1. A corporation created by one state can only exercise its
corporate franchises in another state by the comity of the
latter.
2. A joint stock association, which by its deed of settlement in
England and certain acts of Parliament is endowed with the
faculties and powers mentioned below is a corporation, and will be
so held in this country, notwithstanding the acts of Parliament, in
accordance with a local policy, declare that it shall not be so
held. These faculties and powers are:
1. A distinctive artificial name by which it can make
contracts.
2. A statutory authority to sue and be sued in the name of its
officers as representing the association.
3. A statutory recognition of the association as an entity
distinct from its members by allowing them to sue it and be sued by
it.
4. A provision for its perpetuity by transfers of its shares, so
as to secure succession of membership.
3. In this country, the individual responsibility of the
shareholder for the debts of the association is not incompatible
with the corporate idea.
Page 77 U. S. 567
4. Such corporations, whether organized under the laws of a
state of the Union or a foreign government, may be taxed by another
state, for the privilege of conducting their corporate business
within the latter.
A statute of the state just named imposes upon
"each fire, marine, and fire and marine insurance company,
incorporated or associated under the laws of any government or
state other than one of the United States, a tax of 4 percent upon
all premiums charged or received on contracts made in this
commonwealth for insurance of property."
The same statute imposes a tax of but 2 percent upon such
premiums when the company is incorporated under the laws of any one
of the United States other than Massachusetts, upon which premiums,
where the company is incorporated by itself, it imposes but 1
percent, while no tax is imposed by the laws of the state upon the
business of insurances transacted by any natural persons citizens
of the same.
With the enactment just mentioned on its statute book, the State
of Massachusetts in 1868 filed a bill in its Supreme Judicial Court
against the Liverpool & London Life and Fire Insurance Company
(a company doing a large business in that state), to collect a tax
of 4 percent on its premiums upon contracts made in Massachusetts
for insurance of property and to restrain the company from doing
further business till the tax was paid. The company set up that it
was not "incorporated" at all, but was an association, under the
laws of Great Britain, of natural persons, some of whom were
citizens and residents of the country just named, and some citizens
and residents of the State of New York, formed for the purpose of
conducting the business of insurance under certain deeds of
settlement and having the legal character of a partnership; that
accordingly it could not be taxed as a "company incorporated under
the laws of any government or state other than one of the United
States," while insofar as the discriminating tax of 4 percent was
sought to be laid against it as a company associated simply and not
incorporated, it violated, in regard to the members
Page 77 U. S. 568
of the company who were subjects of Great Britain, a provision
in the treaty of 1815 between that country and the United States by
which it is agreed that the merchants and traders of each nation
respectively shall enjoy the most complete protection and security
for their commerce, and, in regard to the citizens of New York,
that provision in Section 2, Article IV, of the federal
Constitution which secures to the citizens of each state all the
privileges and immunities of citizens in the several states.
Of course if the company was a corporation, the defense failed,
and it not being denied that the persons composing the company were
British subjects, with certain citizens of New York with rights
like theirs, the first question -- and the only one if it was
resolved affirmatively -- was whether the company was a corporation
or not.
The company had been originally formed, in May, 1836, in
Liverpool, by a "deed of settlement."
This instrument, as far as it could be done without the aid of
Parliament, established a company under the name of "The Liverpool
Life & Fire Insurance Company," with a capital of
�2,000,000 sterling, which was divided into 100,000 shares
of �20 each, and declared its purpose to be making insurance
on life and against fire. These shares could be sold and
transferred, and executors and administrators represented them in
the company on the death of the owner. If, by the laws of the
association, a share became forfeited, the owner was released from
all further liability to the company. The business of the company
was to be conducted by a board of directors exclusively, and they
could make bylaws and change and modify them. There was a covenant
that suits might be brought by or against the company in the names
of one or more directors, which should bind the stockholders, and
that no stockholder would plead in abatement the nonjoinder of the
others; and it was further covenanted that a judgment so obtained
against a director might be made out of the property of any of the
stockholders. Numerous other provisions were found in the original
articles, which consisted of over a hundred sections,
Page 77 U. S. 569
but only those are referred to here which bear on the question
which the court had before it. There were also three subsequent
deeds of settlement, and three acts of Parliament were passed to
give efficiency to the purposes of the association.
The first of these acts provided that the association might sue
and be sued in the name of the chairman or deputy chairman of the
board of directors; that the stockholders might sue the company as
plaintiffs or be sued by it as defendants. It regulated the manner
in which
the shareholders might be made individually liable for
the debts of the association, and it declared that the act
should
not be construed to incorporate the company or relieve
its members from their individual liability except as provided
in the act.
The second act of Parliament changed the name of the company to
that which it now bears, and authorized it to make contracts by the
new name, and it also contained a provision that the act should
not make the company a corporation, and there was a third
act which authorized amalgamation with another company, and which
again provides
against its being construed into an act of
incorporation or a limited liability partnership.
The Supreme Judicial Court of Massachusetts gave a decree
against the company and enjoined it from the further prosecution of
its business till the taxes found to be due were paid.
The case was now brought to this Court on the ground that in its
application to the company, the statute of Massachusetts was in
conflict with the provision of the Constitution which confers on
Congress the right to regulate commerce with foreign nations and
among the states and with that which secures to the citizens of
each state all the privileges and immunities of citizens in the
several states.
Page 77 U. S. 573
MR. JUSTICE MILLER delivered the opinion of the Court.
The case of
Paul v. Virginia * decided that the
business of insurance, as ordinarily conducted, was not commerce,
and that a corporation of one state, having an agency by which it
conducted that business in another state, was not engaged in
commerce between the states.
