What is a corporation anyway? Isn’t it like any other association of people?

A corporation is not just like any other association of people. A corporation is a specific creation of state or federal statute that may only be used for purposes defined by the state or federal statute that permitted the creation of the corporation. While Justice Scalia has claimed that corporations are like other associations of people, this is wrong. “Those who feel that the essence of the corporation rests in the contract among its members rather than in the government decree . . . fail to distinguish, as the eighteenth century did, between the corporation and the voluntary association.”[1]

That distinction has always been true and remains valid now. A corporation is a government-created structure for doing business, and is available only by statute.[2] The structure has state-created advantages (shareholder limited liability, for instance) and disadvantages (taxation of corporate profits and shareholder dividends, for instance) as compared to other structures. Non-profit corporations have other statutory advantages (such as the ability to raise tax deductible money) and disadvantages (such as various compliance requirements and restrictions on political activity).

The corporate legal form remains today not simply an association of people but a pure creation of statute that, unlike associations of people, may or may not be permitted by law. Indeed, a corporation is not fundamentally different now than in 1819 when Chief Justice Marshall writing for the Court explained that a corporation, as a “mere creature of law . . possesses only those properties which the charter confers upon it. . . .”[3] Corporations remain creatures of statute, subject to various government compliance requirements.[4]

[1] Oscar Handlin & Mary Flug Handlin, Commonwealth: A Study of the Role of Government in the American Economy, Massachusetts, 1774-1861, 92 & n.18 (New York Univ. Press 1974).
[2] Harry G. Henn & John R. Alexander, Law of Corporations, West Hornbook Series, 14-35 (3d ed. 1981).
[3] Trustees of Dartmouth College v. Woodward, 17 U.S. 518, 636 (1819).
[4] CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 89-91 (1987) (“state regulation of corporate governance is regulation of entities whose very existence and attributes are a product of state law.”).