The U.S. Supreme Court’s recent decision in Burwell v. Hobby Lobby Stores, Inc., et al, No. 13-354, slip op. (Sup. Ct., Jun. 30, 2014), commonly known simply as the Hobby Lobby case, brought up the issue of corporate “personhood” once again. The decision has been highly controversial, and ultimately, it did not do much to resolve, or even clarify, the underlying question of what it means to say that a corporation or other business entity is a “person.” Corporations still cannot vote, but they do share a number of rights and privileges with individuals.
The simplest explanation of corporate personhood is that corporations are fictitious entities that can perform some of the same activities as individual people. Sir William Blackstone, writing in the 1760s, called them “artificial persons, who may maintain a perpetual succession, and enjoy a kind of legal immortality.” Commentaries on the Laws of England, Book 1, Chapter 18. Contracts and statutes may use defined terms as a shorthand, such as defining “person” to include other legal entities besides humans. The United States Code included corporations in its definition of “person” from the very beginning, in 1 U.S.C. § 1.
To include a corporation within the definition of “person,” one must also define a “corporation.” Each state has its own set of corporate laws, but they all have similar features. The New Jersey Business Corporation Act defines “corporation” in a rather circular fashion, as “a corporation for profit organized under this act.” N.J. Rev. Stat. § 14A:1-2.1(g). A corporation is essentially an organization composed of individuals and contractual relationships. The U.S. Supreme Court set the stage for this concept of the corporation by establishing limits on the government’s ability to interfere in private contracts. Fletcher v. Peck, 10 U.S. 87 (1810); Dartmouth College v. Woodward, 17 U.S. 250 (1819).
A major turning point for the idea of corporations as “persons” occurred with the Supreme Court’s decision in Santa Clara County v. Southern Pacific RR Co., 118 U.S. 394 (1886). A headnote to the case, prepared by court staff, stated that corporations are “persons” within the meaning of the Equal Protection Clause of the Fourteenth Amendment, although this might not have been the court’s precise intent. Regardless, subsequent cases have relied on Santa Clara Co. both to build on and to limit corporate rights in important ways. In Hale v. Henkel, 201 U.S. 43 (1906), for example, the court held that the Fifth Amendment’s privilege against self-incrimination does not apply to corporations.
In the 20th and 21st centuries, courts have looked at what rights corporations have under the First Amendment. This has led to some holdings that are not too controversial, such as corporate freedom of the press in Grosjean v. American Press Co., Inc., 297 U.S. 233 (1936). Concepts of freedom of speech later expanded into the rights of corporations to spend money on political campaigns, which has led to controversial rulings like First Nat’l Bank of Boston v. Bellotti, 435 U.S. 765 (1978) and Citizens United v. Federal Election Com’n, 130 S.Ct. 875 (2010). The Hobby Lobby decision might only make these issues more complicated.
Small business attorney Samuel C. Berger handles a variety of legal matters for New York and New Jersey entrepreneurs and businesses. We offer fixed-fee legal-service packages to help our clients understand their rights and obligations, keep their operations running smoothly, and grow their businesses and prosper. Contact us today online or at (212) 380-8117 to schedule a confidential consultation with a member of our legal team.
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Issuance of Preferred Stock in Family Businesses to Shareholders Who Actively Participate in the Business, New York & New Jersey Business Lawyer Blog, April 14, 2014
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