Who's Causing the Harm

30 Pages Posted: 31 Aug 2018 Last revised: 13 Dec 2019

Date Written: August 22, 2018

Abstract

Entrepreneurship represents a quintessentially American path for success and a way to pass your legacy on to your children. As a result, owners of small businesses and family-owned businesses frequently see themselves as having a unity of interest with their business, describing their relationship to their company in intimate terms. The view that small businesses are merely an extension of their owners is understandable in this cultural context, but the history of corporate law tells a different story. For centuries, the law did treat businesses and their owners as one and the same under the law of general partnerships and sole proprietorships with its unlimited personal liability for business owners. The key development found in the corporate form, however, is the separation of the owners and the business. That separation is the foundation upon which corporate law is built, including providing a justification for limited liability and perpetual life.

Prior to the Hobby Lobby decision, when faced with a rights claim by a corporation, the Supreme Court almost exclusively gave the corporation itself the ability to exercise the right in question, respecting and furthering the corporate form. The Hobby Lobby decision, on the other hand, gives shareholders the right to utilize the corporation as a vehicle to exercise their personal religion. Rather than treating the corporation as an entity with rights that derive from its aggregate members, Hobby Lobby treats the corporation as merely a collection of individuals who may use the corporation to express their personal religion. In so doing, arguably, the Court adopts the cultural view of small businesses as alter egos of their owners. While this may appear to be a minor distinction, it strikes at the heart of state corporate law.

This break from precedent has particular relevance to the concern that religious exemptions have the potential to cause harm to others. When considering the harm caused by granting religious exemptions, an important aspect to consider is who is empowered to cause that harm. Under Hobby Lobby, the answer to who is causing the harm is neither a corporation nor an individual, but rather an individual granted the powers and privileges afforded corporations under state law. Given the sheer number of small and/or family-controlled businesses, the potential for harm caused by these super-charged shareholders is not one that is contemplated by state corporate law.

Keywords: corporate law, corporate religion, small business, family-owned business, closely-held corporation, Hobby Lobby

JEL Classification: K2, K22

Suggested Citation

Hardee, Catherine, Who's Causing the Harm (August 22, 2018). Kentucky Law Journal, Forthcoming, California Western School of Law Research Paper No. 18-12, Available at SSRN: https://ssrn.com/abstract=3237116

Catherine Hardee (Contact Author)

California Western School of Law ( email )

225 Cedar Street
San Diego, CA 92101
United States

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