Bainbridge on NY's Act to Encourage Privateering

Stephen M. Bainbridge, UCLA School of Law, has posted The Law and Economics of An Act to Encourage Privateering Associations:

New York Colonial Privateers (NYPL)

This article examines New York's 1814 Act to Encourage Privateering Associations, the second general incorporation statute in U.S. history and a unique example of early industrial policy designed to facilitate private maritime warfare. The article situates the 1814 Act within the broader context of the War of 1812, examining the costs, risks, and organizational challenges that made both the privateering business and incorporation of that business attractive to potential investors. This early experiment in using incorporation to advance public policy objectives through private initiative offers valuable insights into both the historical development of American corporate law and the relationship between legal innovation and economic development in the early Republic.

Through detailed analysis of the Act's provisions and historical context, this study advances three principal arguments. First, it demonstrates that early general incorporation statutes functioned as deliberate instruments of industrial policy rather than neutral procedural mechanisms, with the 1814 Act representing a novel state effort to harness private capital for national defense. Second, it provides insight into the contested evolution of essential corporate attributes by analyzing which features of the modern corporation the Act provided and which it omitted, contributing to ongoing scholarly debates about the truly indispensable characteristics of the corporate form. The statute's design reveals contemporary understanding of how corporate privileges could encourage high-risk entrepreneurial ventures by providing limited liability, centralized management, and rudimentary asset partitioning. Third, it offers a case study of how economic necessity can drive the functional development of corporate features—particularly asset partitioning and limited liability—even when formal legal architecture remains incomplete.

Professor Bainbridge discusses the paper in this blog post.

–Dan Ernst

An Anthology on the "Origins of Company Law"

New from Hart/Bloomsbury: The Origins of Company Law: Methods and Approaches, edited by Victoria Barnes and Jonathan Hardman:

What were the origins of company law? How did it begin? Why did it change? There is no single answer to these questions. Each discipline, and sub-discipline, has a different approach and method that brings different facets of study to the fore. This multidisciplinary endeavour is immensely valuable for debates taking place now among policy-makers in the UK and US about returning to historic modes of company regulation.

The book brings together Anglo-American scholarship that will not only shed greater light on the history of company law but also influence contemporary debates about our ability to return to, or learn from, the past. Historical research has great value here because it not only generates new insights into the evolution of present legal rules, but also corrects misunderstandings and misapprehensions about them.

The book shows how this body of law developed to become the rules with which we are now familiar. It showcases antecedents of present debates, reveals regulatory lessons from previous legal regimes, identifies instances of path dependency, unpicks pivotal legal events, and explains drivers for legal change. The chapters re-evaluate the history of company law, and the knowledge gathered here will inform the law-making and policy-making agenda.

–Dan Ernst.  TOC after the jump.

Cromwell Article of the Year Prize to Allread and Zhang and Morley

[We have the following announcement.  DRE]

October 15, 2024
New York, New York

The William Nelson Cromwell Foundation announced today that its Legal History Article of the Year Prize for 2023 is awarded to W. Tanner Allread for “The Specter of Indian Removal,” and to Taisu Zhang and John D. Morley for “The Modern State and the Rise of the Business Corporation.”  

In “The Specter of Indian Removal: The Persistence of State Supremacy Arguments in Federal Indian Law,” 123 Columbia Law Review 1533 (2023), Allread takes Oklahoma v. Castro-Huerta, decided by the U.S. Supreme Court in 2022, as a point of departure for exhuming the 1820s and 1830s origins of contemporary defenses of state (as opposed to federal) power over Native nations. Allread shows that the era of Removal and genocide was accompanied by systematic efforts to assert state jurisdiction over Native sovereignty. He describes the legal bases asserted for those efforts.  And he traces the persistence of these early nineteenth century developments into the modern era. For Allread, state power’s Removal roots are an ugly reminder of the past.

