For reasons that I don't understand corporations are given exactly the same rights as human beings. The Bill of Rights as well as constitutional rights are given to any corporate body. The only purpose of this that I can see is the evasion of punishment. I don't know a lot about business though, so my question is:

Can anyone put up a reasonable proposition as to why corporate personhood is necessary?

And also:

In what ways does the positive aspects outweigh the negative ones, or vice versa?

I have never heard the conservative/capitolist argument for this... please supply.

Can anyone put up a reasonable proposition as to why corporate personhood is necessary?

Corporate personhood is necessary so that corporations do not impose liability upon the shareholders/owners of the company.

In every other class of business (sole-proprietorship, partnership, limited liability) the owners personally have liability to the creditors.

This is the most fundamental difference and arguably the most important reason. For example, if you are running a small restaurant and lets say you make a large investment in new kitchen equipment (several 100K). If the economy tanks and your business slows to the point where you have to close your doors, creditors can come after your personal assets (house, car, etc) in order to repay that debt.

However, if this very same restaurant was set up as a corporation liability is limited to assets invested in the corporation only (i.e stock, cash reserves, etc). The creditors cannot go after the owners or the shareholders -- you can only lose what you put in, no more.

Secondly, a corporation is the only entity that outlives its owners without special arrangements. That is not true of a sole proprietorship -- if the owner dies, that is it.

The fact that corporations have rights, is kind of a weird quick or how this was setup. If I had to guess this is just the best way they could think of at the time to get the desired benefit.

In what ways does the positive aspects outweigh the negative ones, or vice versa?

If corporations did not exist then the economy could not grow the way that it has. Indivdual investors would be unheard of, that would be left to the rich and powerful families.

As an investor you take on a certain amount of risk, but that risk had to be limited to what you invested. You could not invest and then have creditors come after your assets when the company tanked.

For companies, incorporation allows them to grow larger, gain an influx of capital and take bigger risks as long as they are within the stockholders tolerances.

If Disney were a sole proprietorship owned by Walt Disney, what would have happened when he died? Walt Disney World certainly never would have been built. Since it was a corporation, the business could live on even after his passing.

By negatives I assume you mean corporate corruption? Other than that I can't think of anything. Maybe you could list what you preceive are the negatives?

I support corporate personhood for the same reasons that CubeJockey has mentioned.

If anything, I think that the only thing wrong with the idea is that we do not take it far enough - we do not impose the same responsibilities on corporations that we put on individuals.

For example, corporations pay taxes (or not, as the case may be) on profit and not turnover, yet individuals pay taxes on income less allowances.

Corporations that break the law can only ever be fined - there is no corporate equivalent of prison (though very rarely senior management can be imprisoned). Running with this train of thought, it would of course be impossible to physically place a whole business inside a prison, but the equivalent of removing liberty and property rights might be to say that, after breaking some law in a serious enough way to merit the punishment, a corporation would have to suspend stock trading (locking in stockholders for the duration of sentence), and all the corporate effort would have to be directed towards the state (i.e. normal trading might continue, but the state would get all the profits and would make all the investment and remuneration decisions for the period of the sentence. Maybe staff would be legally obliged not to change jobs for the duration as well?).

And, corporations do not get a vote, but as individuals with their own interests, they have political positions on certain issues. So instead of having one vote per individual, and that's it, they make donations. This happens on such a scale as to outweigh personal donors, and can corrupt the democratic process away from the expressed interests of voters, especially on issues directly relevant to the trading interests of the corporate donors. For example - few individuals would choose policies that have been implemented on environmental and energy policy by the Bush administration, they have been done primarily to benefit donors in the oil industry. Principle is a secondary consideration, if it enters into the decision at all. (And if it does, I suspect the principle at stake is "you scratch my back and I'll scratch yours".)

Julian, you bring up a good point about income taxes. I have to agree that I heavily dislike income taxes and think that our country could get along with good fiscal management and just a sales tax. Without boring anyone to death in the economics of it all, income taxes raise more revenue without any added negative economic shocks (though I think seeing how much money that was already mine that I get back can be shock enough) relative to sales taxes. But in an ideal world where the government could be responsible, I think we could have a national sales tax that wouldn't overburden the population (maybe no more than 10%). All this comes under the supposition that the government isn't full of complete loonies. But I think this is way off topic.

Another good point that I don't think was mentioned was the ease in which one can create a corporation. Well, an s-corporation. Although forming a business isn't too difficult anyway. But a corporation is definitely nicer if your company goes under as you don't stand to lose everything you have with the limited liability.

