Wednesday, September 18, 2013

Forms of Industrial Ownership - Sole Owner - Joint Owners - Going Industrial Engineering - Chapter 3



PURSUIT of a systematic inquiry into the science, princi-
ples and institutions by which manufacturing operations
are carried on leads from the general to the specific. It is
therefore proper to supplement the examination of organ-
ization at large by a short survey of the forms of organiza-
tion legally established for the conduct of industrial opera-
tions. These are few and highly specific. For while the
internal regulation of industrial concerns, being governed by
individual freedom, is (as we have seen) far from stand-
ardization, their external relations have been very exactly
fixed by law. Society, in its general care for the rights of
the individual and of property, has prescribed certain def-
inite forms of ownership by which the manufacturing plant
may be held and operated.

The first and simplest of course is possession and oper-
ation by the individual owner. It is scarcely necessary to
comment upon so familiar an institution as single propri-
etorship. The condition is one that has probably come un-
der the personal observation and experience of all of us, and
if we magnify the cobbler's bench up to the huge shoe fac-
tory, or the little jobbing foundry up to the gigantic iron
works, the legal position of the individual proprietor is
substantially unchanged. He may hire such assistance as he
desires, delegate to employees such of his powers or func-
tions as he sees fit, carry on the most diverse occupations if
he think best. His credit is such as he may establish by
his character and property qualifications. His liability ex-
tends to all that he has, subject only to the ordinary legal
exemptions, to which all men are entitled. In short, he has
all the authority, all the profits, and all the responsibility,
and he carries on business as he sees fit, subject only to the
general law of the land.

One qualification of the individual freedom to carry on
an individual proprietorship without public notice or legal
restraint should, however, be noted. If a man elects to
operate not under his own name, but under such style as
the Elite Foundry or the Vacuum Process Co. or the Ex-
celsior Machine Shop, although in fact he is sole owner and
proprietor, he must file in a designated public office (in
New York State, the office of the county clerk) a state-
ment setting forth who is actually carrying on the business
and all necessary information to advise the public duly of
the facts and the person responsible for the acts, obligations
and debts of the business.

There is no necessary limit to the size of the business that
may be conducted individually. The Krupp works were
so carried to a foremost position in the iron and steel in-
dustry of the world; and I believe they are yet (or at least
they were quite recently) under individual sole ownership,
though the actual management had been turned over
largely to a Direktorium of twelve members.


Joint Ownership

For reasons of convenience or finance, however, it often
becomes expedient for an owner to divide his duties, profits
and responsibilities with one or several others, who become
joint owners with him, in equal or unequal proportion as the
special arrangements may determine. In the case of a new
business several men may thus associate themselves in joint
ownership at the outset, each contributing his share of
money and his particular talents and work to the prosecu-
tion of the business. In the case of a business which has
been running as a sole proprietorship, the original owner
may want to attach an important employee permanently to
the business by giving him a share in the results, rather than

a mere salary independent of the results. He may want to
bring in more capital without borrowing against his own
credit. Or he may want to bring in some special knowl-
edge or skill or some trade connection possessed by some
special individual. In either case, or for whatever motive,
we have as the result a second form of industrial unit, no
longer single, but compound; this is the partnership or joint
partnership or firm, as it is variously called.

A partnership is a group of individuals (usually a small
group) who have joined their property, services, and credit,
for the purposes of conducting business for their joint ben-
efit This relation is established by agreement between
themselves, but it is subject to certain regulations or limita-
tions or definitions, both under the old common law and by
statute. These statutory provisions concern both the rela-
tions of individual partners to one another, and relations of
the entire partnership to outside individuals or to the public
at large. You can readily see how the creation and use of
the partnership as an industrial institution would necessarily
give rise to a body of partnership law. Smith, Jones and
Robinson, doing business as a partnership, owning certain
property, machinery and materials in the firm name, mak-
ing a contract with you to employ your services as superin-
tendent, or to buy from you a steam engine which you are to
build on their order, are, plainly enough, a distinct entity,
separate and different from either Smith, or Jones, or Rob-
inson individually. If John Smith individually contracts
with you to do or supply some thing, you know that you
are to look to him personally for performance of that con-
tract and that he can be held financially responsible to the
extent of his entire property for faithful performance. But
suppose Smith, as a member of the firm Smith, Jones and
Robinson, makes a similar contract; has he divested him-
self of two-thirds of his responsibility by taking in these
two partners? Or if the contract is not carried out and it

proves that Smith, after all, has no property from which
you can recover damages for the non-performance, can you
take Jones's house or Robinson's bank deposit to make you
whole in a negotiation which was originally begun with

These and other questions of the rights and duties of
joint partnership are settled by rules of law or by statutes
which vary somewhat in different countries and states. In
general, however, a partnership, and each and every partner
in that partnership, is bound by the act of any member of
the partnership done in the name of the firm and within the
scope of his apparent authority. In other words, each part-
ner is a general agent of the firm, with full authority to do
any and every act necessary to the transaction of the firm's
business. Each partner, also, is liable for all contract obli-
gations of the firm, whether incurred by himself or some
other partner, and each partner is liable for wrongful acts
committed by one or more of his fellow partners within the
scope of their apparent authority.

For instance, suppose Smith, Jones and Robinson are a
firm of iron founders, and Smith, driving a truck load of
castings for delivery to a customer, negligently runs over a
pedestrian in the street and injures him, or negligently runs
into another wagon and overturns it, giving rise to dam-
ages. The firm will be liable for these damages, and if the
firm's property were insufficient to pay the amount awarded,
Jones's personal property or Robinson's might be attached
to pay the judgment for the act done by Smith. This is an
instance of a wrongful act committed within the scope of
Smith's apparent authority as a member of the firm. If he
got down from his truck and beat a man on the sidewalk,
the firm as a firm or the other persons individually would
not be liable, because the act, although wrongful enough,
is not within the scope of his apparent authority.

To a certain extent, therefore, the law makes a partner-

ship an artificial person. In the case of liability for acci-
dents the firm's property must be exhausted before the per-
sonal property of its component members is taken. But
when the limit of the firm's property is reached, the persons
are each accountable for debts and acts of the firm as if
these debts and acts were their own personally.

There is, however, an exception to be noted in the case
of special partnerships. A man may enter a firm as special
partner to the extent of a fixed amount of capital and with
the limitation of his liability to this amount of capital ac-
tually contributed; but this is permitted by statute only on
condition that the special partner's stated contribution is
actually all paid in cash ; and furthermore in such cases a
certificate must be duly filed with the proper public official
setting forth who are the general and who are the special
partners, with the amounts contributed by each of the spe-
cial partners, and an affidavit that these amounts have ac-
tually been fully paid in. They must also advertise in the
county in which their chief place of business is located,
specifying the general and special partners and the amounts
contributed by each, and giving a copy of the affidavit and
the articles of agreement. Furthermore, no firm can be
composed of special partners only. There must be at least
one general partner whose liability is unlimited.

To the largest possible extent, however, the law leaves
a partnership as free as an individual in the transaction of
business, with no restrictions as to the number and kinds of
legitimate business a single partnership may carry on. This,
as we shall see, is in contradistinction to the last form of
business organization we are to consider, the corporation or
stock company, which is altogether an artificial person, op-
erating with such powers only, with such scope only, and
under such conditions only, as are expressly stipulated by
the statutes permitting it to exist.

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