Opinion
No. 38883.
July 31, 1947.
1. QUO WARRANTO: Corporations: Reorganization of Ousted Power Cooperative: Restriction on Sale of Stock Valid. A provision in the charter of a new power company formed to take over the assets of an ousted cooperative that the corporation shall have a prior option to purchase the shares of stockholders desiring to sell is not invalid as an unreasonable restraint of trade and is in accord with the General and Business Corporation Act.
2. QUO WARRANTO: Corporations: Reorganization of Ousted Power Cooperative: Limitation of Stock Subscribers Valid. The reorganized corporation has the right to limit the issue of stock to incorporators or purchasers of electric energy.
3. QUO WARRANTO: Corporations: Public Utilities: Reorganization of Ousted Power Cooperative: Capital Not Inadequate: Jurisdiction of Public Service Commission. A paid up capital of $540 will not be deemed inadequate because a debt of $2,504,000 is assumed. Matters of regulation and supervision must be left for determination by the Public Service Commission. The plan of reorganization is approved.
PLAN OF REORGANIZATION APPROVED.
Henry C. Salveter and Gregory C. Stockard for respondent Sho-Me Power Cooperative and respondent-intervenor Sho-Me Power Corporation.
(1) The basic issue is whether Sho-Me Corporation is properly incorporated under the General and Business Corporation Act to acquire and operate the properties of respondent and does not encompass questions relating to proposed financing. State v. Sho-Me Power Cooperative, 354 Mo. 892, 191 S.W.2d 971; Secs. 5651, 5652, R.S. 1939; Boatmen's Bank v. Gillespie, 209 Mo. 217, 108 S.W. 74; People v. City of Paris, 380 Ill. 503, 44 N.E.2d 154; State ex inf. McKittrick v. Murphy, 347 Mo. 484, 148 S.W.2d 527; State ex rel. Johnson v. Consumers Public Power District, 143 Neb. 753, 10 N.W.2d 784; Mo. R.S.A. (Supp. 1946), Sec. 4997.4 (e) and (g); In re Rahn's Estate, 316 Mo. 492, 291 S.W. 120. (2) The provisions in the articles of incorporation of Sho-Me Corporation requiring its shareholders to allow to the corporation a thirty-day option to purchase their shares of stock before offering them for sale elsewhere is a reasonable restriction upon the transfer of such shares contemplated and permitted under Missouri Statutes. Mo. R.S.A. (Supp. 1946), Secs. 4997.12, 4997.50, 5563.15; State ex rel. Manlin v. Druggists' Addressing Co., Inc., 113 S.W.2d 1061; Scruggs, Vandervoort Barney Bank v. International Shoe Co., 227 Mo. App. 378, 52 S.W.2d 1027; Secs. 5023, 5030, 5338, R.S. 1939; Chouteau Spring Co. v. Harris, 20 Mo. 382; Moore v. Bank of Commerce, 52 Mo. 377; Carroll v. Mullanphy Savs. Bank, 8 Mo. App. 249; Bank of Atchison County v. Durfee, 118 Mo. 431, 24 S.W. 133; Brinkerhoff-Farris Trust Sav. Co. v. Home Lumber Co., 118 Mo. 447, 24 S.W. 129; St. Louis Perpetual Ins. Co. v. Goodfellow, 9 Mo. 149; Mechanics' Bank v. Merchants' Bank, 45 Mo. 513; Spurlock v. Pacific Railroad, 61 Mo. 319; Kretzer v. Cole Bros. Lightning Rod Co., 193 Mo. App. 99, 181 S.W. 1066; State Savings Assn. v. Nixon Jones Printing Co., 25 Mo. App. 642; State v. Clarke, 54 Mo. 17; Hassel v. Pohle, 214 A.D. 654, 212 N.Y.S. 561; People ex rel. Rudaitis v. Galskis, 233 Ill. App. 414; Hulse v. Consolidated Quicksilver Mining Corp., 65 Idaho 768, 154 P.2d 149; Warner Swasey Co. v. Rusterholz, 41 F. Supp. 498; Doss v. Yingling, 95 Ind. App. 494, 172 N.E. 801; Barrett v. King, 181 Mass. 476, 63 N.E. 934; Casper v. Kalt Zimmers Mfg. Co., 159 Wis. 517, 149 N.W. 754; In re Laun, Farmers' Mercantile Supply Co. v. Laun, 146 Wis. 252, 