But my concerns mirror those that have already been expressed in terms of how some companies wish to influence politics and the fact that money talks. I mean, which would you rather have? Someone give you a million dollars or a million votes? I'll take the money.
I think it should become illegal to have corporations themselves give money to political parties, but if an executive wants to do so, sobeit.

And Julian, while on the surface I like the idea for your corporate imprisonment, I have to say there would have to be ways to guard against moral hazard if the company has to give profits to the state. Who's to say that the company has to return a profit at all? It gets a bit shady.

Can anyone put up a reasonable proposition as to why corporate personhood is necessary?

I'm not sure I can. A corporate entity whether public or private is sort of the cultural equivalent of a state of nature. It's some sort of interconnected background thing/activity. Does Exxon have human rights? What does that mean? It seems like some odd alchemy to imagine Exxon seeking life, liberty and the pursuit of happiness. My take on it is corporations don't do anything, feel anything, own anything, in fact they don't even exist as a clearly definable presence although we sense something there. In some ways they are a marvelous concoction of collective imagination. Like God and Santa Claus and numbers it works for people so we pretend there really are such things and if we get lucky we end up with a lot of numbers connected somehow to something called a bank which seem to link up nicely with the multifarious activities that we attribute to something we call a corporation or corporations. We sort of swim in corporations. Their names and subnames are evolved useful myths like God and his saints.

Only individuals can do or feel anything. But we project ourselves on to other things and that's where it gets complicated.

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I'm a bit concerned that while a person who accidentally kills someone can get five years for manslaughter, a company, who's employee dies as direct result of its actions (not necessarily a foreseeable result) just gets fined or sued.

I didn't really make it clear on this thread, but while we both agree the disparity between personal and corporate taxation methodoligies is unfair, I tend to take the opposite view from you on how to rectify this. I have posted on this topic before, but I can't expect you to read the whole noticeboard every time I refer to it, so here's a recap.

Rather than using this as justification to aboloish income tax, I see it as a reason to make corporate taxation more closely resemble income tax - for starters by taxing turnover and not profit. Businesses, especially larger businesses (e.g. most multinationals) can very effectively avoid profit-based taxation in areas where they operate. For example, by lending money, and thus understating profit, from one jurisdiction - where they might have to pay tax, like the USA or UK - to another (such as Bermuda or the Virgin Islands) where they pat at a much lower rate, if at all.

I realise there are practical and economic issues with the idea, but I think these could largely be resolved by getting the taxation rate right - something like 0.3% of gross turnover wouldn't punish companies who already pay their taxes responsibly (which includes most smaller ones, who don't have the resources to cheat their way out of the obligation).

Corporate flight isn't a problem, because the notional tax law could just say "if you trade here you pay tax here". How many companies that do business in the US woudl want to voluntarily exclude themselves from access to the multi-trillion dollar US market for the sake of a couple of decimal points on their US turnover? Not many, I'd say. Those that do would be cutting their nose off to spite their face.

This only leaves companies that make a (real, not a fiscally-engineered) loss or break even. Arguably these companies still use as much publicly-funded infrastructure such as roads, fire departments, police protection, etc when they make a loss as they do when they make a profit, so I don't see why they should have zero liability until they start making their shareholders money.


That's what I was getting at by speculating on the possibility of "corporate imprisonment" in my last post.

Julian you have a good point here. I say either take something like this all the way or abandon it completely. Allow me to add to your posts.

With respect to punishing a company, since it is difficult to place a company in prison, I suggest the following: If you declare bankruptcy as an individual your assets are frozen until it is decided what to do with them. You are usually allowed to keep your house or car and other essentials, but the point is, your books are thoroughly gone through. So should it be for our good buddy the 'corporation'. Call it socialism if you like, but it is socialism of the worst kind to give a grant to an already failed business with no such repercussions (Nice job neocons, aren't they the ones so content on labelling liberals as 'socialists'?). Take the 'socialist' bail out of the airline industry post 9/11. At the same time we were giving the airline industry 30 billion dollars to keep them afloat, they were busy laying off 30,000 employees. UH UH. If that money goes for necessities (as it would if an individual declared bankruptcy) then it goes to pay laid off workers or reimbursing stockholders on a percentage basis. Auction the assets to further compensate. Screw the company. If you invested too heavily in it, tell it to the guy playing the blues. Such it the nature of business, you take the losses with the gains. This would truly be the equivalent of personhood, as is the case of the individual where they have to work themselves out of a hole for the next ten years. We think we saved face by bailing out these 'people' (referring to the airline industry)? United Airlines declared bankruptcy (again) less than a year afterwards. We'll show those terrorists.

