Corporations and civil law United States corporate law

1 corporations , civil law

1.1 incorporation , charter competition
1.2 corporate personality
1.3 delegated management , agents
1.4 shareholder liability debts

corporations , civil law


the state of delaware place of incorporation on 60 per cent of fortune 500 corporations. in 1999, 6,530 publicly traded nonfinancial firms in us, 3,771 (57.75%) incorporated in delaware, 283 (4.33%) in california, , 226 (3.46%) in new york.

corporations invariably classified legal persons modern systems of law, meaning natural persons, may acquire rights , duties. corporation may chartered in of 50 states (or district of columbia) , may become authorized business in each jurisdiction business within, except when corporation sues or sued on contract, court, regardless of corporation s headquarters office located, or transaction occurred, use law of jurisdiction corporation chartered (unless contract says otherwise). so, example, consider corporation sets concert in hawaii, headquarters in minnesota, , chartered in colorado, if sued on actions involving concert, whether sued in hawaii (where concert located), or minnesota (where headquarters located), court in state still use colorado law determine how corporate dealings performed.

all major public corporations characterized holding limited liability , having centralized management. when group of people go through procedures incorporate, acquire rights make contracts, possess property, sue, , responsible torts, or other wrongs, , sued. federal government not charter corporations (except national banks, federal savings banks, , federal credit unions) although regulate them. each of 50 states plus dc has own corporation law. large corporations have historically chosen incorporate in delaware, though operate nationally, , may have little or no business in delaware itself. extent corporations should have same rights real people controversial, particularly when comes fundamental rights found in united states bill of rights. matter of law, corporation acts through real people form board of directors, , through officers , employees appointed on behalf. shareholders can in cases make decisions on corporation s behalf, though in larger companies tend passive. otherwise, corporations adopt limited liability shareholders cannot sued corporation s commercial debts. if corporation goes bankrupt, , unable pay debts commercial creditors fall due, in circumstances state courts allow so-called veil of incorporation pierced, , hold people behind corporation liable. rare , in cases involves non-payment of trust fund taxes or willful misconduct, amounting fraud.

incorporation , charter competition

although every state have slight differences in requirements, process of forming new corporation quick. corporation not kind of business organization can chosen. people may wish register partnership or limited liability company, depending on precise tax status , organizational form sought. frequently, however, people choose corporations have limited liability become shareholders: if corporation goes bankrupt default rule shareholders lose money paid shares, if debts commercial creditors still unpaid. state office, perhaps called division of corporations or secretary of state , require people wish incorporate file articles of incorporation (sometimes called charter ) , pay fee. articles of incorporation typically record corporation s name, if there limits powers, purposes or duration, identify whether shares have same rights. information filed state, new corporation come existence, , subject legal rights , duties people involved create on behalf. incorporators have adopt bylaws identify many more details such number of directors, arrangement of board, requirements corporate meetings, duties of officer holders , on. certificate of incorporation have identified whether directors or shareholders, or both have competence adopt , change these rules. of typically achieved through corporation s first meeting.

corporate income tax share of gdp, 1946–2009.

one of important things articles of incorporation determine state of incorporation. different states can have different levels of corporate tax or franchise tax, different qualities of shareholder , stakeholder rights, more or less stringent directors duties, , on. however, held supreme court in paul v virginia in principle states ought allow corporations incorporated in different state business freely. appeared remain true if state (e.g. delaware) required worse internal protections shareholders, employees, creditors state in corporation operated (e.g. new york). far, federal regulation has affected more issues relating securities markets balance of power , duties among directors, shareholders, employees , other stakeholders. supreme court has acknowledged 1 state s laws govern internal affairs of corporation, prevent conflicts among state laws. on present law, regardless of corporation operates in 50 states, rules of state of incorporation (subject federal law) govern operation. in 20th century, recognized states, new jersey, state cut tax rate in order attract more incorporations, , bolster tax receipts. quickly, delaware emerged preferred state of incorporation. in 1933 case of louis k. liggett co v lee, brandeis j. represented view resulting race 1 not of diligence, of laxity , particularly in terms of corporate tax rates, , rules might protect less powerful corporate stakeholders. on 20th century, problem of race bottom increasingly thought justify federal regulation of corporations. contrasting view regulatory competition among states beneficial, on assumption shareholders choose invest money corporations governed. state s corporation regulations priced efficient markets. in way argued race top . intermediate viewpoint in academic literature, suggested regulatory competition in fact either positive or negative, , used advantage of different groups, depending on stakeholders exercise influence in decision state incorporate in. under state laws, directors hold exclusive power allow vote on amending articles of incorporation, , shareholders must approve directors proposals majority, unless higher threshold in articles.

