Today I decided to study the constitutional origins of corporate rights. SCOTUS has extended constitutional rights to corporations in controversial recent cases like Citizens United and Hobby Lobby, and, admittedly, since it is election season, I wanted to see if Mitt Romney’s statement during the last election cycle that “corporations are people” was correct. It turns out that he was largely correct–especially after Citizens United. Here are my poorly drafted notes on the matter.
Corporate Charter as a Contract
“No State shall…pass any…law impairing the Obligation of Contracts.” U.S. Constitution Article I, §10.
Under the “contract theory” of corporateness, the charter is a contract between the corporation and the state, among the members of the corporation, and between the members and the corporation. As a contract between the state and the corporation, the charter is protected by Article I Section 10 of the U.S. Constitution against state impairment of the obligation of contracts. Trustees of Dartmouth College v. Woodward, 17 U.S. 518 (1819).
Constitutional rights of business entities
Early U.S. Supreme Court jurisprudence gave business entities certain rights, such as the capacity to sue. Bank of the United States v. Deveaux, 9 U.S. 61 (1809). Later, in Trustees of Dartmouth College v. Woodward the U.S. Supreme Court formally recognized corporations as having the same rights as natural persons to contract and to enforce contracts. In Pembina Consolidated Silver Mining Co. v. Pennsylvania, the Supreme Court confirmed that corporations have the same rights as natural persons and that many parts of the Fourteenth Amendment of the Constitution protected corporations, holding, “Under the designation of ‘person’ there is no doubt that a private corporation is included [in the Fourteenth Amendment]. Such corporations are merely associations of individuals united for a special purpose and permitted to do business under a particular name and have a succession of members without dissolution.” 25 U.S. 181 (1888)
Not all of the Fifth and Fourteenth Amendment protections apply to corporations. A corporation is not a “person” for purposes of the Fifth Amendment privilege against self-incrimination. Hale v. Henkel, 201 U.S. 43 (1906). A corporation is not a “citizen” under the Privileges and Immunities Clauses of the Fourteenth Amendment, Article III, Section 2. See, e.g., Paul v. Virginia, 75 U.S. 168 (1869); Pembina Consolidated Silver Mining v. Pennsylvania, 125 U.S. 181 (1888).
More recently, the Supreme Court has continued extending the protections of the due process clauses of the fifth and fourteenth amendments and the first amendment to corporations. Citizens United v. F.E.C., 558 U.S. 310 (2010); Hobby Lobby Stores v. Sibelius, 134 U.S. 2751 (2014).
The Fourth Amendment protects a corporation from unreasonable searches and seizures and guarantees it equal protection under the laws within a state. Hale v. Henkel, 201 U.S. at 76-77. Corporations incorporated in one state are recognized as a “person” in all states due to the Full Faith and Credit Clause of the U.S. Constitution Art. IV Section 1. Lafayette Insurance Co. v. French et. al., 59 U.S. 404 (1855). A state can limit but not stop foreign business activities within its state by an out-of-state business.
Citizenship of business entities
For purposes of diversity jurisdiction in the federal courts, a corporation is a citizen of both the state in which it is incorporated and the state in which it has its principal place of business, regardless of its shareholder’s citizenship. 28 U.S.C. §1332.