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Corporate Personhood’s Limits

May 07, 2012 By Ben Schweigert, Fellow

In Citizens United v. Federal Elections Commission, the U.S. Supreme Court held that corporations have the right to free speech under the First Amendment, and therefore Congress cannot stop them from spending their own funds to support the election or defeat of candidates for public office.

No one doubts, of course, that the people who own and manage a corporation have First Amendment rights, including the rights of free speech and free association. They have the right to form organizations, pool their resources, and engage in collective political action. Neither Congress nor state governments can take that away. But corporations receive their existence, powers, and privileges under state law, and this could give states ways to limit the influence of corporate money in politics, even when the federal government cannot.

A corporation is not just any association of individuals. It is authorized by the state and receives from the state significant powers and privileges. The most important privilege is limited liability. This means that, in general, anyone with a claim against the corporation can only take the assets of the corporation, not of the corporation's owners, employees, executives, directors, or anyone else. This is a big deal.

Needless to say, if I start a softball league with some friends, and then we accidentally break a bunch of windows, we won't be able to pass off the blame on "the league" and walk away scot-free. If we were a corporation, we probably could—even if the corporation didn't have enough money to pay for all the windows.

So why do we give people this privilege, to take action without personal responsibility and instead place the responsibility on a legal construct? We do it because we think there's a benefit to society. Limited liability corporations were invented as a way to encourage people to take on potentially risky commercial ventures that would make society more prosperous but for which the individuals involved might not want to be on the hook.

For much of history, this bargain was explicit. When a corporation was formed, its articles of incorporation stated its purpose. For example, the purpose of the Central Transportation Company in Pennsylvania was "the transportation of passengers in railroad cars constructed and to be owned by the said company." The state gave a corporation powers to exercise in furtherance of its stated purpose -- meaning that the people involved with the corporation could take certain actions in the name of the corporation, without personal responsibility.

Corporations were not allowed to act outside those powers. Thus, in Pearce v. Madison & Indianapolis Railroad, the Supreme Court explained that two corporations set up to run railroads could not start a steamboat line, because doing so "diverted their capital from the objects contemplated by their charters, and exposed it to perils for which they afforded no sanction." Such actions, called ultra vires, meaning a corporation lacks the power, were invalid.

In recent years, we've allowed people to define corporate purposes so broadly that virtually nothing is ultra vires. But this is not an irreversible choice. When the state gives a group of people the privileges of incorporation, it makes a deal with them: they get certain benefits because society expects to also receive certain benefits. If society is no longer happy with the deal it's getting, it can renegotiate this deal by changing the law. Limiting the purposes and powers of corporations incorporated in the state to restrict their ability to spend corporate treasury funds to influence elections would be just such a change.

Of course, political speech is not like running a steamship line. The individuals who create corporations indisputably have the right under the First Amendment to engage in political speech and to form associations to do so. But they have no constitutional right to do so through a particular legal form of association: the limited liability corporation, which carries a whole range of special benefits not available to the general public.

In fact, states need not create limited liability corporations at all. And people routinely accept limitations on the activities of their associations in exchange for special privileges: for example, charitable nonprofits give up the right to influence elections in exchange for tax-exempt status. The people forming these associations still have all of their First Amendment rights, they just can't exercise them through those particular associations.

A corporation with limited liability is no different. It is one type of association through which the people involved can act, a type of association that involves a bargain with society. Voters have repeatedly said that they think the influence of corporate money in politics is a bad deal, and, despite Citizens United, they can change it.

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  • Bernie says:

    May 7, 2012 at 12:26 pm

    Please explain to me why the influence of corporate money in politics is any different than the influence of labor union money in politics

  • Oren says:

    May 8, 2012 at 5:04 am

    For the same reason a non-profit is different.

  • tony says:

    May 8, 2012 at 12:10 pm

    That’s easy. While in a sense your correct in that is a message being funded by a group. There are 2 differences: 1 is that corporations have much more money & that is a great un-leveler & 2nd is that the corporate message is the message of the “1%”. The union message is the message of the 99%. The middle class & the working poor. It is the only representative of the middle class that has enough clout to at least extend some balance against corporations (that includes foreighn corporations).