Corporate personhood

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The creation of limited liability companies in English law

"... The corporation is an artificial person created by law. It is easy to personify the artificial person and judge it. It is easy to generalise and cast a net of moral suspicion over the whole corporate sector so that the word 'corporate' becomes almost a term of disapprobation.

In the end, however, particular judgments must be about the people who direct, guide and manage corporations. And public policy judgments emanating in the regulation of corporate behaviour, while imposing sanctions on bodies corporate, must also be directed to the people behind them.

The law today creates the conditions under which corporations can be created and can raise the capital and acquire the assets necessary to undertake projects, produce goods or offer services of benefit to society. It also seeks, at great length and with great complexity, to bridle what history demonstrates can be an unruly, undisciplined and sometimes amoral beast.

The facilitative and regulatory aspects of corporations law today are mirrored in centuries' old debates which continually remind us that there is nothing new under the sun.

The joint stock company which emerged in the seventeenth century was described by William Holdsworth in his History of English Law as 'a valuable instrument for the promotion and working of new industries, and for the mobilization of national credit'.3 But he went on to write:

On the other hand, it had also … become clear that it could be used to perpetrate gross frauds upon the public, and to encourage wild speculation and gambling in stock and shares.4

The so called 'Bubble Act' of 1720 was enacted against a background of promotions and speculative investment ending in the South Sea Bubble Crash of that year. The Act5 was passed, inter alia, to restrict invitations for public investment in purported corporate bodies created under obsolete charters.

Maitland wrote of a 'panic-stricken Parliament' issuing 'a law, which, even when we now read it, seems to scream at us from the statute book'.6 The precise meaning of the clauses of the Bubble Act was doubtful.7

However, it seems clear that acting or presuming to act as a corporate body, raising or pretending to raise transferable stock and transferring or pretending to transfer or assign shares or stock were deemed to be illegal and void, unless given legal authority by the Crown or Parliament.

The distrust of incorporated commercial entities in the eighteenth century was not limited to England. Rob McQueen in his interesting book, A Social History of Company Law, points to considerable scepticism about corporations in Europe quoting, by way of example, a sweeping declaration of the Revolutionary Assembly in France in 1792:

A State that is truly free ought not to suffer within its bosom any corporation, not even such as, being dedicated to public instruction, has merited well of the country.8

History demonstrates, however, that the ingenuity of the legal profession knows no bounds. That ingenuity was on display by ancestral corporations lawyers in the period, sometimes called the 'Dark Age', between 1720 and 1825 when the Bubble Act was in force. Unincorporated associations formed by deed of settlement and most commonly operated by trustees, were used to operate enterprises without official approval.9

McQueen suggests that the restrictions imposed by the Bubble Act led to innovation by English lawyers and company promoters including new means and varieties of shareholding and capital raising and the concept of preference shares, debentures and deferred shares.10

He also suggests that a precipitating factor in bringing about limited liability companies' legislation in mid-nineteenth century England was not so much to provide a framework for the operation of corporation enterprises, but to facilitate the development of the concept of preference shares and to enable corporations to sue and to be sued.11

Legislative change after the demise of the Bubble Act in nineteenth century England brought about 'a new legal framework transforming incorporation from a closely-guarded privilege into a freely available right.'12 But it seems to have been a variety of factors that led to that result. It was not universally welcomed.

The rise of the limited liability company faced substantial opposition from vested commercial interests fearful of competition from corporations and others, and fearful of the impunity of owners in the event of corporate insolvency.