131 N.W. 366; Rychwalski v. Milwaukee Candy Co., 205 Wis. 193, 236 N.W. 131; Bloomingdale v. Bloomingdale, 107 Misc. 646, 177 N.Y.S. 873; Lawson v. Household Finance Corp. 17 Del. Ch. 1, 147 A. 312, affirmed 17 Del. Ch. 343, 152 A. 723; Nicholson v. Franklin Brewing Co., 82 Ohio St. 94, 91 N.E. 991; McDonald v. Farley Loetscher Mfg. Co., 226 Iowa 53, 283 N.W. 261; Fopiano v. Italian Catholic Cemetery Assn., 260 Mass. 99, 156 N.E. 708; Baumohl v. Golstein, 95 N.J. Eq. 597, 124 A. 118; Cowles v. Cowles Realty Co., 201 A.D. 460, 194 N.Y.S. 546; Sterling Loan Inv. Co. v. Litel, 75 Colo. 34, 223 P. 753; Searles v. Bar Harbor Banking Trust Co., 128 Me. 34, 145 A. 391. (3) The provisions in the articles of incorporation of Sho-Me Corporation, (a) restricting the issuance of shares by the corporation to purchasers of electric energy, and (b) restricting the corporation to the issuance of only one share to any such purchaser who is not an incorporator and twelve shares to an incorporator are reasonable restrictions not repugnant to law or public policy. Mo. R.S.A. (Supp. 1946), Sec. 4997.25; In re Holyoke, Holyoke v. Millman, 151 Wis. 551, 139 N.W. 392; Barrett v. King, 181 Mass. 476, 63 N.E. 934; Longyear v. Hardman, 219 Mass. 405, 106 N.E. 1012; Mason v. Millard Tel. Co., 213 Iowa 1076, 240 N.W. 671; People ex rel. Rudaitis v. Galskis, 233 Ill. App. 414; McDonald v. Farley Loetscher Mfg. Co., 226 Iowa 53, 283 N.W. 261; State ex rel. Normile v. Cooney, 100 Mont. 391, 47 P.2d 637; Scruggs, Vandervoort Barney Bank v. International Shoe Co., 227 Mo. App. 378, 52 S.W.2d 1027; State ex rel. Manlin v. Druggists' Addressing Co., Inc., 113 S.W.2d 1061; Oakland Scavenger Co. v. Gandi, 51 Cal.App.2d 69, 124 P.2d 143; Nicholson v. Franklin Brewing Co., 82 Ohio St. 94, 91 N.E. 991; Berle and Means. "The Modern Corporation and Private Property," (1939), p. 58; Means, "The Diffusion of Stock Ownership in the United States." 44 Quarterly Journal of Economics (1930) 561, 567, 596; Elson v. Schmidt, 140 Neb. 646, 1 N.W.2d 314; O'Brien v. Cummings, 13 Mo. App. 197; Kretzer v. Cole Bros. Lightning Rod Co., 193 Mo. App. 99, 181 S.W. 1066; State v. Sho-Me Power Cooperative, 354 Mo. 892, 191 S.W.2d 971 Webster, New International Dictionary (2d Ed., 1940); Rainey v. Taylor, 166 Ga. 476, 143 S.E. 383; Cummings v. State of Missouri, 71 U.S. 277; Meffert v. State Board of Medical Registration and Examination, 66 Kan. 710, 72 P. 247; Hyde v. State, 52 Miss. 665; State ex rel. Evans v. Wheatley, 197 Ark. 997, 125 S.W.2d 101; Commonwealth ex rel. Dummit v. O'Connell, 298 Ky. 44, 181 S.W.2d 691; Baumohl v. Goldstein, 95 N.J. Eq. 597, 124 A. 118; Garrett v. Philadelphia Lawn Motor Co., 39 Pa. Super. 78; Berle and Means, "The Modern Corporation and Private Property," (1939), p. 138. (4) Sho-Me Corporation is properly organized as a profit corporation under the General and Business Corporation Act. 1 Fletcher, Cyc. Corp. (1931), sec. 68; Snyder v. Chamber of Commerce, 53 Ohio St. 1, 41 N.E. 33; People ex rel. Hughes v. Universal Service Assn., 365 Ill. 542, 7 N.E.2d 310; Rensselaer County Agricultural and Horticultural Soc. v. Weatherway, 255 N.Y. 329, 174 N.E. 699; Clay Sewer Pipe Assn. v. Commissioner of Internal Revenue, 139 F.2d 130; American Cotton Coop. Assn. v. Union Compress Warehouse Co., 7 So.2d 537; Neidringhaus v. William C. Neidringhaus Inv. Co., 329 Mo. 84, 46 S.W.2d 828; Mo. R.S.A. (Supp. 1946), Secs. 4997.43, 4997.2; Jones v. Van Hansen Charles Co., 230 A.D. 694, 246 N.Y.S. 204; Dodge v. Ford Motor Co., 204 Mich. 459, 170 N.W. 668. (5) Questions relating