Corporations

Between 1789 and 1812, state legislatures chartered many new business corporations in banking, construction, insurance, and manufacturing. In the colonial period, the British government had granted corporate charters (detailed contracts between corporations and government institutions) to various organizations such as colleges, towns, and fire associations. These corporations enjoyed special and privileged licenses to govern or educate, for example. They were usually reserved for aristocrats or others with political connections, but also served to maintain organizations devoted to pubic service. The British government granted only six corporate charters for business purposes in North America during the entire colonial era. After independence, state governments redefined the meaning of the corporation to focus on building the ECONOMY of the early republic. Thus, state governments granted more than 300 corporate charters between 1789 and 1800, and 1800 business charters between 1800 and 1817. New York alone granted 220 charters to business corporations between 1800 and 1810. An important ideological shift characterized the new approach to incorporation. People in the United States now looked at corporations as entities responsible to the democratic legislatures that granted them charters. Given this new public accountability, states permitted corporations designed to support the public interest. In the early republic, this public interest was tied to economic development. Therefore, state legislatures often looked favorably upon corporate proposals to build roads or bridges open new BANKS and insurance companies.

The new business corporations retained certain rights from the states that chartered them. These usually included powers to raise capital by various means, monopolistic control of a certain trade, and limited liability for stockholders. In addition, the new corporate charters became vehicles by which the states could regulate business enterprise. Consequently, states often restricted the new companies by defining boards of directors, qualifying limited liability, establishing maximum interest rates in the case of banks, specifying dividend amounts, and setting prices in the case of utilities. The concept of limited liability sometimes became a flashpoint in debate over new charters, as public officials expressed reservations over allowing stockholders to be removed from debts incurred by the companies they owned. State legislatures sometimes connected new corporations to each other via investment mandates. For example, the corporate charters of many early republic banks in Pennsylvania required them to invest in specific internal improvements companies.

The development of corporations as vehicles to conduct business and invest capital continued after 1812. The SuPREME Court’s Dartmouth College decision in 1819 helped to protect charters of incorporation from state interference by asserting that a corporation’s property rights were sacred and could not be subsequently altered by a state. In the 1820s and 1830s, the number of business corporations continued to increase as trade networks and business enterprise expanded around the country.

Further reading: Morton J. Horwitz, The Transformation of American Law, 1780-1860 (Cambridge, Mass.: Harvard University Press, 1977); George David Rappaport, Stability and Change in Revolutionary Pennsylvania (University Park: Pennsylvania University Press 1996); Gordon S. Wood, The Radicalism of the American Revolution (New York: Knopf, 1991).

—James R. Karmel