Corporate personhood or juridical personality is the legal notion that a juridical person such as a corporation, separately from its associated human beings (like owners, managers, or employees), has at least some of the legal rights and responsibilities enjoyed by natural persons.[1] In most countries, a corporation has the same rights as a natural person to hold property, enter into contracts, and to sue or be sued.
Granting non-human entities personhood is a Western concept applied to corporations.
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See also: History of corporations |
Ancient Indian society used legal personhood for political, social, and economic purposes. As early as 800 BC, legal personhood was granted to guild-like śreṇī that operated in the public interest. The late Roman Republic granted legal personhood to municipalities, public works companies that managed public services, and voluntary associations (collegia) such as the early Catholic Church. The diverse collegia had different rights and responsibilities that were independent of the individual members. Some collegia resembled later medieval guilds and were allowed to advance the needs of a trade as a whole, but collegia were otherwise barred from enriching their members.[2]
In the Middle Ages, juridical persons were chartered either as corporations or as foundations in order to facilitate collective perpetual ownership of assets beyond the founders' lifespans, and to avoid their fragmentation and disintegration resulting from personal property inheritance laws. Later on, incorporation was advocated as an efficient and secure mode of economic development: advantages over existing partnership structures included the corporation's continuing existence if a member died; the ability to act without unanimity; and limited liability.[1] The word "corporation" itself derives from the Latin corpus ("body"), and juridical personhood is often assumed in medieval writings; by the Renaissance period, European jurists routinely held that churches and universities chartered by the government could gain property, enter into contracts, sue, and be sued, independent of its members. The government (or the Pope) granted religious organizations "the power of perpetual succession": church property would not revert to the local lord, nor be taxed, upon the death of church members. Some town charters explicitly granted medieval towns the right of self-governance. Commercial endeavors were not among the entities incorporated in the medieval era, and even risky trading companies were originally run as common-law partnerships rather than corporations; the incorporation of the East India Company monopoly in 1600 broke new ground, and by the end of the century, commercial ventures frequently sought incorporation in Europe and the American continent [clarification needed]. By the 19th century, the direction of British and American corporate law had diverged; British law of this period (such as the Joint Stock Companies Act 1856) appeared to focus more on corporations that more closely resembled traditional joint ventures, while American law was driven by the need to manage a more diverse corporate landscape.[3]
Under Indian law the corporate, managing bodies, etc. and several other non-human entitles have been given the status of the "legal person". In court cases regarding corporate, the shareholders are not responsible for the company's debts but the company itself being a "legal person" is liable to repay those debts or be sued for the non-repayment of debts. The non-human entities given the "legal person" status by the law "have rights and co-relative duties; they can sue and be sued, can possess and transfer property". Since these non-human entities are "voiceless" they are legally represented "through guardians and representatives" to claim their legal rights and to fulfill their legal duties and responsibilities. Specific non-human entities given the status of "legal person" include "corporate personality, body politic, charitable unions etc.", as well as trust estates, deity, temples, churches, mosques, hospitals, universities, colleges, banks, railways, municipalities, and gram panchayats (village councils), rivers, all animals and birds.[4]
In a U.S. historical context, the phrase "corporate personhood" refers to the ongoing legal debate over the extent to which rights traditionally associated with natural persons should also be afforded to juridical persons including corporations. A headnote issued by the court reporter in the 1886 Supreme Court case Santa Clara County v. Southern Pacific Railroad Co. claimed to state the sense of the Court regarding the equal protection clause of the Fourteenth Amendment as it applies to corporations, without the Court having actually made a decision or issued a written opinion on that point.[5] This was the first time that the Supreme Court was reported to hold that the Fourteenth Amendment's equal protection clause granted constitutional protections to corporations as well as to natural persons, although numerous other cases, since Dartmouth College v. Woodward in 1819, had recognized that corporations were entitled to some of the protections of the Constitution. In Burwell v. Hobby Lobby Stores, Inc. (2014), the Court found that the Religious Freedom Restoration Act of 1993 exempted Hobby Lobby from aspects of the Patient Protection and Affordable Care Act because those aspects placed a substantial burden on the company's owners' free exercise of sincerely held religious beliefs.[6]
U.S. courts have extended certain constitutional protections to corporations under various rationales. An early perspective, variously known as 'contractual', 'associate', or 'aggregate' theory, holds that owners of property have certain constitutional protections, even when the property is held via a corporation rather than directly under the owner's own name. Corporate attorney John Norton Pomeroy argued in the 1880s that "Statutes violating their prohibitions in dealing with corporations must necessarily infringe upon the rights of natural persons. In applying and enforcing these constitutional guaranties, corporations cannot be separated from the natural persons who compose them."
Similarly, proponents might argue a juridical person can be a device for exercising shareholders' rights to free speech. Under this perspective, such constitutional rights might also extend to other associations of people, even where the association does not take on the formal legal form of a corporation. A second perspective, known as the 'real entity' or 'natural entity' view, shifts the presumption of corporate regulation against the states.
