issues of stock and indebtedness shall be deemed void. In those states which have public service commissions, it is a common requirement that any corporation wishing to issue stocks and bonds must file with the commission a sworn and accurate statement showing the exact purposes for which the said stock and bonds are to be issued and must obtain proper authorization.

5. The consolidation or combination of competing corporations is either forbidden altogether, or permitted under strict regulation. In Oklahoma, no public service corporation can consolidate its stock, property, or franchises with, or lease or purchase the works or franchises of, any corporation owning or having under its control a competing or parallel line except by legislative enactment upon recommendation of the state corporation commission; and furthermore no corporation, chartered or licensed to do business in that state, may own or control in any manner whatever the stock of any competing corporation or corporations engaged in the same kind of business, except such stock as may be pledged in good faith to secure bona-fide indebtedness. Montana expressly declares that no corporation, company, person, or association of persons in the state shall directly combine or form what is known as a trust.

6. Railway corporations and common carriers are controlled by special regulations so numerous and complicated in character that only a few of the general principles may be stated here. Many states declare railways to be public highways and "free to all persons for the transportation of their persons or property thereon under the regulations prescribed by law." The more recent state constitutions expressly authorize the legislature to fix passenger and freight rates and control railways generally in such a way as to prevent unjust discriminations and maintain certain standards of service. According to the constitution of Nebraska, for example, the legislature is instructed to prevent abuses and unjust discrimination and extortion by all express, telegraph, and railroad companies in the state and enforce such laws by adequate penalties to the extent, if necessary for that purpose, of forfeiture of property and franchise.

a. A few years ago a wave of railroad rate regulation swept over the country as the result of the popular cry for a reduction in the passenger charges. In several states a flat rate of from two to three cents a mile has been fixed by the legislature, and is in force. In 1907 Illinois, Indiana, Minnesota, Nebraska, and Pennsylvania passed statutes fixing the maximum passenger rate of railroads at two cents a mile. During the same year Iowa and Michigan passed rate bills classifying railroads according to their earnings per mile. In Iowa the roads were divided 1 In New York the two-cent law was vetoed by Governor Hughes.

into three classes, earning $4000 per mile,$3500 to $3000, and less than $3000 per mile; and the rate fixed at two cents, two and a half cents, and three cents per mile respectively. West Virginia and Missouri based the scale of rates upon the mileage of each road affected. North Carolina fixed the rate at two and a half cents. Alabama and South Dakota fixed the maximum rate at two and a half cents, but authorized the railway commission to make certain classifications of the roads.1

b. Railroads are now quite commonly forbidden to discriminate in their charges or facilities between places or persons or in the transportation of the same classes of freight; to issue free passes to state officials and members of the state legislature;2 to grant rebates and bonuses; and to deny individuals, associations, and corporations similarly situated equal rights in the transportation of persons or property. Most states, either by constitutional or statute law, provide some system of publicity whereby each railway company is required to maintain a public office and publish from time to time statistics relative to its business, profits, dividends, transfer of stock, and the like. Railroads are compelled to maintain fences, regulate grade crossings, put in switches under certain conditions, adopt safety appliances, heat and light their cars, and do many other things for the safety and convenience of passengers. The list of precise regulations imposed upon common carriers in almost any state would fill a volume of reasonable compass.

c. As the controversy over general railway regulation progressed, the obvious unfairness of the flat rate applying equally to all railroads became apparent. As the Wisconsin Railroad Commission in a decision said: "In order to determine whether

1 "The great tidal wave of railway passenger rate regulation began in Ohio in 1906, swept over the South and Middle West, reached its height in 1907, and since then has been slowly receding. The rising of the wave was marked by discontent with present conditions, a feeling of bitterness, and a strong agitation for reduction in rates. Its fall was marked by injunctions, counter-injunctions, threats, a struggle for state rights, special sessions, compromises, court decisions, some bitterness toward the courts, and a realization that there had been some hasty action. The laws have not all been contested, and where they have been sometimes the state has won, sometimes the railroads have won, and sometimes the struggle has resulted in a compromise."-R. A. CAMPBELL, in the Political Science Review for August, 1907, and November, 1909. Readings, p. 478.

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or not a given rate is excessive or otherwise, it is necessary to ascertain: (a) the reasonable value of the property of the carrier as a basis for the allowance of income for investment; (b) to make the apportionment to the state of its proper proportion of the earnings and operating expenses of the company; (c) to ascertain what portion of the gross earnings for the state are derived from intra-state and what from interstate traffic; (d) to apportion on some equitable basis the expenses of conducting traffic and other legitimate expenses between the two classes of traffic."

In order, therefore, to be more just in controlling rates and facilities furnished by common carriers, the constitutions and laws of a few states have ordered the physical valuation of railroad property. In Oklahoma the corporation commission must ascertain and keep as a matter of public record the amount of money expended in the construction and equipment per mile of every railroad and public service corporation in the state, the amount of money expended to secure the right of way and, furthermore, the amount of money it would require to reconstruct the roadbed, track, depots, and transportation facilities, and to replace all the physical properties belonging to the railroad or public service corporation. The commission must also ascertain the outstanding bonds, debentures, and indebtedness and the amount thereof; when issued and the rate of interest; when due; for what purposes issued; how used; to whom issued; to whom sold, and the price in cash, property, or labor (if any) received therefor; what became of the proceeds; by whom the indebtedness is held, and the amount purporting to be due thereon; the floating indebtedness of the company, to whom due and the residence of the creditor; the credits due on it; the property on hand; and, finally, the judicial or other sales of the said road, its property or franchises and the amounts purporting to be paid therefor. After having thoroughly analyzed the physical structure of the system, the commission must ascertain the salaries and wages paid by the railroads and public service corporations.

d. Our state lawmakers, however, are not satisfied with laying down minute regulations to be obeyed by common carriers. They find it impossible to control, by positive enactment, all of the multifarious operations of railway and other public service corporations, and they have discovered also that the same rule cannot be applied equally to all companies in all parts of the state.