Act Relative to Incorporations for Manufacturing Purposes of 1811

Last updated July 04, 2019

The Act relative to incorporations for manufacturing purposes passed by the 34th New York State Legislature on March 22, 1811, was the first law in the US giving a general authorization for formation of corporations. Whereas previously all corporations had to be formed by legislative charter, the 1811 act created a procedure for incorporation of manufacturing firms capitalized at $100,000 or less.

The 34th New York State Legislature, consisting of the New York State Senate and the New York State Assembly, met from January 29 to April 9, 1811, during the fourth year of Daniel D. Tompkins's governorship, in Albany.

A general incorporation law allows corporations to be formed without a charter from the legislature. It also refers to a law enabling a certain type of corporation, such as a railroad, to exercise eminent domain and other special rights without a charter from the legislature.

A corporation is an organization, usually a group of people or a company, authorized to act as a single entity and recognized as such in law. Early incorporated entities were established by charter. Most jurisdictions now allow the creation of new corporations through registration.

Background

Following the Embargo Act of 1807 and Non-Intercourse Act (1809), the United States found itself on a war footing and facing a shortage of textiles and other manufactured goods. New York Governor Daniel D. Tompkins announced the need for economic independence, and the state legislature approved a rising number of manufacturing charters. The need for domestic thread production sufficed as political justification for the groundbreaking law.^[1]

The Embargo Act of 1807 was a general embargo on all foreign nations enacted by the United States Congress against Great Britain and France during the Napoleonic Wars.

In the last sixteen days of President Thomas Jefferson's presidency, the Congress replaced the Embargo Act of 1807 with the almost unenforceable Non-Intercourse Act of March 1809. This Act lifted all embargoes on American shipping except for those bound for British or French ports. Its intent was to damage the economies of the United Kingdom and France. Like its predecessor, the Embargo Act, it was mostly ineffective, and contributed to the coming of the War of 1812. In addition, it seriously damaged the economy of the United States. The Non-Intercourse Act was followed by Macon's Bill Number 2. Despite hurting the economy as a whole, the bill did help America begin to industrialize, as no British manufactured goods could be imported, so these goods instead had to be produced domestically.

Daniel D. Tompkins was an American politician. He was the fourth governor of New York from 1807 to 1817, and the sixth vice president of the United States from 1817 to 1825.

General incorporation laws had already been issued for religious organizations (1784), colleges (1787), municipalities (1788), libraries (1792), medical groups (1806), and turnpikes (1807), providing models for the legislation, and ensuring public familiarity with the concept.^[1]

Content

The law authorized groups of five or more to form a manufacturing corporation with lifespan of twenty years.^[2] It applied to various types of fabric production and metalworking.^[3] The corporation so formed was to be governed by no more than nine trustees,^[4] and have capital stock of no more than $100,000.^[2]

The law extended incomplete limited liability for the shareholders of the corporations, stipulating in Section 7 that "for all debts which shall be due and owing by the company at the time of its dissolution, the persons then composing such company shall be individually responsible to the extent of their respective shares of stock in the said company, and no further...".^[2]

Limited liability Business structure where shareholders cannot owe more than their stake in a venture

Limited liability is where a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a company or partnership. If a company with limited liability is sued, then the claimants are suing the company, not its owners or investors. A shareholder in a limited company is not personally liable for any of the debts of the company, other than for the amount already invested in the company and for any unpaid amount on the shares in the company, if any. The same is true for the members of a limited liability partnership and the limited partners in a limited partnership. By contrast, sole proprietors and partners in general partnerships are each liable for all the debts of the business.

Upon depositing a certificate with the New York Secretary of State,^[1]

the persons who shall have signed and acknowledged the said certificate, and their successors, shall, for the term of twenty years next after the day of filing such certificate, be a body politics and corporate, in fact and in name, by the name stated in such certificate, and by that name they and their successors shall and may have succession, and shall be persons in law capable of suing and being sued, pleasing and being impleaded, answering and being answered unto, defending and being defended, in all courts and places whatsoever, in all manner of actions, suits, complaints, matters and causes whatsoever; and they and their successors may have a common seal, and the same may make, alter, and change at their pleasure; and that they and their successors, by their corporate name, shall in law be capable of buying, purchasing, holding and conveying, any lands, tenements, hereditaments, goods, wares, and merchandise, whatsoever, necessary to enable the said company to carry on their manufacturing operations mentioned in such certificate.

Development

The Act expired after five years and lapsed for a week before a one-year renewal in 1816; it lapsed again and was renewed for five years in 1818. In 1821 it was made permanent and remained law until 1890.^[5] Its scope was progressively broadened to include clay, then pinmakers and beer brewers, then leather makers, then salt makers.^[1]

The law was followed in other states by similar laws. In October 1814, New York passed "An act to encourage privateering associations", a general incorporation law for privateers.^[1]

Results

By 1818, one hundred and twenty-nine manufacturing firms had incorporated in New York.^[6] By 1848, 362 firms had incorporated under the Act (compared to 150 manufacturing firms and 1220 companies total incorporated by legislative charter).^[4] Of the 362 corporations created under the new law, 226 dealt with textiles, 62 with metal, and 15 with glassware.^[1]