The dominant view from the 1920s to the 1980s, championed by philosopher John Dewey, asserted that such perspectives are often overgeneralizations, and that the decision to grant corporate rights in a given sphere should be governed by the consequences of doing so[citation needed]. The 1980s saw an explosion of economic analyses, with a corporation often viewed as a nexus of contracts and as an economic agent appointed to act on behalf of its shareholders.
Some rulings combine multiple perspectives; the majority opinion in Citizens United argued both from an 'association' perspective ("if the antidistortion rationale were to be accepted... it would permit Government to ban political speech simply because the speaker is an association that has taken on the corporate form") and from a 'natural entity' perspective ("the worth of speech 'does not depend upon the identity of its source, whether corporation, association, union, or individual'").[3]
Treating juridical persons as having legal rights allows corporations to sue and to be sued, provides a single entity for easier taxation and regulation, simplifies complex transactions that would otherwise involve, in the case of large corporations, thousands of people, and protects the individual rights of the shareholders as well as the right of association.
Generally, corporations are not able to claim constitutional protections that would not otherwise be available to persons acting as a group. For example, the Supreme Court has not recognized a Fifth Amendment right against self-incrimination for a corporation, since the right can be exercised only on an individual basis. In United States v. Sourapas and Crest Beverage Company, "[a]ppellants [suggested] the use of the word 'taxpayer' several times in the regulations requires the fifth-amendment self-incrimination warning be given to a corporation." The Court did not agree.[7] Likewise, corporations and organizations do not have privacy rights under the Privacy Act of 1974, since the statute refers to any "individual," which it defines as "a citizen of the United States or an alien lawfully admitted for permanent residence."[8]
Since the Supreme Court's ruling in Citizens United v. Federal Election Commission in 2010, upholding the rights of corporations to make unlimited political expenditures under the First Amendment, there have been several calls for a Constitutional amendment to abolish corporate personhood.[9] The Citizens United majority opinion makes no reference to corporate personhood or the Fourteenth Amendment, but rather argues that political speech rights do not depend on the identity of the speaker, which could be a person or an association of people.[10][11]
Individual shareholders cannot generally sue over the deprivation of a corporation's rights; only the board of directors has the standing to assert a corporation's constitutional rights in court.[3]
During the colonial era, British corporations were chartered by the crown to do business in North America. This practice continued in the early United States. They were often granted monopolies as part of the chartering process. For example, the controversial Bank Bill of 1791 chartered a 20-year corporate monopoly for the First Bank of the United States. Although the Federal government has from time to time chartered corporations, the general chartering of corporations has been left to the states. In the late 18th and early 19th centuries, corporations began to be chartered in greater numbers by the states, under general laws allowing for incorporation at the initiative of citizens, rather than through specific acts of the legislature.
The degree of permissible government interference in corporate affairs was controversial from the earliest days of the nation. In 1790, John Marshall, a private attorney and a veteran of the Continental Army, represented the board of the College of William and Mary, in litigation that required him to defend the corporation's right to reorganize itself and in the process remove professors, The Rev John Bracken v. The Visitors of Wm & Mary College (7 Va. 573; 1790 Supreme Court of Virginia). The Supreme Court of Virginia ruled that the original Crown charter provided the authority for the corporation's Board of Visitors to make changes including the reorganization.
As the 19th century matured, manufacturing in the U.S. became more complex as the Industrial Revolution generated new inventions and business processes. The favored form for large businesses became the corporation because the corporation provided a mechanism to raise the large amounts of investment capital large business required, especially for capital intensive yet risky projects such as railroads.
