When is a corporation not a corporation?

When it is a person.

Huh?

Fairness is relative to the interpretation of the laws governing publicly traded companies. From the outside looking in, this prism may seem a bit peculiar at times, as is the case with the notion of “Corporate Personhood.”

Corporate personhood refers to certain rights commonly applied under the law to natural persons that are extended to corporations as legal persons.

This is an important concept for corporate gadflys and shareholder activists, for many reasons.

We the People?

The debate over corporate personhood is more than an issue of semantics.

The basic protections of human beings defined in the Bill of Rights reinforce the foundation of the US Constitution, that the people are the fundamental source of the authority of the government, hence the epic opening of the preamble to the Constitution, “We the people…”

With the rise of US economic power came the proliferation is corporations. Corporate attorneys sought to draw corporations under the cloak of such protection, reasoning that corporations should be afforded these privileges, because a corporation is an entity made up of persons acting collectively — or just another flavor of “We the people…”

The law hold that a legal entity (incl. a corporation or non-profit organization) shall be treated under the law as a person except when otherwise noted, as specified in 1 U.S.C. §1 (United States Code), which states:

In determining the meaning of any Act of Congress, unless the context indicates otherwise – the words “person” and “whoever” include corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals.

Under this guidance, the law views a corporation as a single entity, meaning it can do many things more easily, such as own property, enter into contracts, and sue and be sued in civil and criminal law.

Without this single-point-of-treatment standard, every individual with a stake in the corporation would need to participate in all transactions, ownerships, suits, and more. Basically, it makes it easier to do business. And that makes sense.

More importantly for shareholders, because a corporation is legally deemed the “person,” individual stakeholders are not legally responsible for the corporation’s debts or legal damages aside from the loss of their investment should the corporation implode.

Meanwhile, while individual employees are accountable when breaking the law, even on the job, they are generally not liable for the corporation’s actions. Hence the absence of the showcase trials called for by the public and pundits in the wake of the massive debacle that nearly destroyed the economic sustainability of the global markets.

Un-leveling the Playing Field

More inflammatory has been the corporate personhood argument for constitutional protections to contribute to political campaigns.

After the Supreme Court’s ruling in Citizens United v. Federal Election Commission in 2010, the Supreme Court held that corporate political spending is protected as part a First Amendment right to free speech.

This is what happens when a large collective is granted the basic privileges of the individual. Shareholders and individual employees should certainly not be held financially accountable for actions beyond their control. So there is some credence to corporate personhood.

Yet the individual also does not have the deep resources of the collective corporation. If the corporation is afforded the same free speech protection, it can disproportionately affect the formation of public policy.

At the nexus where politics, power, and the people meet in Washington, D.C., unfortunately the well-funded agenda of the few (Wall Street) can trump the interests of the many (Main Street).

Though the Occupiers are not articulating this as well as they should, this dynamic continues to be key driver of dissatisfaction.

And it stems, in part, from this flawed concept of corporate personhood.

We can do better.

To contact Craig McGuire directly, please email Craig.McGuire@TheShareholderActivist.com.