The objection by Joseph Marryatt in the House of Commons in 1810 to the incorporation of a proposed marine insurance company has a certain modern resonance. In a gloomy prognosis of the effects of limited liability upon insolvent companies, he said:

… if that company should at any time become insolvent, the individual members would still remain in affluence, and drive in their coaches by the persons who had been ruined by such insolvency.13

The role of lawyers in devising structures to effect a kind of limited liability did not pass unnoticed. A correspondent to the Morning Chronicle newspaper in England on 16 November 1807 wrote:

All the subterfuges and expedients that have been resorted to by plausible solicitors, of introducing clauses into deeds of settlement by which the partners are not answerable beyond the amounts of their respective subscriptions, are laughed at by real lawyers and would be scouted at by a protecting judge …14

When a Trading Companies Bill conferring limited liability was debated in the 1830s in the House of Lords it was denounced by Lord Brougham as 'contrary to the whole genius and spirit of the English law, contrary to the genius and spirit of the constitution.'15

His Lordship and the House of Lords were in turn denounced by elements of the commercial community as having stood in the way of reform against a measure 'loudly called for by the commercial interest and warmly supported by all sides within the walls' of the Commons.16 The Bill of 1830 was defeated, but the day of the limited liability company was not far off.

It came with the Limited Liability Act 1855 (UK)17 which provided for limited liability companies of more than 25 members. It has been with us ever since.

Legislation to amend the constitution introduced

Rep. Donna Edwards (D-Md) and Rep. John Conyers (D-Mi) and chair of the House Judiciary Committee today introduced an amendment to the Constitution to overturn the Supreme Court's decision in Citizen's United that gave corporations the right to spend unlimited funds in election campaigns as a matter of free speech.

Edwards, a brilliant first term legislator with a long commitment to free elections, quoted Justice Lewis Brandeis: 'We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can't have both.' It is time we remove corporate influence from our policies and our politics. We cannot allow corporations to dominate our elections, to do so would be both undemocratic and unfair to ordinary citizens."

"The ruling reached by the Roberts' Court overturned decades of legal precedent by allowing corporations unfettered spending in our political campaigns," said Congresswoman Edwards. "Another law will not rectify this disastrous decision. A Constitutional Amendment is necessary to undo what this Court has done."

Judiciary Chair Conyers concurred and co-sponsored the amendment, noting that ""The Supreme Court's idea that corporate political is no different than an individual citizen's political speech was not the law when the Constitution was written, was not the law before the Supreme Court's decision two weeks ago, and should not be the law in the future."

Senator John Kerry announced a plan to introduce a similar amendment in the Senate

A broad coalition of groups are joining together to push the drive for the amendment, while supporting legislation to limit the Court's ruling.

This should lead to campaigns in every state to pass the amendment - and force legislators to decide which side they are on: Should corporations be guaranteed the same free speech rights as American citizens?

The Supreme Court's decision - imposed by the gang of five activist conservative justices - is wrong on the law, wrong on the history, wrong on the principles of a Republic (as opposed to the interests of Republicans). Scorning decades of precedent, and dozens of settled federal and state laws, the right-wing majority imposed a power-grab every bit as egregious as the decision in Bush v Gore that made Bush president by shutting down the vote count in Florida.

If citizens begin to understand the stakes, then this decision may well backfire on the Gang of Five and their conservative allies.

See amendment and Edwards and Conyers' statement here.

See Edwards' floor speech on issue here.

For more information go to www.freespeechforpeople.org.

Supreme Court overturns a century of law

We noted with interest reports that subsidiaries of foreign corporations from across the globe have launched a lobbying campaign in Washington to protect their newfound power to influence American elections under the Citizens United case. About 160 of these U.S. subsidiaries of foreign-owned or controlled corporations are involved in a lobbying group trying to stop President Obama and Congress from enacting limits on their spending in political campaigns. Worse still, the lobbyist leading the effort refused to disclose all the companies involved in the lobbying campaign. But it appears that the group of companies has the potential to spend hundreds of millions of dollars to influence American elections.

All of this demonstrates why the President was right to criticize the Supreme Court’s recent decision in Citizens United – and why he is also right to call for reform of the lobbying laws, including tough new rules on lobbyist disclosure, that build on the dramatic steps he has already taken in his first year in office to change Washington.

In Citizens United, a narrow 5-4 majority of the Supreme Court overturned a century of law that had barred corporations from using their financial clout to directly interfere with elections. As a result of this decision, American corporations owned in whole or in part by foreign companies—and even by foreign governments—are no longer restricted from making expenditures to elect or defeat federal candidates.

