Not to nitpick, but contrary to popular belief, the Supreme Court never “established the personhood” of corperations in 1886 with the 14th Amendment.
The case in question is Santa Clara County vs. Southern Pacific Railroad , and the court itself never rules on the personhood. It was a court reporter by the name of J.C. Bancroft Davis (a former railroad president) that snuck that “ruling” into the books.
You can view an excellent essay along these lines here:
The illegitimacy of the supposedly well-established principle of corporate personhood as been effectively covered in Thom Hartmann’s recent book, Unequal Protection: The Rise of Corporate Dominance and the Theft of Human Rights, which discusses the railroad case bex mentions. See also this Web page: http://www.thomhartmann.com/unequalprotection.shtml
You refer to a currently popular legal theory, which I’ll ask Cecil to address soon. For now suffice it to say that the published headnotes for the case you cite do establish the personhood of corporations and have often been cited in that regard by subsequent Supreme Court decisions. However, the ruling itself explicitly ducks the question of personhood. The possibility that a landmark decision was in effect fabricated by a court reporter without anyone noticing is bizarre but certainly worth investigating further.
Yeah, this “currently popular legal theory,” as Ed ever so politely puts it, is a crock, on a par with those “legal theories” as to why no one really needs to pay income tax.
It is settled law that corporations can be persons in the eyes of US law; nonetheless, the contrary “theory” has proven popular because this is not only counter-intuitive, it raises interesting questions about morality and the underlying basis of law generally.
Most religious and early legal codes address the criminal (not tort or administrative law issues) conduct of individual humans. If your rule is “Thou shalt not kill,” or “Love thy neighbor as thyself,” or “The penalty for stealing shall be death by hanging” or “Listen to the still small voice of your conscience,” then you simply haven’t addressed “group” activities at all. Try using these “basic” (possibly ingrained) rules to create international laws where the survival of nations must be taken into account. Just doesn’t translate. Same thing is true with corporate or any other group “morality.” You can’t generalize from rules written for individuals. People feel this, and I think that is the origin of some people’s insistence that corporations just aren’t people and are not entitled to the rights of individuals. They may be right; on the other hand, the flip side is the compelling reason for treating corporations as persons in many cases under the laws: we need to be able to prevent individuals from avoiding criminal liability by utilizing corporations.
I would not say that transferability is an inherent feature of stock. A public company must of course have freely tradeable shares in order to get the benefits of the stock exchanges or the NASDAQ markets. The transferability of the stock of many privately-held companies, however, is often very restricted (often by shareholder agreement with buy/sell terms spelled out). There is a legal argument that you cannot impose a complete “restraint on transferability,” but attorneys have long pushed the envelope by drafting documents that define “complete” nearly out of existence.
Re: #2, the doctrine of transferability of shares is really meant to establish that shares are property, and don’t themselves confer debt or income. You are of course correct that restrictions can be placed on the transferability.
Are you thinking about it from a tax perspective–that most corporations don’t have pass-through treatment of tax attributes but are their own entities for tax purposes? That can be another useful aspect of corporate structure, but is not universally applicable in the US since S corps are those which have elected pass-through status. Almost all publicly-traded entities are corporations without pass-through tax status. (Some trusts and limited partnerships do trade publicly and tout their special tax position.)
The “transferability” aspect is a good thought in the historic sense–the transferability of stock distinguishes corporations from partnerships which traditionally dissolved when one of the partners died or dropped out. In this sense, that stock can transfer on death is a big deal–it enables the entity to have a continuing life of its own separate from its owners.
This is the statement I though was a bit broad without a caveat as to the possibility that limits on transferability may be imposed.
In addition to tax purposes, they are their own entity for legal and debt purposes as well. Thus the debts of the company are not those of the holder of the shares.
S-corps and partnerships and stuff are beyond the scope of the article, so I didn’t talk about them.
One other point that could have been raised. Stock prices DO affect the health of the business in a way, in that it is much harder for companies to raise new equity when their share price is low. If their price has bombed, they would have to issue massive numbers of shares at a very low price (with consequent dilution, very undesirable to shareholders).
So, now I’m in a quandry… this thread is now related to both a Staff Report (hence in the appropriate forum) and to Cecil’s column (hence in the wrong forum.) But if I move it to the other forum, then it will be… Oh, damn. A paradox. I think I’ll leave it here.
