History United States corporate law

at declaration of independence, corporations had been unlawful without explicit authorization in royal charter or act of parliament of united kingdom. since world s first stock market crash (the south sea bubble of 1720) corporations perceived dangerous. because, economist adam smith wrote in wealth of nations (1776), directors managed other people s money , conflict of interest meant directors prone negligence , profusion . corporations thought legitimate in specific industries (such insurance or banking) not managed efficiently through partnerships. after constitution ratified in 1788, corporations still distrusted, , tied debate interstate exercise of sovereign power. first bank of united states chartered in 1791 congress raise money government , create common currency (alongside federal excise tax , mint). had private investors (not government owned), faced opposition southern politicians feared federal power overtaking state power. so, first bank s charter written expire in 20 years. state governments , did incorporate corporations through special legislation. in 1811, new york became first state have simple public registration procedure start corporations (not specific permission legislature) manufacturing business. allowed investors have limited liability, if enterprise went bankrupt investors lose investment, not debts had been run creditors. supreme court case, trustees of dartmouth college v woodward, went far once corporation established state legislature (in case, new hampshire) not amend it. states reacted reserving right regulate future dealings corporations. speaking, corporations treated legal persons separate legal personality shareholders, directors or employees. corporations subject of legal rights , duties: make contracts, hold property or commission torts, there no necessary requirement treat corporation favorably real person.

bosses of senate , corporate interests–from steel, copper, oil, iron, sugar, tin, , coal paper bags, envelopes, , salt–as giant money bags looming on senators.

over late 19th century, more , more states allowed free incorporation of businesses simple registration procedure. many corporations small , democratically organized, one-person, one-vote, no matter amount investor had, , directors election. however, dominant trend led towards immense corporate groups standard rule one-share, one-vote. @ end of 19th century, trust systems (where formal ownership had used person s benefit) used concentrate control hands of few people, or single person. in response, sherman antitrust act of 1890 created break big business conglomerates, , clayton act of 1914 gave government power halt mergers , acquisitions damage public interest. end of first world war, increasingly perceived ordinary people had little voice compared financial oligarchy of bankers , industrial magnates. in particular, employees lacked voice compared shareholders, plans post-war industrial democracy (giving employees votes investing labor) did not become widespread. through 1920s, power concentrated in fewer hands corporations issued shares multiple voting rights, while other shares sold no votes @ all. practice halted in 1926 public pressure , new york stock exchange refusing list non-voting shares. possible sell voteless shares in economic boom of 1920s, because more , more ordinary people looking stock market save new money earning, law did not guarantee information or fair terms. new shareholders had no power bargain against large corporate issuers, still needed place save. before wall street crash of 1929, people being sold shares in corporations fake businesses, accounts , business reports not made available investing public.

aa berle , gc means, modern corporation , private property (1932) book i, ch iv, 64

the wall street crash saw total collapse of stock market values, shareholders realized corporations had become overpriced. sold shares en masse, meaning meant companies found hard finance. result thousands of businesses forced close, , laid off workers. because workers had less money spend, businesses received less income, leading more closures , lay-offs. downward spiral began great depression. berle , means argued under-regulation primary cause in foundational book in 1932, modern corporation , private property. said directors had become unaccountable, , markets lacked basic transparency rules. led directly new deal reforms of securities act of 1933 , securities , exchange act of 1934. new securities , exchange commission empowered require corporations disclose material information business investing public. because many shareholders physically distant corporate headquarters meetings take place, new rights made allow people cast votes via proxies, on view , other measures make directors more accountable. given these reforms, major controversy still remained duties corporations owed employees, other stakeholders, , rest of society. after world war two, general consensus emerged directors not bound purely pursue shareholder value exercise discretion of stakeholders, instance increasing wages instead of dividends, or providing services of community instead of pursuing profits, if in interests of enterprise whole. however, different states had different corporate laws. increase revenue corporate tax, individual states had incentive lower standards in race bottom attract corporations set headquarters in state, particularly directors controlled decision incorporate. charter competition , 1960s, had led delaware become home majority of largest corporations. meant case law of delaware chancery , supreme court became increasingly influential. during 1980s, huge takeover , merger boom decreased directors accountability. fend off takeover, courts allowed boards institute poison pills or shareholder rights plans , allowed directors veto bid - , payout letting takeover happen. more , more people s retirement savings being invested stock market, through pension funds, life insurance , mutual funds. resulted in vast growth in asset management industry, tended take control of voting rights. both financial sector s share of income, , executive pay chief executive officers began rise far beyond real wages rest of workforce. enron scandal of 2001 led reforms in sarbanes-oxley act (on separating auditors consultancy work). global financial crisis of 2007 led minor changes in dodd-frank act (on soft regulation of pay, alongside derivative markets). however, basic shape of corporate law in united states has remained same since 1980s.