The Corporate Personhood Two-Step
52 Pages Posted: 17 Jul 2017 Last revised: 8 Jun 2018
Date Written: June 25, 2017
The corporation cannot exist without founders complying explicitly with the requirements for incorporation provided by state statutes. The artificial entity theory acknowledges that a corporation does not exist until its founders meet all requirements for corporate formation imposed by the state. It also acknowledges that while human beings can do business collectively, contracting for many elements of the corporation without any state intervention, to take full advantage of the corporate form parties must comply with state requirements for formation. A corporation is also, by design, a new and distinct entity divorced from its people. The real entity theory acknowledges that once a corporation is formed, it has rights wholly separate from its founders that belong only to the corporation itself. By merging the artificial entity and real entity theories, the Court may properly define corporate rights.
Because of the dual nature of the corporation, corporate personhood should be a question of fact, not a matter of law. Corporate personhood requires weighing the evidence and making a case by case determination based on the choices made at formation and how the corporation operates. Determining a corporation’s rights requires the Court to engage in a two-step analysis that gives deference to this duality. The Court must first rely on how the corporation is defined by statute to determine whether it is required to acknowledge the existence of the right for the corporation itself, then decide whether state action infringes on that right if it exists. Problems arise in corporate personhood jurisprudence when the courts give rights to corporations that states, legislatures, and founders did not intend.
When granting corporations constitutional rights based on the rights of founders and shareholders in the aggregate, the Court is ignoring the parameters of the state law definition of the corporation, as well as the affirmative choices of corporate founders who deliberately choose the corporation over other forms of business. Citizens United and Hobby Lobby are recent examples of this dismissal of corporate statutes for the sake of protecting the rights of the people who make up the corporation. Contrary to the commentary of the Court in these decisions, the corporation is not designed or intended to be an association of citizens. Engaging in a two-step analysis shows that it is impossible for a corporation to be an association of citizens.
Keywords: Corporations Governance, Citizens United, Theories of the Firm
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