page_title: United States corporate law
section_title: History
hierarchical_section_title: United States corporate law / History
caption_attribution_description: The Bosses of the Senate, a cartoon by Joseph Keppler. First published in Puck 1889. (This version published by the J. Ottmann Lith. Co. and held by the
context_page_description: United States corporate law regulates the governance, finance and power of corporations in US law. Every state and territory has its own basic corporate code, while federal law creates minimum standards for trade in company shares and governance rights, found mostly in the Securities Act of 1933 and the Securities and Exchange Act of 1934, as amended by laws like the Sarbanes–Oxley Act of 2002 and the Dodd–Frank Wall Street Reform and Consumer Protection Act. The US Constitution was interpreted by the US Supreme Court to allow corporations to incorporate in the state of their choice, regardless of where their headquarters are. Over the 20th century, most major corporations incorporated under the Delaware General Corporation Law, which offered lower corporate taxes, fewer shareholder rights against directors, and developed a specialized court and legal profession. Nevada has done the same. Twenty-four states follow the Model Business Corporation Act, while New York and California are important due to their size.
context_section_description: At the Declaration of Independence, corporations had been unlawful without explicit authorization in a Royal Charter or an Act of Parliament of the United Kingdom. Since the world's first stock market crash (the South Sea Bubble of 1720) corporations were perceived as dangerous. This was because, as the economist Adam Smith wrote in The Wealth of Nations (1776), directors managed "other people's money" and this conflict of interest meant directors were prone to "negligence and profusion". Corporations were only thought to be legitimate in specific industries (such as insurance or banking) that could not be managed efficiently through partnerships. After the US Constitution was ratified in 1788, corporations were still distrusted, and were tied into debate about interstate exercise of sovereign power. The First Bank of the United States was chartered in 1791 by the US Congress to raise money for the government and create a common currency (alongside a federal excise tax and the US Mint). It had private investors (not government owned), but faced opposition from southern politicians who feared federal power overtaking state power. So, the First Bank's charter was written to expire in 20 years. State governments could and did also incorporate corporations through special legislation. In 1811, New York became the first state to have a simple public registration procedure to start corporations (not specific permission from the legislature) for manufacturing business. It also allowed investors to have limited liability, so that if the enterprise went bankrupt investors would lose their investment, but not any extra debts that had been run up to creditors. An early Supreme Court case, Dartmouth College v. Woodward (1819), went so far as to say that once a corporation was established a state legislature (in this case, New Hampshire) could not amend it. States quickly reacted by reserving the right to regulate future dealings by corporations. Generally speaking, corporations were treated as "legal persons" with separate legal personality from its shareholders, directors or employees. Corporations were the subject of legal rights and duties: they could make contracts, hold property or commission torts, but there was no necessary requirement to treat a corporation as favorably as a real person.
  Over the late 19th century, more and more states allowed free incorporation of businesses with a simple registration procedure. Many corporations would be small and democratically organized, with one-person, one-vote, no matter what amount the investor had, and directors would be frequently up for election. However, the dominant trend led towards immense corporate groups where the standard rule was one-share, one-vote. At the end of the 19th century, "trust" systems (where formal ownership had to be used for another person's benefit) were used to concentrate control into the hands of a few people, or a single person. In response, the Sherman Antitrust Act of 1890 was created to break up big business conglomerates, and the Clayton Act of 1914 gave the government power to halt mergers and acquisitions that could damage the public interest. By the end of the First World War, it was increasingly perceived that ordinary people had little voice compared to the "financial oligarchy" of bankers and industrial magnates. In particular, employees lacked voice compared to shareholders, but plans for a post-war "industrial democracy" (giving employees votes for investing their labor) did not become widespread. Through the 1920s, power concentrated in fewer hands as corporations issued shares with multiple voting rights, while other shares were sold with no votes at all. This practice was halted in 1926 by public pressure and the New York Stock Exchange refusing to list non-voting shares. It was possible to sell voteless shares in the economic boom of the 1920s, because more and more ordinary people were looking to the stock market to save the new money they were earning, but the law did not guarantee good information or fair terms. New shareholders had n
caption: "The Bosses of the Senate", corporate interests–from steel, copper, oil, iron, sugar, tin, and coal to paper bags, envelopes, and salt–as giant money bags looming over senators.[7]
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