Brief Fact Summary. Defendant stockholders, Ruth Barlow et al., questioned the legality of a donation made by Plaintiff corporation, A.P. Smith Manufacturing Company.
Synopsis of Rule of Law. Corporate gift-giving is an allowable method of increasing goodwill, but the gift should be less than 1% of capital and surplus and directed to an institution owning no more than 10% of the company stock.
Contributions to schools, churches, hospitals, and civic improvement funds, for examples may be readily justified as being for the benefit of the corporation; indeed, if need be the matter may be viewed strictly in terms of actual survival of the corporation in a free enterprise system.View Full Point of Law
Issue. The issue is whether Plaintiff can donate money to a charity without authorization from stockholders or through the certificate of incorporation.
Held. Plaintiff can give money to charities providing that the total does not exceed the statutory maximum of 1% of capital and surplus, and the institution receiving the money does not own more than 10% of the company stock. Corporate gift-giving increases the goodwill of the corporation, and public policy should be to encourage corporations to provide to charities in the same manner as individuals are encouraged to give.
Discussion. The court did not accept Defendants’ reasoning that the donation was not allowed because the corporation preceded the statute authorizing the gift-giving. The court explained that the potentially infinite lifespan of corporations would lead to corporations a varying ages to live under various sets of laws.