The Evolution Of Corporations In England And America

AuthorJames D. Cox/Thomas Lee Hazen
ProfessionProfessor of Law at Duke University/Professor of Law at the University of North Carolina, Chapel Hill
§ 2.1 Early American Corporations
and Evolution of American
General Incorporation Laws
State legislatures have plenary powers to create corporat ions. From the
post-Revolutionary War period and into the early nineteenth centur y,
American corporations were created by the enactment of special
legislat ive act s1—that is, by acts creating a particular corporation, as
distinguished from a general law allowing a ny persons to organize
into and be a corporation by complying with prescribed conditions. To
incorporate by special act, a private bill had to be introduced in the
state legislature, be considered by the legislative comm ittees, pass both
houses, and be signed by the governor. Special acts also were used to
grant additional privileges to existing corporations or to make changes
in their charters.
Corporations were uncommon prior to the 1800s, and those
that existed were specifica lly chartered by the state to operate banks,
insurance compan ies, and companies to build and operate canals,
bridges, and roads.2 The dominant feature of businesses incorporated
in the eighteenth centur y was their public character.3 With the charter
came the privilege of monopoly status, as well as the power to assess
members in the locality for any deficiencies or capital requirements.
However, as the concept of private property became more and more a part
of American societ y and jurisprudence, the corporation and its members
were viewe d less and les s as si mply i nstr ument s of t he sta te. For e xampl e,
the Supreme Court held the Constitution’s contract clause prevented
the legislature from altering established property rights embodied in
the relationship between the corporation and its members.4 Further
evidence of the decline of the public nature of the corporation was the
evolution of the law to the view that members could not be assessed
without their assent, and cour ts began to assume that the corporation’s
members enjoyed limited liability u nless they agreed otherwise.5 Fi nally,
America’s embrace of markets and competition was ref lected in the
courts’ constr uction of the young countr y’s corporate law by the first
half of the nineteenth century. For example, the courts began to hold
that the grant of a char ter did not carry with it monopoly status.6 Barely
half a centur y earlier, a major motivating force for incorporation was the
monopoly status it conferred for the activity being incorporated.
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