Saturday, May 8, 2021
Margaret Blair just posted a new paper to SSRN, How Trustees of Dartmouth College v. Woodward Clarified Corporate Law. It’s a fun historical piece on how Trustees of Dartmouth College v. Woodward enshrined the concession theory of the corporation into law. She argues that although the case is often cited for the contractual theory of the corporation, it also stands for the proposition that corporations result from state-conferred privileges. She traces the history of business organizations in the United States in order to demonstrate that critical features of the corporate form – separate personhood, asset partitioning, limited liability – were not replicable absent official state recognition, leading up to Dartmouth College’s famous pronouncement that “A corporation is an artificial being, invisible, intangible, and existing only in contemplation of the law. Being the mere creature of the law, it possesses only those properties which the charter of its creation confers upon it either expressly or as incidental to its very existence.” The notion of a corporation as the product of state privilege was also articulated by Justice Washington in his concurrence, where he wrote, “A corporation is defined by Mr. Justice Blackstone to be a franchise….It amounts to an extinguishment of the King’s prerogative to bestow the same identical franchise on another corporate body….”
Along these lines, I also note that Paul Mahoney has an interesting piece where he doesn’t – exactly – disagree with Blair’s history, but does claim that private contracting mechanisms were not as bad at replicating the corporate form as Blair takes them to be, in part because of early limits on respondeat superior (so that tort liability risk was less of a thing) and because reputational concerns kept everyone out of the courts, so they resolved their differences privately. See Paul G. Mahoney, Contract or Concession? An Essay on the History of Corporate Law, 34 Ga. L. Rev. 873 (2000). In his telling, it was the interference of the legislature that arrested the development of privately-created corporations, in part so that the Crown could protect the monopoly rights of those who paid for charters.
Of course, being of the critical-legal-studies sort myself, I just have to add that there is something rather incongruous about arguing whether corporations can be formed “privately” or instead need a “state concession” when the only evidence one way or another comes from judicial recognition – or lack of recognition – of corporate personhood. Judges are, of course, state actors, so in that sense, one cannot have any of the benefits of the corporate form without the involvement of the state, because ultimately you need a judicial pronouncement to make it so.