In “The Modern State and the Rise of the Business Corporation,” Morley and Zhang tackle a longstanding debate about the historical origins of the corporate form. Taking up a wide array of historical examples, ranging from late imperial China to the early United States, they show that pooling of strangers into a single enterprise requires the coercive powers of a state with the capacity to coerce the participants. Contrary to theorists who posit the corporation as a creature of private market actors’ self-interest, Morley and Zhang show the irreducible necessity of state regulation in its basic foundations.

The William Nelson Cromwell Foundation, established by William Nelson Cromwell in 1930, supports work in American legal history.  The Foundation has long awarded Early Scholar prizes and fellowships to early career scholars in the field of American legal history. The Foundation’s new prize for the legal history article of the year, which includes a $10,000 award, is intended to recognize the growing role of legal history and teaching and research in law schools. The new annual prize is awarded for the best article in the field of legal history, written by a legal scholar, or published in a journal of legal scholarship. This is the first prize the Foundation has offered that is open to scholars of any level of seniority. The prize committee, chaired by Foundation trustee John Fabian Witt (Yale Law School), consisted of Foundation trustees Sarah Barringer Gordon (Penn Carey Law) and John Langbein (Yale Law School), along with Dan Ernst (Georgetown Law), Amalia Kessler (Stanford Law School), and Alison LaCroix (University of Chicago Law School).  

The Foundation makes grants to support important work in all facets of American legal history including archival preservation, scholarly study of original documents, original research in all areas of the law, and research and writing of biographies of major legal figures. Information on how to apply for a prize, fellowship or grant may be found on the Foundation’s website.

Rhee on Dodge and the Neoliberal Turn

Robert J. Rhee, University of Florida Levin College of Law, has published The Neoliberal Corporate Purpose of Dodge v. Ford and Shareholder Primacy: A Historical Context 1919-2019 in the Stanford Journal of Law, Business & Finance:

The article provides a historical context of the most iconic case in corporate law, Dodge v. Ford Motor Co. The case famously asserted that “there should be no confusion” that corporate purpose is “primarily for the profit of the stockholders.” This statement succinctly encapsulates the idea of shareholder primacy, the corporate rule requiring managers to prioritize profit maximization over other interests. A unique period in history gave rise to this political statement. Overt politicism explains why the case split the panel of judges then, and why Dodge was never influential among courts and was ignored by academics until the neoliberal turn of the 1980s. For much of the twentieth century, American capitalism had no use for the idea in Dodge because shareholder primacy conflicted with the prevailing political order and economic system. Dodge found late influence in legal academia only when America embraced neoliberalism. Its pithy shibboleth fit the moment when intellectualization was needed for a new economic system based on the policy preference for capital.

This history-based analysis makes three basic points: (1) shareholder primacy did not exist and could not have existed in law or academic consensus for most of the twentieth century prior to the advent of neoliberalism because it conflicted with the prevailing political order and economic system; (2) shareholder primacy is not a discovery of some natural law of economics after a 250-year search in modern economics, but it is a rule of law of the existing political order and economic system, a rule that, like other laws, came to be because it served the unique policy needs and preferences and the societal conditions of the time; (3) therefore, since there is no end of history of political order and economic system and rules of law, being fluid, are functions of policy preferences of the time, the decline of neoliberalism calls into question the future of Dodge and shareholder primacy. 

--Dan Ernst

Sonin's "Shareholders and Stakeholders"

Joanne F Sonin has published Shareholders and Stakeholders: The Unrealised Promise of Company Law Reform in Post-War Britain (Bloomsbury/Hart):

This book explores the evolution of the shareholder in post-war Britain within the context of changing legal, political, economic, and social conditions. It examines how the post-war transformation of the shareholder body influenced relationships amongst stakeholders, impacting corporate behaviour and the legal and political efforts to govern industry and financial markets.

The book addresses a number of themes, including: 1) how the movements for democratisation influenced the treatment of shareholder interests and the calls for stakeholder representation; 2) how the rhetoric of change created a narrative that deflected from the lack of systemic legal reforms and protected the status quo; 3) how, in the post-war consensus environment, political positions on equity ownership de-radicalised, which proved unsustainable against a background of increasing political polarisation and industrial unrest; and 4) how the institutionalisation of the post-war shareholder body had profound effects on industry, the financial markets, and the economy.

