Forms Of Business Association-Definitions And Distinctions

• Author: James D. Cox/Thomas Lee Hazen
• Profession: Professor of Law at Duke University/Professor of Law at the University of North Carolina, Chapel Hill
• Pages: 2-20

§ 1.1 The Corporation

Corporations made possible much of the industrial and commercial

development of the nineteenth and twentieth cent uries. Corporate form

permits investors to combine their capital and participate in the profits

of large- or small-scale business enterprises. Corporations provide

centralized management, with owners’ risk limited to the capital

contributed and without peril to their ot her resources and business. The

capital needed for modern business could hardly have been assembled

and combined in any other way.

§ 1.2 The Concept of Corporate

Entity or Personality

A corporation may be realistically described as a legal unit, a concern

separated off with a legal ex istence, status, or capacity of its own, a legal

device or instrument for carrying on some business enterprise or some

social, charitable, religious, or govern mental activities. Corporation A

is a legal person entirely dif ferent from individual shareholder X, or,

rather, it has a legal capacity that is disti nct from X’s, even though X

organized it, manages it, and owns all or pract ically all of its shares.

Unlike in an individual enterprise or partnership, in a corporation

the maximum loss to shareholders or owners due to the business’s debts

and torts, with r are exceptions, will not exceed the amount that they have

invested in the enterprise. If Y loans money or otherwise extends credit

to A corporation, he must look to the corporate assets for repayment;

ordinarily he cannot recover from the shareholders or levy on their

property.1 The separateness of the corporation is also genera lly recognized

for tax purpose s, the corporation usually being considered a ta xable entity.

§ 1.3 The Corporation and the Constitution

When questions arise concerning the right of corporations to invoke

constitutional protections, the Supreme Court resolves the question

by examini ng the nature and purpose of the specific art icles, clauses,

or amendments. Over time, this inquiry has yielded a “corporate

personality ” for constitutional purposes. Corporations, as art ificial

persons, are entitled to many, but not all, of the protections and

guarantees afforded natural persons.

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Citizenship. One significant limitation on a corporation’s rights

under the Constitut ion is the Supreme Court’s refusal to grant it

citizenship statu s for the purposes of the priv ileges and immunit ies clause

of Article IV, Section 2, as well as under the Fourteenth Amendment.2

As a consequence of corporations’ being denied citizenship status,

states may, as a valid exercise of their police powers, regulate foreign

corporations conducting business within their borders, provided the

regulations do not impermissibly affect commerce.3

On the other hand, a corporation is a cit izen for the purposes of

determining whet her the federal court has jurisdic tion based on diversity

of citizenship under Article III of the Constitution.4 Corporations also

enjoy First Amendment protections.5 The corporation’s citizenship for

jurisdictional purposes and its presence for venue purposes are now

controlled by statute.

Person. Various constitutional provisions afford protection to a

“person.” The Court interprets this lang uage as including artificial

persons such as corporations when t he provision does not pertain to

a “purely personal” guarantee.6 Thus, a corporation is a person for

purposes of the Fourth Amendment’s protection against unlawful

searches and seizures of its property7 and the Fif th Amendment’s

protection against double jeopardy.8 For example, the Court reasoned

that, because a corporation’s success depends heavily on its goodwill, it

should be protected by the Fifth A mendment from a second, damaging

criminal trial. The corporat ion is also a person protected by the due

process clauses of the Fift h and Fourteenth A mendments,9 as well as the

equal protection clause of the Fourteenth A mendment.10

A corporation is not a “person” under the self-incrimination clause

of the Fifth Amendment. Because that guaranty is intended to prohibit

the use of physical or moral compulsion exerted on the person asserting

the privilege, its protection is purely personal in nature and therefore

applies only to natural persons.11

Corporations, while entitled to ma ny Fourth, Fifth, and Fourteenth

Amendment freedoms, do not enjoy the same right of privacy as do

individuals.12 Because a corporation exists solely by the grace of the

legislature and “[t]here is a reserved right in the legislature to i nvestigate [a

corporation’s] contracts and find out whether it has exceeded its powers,”13

the corporation’s books and records carry no persona l privacy.14 This

position ensures that under appropriate circumstances, the government

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