to the proposed financial structure of Sho-Me Corporation are irrelevant. Mo. R.S.A. (Supp. 1946), Secs. 4997.53, 4997.50(d); Sylvester Watts Smyth Realty Co. v. American Surety Co. of New York, 292 Mo. 423, 238 S.W. 494; Secs. 5652, R.S. 1939; Re Missouri Electric Power Co., 50 P.U.R. (N.S.) 257. (6) Questions relating to the proposed deed of trust are irrelevant. Sec. 5651, R.S. 1939; State ex inf. McKittrick v. Murphy, 347 Mo. 484, 148 S.W.2d 527; State ex rel. Johnson v. Consumers Public Power District, 143 Neb. 753; People v. City of Paris, 380 Ill. 503, 44 N.E.2d 154.
R.B. Oliver, Jr., R.K. McPherson and A.Z. Patterson for intervenors.
(1) An attempt to organize a cooperative enterprise under the Missouri General and Business Corporation Act is unlawful and void. Todd v. Ferguson, 161 Mo. App. 624, 144 S.W. 158; Secs. 5386, 5426; Mo. R.S.A. 4997.1, 4997.3; State v. Minn. Thresher Co., 14 Minn. 213, 41 N.W. 1020. (2) Mere statement in the articles of incorporation that a corporation is organized under the General Business and Corporation Act is ineffectual if the articles actually set up a cooperative plan and a cooperative relation between the corporation and its members. Todd v. Ferguson, supra; State v. Minn. Thresher Co., supra; 14 C.J., p. 80, sec. 51. (3) The courts will look through the form to get at the real intent of the association of individuals forming the corporation. State ex rel. Pritchett School v. Lesueur, 141 Mo. 29, 41 S.W. 904; Wyatt v. Stillman Institute, 303 Mo. 94, 260 S.W. 73; In re First Natl. Safe Deposit Co., 351 Mo. 423, 173 S.W.2d 403; State v. Baker, 320 Mo. 1146, 9 S.W.2d 589; State ex rel. Danciger v. Pub. Serv. Comm., 275 Mo. 483, 205 S.W. 36; Hall v. Woods, 325 Ill. 114, 156 N.E. 258; Terminal Taxicab Co. v. Kutz, 241 U.S. 252, 36 S.Ct. 583, 60 L.Ed. 984, 119 A.L.R. 1013. (4) The Missouri Rural Electric Cooperative Act expressly authorizes restrictions requiring shareholders or members to be consumers of electricity furnished by the cooperative, and restriction that members may hold but one share of stock. The General and Business Corporation Act neither expressly nor impliedly authorizes the creation of such restrictions. Article III of the Sho-Me Power Corporation Articles of Incorporation creates such restrictions and thereby discloses the primary purpose to create a cooperative. Art. III, Sho-Me's Articles of Incorporation. Rural Electric Cooperative Act, Mo. R.S.A., Sec. 5394. (5) Courts have clearly ruled that restrictions of this nature are peculiarly adapted to cooperative enterprises. Chaffee v. Farmers Cooperative Elevator Co., 39 N.D. 585, 168 N.W. 616. (6) But, many decisions throughout the country have established the doctrine that such restrictions on share holdings and share transfers, when applied to general and business corporations, constitute unlawful restraints of trade and are against public policy, unlawful and void. Missouri adheres to the rule. James O'Brien v. Cummings, 13 Mo. App. 197; Moore v. Bank of Commerce, 52 Mo. 377; Brinkerhoff-Farris Trust Savs. Co. v. Home Lumber Co., 118 Mo. 447, 24 S.W. 129; Kretzer v. Cole Bros. Lightning Rod Co., 181 S.W. 1066; Bank v. Durfee, 118 Mo. 443; Senn v. Union Premium Mercantile Co., 115 Mo. App. 685; Chandler v. Tea and Coffee Co., 183 Mo. App. 91; Banta v. Hubbel, 169 Mo. App. 38; Lamier v. Bank, 11 Wall. 369; Thompson on Corporations (Third Ed.), secs. 1129, 1130; Bloede Co. v. Bloede, 84 Md. 129. (7) Sho-Me Power Co-operative and Sho-Me Power Company seek to avoid the established rule against restrictions on alienation, by