The Evolution Of Corporations In England And America

• 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: 22-34

§ 2.1 Early American Corporations

and Evolution of American

General Incorporation Laws

State legislatures have plenary powers to create corporations. From the

post-Revolutionary War period and into the early nineteenth century,

American corporations were created by the enactment of special

legislative acts1—that is, by acts creating a particular corporation, as

distinguished from a general law allowing any 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 committees, 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 specifically chartered by the state to operate banks,

insurance companies, and companies to build and operate canals,

bridges, and roads.2 The dominant feature of businesses incorporated

in the eighteenth century 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 courts 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 reflected in the

courts’ construction of the young country’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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