Another point. If a company has to rely on a certain individual being in political office to grow and take care of their shareholders, they need to hold an internal vote (amongst the companies shareholders and their employees) on who they should endorse. You could compare this to introspection within your own mind on who you should vote for. This vote should be weighted in much an analogous way. Not on the quantity of money gained or lost, but on the relative impact of that loss/gain. For example, If I am a minor shareholder and I make only $20,000/year and I lose $500, I get an equal vote with someone who makes $2,000,000/year and loses $50,000. It IS exactly that simple. Then they can have at the donation thing in accordance with the vote. If they are going to influence an election with a donation, they had better have my interests in mind as an employee or shareholder (extra weighting could be given to employees). Maybe personhood isn't so good for business, eh? Then again, maybe it is....

Yes, and that's the problem. Corporate executives can direct their pseudo-person to behave in any number of ways that would get a human person thrown in jail... but do so with no worry about taking responsibility for their actions. Owners should have personal liability whether it's Mr. Smith sprinkling ricin on the roses at the floral shop next door, or Enron stealing employee retirement funds.



Creditors should come after your personal assets. To shield yourself from that prospect is to morally commit fraud.



Incorporating a company is a 'special arrangement' in itself. There's no reason a Will doesn't suffice to see the entity live on.



All of which, again, seeks to divorce you from the moral consequences of your investment, as well as the financial consequences of the company's obligations to creditors.

The corporation will indeed take bigger risks. Why have a double-hulled oil tanker? It's not like they can come after ME if it has a spill. Whew.



Yes, corruption, theft, fraud. Also total insulation from the reality of personal risk that drives people to make well-informed decisions.

You have to keep things in context though. The modern-day corporation has evolved from a long line of historical precedent that has developed over centuries. Some of the first joint-stock companies (what you and I would think of as corporations) were organized to finance the discovery and exploration of the New World. Due to the enormous risk involved in financing these operations (remember Christopher Columbus needed royal financing for his project), the legal entity of the joint-stock company developed as a method for people to contribute capital in a risk venture and distribute that risk proportionately to their interests. Without the distribution of this risk, industry, discovery, innovation, progress would be impeded.

If the corporation declares bankruptcy, there is sound public policy in shielding the creditors from personal liability. If the principals of a company were subject to such debts, it would literally choke off new businesses. Who could risk losing their house over a bank loan to start an oil lube franchise? No one. By your same logic, no one should be able to ever declare bankruptcy either. That doesn't make sense. We as a society have decided that it is good policy to let people have "fresh starts" and to shield shareholders from liability for corporate debts. I think both of those policies are reasonable.

Lastly, I wanted to address Julian's advocacy of a "turnover" tax as opposed to a tax on profits. I would be against such a creature. In Washington state, they impose such a tax. It's called the Business and Occupation tax. It affects businesses from dollar one, whether they are in a profit or loss situation. There is a very limited scope of deduction. By taxing gross receipts, the state of Washington in essence has elected to subsidize going concerns, and penalizes start-ups, because new companies are not likely to realize a profit from year one.

I would not support a corporate tax that taxes gross over net. The argument that Julian presented is a problem, but is addressed by Section 482 and the transfer pricing regulations related to the IRC. In fact, the LMSB division of the IRS has made Sec. 6662 documentation compliance its audit item number one for new examinations.

Corporations are necessary for our capitalist system of enterprise. They have capacity to sue and be sued.

And that's a good thing.

I think LIMITED corporate personhood is a good thing- to encourage investment- but on the other hand, some reform is definately needed in the corporate officer department- I think they should absolutely be held directly fiscally and criminally responsible for the decisions they make. For instance- there have been several auto cases where the corporate board, unbeknownst to the shareholders- purposely cut corners that they knew would cost lives- they, instead of the company should be sued, and eventually, held for murder.

I think the balance has swung to far to NO accountablity instead of limited accountability. In fact, in many ways, the corporation has MORE rights than the individual. One area is obviously accountability- an individual is supremely more accountable for his choices than the corporation. If I do something criminally negligent- I can go to jail, and I will certainly be paying for this negligence in an overwhelming financial manner- this simply does not happen to corporations.

First of all, you need to distinguish the issues, because I think the discussion is getting confused on those. The original question was: is there a reasonable purpose for corporate entities, and recognizing them as such? I see in this thread the general recognition of the necessity of having corporate entities as a vehicle to distribute risk and venture capital. And I think that that is a reasonable position.