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A claim in tort against a corporation formed under that act, as amended, is not a debt of the company for which the trustees may become liable jointly and severally under the provisions of the Act. In a proceeding to enforce a liability created by a state statute, the courts of the United States give to a judgment of a state court the same effect, either as evidence or as cause of action, which is given to it in like proceedings in the courts of the state whose laws are invoked in the enforcement.
The complaint in this action, after alleging that the plaintiff in error was a citizen of Pennsylvania, and the defendants citizens of New York, proceeded as follows:
"Wherefore the plaintiffs demand judgment against the above-named defendants in the sum of $40,828.97, with interest on $40,500.00 from the 30th day of July, 1874, and on $328.97 from the 3d day of October, 1874, besides the costs and disbursements of this action."
To this complaint the defendants severally demurred on the ground that it did not state facts sufficient to constitute a cause of action. The demurrer was sustained and judgment rendered in favor of the defendants dismissing the complaint, to reverse which this writ of error is prosecuted.
The statute on which the action is founded is as follows:
"SECTION 1. The twelfth section of the 'Act to authorize the formation of corporations for manufacturing, mining, mechanical, or chemical purposes,' passed February 17, 1848, as said section was amended by chapter 657 of the Laws of 1871, is hereby further amended, so that section 12 shall read as follows:"
"§ 12. Every such company shall, within twenty days from the first day of January, if a year from the time of the filing of the certificate of incorporation shall then have expired, and if so long a time shall not have expired, then within twenty days from the first day of January in each year after the expiration of a year from the time of filing such certificate, make a report, which shall be published in some newspaper published in the town, city, or village, or, if there be no newspaper published in said town, city, or village, then in some newspaper published nearest the place where the business of the company is carried on, which shall state the amount of capital, and of the proportion actually paid in, and the amount of its existing debts, which report shall be signed by the president and a majority of the trustees, and shall be verified by the oath of the president or secretary of said company, and filed in the office of the clerk of the county where the business of the company shall be carried on, and if any of said companies shall fail so to do, all the trustees of the company shall be jointly and severally liable for all the debts of the company then existing, and for all that shall be contracted before such report shall be made. But whenever under this section a judgment shall be recovered against a trustee severally, all the trustees of the company shall contribute a ratable share of the amount paid by such trustee on such judgment, and such trustee shall have a right of action against his co-trustees, jointly or severally, to recover from them their proportion of the amount so paid on such judgment, provided that nothing in this act contained shall affect any action now pending.
It is finally insisted that a judgment against the corporation, although founded upon a tort, becomes ipso facto a debt by contract, being a contract of record or a specialty in the nature of a contract. But we have already seen that the settled course of decision in the New York Court of Appeals rejects the judgment against the corporation as either evidence or ground of liability against the trustees, and founds the latter upon the obligation of the corporation on which the judgment itself rests. And it was decided by this Court in the case of Louisiana v. New Orleans, 109 U. S. 285, that a liability for a tort, created by statute, although reduced to judgment by a recovery for the damages suffered, did not thereby become a debt by contract in the sense of the Constitution of the United States forbidding state legislation impairing its obligation, for the reason that the term 'contract' is used in the Constitution in its ordinary sense as signifying the agreement of two or more minds, for considerations proceeding from one to the other, to do or not to do certain acts. Mutual assent to its terms is of its very essence."
The same definition applies in the present instance, and excludes the liability of the defendants, as trustees of the corporation, for its torts, although reduced to judgment.
The court found no error in the judgment of the circuit court, and it was accordingly affirmed.

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References

1 2 3 4 5 6 Ronald E. Seavoy, "Laws to Encourage Manufacturing: New York Policy and the 1811 General Incorporation Statute"; Business History Review 46(1), Spring 1972. "It passed easily. It was the first effective general incorporation statute for business corporations passed by any state. It was essentially an emergency measure to encourage investments in enterprises that would produce thread for household weaving at a time when the European textile supply was cut off."
1 2 3 Stanley E. Howard, "Stockholder’s Liability under the New York Act of March 22, 1811"; Journal of Political Economy 46(4), August 1938.
↑ Text of the law, section 1: "…for the purpose of manufacturing woolen, cotton, or linen goods, or for the purpose of making from ore, bar iron, anchors, mill irons, steel, nail rods, hoop iron and ironmongery, sheet copper, sheet lead, shot, white lead, and red lead."
1 2 W. C. Kessler, "A Statistical Study of the New York General Incorporation Act of 1811"; Journal of Political Economy 48(6), December 1940.
↑ Fred Freedland, "History of Holding Company Legislation in New York State: Some Doubts as to the 'New Jersey First' Tradition"; Fordham Law Review 24(3), 1955; pp. 370—371.
↑ Miller (1967), pp. 109–110.

Sources

Miller, Douglas T. (1967) Jacksonian Aristocracy: Class and Democracy in New York, 1830–1860. New York: Oxford University Press.

External links

Text of “Act relative to incorporations for manufacturing purposes” printed in 1936 New York Annual Register and followed by relevant later legislation.

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[Seavoy-1] 1 2 3 4 5 6 Ronald E. Seavoy, "Laws to Encourage Manufacturing: New York Policy and the 1811 General Incorporation Statute"; Business History Review 46(1), Spring 1972. "It passed easily. It was the first effective general incorporation statute for business corporations passed by any state. It was essentially an emergency measure to encourage investments in enterprises that would produce thread for household weaving at a time when the European textile supply was cut off."

[Howard1938-2] 1 2 3 Stanley E. Howard, "Stockholder’s Liability under the New York Act of March 22, 1811"; Journal of Political Economy 46(4), August 1938.

[3] Text of the law, section 1: "…for the purpose of manufacturing woolen, cotton, or linen goods, or for the purpose of making from ore, bar iron, anchors, mill irons, steel, nail rods, hoop iron and ironmongery, sheet copper, sheet lead, shot, white lead, and red lead."

[Kessler1940-4] 1 2 W. C. Kessler, "A Statistical Study of the New York General Incorporation Act of 1811"; Journal of Political Economy 48(6), December 1940.

[5] Fred Freedland, "History of Holding Company Legislation in New York State: Some Doubts as to the 'New Jersey First' Tradition"; Fordham Law Review 24(3), 1955; pp. 370—371.

[6] Miller (1967), pp. 109–110.