insistence that there is now legislative authority for such restrictions in The General and Business Corporation statute. Mere provision in such statute that the Articles of Incorporation may set forth the "designations, preferences, qualifications, limitations, restrictions" as between the classes of stock, in no way infers that the Legislature intended to authorize unreasonable restrictions, always held unlawful and void in Missouri. Mo. R.S.A., Sec. 4997.12; Cases cited under (4); Chouteau Spring Co. v. Harris, 20 Mo. 382. (8) The specific restrictions, sought to be injected by Sho-Me in a Missouri General and Business Corporation charter, are (1) condition that a shareholder must be an electric consumer, and (2) limitation that shareholders may be issued only one share or twelve shares in the case of incorporators. Attempt is made to implement these restrictions by the third restriction that no transfer may be made by an original holder, until offer has been made to sell to the corporation at par. Restraints upon alienation of corporate stock, never authorized by legislative enactment, may not be created by rule of the corporation itself. Cases cited under (4): Carroll v. Mullanphy Savs. Bank, 8 Mo. App. 249; Hunter v. Garanflo, 246 Mo. 131, 151 S.W. 741; Kretzer v. Cole Bros. Lightning Rod Co., 181 S.W. 1066. (9) The rule that a corporation may not diminish capital and prejudice creditors by purchase of its own stock with capital assets has not been changed by enactment of the General and Business Corporation Act. Such act merely restates the recognized exception to the rule, that stock may be repurchased from surplus where no impairment of capital results. The issue here is not what power does the corporation have to repurchase its own stock? Admittedly it may have such power, if its exercise does not impair its capital. The issue is that there is no legislative authorization for a charter provision compelling the share holder to re-sell his stock to the corporation. Cases cited under (4); Interstate Grocer Co. v. Taylor, 204 S.W. 408, 200 Mo. App. 205; David v. B.L. Fry Mfg. Co., 236 S.W. 1103, 209 Mo. App. 134; Chrisman-Sawyer Banking Co. v. Independent Wool Mfg. Co., 168 Mo. 643, 68 S.W. 1156; Wilson v. Torchon Lace Merc. Co., 149 S.W. 1156, 167 Mo. App. 305; Botz v. Helvering, Com. Intern. Rev., 134 F.2d 538; Robinson v. Wangemann, 75 F.2d 756. (10) The whole Plan of Reorganization, as disclosed by Sho-Me's filings in this court is the plan of a cooperative enterprise, rather than one which may be followed by a Missouri General and Business Corporation. Assumption of debt of $2,504,000, with paid up capital of only $540, provides paid up capitalization so grossly inadequate and insufficient for engaging in the large business enterprise which the corporation proposes to undertake, as to constitute a legal fraud and abuse of the corporation laws of the state. (11) Sho-Me, if it is to be organized as a General and Business Corporation, should not be permitted to inject into its charter restrictions upon membership proper only for cooperative enterprises. The character of a judgment and the remedy afforded in quo warranto cases is largely in the discretion of the court. Courts are not bound by mere form, nor are they to be misled by mere pretenses. State ex rel. McKittrick v. C.S. Dudley Co., 102 S.W.2d 895; Mugler v. Kansas, 123 U.S. 623, 8 S.Ct. 273; 31 L.Ed. 205; State ex rel. Hadley v. Standard Oil Co., 194 Mo. l.c. 149, 91 S.W. 1062; State ex rel. Barrett v. First Natl. Bank, 249 S.W. 619, 297 Mo. 397, 30 A.L.R. 918.