Some have argued that Citizens United will not increase foreign influence, but they are mistaken. The four Justice dissent, authored by Justice Stevens, specifically pinpoints the fact that the majority opinion opens the door to foreign influence -- see page 33 and page 75. The majority openly acknowledged that foreign influence could pose a potential issue here, as did the lawyer for Citizens United. And, a stream of independent, non-partisan experts have echoed the President’s concerns:

Fred Wertheimer of Democracy 21 stated that “there is no statutory prohibition against foreign-controlled domestic corporations from making expenditures to influence federal elections, following the Citizens United decision.”

Common Cause and Public Campaign issued a joint statement that the Court’s opinion “will allow corporations, including those owned by a majority of foreign entities, to spend without limit to influence US elections.”

Norm Ornstein of the American Enterprise Institute stated that: “Citizens United opens up opportunities for American subsidiaries of foreign companies, including those owned by foreign governments, to spend huge amounts to influence American elections.” Gerald Hebert of the Campaign Legal Center stated that “With the corporate campaign expenditure ban now being declared unconstitutional, domestic corporations controlled by foreign governments or other foreign entities are free to spend money to elect or defeat federal candidates.”

Others assert that subsidiaries of foreign companies already spend millions on independent expenditures and so the Citizens United decision will make no difference. That misses the point. The electioneering communications law that was struck down restricted corporate ads naming elected officials in the crucial 60 days before general elections and 30 days before primary elections. Now those corporations can spend freely on those ads during the most critical periods in elections and the express message can be to vote for or against a named candidate. That constitutes an enormous expansion of corporate power to influence elections.

Others claim existing law is sufficient to protect against foreign influence in our elections. That too is wrong. Although the Federal Election Commission (FEC) restricts foreign nationals from spending or directing spending in American elections, it does not prohibit corporations in which foreign nationals are shareholders or hold significant sway or de facto control from making such expenditures. For example, foreign-controlled corporations making independent expenditures cannot be relied upon to make decisions contrary to the political interests or preferences of their owners. Before Citizens United, these problems did not exist at the federal level since the corporations themselves were limited in what they could do regardless of whose money or influence was behind them. But now that restriction is no more. Accordingly, because of these realities of how foreign control can operate, a stronger rule is needed to protect our domestic politics from foreign influence.

In the State of the Union, the President called for a series of steps to fix the problems caused by this case and also by the problem of special interests and their lobbyists having too much influence in Washington. In addition to closing the loopholes opened by Citizens United, including the one that could allow foreign interests to influence our elections, the President also called on Congress to:

  • Establish carefully-tailored, low-dollar limits on the contributions lobbyists may bundle or make to candidates for federal office;
  • Toughen lobbyist disclosure rules so that – like the voluntary step the President has taken to disclose visitors to the White House – lobbyists must disclose the details of every lobbying contact, including what the meeting was about;
  • Close the loophole that allows foreign agent lobbyists to avoid full disclosure of their activities;
  • Fully disclose all earmark requests on a comprehensive, bipartisan, state-of-the-art disclosure database that allows Americans to examine the details of every proposed request.

The proposals are detailed in this White House fact sheet.

For at least a century, it was considered perfectly legal to treat corporations differently than people in the context of political activity. The Supreme Court’s decision changes that century-old legal principle. As Justice Stevens wrote in dissent, “Congress has placed special limitations on campaign spending by corporations ever since the passage of the Tillman Act in 1907... The Court today rejects a century of history when it treats the distinction between corporate and individual campaign spending as an invidious novelty born of [more recent Court decisions].”

The American people have a compelling interest in preventing foreign interests from influencing our domestic political process. A strong legislative response is required given the stakes: Americans’ control over their own electoral process. That is why the President is working with Congressional leadership to move rapidly to pass legislation that protects our politics from undue special interest influence.

References

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