The History and Revival of the Corporate Purpose Clause

30 Pages Posted: 15 Mar 2021 Last revised: 29 Jul 2021

See all articles by Elizabeth Pollman

Elizabeth Pollman

University of Pennsylvania Carey Law School; Co-Director, University of Pennsylvania Carey Law School - Institute for Law and Economics; European Corporate Governance Institute

Date Written: March 12, 2021

Abstract

The corporate purpose debate is experiencing a renaissance. The contours of the modern debate are relatively well developed and typically focus on whether corporations should pursue shareholder value maximization or broader social aims. A related subject that has received much less scholarly attention, however, is the formal legal mechanism by which a corporation expresses its purposeā€”the purpose clause of the corporate charter. This Article examines corporate purpose through the evolution of corporate charters. Starting with historic examples ranging from the Dutch East India Company to early American corporations and their modern 21st century parallels, the discussion illuminates how corporate purpose has been expressed within the charter in a changing series of practices.

Examining this evolution reveals that throughout history, the sovereign state has firmly held the reins on the legal statement of corporate purpose by determining it as a matter of special grant or by requiring its articulation in the constitutional document establishing the corporation. Early corporate charters included provisions for self-governance and purpose that served as a coordinating mechanism for long-term ventures and associations, often serving public and private interests. Over the nineteenth century, as state legislatures looked to solve their corruption problem and powerful business players pressed for greater operational freedom, the purpose clause of the corporate charter lost its specificity, and awareness of its public-tinged character diminished. Corporations increasingly relied on private documents and intangible, branded personas to create corporate identity, capture philosophies of corporate mission, and express social-minded aims. Throughout this long history, however, and despite waning attention paid to corporate purpose clauses at times, they have remained an important reflection of the public-private collaboration at the heart of the corporate enterprise. Further, the longstanding requirement of stating a purpose in the corporate charter has laid the groundwork for a contemporary revival in understanding its relevance to the corporate law doctrine of good faith, and its utility as a mechanism for creating and coordinating commitments for the benefit corporation. The purpose clause has enduring relevance even as new practices and understandings of corporate purpose have emerged in business and law.

Keywords: corporate purpose, corporate charter, purpose clause, certificate of incorporation, corporate governance, history of corporate law, special charter, general incorporation laws, mission statements, fiduciary duty of good faith, benefit corporations

JEL Classification: G39, K22, L21, M14

Suggested Citation

Pollman, Elizabeth, The History and Revival of the Corporate Purpose Clause (March 12, 2021). Texas Law Review, Vol. 99, P. 1423, 2021, U of Penn, Inst for Law & Econ Research Paper No. 21-15, Available at SSRN: https://ssrn.com/abstract=3803604

Elizabeth Pollman (Contact Author)

University of Pennsylvania Carey Law School; Co-Director, University of Pennsylvania Carey Law School - Institute for Law and Economics; European Corporate Governance Institute ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States

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