Original proceeding in this court in the nature of quo warranto to oust respondent, Sho-Me Power Co-Operative, from operating as a public utility corporation in generating, selling and distributing electric energy. That company, hereafter called Co-Op, had been incorporated under our statutes authorizing the formation of corporations to conduct agricultural or mercantile business on a co-operative plan. On January 14, 1946, we rendered an opinion [ 354 Mo. 892, 191 S.W.2d 971] holding that Co-Op could not legally conduct the business of a public utility. We issued a writ of ouster, but granted Co-Op one year to reorganize, if it so desired, and we reserved jurisdiction. Later we extended the time for reorganization "until the further order of this court."
In February, 1947, the incorporators of Co-Op formed a new corporation, Sho-Me Power Corporation, hereafter called Sho-Me. It was incorporated under the General and Business Corporation Act of Missouri. [Laws 1943, p. 410, et seq., Mo. R.S.A., 1946 Supp., sec. 4997.1 et seq.] Co-Op and Sho-Me entered into an agreement, subject to the approval of the Missouri Public Service Commission, whereby Co-Op is to transfer all its property, franchises and certificates of convenience [278] and necessity to Sho-Me, and the latter is to assume all the debts and obligations of Co-Op, including Co-Op's debt to the United States, the balance of which is $2,440,651.00 for which Sho-Me is to execute its note and deed of trust to the Government.
Co-Op petitioned this court for approval of its proposed plan of reorganization and for a decision that Sho-Me has corporate power to assume and fulfill the obligations of Co-Op as a public utility. With the petition it submitted copies of Sho-Me's articles of incorporation, certificate of incorporation, certificate to commence business, its by-laws, copies of the contract of sale and of the proposed note and deed of trust to the Government.
Sho-Me asked and was granted leave to intervene. Its articles of incorporation authorize the issuance of 25,000 shares of the par value of $5.00 per share. It has issued 108 shares and will commence business with a paid up capital of $540.00. The contract of sale referred to above recites that the Government had agreed to loan Co-Op $4,275,000.00 and had loaned it $2,504,000.00 secured by deed of trust.
Three public utilities, Arkansas-Missouri Power Company, Empire District Electric Company, and Missouri Utilities Company, hereafter called Objectors, have, with leave, filed objections to the plan of reorganization, which may be stated as follows:
That Sho-Me is not validly incorporated under the General and Business Corporation Act and is, in fact, a co-operative.
That the Act does not permit the inclusion in the charter of a business corporation of such a provision as number three of Sho-Me's articles of incorporation, which is as follows:
"The Corporation shall have authority to issue its shares only to incorporators and to purchasers of electric energy from the Corporation. The Corporation shall not issue more than one share to any such purchaser who is not an incorporator, nor more than twelve shares to an incorporator.
"No shareholder shall transfer, alienate, or in any way dispose of any share of the Corporation unless such share shall first have been offered for sale to the Corporation. The Corporation reserves and shall have the exclusive right and option to purchase such share at a price equal to the par value thereof within thirty days after such offer. After the expiration of such time, the shareholder, if the Corporation shall not have exercised its option to purchase such share, shall be free to transfer, alienate or otherwise dispose of such share without any restriction whatsoever."
That the whole plan of reorganization is that of a cooperative enterprise and not of a business corporation. That the paid up capital of $540.00 is grossly inadequate for the assumption of a debt of $2,504,000.00 and for engaging in a large business enterprise.
We agree with Objectors that the mere statement in Sho-Me's charter that it is incorporated under the General Business and Corporation Act is not binding on the courts. That is to be determined by the objects and powers conferred by the charter. [18 C.J.S., p. 400, sec. 22b.]
Objectors attack the restrictions on the issuance and transfer of stock contained in number three of Sho-Me's articles of incorporation, saying that such restrictions are expressly authorized by our Rural Electric Cooperative Act, [R.S. Mo. 1939, sec. 5394; Mo. R.S.A.] but are not permitted to business corporations by the Act under which Sho-Me is purportedly incorporated. Those restrictions authorize the corporation to issue shares only to incorporators or purchasers of electric energy, and prevent an owner from selling a share to another without first giving the corporation a thirty day option to buy at par. Objectors argue that the restrictions are not authorized by statute and constitute an unreasonable restraint of trade.
