Corporations are not People (They’re “Persons.”)

There’s been a lot of sloppy thinking in the media in recent months about the legal status of corporations. It’s time to set some of it straight.

Contrary to what some people are arguing, no one is seriously positing that corporations are, in fact, people. What is undoubtedly true, however, is that corporations are persons.

See, the law has to deal with more diverse economic units than just individuals. So when legislators craft a law imposing something even as mundane as, say, the requirement to take out workers compensation insurance to protect laborers, they have to craft it to apply to more than just individuals. It is, in every jurisdiction I know of, illegal for corporations and individuals alike to employ a laborer to work on a roof without having first taken out workers compensation.

How do they do it? By defining the term “person” under the law, to include not just individuals, but also corporations, trusts and estates (and labor unions, for that matter).

There are a lot of reasons for this: Any of the above entities – a corporation, a trust or an estate – can and frequently do enter into contracts. A corporation, trust or estate may, through a direction of their trustees or executors, enter into a contract for services from an individual, such as an attorney, for example. We regard corporations as “persons” for a very good reason – to include them in the long tradition of contract law, to make agreements they enter into enforceable. Otherwise, an attorney (or financial planner, for that matter!) could put in hundreds of hours of time into the account – only to find out that the executor, trustee or officer of the corporation who physically signed the contract got fired, quit or died.

The doctrine of corporate personhood allows the individual or other person who rendered goods or services to enforce the terms of the contract, regardless of personnel changes at the corporation, and regardless of whether ownership of the corporation changed hands in the meantime. The new stockholder has responsibility for all the inherited obligations and debts of the corporation. You can enter into a contract with a corporation secure in the knowledge that the contract is legally enforceable, precisely because we consider the corporation a separate legal entity from the people running it.

This is part and parcel with the doctrine of limited liability. Few people can take personal responsibility for the obligations a large corporation must enter into routinely. If a middle manager at Boeing thought that having signed a contract for delivery of a 747 jumbo jet to an airliner in three years’ time thought the courts would hold him personally responsible for a $100 million dollar airplane on his salary of $150,000 per year – and threaten to strip him of everything he owned and his children’s college if there were a snafu with the delivery beyond his control, he would find another job. And if the contract were not enforceable after he quit, no one would enter into a forward contract for a large capital investment anyway. The result: Boeing doesn’t function, planes don’t get bought or sold, and nobody travels.

The doctrine of limited liability, of course, extends specifically to shareholders: Stockholders in C publicly traded corporations stand to lose their entire investment in every stock they own – but unless they buy on margin, they can’t be sued for more than that. If people who owned a single stock in Boeing could realistically get pursued and held jointly and severally liable for a judgment after a company declares bankruptcy, it would be exceedingly difficult to raise money for the next corporation. The result: Again, planes don’t get built, jobs don’t get created, and nobody flies.

You cannot have limited liability without considering corporations to be a separate legal entity. That doesn’t mean that corporations are people, though some, like Bill Press, are working hard to obfuscate the definition. It means that corporations have obligations under the law, and with those obligations come rights, as well.

Citizens United

In a landmark Supreme Court Case from a few years back, called Citizens United, the Supreme Court held 5-4 that laws abridging the freedom of speech were unconstitutional, even when applied to U.S. corporations (Citizens United had just made a move critical of the Clinton response to the gathering Al Qaeda threat, and prominent Democrats were moving to suppress it.)

This would seem to be a 7-0 decision, simply on the basis of a plain reading of the first amendment’s text:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

There is no provision, allowance or carveout for exempting legal entities other than individuals from the protections of the 1st amendment.  Indeed, even a moment’s thought renders the notion absurd:

If we grant government the authority to suppress the freedom of the press on the grounds that corporations such as Citizens United are not entitled to 1st amendment protection of freedom of expression, then we would have to apply that law evenly to include The New York Times Corporation, The Washington Post Corporation, ABC, NBC, CBS, the Tribune Corporation, Gannett, FOX, Time Warner, which owns CNN, and thousands of others, including your hometown newspaper.

All of these organizations that we rely on to hold government accountable could exist only at the mercy of the government, which could shut them down as soon as they viewed coverage to be unfavorable.

We would also have to extend the ruling to labor unions, which are themselves 501(c)(3) corporations, as are churches and synagogues. (Contrary to popular belief, they are not prohibited from making political statements or participating in campaigns. They only risk losing tax exempt status because of it. They risk no other sanction, absent any fraud, other than being treated like everyone else under the tax code.)

Advocates of a restrictive policy, abridging 1rst amendment protections for non-individuals, must address the troublesome question: If I have a 1st amendment right as an individual to express myself via advertising, why is it that I lose those protections if I band together with other likeminded individuals in an association?

Yes, Mitt Romney is on record saying “corporations are people.” And democrats and republicans like Ron Paul pounced on him, alike, making the obvious points – that are only obvious if you don’t think about them too hard.

But in a legal context, Romney was referring to the fact that corporations are, in fact, associations of individuals with a common purpose – and that any taxes collected from corporations ultimately come from the pockets of individuals, for they can only be paid by reducing shareholder dividends or (as is common with gasoline), by raising the price the individual pays for goods and services to account for the higher tax.

There may be a legitimate state interest in placing some restrictions on corporations spending money on political advertising – though the constitution should properly place a very heavy burden on those seeking to abridge the first amendment to do so. But the effort to go beyond that, by mounting a withering attack on the doctrine of corporate personhood in its entirety, are throwing the baby out with the bathwater.

 

 

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