Where the debate is stemming then, is from the degree of control that the government ought to exert over a legal entity and hold directors and officers liable. This exercise and analysis has been the focus of thousands upon thousands of lawsuits where creditors have attempted to "pierce the corporate veil" as the term is known in the legal world. Although each state has varying degrees of the level of action it requires to pierce, generally a plaintiff would only be allowed to pierce if there is fraud, overly thin capitalization in relation to potential claims, ultra vires activities, or something in that nature. It is well-settled law that directors and officers may not be held personally liable for business decisions.

And there I think is the crux of what you're getting act: should they be liable for business decisions? It's there that I would disagree. Officers and directors should not be held liable for business decisions because it would have the same effect as not recognizing corporations in the first place. How can they distribute risk and limit it to capital ventured if their homes are now on the line for decisions made about marketing, for example? Shareholder derivative suits would run rampant and companies would close.

We can expect greater accountability in accounting practices, and as such, Congress enacted the Sarbanes-Oxley requirements. But to extend liability to the extents suggested would cripple most businesses.

Nice post, Mr Jaggers (and welcome, by the way ).

However, I don't think we're really talking about this -


For one thing, the people originally intended by corporate personhood - the people whose liability is being limited - are the shareholders and investors, not the staff. Modern remuneration packages attempt to make directors share the interests of stockholders by giving them lots of stock, but generally, they are two distinct (if overlapping) groups. As a rule, stockholder make no decisions about the way business is run.

To look at your example - I don't think anyone here is suggesting that company directors should be financially punished for a poorly though out marketing campaign (though often they lose their jobs, but in these days of fixed-term contracts even that might not count as a punishment).

No, the problem that is at hand is that corporations that break the law by stealing from their supply chian partners, customers or stockholders; or by killing staff, customers or members of the public through deliberate policy decisions (e.g. to put cost-savings or revenue opportunities above safety); these crimes frequently go unpunished save for a cursory fine. While corporations have many of the advantages of personhood, they do not go all the way and face the responsibilitites of personhood - there is no corporate equivalent to custodial sentences or community service, there are only fines.

And on your earlier point,
IF this is true, then standard corporation taxes therefore act as some kind of corporate progressive redistribution, subsidizing smaller and weaker companies (either because they are start-ups, going through hard times, or because they are actually failing).
I've no problem at all with redistributive taxation in principle (I strongly support it for individuals - do you? ). The problem is that the number and character of the possible deductions usually means that the biggest multinational corporations can successfully avoid paying their tax dues in almost every jurisdiction where they operate. My suggestion of a turnover-based corporate tax regime is an attempt to cut this particular Gordian knot.

I'm not sure how familiar everyone is with corporate law, I'm rather new here. But in the States, every jurisdiction has passed some version of the Model Business Corporations Act. The Model Act generally provides for and allows, as a matter of statute, the corporation to indemnify even its officers and directors from actions undertaken on its behalf. In addition to the statutory basis, there is a common law right to indemnification as well. The point being this: I recognize that the corporate veil was enacted to protected the investors and shareholders from personal liability, however, in today's business world, there is effectively officer and director shielding by virtue of these indemnification provisions.

I am not sure I agree that corporations may not be punished, especially in light of the new legislation passed after the corporate scandals in America. You are witnessing officers and directors being charged criminally and being successfully prosecuted for, inter alia, poor (criminal?) management of statutorily protected employee investment funds. The other items you mentioned, such as stealing customers, etc. can be addressed be various causes of action: tortious interference with contracts, etc.

Regarding safety: there is a point where our society values other things above its safety. Example: if we all traveled at 5 mph, there would be next to zero automobile accidents. However, for obvious reasons, we have decided that higher speed limits trump safety. Corporations do much the same thing. The degree to which they need to place safety as the pinnacle of decision-making priorites? Well, I think I'd have to defer to the state legislature and Congress for those judgments.

Lastly, on the tax issue. Corporate taxes are, in my opinion, unfair. It is income twice taxed (once on the corporate level, and once again upon distribution to the shareholders.) Now the Supreme Court, in their infinite wisdom, has held this double taxation to be constitutional, as "the price of doing business" and enjoying the corporate entity. So if we're stuck paying them, they should be paid on net profits, not gross receipts. That way, the tax will be tendered when there is the wherewithal to pay it. Not upon gross receipts when the corporation may be in the red in the first place. The idea that corporations may shift income to decrease their tax obligations has been / is being addressed by the transfer pricing regulations of Section 482. I expect you'll see much less of it in the future, as every new CIC examination must begin with transfer pricing compliance.