It was also held in that case that a corporation was not a
citizen within the meaning of that clause of the Constitution,
which declares that the citizens of each state shall be entitled to
all the privileges and immunities of citizens in the several
states, and that a corporation created by a state could exercise
none of the functions or privileges conferred by its charter in any
other state of the Union except by the comity and consent of the
latter.
These propositions dispose of the case before us if plaintiff is
a foreign corporation, and was as such conducting business in the
State of Massachusetts, and we proceed to inquire into its
character in this regard.
The institution now known as the Liverpool & London Life
& Fire Insurance Company, doing an immense business
Page 77 U. S. 574
in England and in this country, was first organized at Liverpool
by what is there called a deed of settlement, and would here be
called articles of association.
It will be seen by reference to the powers of the association,
as organized under the deed of settlement, legalized and enlarged
by the acts of Parliament, that it possesses many, if not all, the
attributes generally found in corporations for pecuniary profit
which are deemed essential to their corporate character.
1. It has a distinctive and artificial name by which it can make
contracts.
2. It has a statutory provision by which it can sue and be sued
in the name of one of its officers as the representative of the
whole body, which is bound by the judgment rendered in such
suit.
3. It has provision for perpetual succession by the transfer and
transmission of the shares of its capital stock, whereby new
members are introduced in place of those who die or sell out.
4. Its existence as an entity apart from the shareholders is
recognized by the act of Parliament which enables it to sue its
shareholders and be sued by them.
The subject of the powers, duties, rights, and liabilities of
corporations, their essential nature and character, and their
relation to the business transactions of the community, have
undergone a change in this country within the last half century the
importance of which can hardly be overestimated.
They have entered so extensively into the business of the
country, the most important part of which is carried on by them, as
banking companies, railroad companies, express companies, telegraph
companies, insurance companies &c., and the demand for the use
of corporate powers in combining the capital and the energy
required to conduct these large operations is so imperative that
both by statute and by the tendency of the courts to meet the
requirements of these public necessities, the law of corporations
has been so modified, liberalized, and enlarged, as to constitute a
branch
Page 77 U. S. 575
of jurisprudence with a code of its own, due mainly to very
recent times. To attempt, therefore, to define a corporation or
limit its powers by the rules which prevailed when they were rarely
created for any other than municipal purposes, and generally by
royal charter, is impossible in this country and at this time.
Most of the states of the Union have general laws by which
persons associating themselves together, as the shareholders in
this company have done, become a corporation.
The banking business of the states of the Union is now conducted
chiefly by corporations organized under a general law of Congress,
and it is believed that in all the states the articles of
association of this company would, if adopted with the usual
formalities, constitute it a corporation under their general laws
or it would become so by such legislative ratification as is given
by the acts of Parliament we have mentioned.
To this view it is objected that the association is nothing but
a partnership, because its members are liable individually for the
debts of the company. But however the law on this subject may be
held in England, it is quite certain that the principle of personal
liability of the shareholders attaches to a very large proportion
of the corporations of this country, and it is a principle which
has warm advocates for its universal application when the
organization is for pecuniary gain.
So also it is said that the fact that there is no provision
either in the deed of settlement or the act of Parliament for the
company suing or being sued in its artificial name forbids the
corporate idea. But we see no real distinction in this respect
between an act of Parliament which authorized suits in the name of
the Liverpool & London Fire and Life Insurance Company and that
which authorized suit against that company in the name of its
principal officer. If it can contract in the artificial name and
sue and be sued in the name of its officers on those contracts, it
is in effect the same, for process would have to be served on some
such officer even if the suit were in the artificial name.
Page 77 U. S. 576
It is also urged that the several acts of Parliament we have
mentioned expressly declare that they shall not be held to
constitute the body a corporation.
But whatever may be the effect of such a declaration in the
courts of that country, it cannot alter the essential nature of a
corporation or prevent the courts of another jurisdiction from
inquiring into its true character whenever that may come in issue.
It appears to have been the policy of the English law to attach
certain consequences to incorporated bodies which rendered it
desirable that such associations as these should not become
technically corporations. Among these, it would seem from the
provisions of these acts, is the exemption from individual
liability of the shareholder for the contracts of the corporation.
Such local policy can have no place here in determining whether an
association, whose powers are ascertained and its privileges
conferred by law, is an incorporated body.
The question before us is whether an association such as the one
we are considering, in attempting to carry on its business in a
manner which requires corporate powers under legislative sanction,
can claim, in a jurisdiction foreign to the one which gave those
powers, that it is only a partnership of individuals.
We have no hesitation in holding that as the law of corporations
is understood in this country, the association is a corporation,
and that the law of Massachusetts, which only permits it to
exercise its corporate function in that state on the condition of
payment of a specific tax, is no violation of the federal
Constitution or of any treaty protected by said Constitution.
Judgment affirmed.
*
75 U. S. 8 Wall.
168.
MR. JUSTICE BRADLEY:
Whilst I agree in the result which the Court has reached, I
differ from it on the question whether the company is a
corporation. I think it is one of those special partnerships which
are called joint stock companies, well known in England for nearly
a century, and cannot maintain an action or be sued as a
corporation in this country without legislative
Page 77 U. S. 577
aid. But as it is a company associated under the laws of a
foreign country, it comes within the scope of the Massachusetts
statute, and cannot claim exemption from its operation for the
causes alleged in that behalf. It could not have been the intent of
the treaty of 1815 to prevent the states from imposing taxes or
license laws upon either British corporations or joint stock
companies desiring to establish banking or insurance business
therein. And certainly these companies cannot be exempted from such
laws on the ground that citizens of other states have chosen to
take some of their shares.
