About Corporations

Historically, the government issued charters of Incorporation only to advance specific public purposes. In England, a company could only gain a charter of incorporation through a special act of Parliament. These charters were usually issued to companies involved in the building and maintenance of transportation routes. In the 18th century this typically meant canals and turnpikes. In the first half of the 1911, century, railroads were the main recipients of charters of incorporation. Parliament also gave charters of incorporation to the big trading companies that England established to promote trade in its colonies: the British East India Company and the South Sea Company. England did not have laws setting out general rules of incorporation until 1844. Prior to that point a company seeking corporate status had to apply for a special act of Parliament.

Why Governments Create Corporations

The fact that corporations are a creation of the government is not debatable. In the absence of government intervention, individuals are free to do any sort of business deals they want. They trade goods, buy and sell labor, lend money, form partnerships, and engage in an almost infinite variety of transactions. But they cannot form a corporation – a legal entity that exists independently of its owners. This requires the government

Corporations are a great invention of government. They make it possible to raise vast amounts of capital for major business ventures like building car factories, 1ayilng telecommunications lines, or operating an airline. Corporations can raise capital far more effectively than business partnerships because the government gives them the privilege liability. This means that the owners of the corporation, its shareholders, only stand to lose what they have invested in a company’s stock. They cannot be held personally liable for any debts of the company if the company ends up in bankruptcy.

This means, for example, that if a company that engages in accounting fraud , like Enron or WorldCom, ends up owing its suppliers and creditors billions of dollars more than its assets can cover, the individual shareholders do not risk loosing their homes or bank accounts. Their only loss is what they invested in Enron stock. The same principal applies to companies that may have destroyed their workers’ health by exposing them to asbestos, while concealing evidence that the material was extremely dangerous. Stockholders also don’t have to worry about their personal assets if General Motors, Ford, or United Airlines can’t make good on their commitments to their workers’ pensions and retirement health care benefits. They can only lose the money that they have invested in the company’s stock, and not a penny more. If these companies had merely been groups of individuals, not corporations with stockholders, then all of the owners would be personally liable for making good on contractual commitments that they, had made and the damage they hid caused. They could be forced to surrender their home, their personal assets, and their savings in order to pay off debts resulting from their business operations. It takes a conservative nanny state to create an institution, like a corporation, that allows investors to cause harm and not be held accountable.

From: The Conservative Nanny State Dean Baker