corporate personality

in principle duly incorporated business acquires legal personality separate people invest capital, , labor, corporation. common law had municipal , church corporations centuries, held supreme court in bank of united states v deveaux in principle corporations had legal capacity. @ center, corporations being legal persons mean can make contracts , other obligations, hold property, sue enforce rights , sued breach of duty. beyond core of private law rights , duties question has, however, continually arisen extent corporations , real people should treated alike. meaning of person , when used in statute or bill of rights typically thought turn on construction of statute, in different contexts legislature or founding fathers have intended different things person . example, in 1869 case named paul v virginia, supreme court held word citizen in privileges , immunities clause of constitution (article iv, section 2) did not include corporations. meant commonwealth of virginia entitled require new york fire insurance corporation, run mr samuel paul, acquired license sell policies within virginia, though there different rules corporations incorporated within state. contrast, in santa clara county v southern pacific railroad co, majority of supreme court hinted corporation might regarded person under equal protection clause of fourteenth amendment. southern pacific railroad company had claimed should not subject differential tax treatment, compared natural persons, set state board of equalization acting under constitution of california. however, in event harlan j held company not assessed tax on technical point: state county had included property in calculations. differential treatment between natural persons , corporations therefore not squarely addressed.

in citizens united v fec, supreme court in 5 4 decision removed power of state , federal legislatures control unlimited spending corporations on political campaigns, reasoning corporations persons under first amendment.

in late 20th century, however, issue of whether corporation counted person or purposes acquired political significance. initially, in buckley v valeo slight majority of supreme court had held natural persons entitled spend unlimited amounts of own money on political campaigns. on strong dissent, majority therefore held parts of federal election campaign act of 1974 unconstitutional since spending money was, in majority s view, manifestation of right freedom of speech under first amendment. did not affect corporations, though issue arose in austin v michigan chamber of commerce. differently constituted supreme court held, 3 dissents, michigan campaign finance act could, compatibly first amendment, prohibit political spending corporations. however, 2010, supreme court had different majority. in 5 4 decision, citizens united v federal election commission held corporations persons should protected in same natural people under first amendment, , entitled spend unlimited amounts of money in donations political campaigns. struck down bipartisan campaign reform act of 2002, anti-hillary clinton advertisement ( hillary: movie ) run pro-business lobby group. subsequently, same supreme court majority decided in 2014, in burwell v hobby lobby stores inc corporations persons protection of religion under religious freedom restoration act. specifically, meant corporation had have right opt out of provisions of patient protection , affordable care act of 2010, require giving health care employees board of directors of corporation might have religious objections to. did not address alternative claim under first amendment. dissenting 4 judges emphasized view previous cases provided no support notion free exercise [of religious] rights pertain for-profit corporations. accordingly, issue of corporate personality has taken on increasingly political character. because corporations typically capable of commanding greater economic power individual people, , actions of corporation may unduly influenced directors , largest shareholders, raises issue of corruption of democratic politics.

delegated management , agents

although corporation may considered separate legal person, physically cannot act itself. there are, therefore, rules corporation statutes , law of agency attribute acts of real people corporation, make contracts, deal property, commission torts, , on. first, board of directors typically appointed @ first corporate meeting whoever articles of incorporation identify entitled elect them. board given collective power direct, manage , represent corporation. power (and limits) delegated directors state s law, or articles of incorporation. second, corporation laws set out roles particular officers of corporation, in senior management, on or outside of board. labor law views directors , officers holding contracts of employment, although not purposes. if state law, or corporation s bylaws silent, terms of these contracts define in further detail role of directors , officers. third, directors , officers of corporation have authority delegate tasks, , hire employees jobs need performing. again, terms of employment contracts shape express terms on employees act on behalf of corporation.

the actions of employees, in course of employment become of corporation, when goes right or wrong because thought if corporation takes benefits of employee s work, should take burdens.

