6 BULLETIN 1106, U. S. DEPARTMENT OE AGRICULTURE 
f erred, is not evidence of indebtedness 17 but merely of ownership. 
Normally, if one corporation owns all the stock of another corpora- 
tion, a subsidiary, the courts regard the two corporations as separate 
and distinct. 18 If the corporate form is being used as a cover or 
medium for effecting a fraud or working an injustice, the courts will 
disregard the separate entity of the corporation and will hold the per- 
sons interested therein liable or responsible. 19 
The stockholders or members of a corporation, whether stock or 
nonstock, are not generally liable for its debts. In all jurisdic- 
tions, however, stockholders or members can be compelled to pay 
the amount which they have agreed to pay for stock of the corpora- 
tion or for membership in it. The laws of some States, notably 
New York and New Jersey, permit the organization of cooperative 
associations with liability by the stockholders or members for debts 
of the corporation. In Minnesota the constitution imposes double 
liability on the stockholders of all corporations except those en- 
gaged solely in manufacturing. 20 A stockholder of a corporation, 
cooperative or otherwise, under the constitution of California is 
"individually and personally liable for such proportion of all its 
debts and liabilities contracted or incurred during the time that he 
was a stockholder as the amount of stock or shares owned by him 
bears to the whole of the subscribed capital stock or shares of the 
corporation or association,'' and a provision in the code of that 
State imposes similar liability on the members of nonstock cor- 
porations or associations. 
In every case the constitution and statutes of the State should be 
examined to determine the exact liability of stockholders or mem- 
bers in that State. The Supreme Court of the United States has 
held that an organization may be a corporation, although its stock- 
holders are liable for its debts. 21 But, as a general rule, the stock- 
holders of a corporation are not liable for its debts. From this 
fact results one of the great advantages of incorporation. It en- 
ables a man to venture a definite sum of money in a business without 
risk of losing more in case the business fails. Persons dealing with 
corporations are affected with notice of its charter and the statutes of 
the State regulating its powers and duties. 22 
Every corporation suggests cooperative effort on the part of those 
interested. Several of the large industrial corporations have each 
more than 100.000 stockholders. The cooperation in such organ- 
izations consists largely in the pooling of the money paid by stock- 
holders for stock. If each of the original stockholders of one of 
these corporations had acted singly and independently in attempt- 
ing to establish and increase the particular business involved, much 
less progress would probably have been made than has been accom- 
plished through the corporation. 
17 Sternbergh v. Brock, 225 Pa. 279, 74 A. 166, 24 L. R. A. (N. S.) 1078; Wineinger v. 
Farmers' & Stockmen's Loan & Investment Ass'n (Tex. Civ. App.), 27S S. W. 932. 
lS Cannon Manufacturing Co. v. Cudahv Packing Co.. 267 U. S. 333, 45 S. Ct. 250; 
People v. American Bell Telephone Co.. 117 N. Y. 241. 22 N. E. 1057. 
19 J. J. McCaskill Co. v. United States, 216 U. S. 504 ; First National Bank of Chicago v. 
F. C. Trebein, 59 Ohio St. 316. 52 N. E. 834; State Trust & Savings Bank v. Hermosa 
Land & Cattle Co., 30 N. M. 566, 240 P. 469; Home Fire Ins. Co. t\ Barber. 67 Neb. 644 
93 N. W. 1024, 60 L. R. A. 927. 
20 Lindeke v. Scott County Co-op. Co., 126 Minn. 464. 148 N. W. 459 ; in re Farmers' 
Dairy Co.'s Receivership, Minn. . 225 N. W. 22. 
21 Liverpool Ins. Co. v. Massachusetts, 10 Wall. 566. 
32 Sterling v. Trust Co. of Norfolk, Va. , 141 S. E. S56. 
