§ 2.1.2 BUSINESS CORPORATIONS EMERGE

• Jurisdiction: Arizona

§ 2.1.2 Business Corporations Emerge

Until the 1800s corporations were uncommon.⁸⁹ And those that existed were typically formed for charitable, church, or municipal purposes.⁹⁰ Few business corporations existed.⁹¹ But in the nineteenth century, the corporation became a prominent mode of doing business.⁹² In the first half of the century, almost all corporations were formed through charters granted by state legislatures.⁹³ But by mid-century, general corporation statutes were prevalent.⁹⁴ These statutes allowed promoters to incorporate by filing articles of incorporation without legislative approval of a charter.⁹⁵

The ability to incorporate and sell securities to public investors created immediate fraud risks. For those who were so inclined, state-authorized corporations were a nearly unregulated vehicle to publicly market speculative or worthless investments.⁹⁶ Easily formed corporations, promoter fraud, and public interest in stock speculation made securities regulation inevitable. But until 1911, when Kansas enacted a much-copied licensing and administratively enforced securities act,⁹⁷ securities legislation was almost nonexistent.⁹⁸

In Arizona, statutory securities law did not appear until a 1909 bucket-shop law was enacted. That was followed by a 1912 securities act copied from the 1911 Kansas Act.⁹⁹ Arizona's corporate statutes did not attempt to regulate corporate securities. And because Arizona did not frame a constitution until 1910, the constitutional limits on corporations that were common in other states did not exist in Arizona.¹⁰⁰

Outside Arizona, nineteenth-century courts created doctrines to force corporations to deal fairly with their creditors and stockholders.¹⁰¹ After about 1850, courts began imposing fiduciary duties from trust law on corporate promoters, officers, and directors.¹⁰² Cases began to appear in which stockholders were allowed to sue officers and directors for misleading investors in open-market transactions involving publicly traded securities.¹⁰³ Shareholders who were victims of corporate misconduct were permitted to sue individually and sometimes in class actions.¹⁰⁴

Arizona's corporate common-law lagged that in the eastern states where shareholder and corporate litigation became frequent after the 1850s. As late as the 1870s, Arizona was still a largely unsettled frontier state whose courts had yet to experience corporate or shareholder litigation.¹⁰⁵ The first published Arizona decisions concerning corporate issues were not reported until the 1880s.¹⁰⁶ With minor exceptions,¹⁰⁷ it was not until the early twentieth century that Arizona's appellate courts began developing corporate-fiduciary law.¹⁰⁸

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Notes:

^[89] Friedman, History, supra note 4, at 129.

^[90]Id.

^[91]Id.

^[92] Adolf A. Berle & Gardiner C. Means, The Modern Corporation & Private Property 11-17 (Transaction Publishers ed. 2010) (1932) (describing the growth of the corporate form in the nineteenth century); Friedman, History, supra note 4, at 129-39, 390-400 (same).

^[93] Berle & Means, supra note 92, at 121-22.

^[94]See id. at 126-27.

^[95]See id. at 126-28.

^[96]See Wiser v. Lawler, 189 U.S. 260, 264 (1903) (describing events in 1892-93 concerning a corporation named Seven Stars Gold Mining Company that distributed nearly 400,000 prospectuses that the Supreme Court described as...