MrJaggers- there is no risk for the CEO today- just short of actually taking a gun out and shooting a passerby- and even then, being as he/she is rich, it is doubtfull that they would get jail time even then!

The only "risk taker" today is the actual founder of the company- when a publically owned company is no longer under the control of the founder- there is absolutely 0 risk for the board room officers- they are guarunteed millions, win or lose.

This is where the reform needs to take place. If the company loses millions, then the CEO needs to lose equal percentage of his wealth. If the company causes an injury or death through either criminal behavior or extreme neglect - then the CEO needs to be placed in exactly the same financial situation as the victim for the rest of his/her life.

There is currently NO accountablility whatsoever in the boardroom, and I mean NONE.

Sorry, but this reply doesn't make sense. The founder of the company and the successor CEO are in exactly the same legal position with regard to the company. If you are assuming that the founder somehow has greater risk because he ventured personal capital, well, I guess that's a distinction without a difference.

In any event, I think the thread has sufficiently answered the orginial poster's question of whether corporate personhood is required. The discussion has now become something different -- the degree to which the government ought to impose personal liability on directors and officers for corporate action.

As I am a New Member, and starting a thread is strictly verboten, perhaps someone would like to start a new thread to debate the level of control the government ought to exert rather than debate whether corporations ought to be allowed to continue as a creature of statute. That's a much different question, and is probably appropriate for a different thread.

In what ways does the positive aspects outweigh the negative ones, or vice versa?

I am addressing the negative aspect here- lack of accountability as corporate personhood vs accountability of an individual- corporate personhood gets all the rights and very little of the responsibility is my point-

Yes- the initial capital outlay is the risk the founder takes- and is therefore, putting out some risk and has personal accountability- whereas, when the company has turned public, and the founder is out of the picture- then even then that accountability and risk is lost

IF we are to continue the concept of corporate personhood- we need to saddle them with the same possiblity of loss as individual personhood- in other words, if I commit murder through negligence as an individual- most likely, I am ruined for life by either jail time or at least total financial ruination- whereas, in the corporate personhood- those responsible get off scot free, and in fact, come out richer than ever.

This is the overwhelming negative aspect of corporate personhood.

First of all, the original founder of the corporation may or may not have risked personal capital. The founder may have taken non-recourse loans to start the venture, which is likely not too uncommon. I do not understand the distinction that you're making between the founder of a corporation and the CEO after it goes public. They are in exactly the same legal position and are subject to and protected by the exact same set of law. Whether or not the founder ventured personal capital is really a non-issue.

On your second point, and although I don't mean to parse words, it is important to clearly define what we're talking about so that the discussion will be productive. It's part of the inherent limitations of the language.

There is never the case of "murder by negligence." There just isn't such a thing. In every state in the union, murder is a defined crime that requires specific intent to perform that action. There is no such thing as "murder by negligence." What I think you are advocating is that officers and directors ought to be criminally liable for the criminal actions of the corporation? I think that's a fair restatement.

And in fact, that's already the case. The MBCA does not permit corporate indemnifications for criminal actions, nor does it permit indemnification for ultra vires actions. There are numerous cases of officers and directors serving jail time for actions that the committed, see Enron for example. Insider trading, intentional misrepresentations to the SEC and shareholders, etc. are all criminal actions and carry criminal penalties.

If you are advocating that everytime a corporation undertakes a project and judges risk (risk of lawsuit versus the increased cost of production) and they ought to be held criminally liable whenever they make business decisions such as those, then I think you'd find that our capitalist system of enterprise would be slowed, the courts jam-packed with criminal charges against CEO's who took aggressive positions on their tax returns, and a lot of people would be unemployed.

I don't think that's a good scenario.

In plain language- with all due respect- you are kind of making the point for me that I wish to make- corporate personhood sidesteps any responsibility for thier actions- unlike an individual- through legalese and "playing the system"- though, I dont want to make business so liability hazardous to STOP capitalism- as it stands right now- and as you explain it right now (as the laws are currently written) they sidestep all (at least for all practical purposes) responsibility just short of taking a gun out and shooting someone. Instead of "balancing the cost of the lawsuit vs cost of fixing the problem" it should be "balancing loss of all my personal fortune and freedom vs fixing the problem"-

Now- I do understand what you are saying about the founder vs CEO operating under the same laws- but usually- the innovation, the risk does lie with the founder- such as Ross Perot borrowing money from his in laws to start his business that made billions.

As it stands right now, the law allows all the rights you and I have as individual citizens EXCEPT the right to vote- but really, none of the responsibilites, and in fact, is protected FROM liability.