toward outside world, acts of directors, officers , other employees binding on corporation depending on law of agency , principles of vicarious liability (or respondeat superior). used common law recognized constraints on total capacity of corporation. if director or employee acted beyond purposes or powers of corporation (ultra vires), contract ex ante void , unenforceable. rule abandoned in earlier 20th century, , today corporations have unlimited capacity , purposes. however, not actions corporate agents binding. instance, in south sacramento drayage co v campbell soup co held traffic manager worked campbell soup company did not (unsurprisingly) have authority enter 15-year exclusive dealing contract intrastate hauling of tomatoes. standard principles of commercial agency apply ( apparent authority ). if reasonable person not think employee (given or position , role) has authority enter contract, corporation cannot bound. however, corporations can expressly confer greater authority on officers , employees, , bound if contracts give express or implied actual authority. treatment of liability contracts , other consent based obligations, however, differs torts , other wrongs. here objective of law ensure internalization of externalities or enterprise risks seen cast wider scope of liability.

shareholder liability debts

one of basic principles of modern corporate law people invest in corporation have limited liability. example, general rule shareholders can lose money invested in shares. practically, limited liability operates default rule creditors can adjust risk. banks lend money corporations contract corporation s directors or shareholders personal guarantees, or take security interests personal assets, or on corporation s assets, ensure debts paid in full. means of time, shareholders in fact liable beyond initial investments. trade creditors, such suppliers of raw materials, can use title retention clause or other device equivalent effect security interests, paid before other creditors in bankruptcy. however, if creditors unsecured, or reason guarantees , security not enough, creditors cannot (unless there exceptions) sue shareholders outstanding debts. metaphorically speaking, liability limited behind corporate veil . same analysis, has been rejected supreme court in davis v alexander, railroad subsidiary company caused injury cattle being transported. brandeis j put it, when 1 company controls , operates both single system, dominant company liable injuries due negligence of subsidiary company.

the international court of justice in re barcelona traction, light, , power co, ltd acknowledged there invariably principle of piercing veil prevent abuse of corporate form.

there number of exceptions, differ according law of each state, principle of limited liability. first, @ least, recognized in public international law, courts pierce corporate veil if corporation being used evade obligations in dishonest manner. defective organization, such failure duly file articles of incorporation state official, universally acknowledged ground. however, there considerable diversity in state law, , controversy, on how further law ought go. in kinney shoe corp v polan fourth circuit federal court of appeals held pierce veil if (1) corporation had been inadequately capitalized meet future obligations (2) if no corporate formalities (e.g. meetings , minutes) had been observed, or (3) corporation deliberately used benefit associated corporation. however, subsequent opinion of same court emphasized piercing not take place merely prevent abstract notion of unfairness or injustice . further, though technically different, equitable remedy according supreme court in taylor v standard gas co corporate insiders (e.g. directors or major shareholders) creditors of company subordinated other creditors when company goes bankrupt if company inadequately capitalized operations undertaking.

the trend in corporate tort cases, particularly in oil spill disasters, amoco cadiz case , in deepwater horizon litigation, either pierce corporate veil or hold parent corporations directly liable harm enterprise causes.

tort victims differ commercial creditors because have no ability contract around limited liability, , therefore regarded differently under state laws. theory developed in mid-20th century beyond corporation itself, more appropriate law recognize economic enterprise , composes groups of corporations, parent takes benefit of subsidiary s activities , capable of exercising decisive influence. concept of enterprise liability developed in fields such tax law, accounting practices, , antitrust law gradually received courts jurisprudence. older cases had suggested there no special right pierce veil in favor of tort victims, pedestrians had been hit tram owned bankrupt-subsidiary corporation, or taxi-cabs owned undercapitalized subsidiary corporations. more modern authority suggested different approach. in case concerning 1 of worst oil spills in history, caused amoco cadiz owned through subsidiaries of amoco corporation, illinois court heard case stated parent corporation liable fact of group structure. courts therefore apply more stringent standards piercing corporate veil in contract case in tort cases because tort claimants not voluntarily accept limited liability. under comprehensive environmental response, compensation, , liability act of 1980, supreme court in united states v bestfoods held if parent corporation actively participated in, , exercised control over, operations of subsidiary s facilities may held directly liable . leaves question of nature of common law, in absence of specific statute, or state law forbids piercing veil except on limited grounds. 1 possibility tort victims go uncompensated, while parent corporation solvent , has insurance. second possibility compromise liability regime, such pro rata rather joint , several liability imposed across shareholders regardless of size. third possibility, , 1 not interfere basics of corporate law, direct duty of care owed in tort injured person parent corporations , major shareholders extent exercise control. route means corporate enterprise not gain subsidy @ expense of other people s health , environment, , there no need pierce veil.