None of the authorities cited by Objectors on this branch of the case is precisely in point. In O'Brien v. Cummings, 13 Mo. App. 197, the St. Louis Court of Appeals held that a provision in a corporate charter was void which read "No person shall subscribe, own, or hold more than ten thousand dollars worth of said stock, estimating the same at the par value of each share." That was a complete restraint on trade, while the provision in Sho-Me's charter is only a partial restraint in the form of an option to [279] purchase within a limited time. Also, as we will later point out, the powers of a corporation with reference to the transfer of its stock are greater under our present statutes than under the statutes in force when the above case was decided.
In Brinkerhoff-Farris Trust Savings Co. v. Home Lumber Co., 118 Mo. 447, 24 S.W. 129, a by-law adopted by the directors of a corporation, to the effect that an owner could not sell his shares to another without first offering them to the directors and paying all his dues to the company, was void. The statute authorized the directors to make by-laws for certain specified purposes only and the by-laws did not come within the statute. By way of obiter the opinion says "the company itself had no right to pass such a by-law." In Carroll v. Mullanphy Savings Bank, 8 Mo. App. 249, a by-law, passed by the directors, forbade the transfer of stock on the books of the bank if the owner was indebted to the bank. Held, there was no showing that the directors had authority to pass the by-law, the charter of the company not being shown in evidence and the authority to pass such a by-law not being provided by statute. In Hunter v. Garanflo, 246 Mo. 131, 151 S.W. 741, a mortgage of a corporation for purchase of its own stock, which constituted a withdrawal of a substantial part of its assets was held void. The cases of David v. Fry. Mfg. Co., 209 Mo. App. 134, 236 S.W. 1103, Wilson v. Torchon Lace Mercantile Co., 167 Mo. App. 305, 149 S.W. 1156, Robinson v. Wangemann, 75 F.2d 756, and Botz v. Helvering, Com. Int. Rev., 134 F.2d 538, and other cases cited by Objectors, involved impairment of assets by corporations purchasing their own stock. Title Guaranty Trust Co. v. Sessinghaus, 325 Mo. 420, 28 S.W.2d 1001, questions the reasoning in Hunter v. Garanflo and Wilson v. Torchon Lace Mercantile Co., and says they would have rested on safer grounds if confined to the proposition that a corporation cannot legally purchase its own stock out of its capital assets. Thompson on Corporations, 3rd Ed., sec. 1129, cites cases to the effect that a by-law, of a corporation providing that a shareholder must first offer his stock to the corporation before he can sell to others, is void as being an unreasonable restraint of trade. But those cases and other cases cited by Objectors were ruled under statutes which gave corporations only the power to "regulate" the transfer of their stock. Thompson recognizes the difference between "regulation" and "restrictions," for in the same section he says, "The inquiry would naturally be directed to the proposition as to whether or not the intended regulation is actually and really a restriction." In the section quoted Thompson was speaking of a restriction which may be provided in a corporation by-law and not one which may be stated in the articles of incorporation, for in the same work, Vol. 6, p. 21, sec. 4156, he says:
"The rule is well settled that a provision in the charter or articles of incorporation that no stockholder shall sell and transfer his stock either, without the consent of all other stockholders, or that he will first offer it to the stockholders or to the corporation before selling to other persons, is binding on persons who become owners of the stock. These provisions, which really amount to agreements between the stockholders themselves, are not invalid as against public policy nor do they amount to an improper restraint of the power of alienation. There seems to be no objection to a corporation reserving to existing members the right to choose their associates. . . ." It is apparent that a provision in a by-law, passed by less than all the stockholders, does not present the same question as a provision in a charter known to every investor when he buys his stock. Now the General and Business Corporation Act [Sec. 4997.12] authorizes corporations to place limitations and restrictions on the issuance of shares, and [Sec. 4997.50] such limitations and restrictions must be stated in the charter. The Uniform Stock Transfer Act [Laws of Missouri 1943, p. 495, Mo. R.S.A., 1946 Supp., sec. 5563.15] says: "There shall be no lien in favor of a corporation upon the shares represented by a certificate issued by such corporation and there shall be no restriction upon the transfer of shares so represented by virtue of any by-laws of such corporation, or otherwise, unless the right of such corporation to such lien or the restriction [280] is stated upon the certificate." [Emphasis ours.] "Restriction" means more than "regulation." Webster's International Dictionary says it is "A regulation which restricts or restrains," and gives as an example "A limitation on the free use of land."