Following the reasoning of the Dartmouth College case and other precedents (see § Case law in the United States below), corporations could exercise the rights of their shareholders and these shareholders were entitled to some of the legal protections against arbitrary state action. Their cause was strengthened by the adoption of general incorporation statutes in the states in the late 19th century, most notably in New Jersey and Delaware, which allowed anyone to form corporations without any particular government grant or authorization, and thus without the government-granted monopolies that had been common in charters granted by the Crown or by acts of the legislature (see Delaware General Corporation Law). In Santa Clara County v. Southern Pacific Railroad (1886), the Supreme Court held that the Fourteenth Amendment applied to corporations. Since then the Court has repeatedly reaffirmed this protection.[citation needed][chronology citation needed]
In 1818, the United States Supreme Court decided Trustees of Dartmouth College v. Woodward – 17 U.S. 518 (1819), writing: "The opinion of the Court, after mature deliberation, is that this corporate charter is a contract, the obligation of which cannot be impaired without violating the Constitution of the United States. This opinion appears to us to be equally supported by reason, and by the former decisions of this Court." Beginning with this opinion, the U.S. Supreme Court has continuously recognized corporations as having the same rights as natural persons to contract and to enforce contracts.[12]
Seven years after the Dartmouth College opinion, the Supreme Court decided Society for the Propagation of the Gospel in Foreign Parts v. Town of Pawlet (1823), in which an English corporation dedicated to missionary work, with land in the U.S., sought to protect its rights to the land under colonial-era grants against an effort by the state of Vermont to revoke the grants. Justice Joseph Story, writing for the court, explicitly extended the same protections to corporate-owned property as it would have to property owned by natural persons. Seven years later, Chief Justice Marshall stated: "The great object of an incorporation is to bestow the character and properties of individuality on a collective and changing body of men."[13]
In the 1886 case Santa Clara v. Southern Pacific – 118 U.S. 394 (1886), Chief Justice Waite of the Supreme Court orally directed the lawyers that the Fourteenth Amendment equal protection clause guarantees constitutional protections to corporations in addition to natural persons, and the oral argument should focus on other issues in the case.[14] In the Santa Clara case the court reporter, Bancroft Davis,[15] noted in the headnote to the opinion that the Chief Justice, Morrison Waite, began oral argument by stating, "The court does not wish to hear argument on the question whether the provision in the Fourteenth Amendment to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to these corporations. We are all of the opinion that it does."[16] While the headnote is not part of the Court's opinion and thus not precedent, two years later, in Pembina Consolidated Silver Mining Co. v. Pennsylvania – 125 U.S. 181 (1888), the Court clearly affirmed the doctrine, holding, "Under the designation of 'person' there is no doubt that a private corporation is included [in the Fourteenth Amendment]. Such corporations are merely associations of individuals united for a special purpose and permitted to do business under a particular name and have a succession of members without dissolution."[17] This doctrine has been reaffirmed by the Court many times since.[citation needed]
The 14th Amendment does not insulate corporations from all government regulation, any more than it relieves individuals from all regulatory obligations. Thus, for example, in Northwestern Nat Life Ins. Co. v. Riggs (203 U.S. 243 (1906)), the Court accepted that corporations are for legal purposes "persons", but still ruled that the Fourteenth Amendment was not a bar to many state laws which effectively limited a corporation's right to contract business as it pleased. However, this was not because corporations were not protected under the Fourteenth Amendment—rather, the Court's ruling was that the Fourteenth Amendment did not prohibit the type of regulation at issue, whether of a corporation or of sole proprietorship or partnership.[citation needed]
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See also: Creature of statute |
Federal statutes that refer to "persons" generally include both natural and juridical ones, unless a different definition is given. This general rule of interpretation is specified in Title 1, section 1 of the U.S. Code,[18] known as the Dictionary Act, which states:
In determining the meaning of any Act of Congress, unless the context indicates otherwise—
the words "person" and "whoever" include corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals;
This federal statute has many consequences. For example, a corporation may enter contracts,[19] sue and be sued,[20] and be held liable under both civil and criminal law.[citation needed] Because the corporation is legally considered the "person", individual shareholders are not legally responsible for the corporation's debts and damages.[21] Similarly, individual employees, managers, and directors are liable for their own malfeasance or lawbreaking while acting on behalf of the corporation, but are not generally liable for the corporation's actions. [citation needed]
Among the most frequently discussed and controversial consequences of corporate personhood in the United States is the extension of a limited subset of the same constitutional rights.
Corporations as juridical persons have always been able to perform commercial activities, similar to a person acting as a sole proprietor, such as entering into a contract or owning property. Therefore, corporations have always had a "juridical personality" for the purposes of conducting business while shielding individual shareholders from personal liability (i.e. protecting personal assets which were not invested in the corporation).
Ralph Nader, Phil Radford and others have argued that a strict originalist philosophy should reject the doctrine of corporate personhood under the Fourteenth Amendment.[22] Indeed, Chief Justice William Rehnquist repeatedly criticized the Court's invention of corporate constitutional "rights", most famously in his dissenting opinion in the 1978 case First National Bank of Boston v. Bellotti; though, in Bellotti, Rehnquist's objections are based on his "views of the limited application of the First Amendment to the States" and not on whether corporations qualify as "persons" under the Fourteenth Amendment.[23] Nonetheless, these justices' rulings have continued to affirm the assumption of corporate personhood, as the Waite court did, and Justice Rehnquist himself eventually endorsed the right of corporations to spend in elections (the majority view in Bellotti) in his dissenting opinion in McConnell v. FEC.
A central point of debate in recent years has been what role corporate money plays and should play in democratic politics. This is part of the larger debate on campaign finance reform and the role which money may play in politics.
In the United States, legal milestones in this debate include:
The corporate personhood aspect of the campaign finance debate turns on Buckley v. Valeo (1976) and Citizens United v. Federal Election Commission (2010): Buckley ruled that political spending is protected by the First Amendment right to free speech,[26] while Citizens United ruled that corporate political spending is protected, holding that corporations have a First Amendment right to free speech because they are "associations of citizens" and hold the collected rights of the individual citizens who constitute them.[27]