satisfy other claims against it. Most states, therefore, have insolvency laws whereby a trader unable to pay his debts at maturity, may be compelled to surrender his property and business to be administered for the benefit of all his creditors.

Cooperative societies engaged in trade would be subject to these laws, and the object of this reference to them is to impress on those proposing to cooperate the vital necessity of maintaining credit, by promptly meeting all obligations when due. As already stated, all permanent debt is dangerous to cooperative societies, but if unfortunately debt be incurred, provision must always be carefully made in advance for prompt payment.

A

CHAPTER III.

COOPERATIVE CORPORATIONS.

S cooperative enterprises will usually be carried on by corporations created for the purpose, it seems necessary

to devote some space to their consideration. I can not say too often that this is not a law book, and that while there are many things which can be profitably said here in regard to corporations, whoever proposes to organize one should take no guide whatever but the printed law of his own state, and the advice of a competent lawyer. As laws affecting corporations are continually being changed in all states, one must not only consult the law, but be sure that it is the law as left by the last Legislature. In fact, if a corporation is worth organizing it is worth doing it under the advice of an experienced and capable lawyer.

The popular use of the term "corporations," of late years, to denote the great aggregations of capital which are so often employed to oppress the masses, has been such that there has grown up against those very useful institutions a certain unreasoning prejudice which often renders it very difficult to induce people-especially farmers to go into them. This prejudice has been greatly strengthened by unfortunate results which have befallen many who did go into them blindly. There can be no business without risk of loss. If I buy a farm at current prices, circumstances beyond my control may create conditions which will make it unsalable at half what I pay for it. If I have paid cash, I have then lost half my investment; if I have borrowed half the cost, I have lost all my capital and must pay rent in the form of interest so long as my creditor permits; when he chooses he will take my farm to repay his advance. If I lend money, no matter how well secured, there is a possibility of loss. If I engage in mercantile business there is still more chance of loss. If I

raise produce it may be burned before sale, or I may sell it at less than its value. If I unite with my neighbors to do any of these things in a cooperative way, there is the same danger of loss. If I incur debt I am holden to the extent of my property for its payment. If I duly authorize another to incur debt in my behalf, I am properly held as firmly as if I had myself conducted the transaction. If I enter a partnership, either of the partners may incur liabilities of which I am ignorant which may sweep away my entire property. If I join an association, however loosely united, and indebtedness is incurred in pursuance of the objects for which the association is founded -as, for example, if the association guarantees the freight on a car-load of fruit-I am responsible not only for my share of the guarantee, but, if I am the only member able to respond, for the entire amount. It is a principle not only of law but of equity that I be responsible for the act of my agent within the limit of his agency, and the association is my agent; and there is probably no limit to my responsibility except the limit of my property.

A corporation is a means provided by law whereby a large number of persons can safely and conveniently do business as one person. By incorporation individuals are enabled to escape many inconveniences and liabilities which they would incur by doing business as a partnership, or an unincorporated association, which is legally the same as a partnership.

1. By the death of a partner the whole business is liable to be thrown into court, with varying possibilities, according to circumstances, of hindrances in transacting its business, or a possible enforced winding up of its affairs. The death of a stockholder in a corporation need make no difference in the conduct of its business.

2. In an ordinary partnership, any of the partners may create liabilities involving the property of all the partners; in a corporation the law provides means whereby the power to incur debt is restricted to certain persons named by the stockholders, and who may be restrained by by-laws, and caused to give bonds not to violate them.

3. Instead of each stockholder being liable, like a partner,

to the extent of his property, for the entire indebtedness of the concern, he is liable only for a certain definite amount, which is fixed by statute in each state; in California he is liable for such a ratio of the indebtedness as the stock owned by him is of the total stock issued; if he owns one-tenth of the stock, he is liable for one-tenth of the indebtedness, and no more. Each state has its own law upon this matter. Some states may permit so called "limited" corporations,* in which stockholders in corporations are liable only to the amount of their stock subscription; when their stock is fully paid up there can be no further call upon them, no matter what indebtedness is incurred.

Corporations, therefore, are not only more convenient, but far safer than partnerships or associations, when any considerable number of persons unite to establish a permanent business.

Among farmers who become stockholders in cooperative enterprises there is a very common source of complaint, which has no foundation in reason, and that is "assessments" on stock not fully paid up; if I subscribe for ten shares of stock at $10 a share, I obligate myself to pay $100 at such times and under such conditions as the by-laws of the corporation and the laws of the state prescribe; and having thus promised I have no right to complain that I am held to the promise. There is often some uncertainty as to the exact capital required, and it is quite usual to take subscriptions for more than is supposed necessary, and call in only a certain portion. But the calling in of more is always a matter entirely within the discretion of the directors, but if they do call it no one can complain; if I do not wish to pay I must not promise to do so. The cause of the general complaint among farmers when called upon to pay "assessments" on non-paid-up stock is doubtless to be found in the self-delusions of enthusiastic promoters of cooperative societies, who have exaggerated ideas of the profits of business, and insufficient knowledge of the

* I know of no such state, but I have not investigated carefully. They are permitted by British law.

amount of capital required to transact it. In soliciting subscriptions to stock they are apt to represent-as they fully believe that the first payment is all that will be required; hence when the call comes for the second and the following payments, there is disappointment and complaint.

But the assessment of stock which has been fully paid up is quite another matter. If I subscribe for stock to the amount of $100, I must not complain if I am called upon to pay $100; but if I am called upon to pay more than that, there is almost certainly some one to blame. The mere fact of such an assessment is ordinarily evidence of mismanagement. As a rule, when such assessments are made they are for the purpose of paying indebtedness which should not have been incurred. The one who is usually to blame, when assessments on paid-up stock are made, is the stockholder himself. In all corporations the power rests with the stockholders, and where the power is, there must rest the responsibility. It is true that corporate affairs must be mostly transacted by directors, but those directors are chosen by the stockholders, who have also power to instruct them, and to see that they follow instructions. It is true that we may be deceived, both as to the honesty and the ability of our agents, but if we use ordinary diligence in attending to our own corporate business, we are almost certain to discover it in time to prevent serious injury. If we fail to use such diligence we have no one to blame but ourselves.

In nine cases out of ten financial trouble in cooperative corporations, leading to assessments on paid-up stock, is due to non-attendance of stockholders at stockholders' meetings and non-use by stockholders of the facilities which they have provided for themselves, and which it would be to their advantage to make use of. By attendance at stockholders' meetings, and by frequent calls at its place of business, and conversation with the managers and with other stockholders, the owners of the business may be kept constantly advised of its condition and prospects, and may always avert serious financial trouble.

One very common cause of financial trouble in cooperative societies is lack of patronage by the owners of the business.