It is clear that under present statutes a business corporation can place some restriction on the transfer of its share if such restriction is authorized by the charter and stated on the stock certificate. It cannot completely restrain a transfer, but we cannot hold that retention of an option by the corporation to purchase within a reasonable time is void. Objectors do not claim that a corporation is entirely without power to purchase its own stock. The General and Business Corporation Act expressly grants that power provided the net corporate assets are not reduced below the stated capital. [Mo. R.S.A., 1946 Supp. sec. 4997.5] In the instant case Sho-Me does not bind itself to purchase any share and we cannot assume that it will do so in violation of the statute. Recent decisions uphold restrictions on the sale of corporate stock like those involved here. [State ex rel. Manlin v. Druggists' Addressing Co. (Mo. App.), 113 S.W.2d 1061; Scruggs, Vandervoort Barney Bank v. International Shoe Co., 227 Mo. App. 378, 52 S.W.2d 1027; People ex rel. Rudaitis v. Galskis, 233 Ill. App. 414; Hulse v. Consolidated Mining Corp., 65 Idaho 768, 154 P.2d 149; 18 C.J.S., sec. 391; In re Laun, 146 Wis. 252; Rychwalski v. Milwaukee Candy Co., 205 Wis. 193, 236 N.W. 131; Bloomingdale v. Bloomingdale, 177 N.Y.S. 873; Doss v. Yingling, 95 Ind. App. 494, 172 N.E. 801; Nicholson v. Franklin Brewing Co., 82 Ohio St. 94, 91 N.E. 991; Mason v. Mallard Telephone Co., 213 Iowa 1076, 240 N.W. 671.]
The other restriction in section three of Sho-Me's charter confines its authority to issue shares to incorporators or purchasers of electric energy. In Sho-Me's brief this is interpreted to refer only to shares which the corporation may own and not to shares which may be purchased from shareholders. This seems a reasonable interpretation when considered with the further provision in the same section giving a shareholder, after the corporation has failed to exercise its option to purchase, free rein to dispose of his shares and assign his certificates to anyone whether or not he be an incorporator or purchaser of electric energy. Certainly a corporation has the right to choose the persons to whom it will issue its own stock. [14 C.J., p. 838, sec. 1274; 13 Am. Jur., p. 407, sec. 329; 18 C.J.S., p. 762, sec. 286.]
Objectors urge that restrictions on the issuance and transfer of stock are common in cooperative and non-profit corporations. That is true and the restrictions in such companies are more rigid than those contained in Sho-Me's charter. But because certain restrictions are compulsory as to cooperatives does not prevent somewhat similar provisions being voluntarily adopted in charters of business corporations, provided they are authorized by statute.
Sho-Me is organized as a business corporation for profit to supply electric energy to the public generally, not alone to its members. It is subject to regulation, supervision and taxation as a public utility. Its charter contains nothing to prevent the payment of dividends.
Objectors argue that Sho-Me's paid up capital of $540.00 is grossly inadequate for the assumption of a debt of $2,504,000.00 and for engaging in a large business enterprise.
The General and Business Corporation Act authorizes a business corporation, such as Sho-Me, to commence business with a paid up capital of not less than $500.00. Sho-Me's paid up capital is $540.00. That does not necessarily indicate the value of its assets. There is no proof here as to the value of such assets and that question is not relevant to the issues here presented. In this quo warranto proceeding we are concerned only with whether Sho-Me is properly incorporated to carry on its contemplated business as a public utility. Matters of regulation and supervision must be left for the Public Service Commission to determine within its statutory jurisdiction.
[281] For the reasons stated, the exceptions of the three intervenors [herein termed Objectors] to the plan of reorganization submitted by Co-Op and Sho-Me are hereby overruled and the plan of reorganization is hereby approved. All concur, except Conkling, J., not sitting.