Forms Of Business Association-Definitions And Distinctions

AuthorJames D. Cox/Thomas Lee Hazen
ProfessionProfessor of Law at Duke University/Professor of Law at the University of North Carolina, Chapel Hill
§ 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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