April 25, 2014 03:50 UTC

Audio / Economics Report

How a Corporation Is Like a Person

A history of why US companies have the same legal rights as people, plus limited liability.

The Supreme Court continues to define the rights of corporations
The Supreme Court continues to define the rights of corporations

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This is the VOA Special English Economics Report.

Recently the United States Supreme Court decided a big case about political speech. Political speech is considered the most protected form of free speech under the Constitution.

The case was Citizens United versus the Federal Election Commission. The question was this: With political speech, do corporations have the same rights as people?

By a vote of five to four, the conservative majority on the court decided yes. Companies, labor unions and other organizations may now spend as they wish on independent efforts to elect or defeat candidates.

The ruling is based on the idea in the United States and many other countries that a corporation is a legal person.

Historian Jeff Sklansky says a slow shift to personhood for American companies began with a Supreme Court ruling in eighteen nineteen. It said states cannot interfere with private contracts creating corporations.

In the ruling, Chief Justice John Marshall described a corporation as an "artificial being" that is a "creature of the law."

The ruling was unpopular. It came as Americans resisted big corporations like the First Bank of the United States, chartered by Congress. Some states passed laws permitting themselves to change or even cancel corporate charters.

After the Civil War in the eighteen sixties, the Fourteenth Amendment was added to the Constitution. It provides that no state may "deprive any person of life, liberty or property, without due process of law ... " If a corporation is legally a person, then states cannot limit corporate rights without due process of law either.

At first, corporations were not fully recognized as persons. But Jeff Sklansky at Oregon State University says that changed.

JEFF SKLANSKY: "The general direction of the Supreme Court and the federal courts in general was to recognize corporations as persons with the same Fourteenth Amendment rights as individuals."

Yet corporations have a right that real people do not: limited liability. For example, a corporation can face civil or criminal fines and individual lawbreakers can go to jail. But limited liability means the actions of a corporation are not the responsibility of its shareholders.

Jeff Sklansky says the nineteenth century development of limited liability helped shape the modern corporation.

JEFFREY SKLANSKY: "That is also crucial to allowing corporations a kind of independent personhood and separating ownership from control or ownership from management. So [the idea is] that I can invest in a corporation without becoming liable for all its debts. That’s a really big deal. Without it, anything like the modern stock market, I'd say, is impossible."

And that's the VOA Special English Economics Report, written by Mario Ritter. Next week, more on corporations and the law. I'm Steve Ember.

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