1u. 8, Court for China on March 25, Jdccreed the revocation of the cer tifeate of incorporation of Karatzas Brothers, a tobacco firm in Tientsin.
"The action was brought by Mr. Leighton Shellds, District Attorney, fin dhe name of the United States at the request of Miss A. Viola Smith, Registrar under the China Trade [Act As grounds for revocation the complaint alleges the following violations: that.the executive man-Jagoment of the corporation has been wholly surrendered by the directors to one individual who Is not aeitizen secept of the Uniled States: that shares of feapital stock have been paid with] gor other than cash and no certificate Jdeseribing the consideration, ete, has been led with" the Registra that the annual report for 1936 recited a fictitious Indebtedness $400,000, and that the annual report] thi for 1930 does not contain.n correct statement of the ownership of the shares of the capital stock, Judgment Give In revoking the certificate of in-Jcorporation, Judge Helmick made the following ruling in this. judgment:
'This Is an action brought by the District Atlorney in the name of the United States on the relation of A. Viola Smith, Registrar under' the China 'Trade' Act, for the revocation Jot the Certineate of Incorporation of Karatzas Brothers, Federal USA, As grounds for revoea the Complaint alleges the following violations of the China Trade Act 1. That the executive management of he corporation has been wholly surrendered by the directors lo one individual who is nota" citizen the United States: 2. That shares of capital stock have been paid. with other than cash and no certifeate describing the consideration, ete, has been filed with the Registrar as required by Section 8; 3. That the annual report for 1936 recited a Aetilous indebtedness of $400,000; 4. That the annual report Kor 1936 does not contain a correct statement of the Ownership of the shares of the capital stock.
The facts are as follows: For many yours Mertikas.C. Cannelakis and Stanatios C: Cannelokis, who are bbrothots and citizens of Greece, have owned and operated as equal partners profitable tobacco business In Tien (sin. On May Sth, 1936 the brothers, {ogether with Roy'G. Allman, George Happer and. E. Kendall, all American citizens, applied for a eer {iNeate, of incorporation under the China Trade Act, which was issued due course. 'The company was capitalized for $100,000, divided into 1,000 shares of par value of $100 each, of which 497 shares were issued M. C. Cannelokis, 497 10 S.C. Canneiakis, 2 to H. 8. Kendall, 2 to G. D. Hopper, and 2 to Roy Allman, ""All' of the incorporators were chosen as directors and. the three "Americans "were also made officers, as. follows: apper, president; Kendall, vice-president: Allmat secretary-lrensurer.
Among other reasons for the. formation of the company the evidence reveals that the brothers desired to obtain extraterritorial "rights for their business and also that since sensions had arisen between them was thought a corporate organization which included third parties might tend to smoother and more neutral conduct of the business." Happer, the president of the company, is a friend of both brothers who has sold them American tobacco for some time. 'Allman, the secretary-treasurer, is attorney of S.C. Cannelakis On August 1, 1990, was held the first stockholders' meeting, at which by-laws were adopted. Tt is claimed these by-laws are of a familiar form use generally by China Trade Act companies. By-law No. G authorizes ike Board of Directors "to delegate any of its powers to any committee, officer oF agent and to grant the power to sub-delegate" "At the firs Gireetors' meeting held the same day the directors voted and executed unto C. Cannelakis a sweeping power of aliorney in Ure following. form wKsoW an MEX that' anafeas "Bron, Set tal eet baces Feceipts, evidences ttt Pat a rectors this 1st, day of "august. 1038, Kanarzas Baopuens, Proemat INC, By W. E Eats ae (Signed)
Geo. 6, Harem tStanea)
By Roy G. Auuitan (Signed)
Shortly after the inauguration of the company it developed that Happer, Allman and Kendall had transferred the six shares of stock owned between them to S.-C. Cannelakis that he now owns 803 shares as. against his brother's 497 shares.
ince the formation of the corpora-jon the dissensions between the brothers have increased and in the instant case the minority brother has Iintervesied to ask for the appointment of a neutral trustee in case 0 dissolution of the corporation ie ordered, It appears that the stock in the corporation was paid for by each brother transferring hie partnership Interest and by an additional payment $25,000 cash. There seems little doubt that the essels transferred to the corporation are far in excess of its authorized capital stock, but the tomers neglected to make and file a showing to that effect, ax required by the China Trade Act.
In the annual report for 1996 the' balance sheet showed an indebtedness of $400,000. All parties agreed hat the corporation is free from debt and the president testified the items should not have appeared on the balance sheets and should not have been fled. "It scorns that the item was set up by the partners on the Partnership books before Incorporit= tion in order to reduce taxable assets but that after incorporation it served no. purpose and was inadvertently included in the report made to the Registrar.
The Registrar demands revocation of Certifeate of Incorporation uni Section 14, which reads as follows: pal ti a conducted. may insti he the court may" al any lication of the registrar". pen wu motion, make ch Fespeet to the conduct of ihe affairs of corporation a It deme advisable Tu discussing the grounds for' revocation the Court will consider them in inverse order of importance, The failure to file the required cerfifleate regarding the manner which the capital stock was paid is, of course, a clear violation of the China Trade Act, but since no harm lias been done and since the payment was wnlirely adequate and since the certificate may yet be filed, the Court thinks the penalty of revocation is foo "harsh for this particular derelle~ tion. See U.S.A. ex rel. A. Viol Smith, etc. v, Asia Electric Ca, Fed.
Text read from the printed page and cleaned; old type leaves the occasional error.