With these themes as a foundation, the evolutionary arch of the post-war shareholder is examined, focusing on developments that influenced the treatment and perception of shareholder and stakeholder interests, including nationalisations, shareholder democracy, corporate purpose, and industrial democracy.

The book further considers how these post-war changes contribute to the post-1979 legal treatment of shareholder and stakeholder interests, including subsequent changes to the Companies Act and the development of corporate governance codes. Parallels to contemporary movements for stakeholder capitalism, corporate purpose, and ESG are drawn.

The historical analysis of the post-war shareholder provides a framework for considering current questions on shareholder primacy and the demands for systemic legal reforms. These missed opportunities for meaningful changes to the treatment of shareholder interests in UK company law serve as useful precedents for evaluating subsequent periods.

--Dan Ernst

ALI: A Centennial History

The American Law Institute: A Centennial History, edited by Andrew S. Gold and Robert W. Gordon, has been published by Oxford University Press:

This book collects together a series of original essays in honor of the American Law Institute’s (ALI’s) Centennial. The essays are authored by leading experts in their fields, often including current and former Restatement Reporters. The essays also provide a wide range of perspectives on both methodology and the law. The volume coverage focuses on specific ALI undertakings, including some of the more important Restatements and Codes; several leading Principles projects; statutory projects such as the Model Penal Code and the Uniform Commercial Code; themes that cut across substantive fields of law (such as Restatements and codification or Restatements and the common law); and the ALI’s institutional history over the past century. The resulting book is a unique and compelling contribution to its fields of study.

TOC here, but but note that many of the chapters are open access, including Robert W. Gordon's Restatements and Realists.

--Dan Ernst

Sepper and Nelson on Berle's "Corporate Conscience"

Elizabeth Sepper, University of Texas at Austin School of Law, and James David Nelson, University of Houston Law Center, have posted Adolf Berle's Corporate Conscience, which they previously published in 45 Seattle University Law Review 97 (2021):

In this contribution to the symposium on “Corporate Capitalism and the City of God,” we bring Adolf Berle’s distinctive views of morality in corporate life into contemporary conversations about corporate religion. Today’s debates over corporate religious exemptions tend to gravitate toward an entity view of conscience focused on the moral integrity of institutions or an associational view keyed to shareholders’ deep commitments. The foremost corporate law scholar of his day, Berle instead conceived of corporate conscience as a “public consensus” guiding and bounding managerial decision-making. Although he would have sympathized with efforts to integrate faith and business, he would have rejected the conclusion that faith at work requires religious exemptions for corporations. Berle instead would structure analysis around corporate power and its potential to threaten individual personality. His corporate conscience, we argue, offers fresh insights to debates in corporate law, constitutional law, and beyond.  

--Dan Ernst

Anderson on the Merchant Ship as Proto-Corporation

Robert Anderson, Pepperdine University Rick J. Caruso School of Law, has posted  The Sea Corporation:

Over the two centuries the corporation has become the dominant form of business organization, accounting for more productive assets than all other business forms combined. Yet the corporation is relatively young for a legal institution of such economic importance. As late as the middle of the nineteenth century, most business was still conducted through partnerships, with corporations active only in a few industries. Only in the ensuing decades did restrictions ease allowing the corporation to secure its economic dominance.

Commentators widely attribute the corporation’s success to a set of features thought to be unique to the corporation, including limited liability, transferable shares, centralized management, and entity shielding. Indeed, the consensus among economic and legal historians is that these essential corporate features created a unique economic entity that rapidly displaced the obsolete partnership.

This Article argues that these economic features were not unique to the corporation, nor did

NYPL Digital

they first develop in the business corporation. Over many centuries, the maritime law developed a sophisticated system of business organization around the entity of the merchant ship, creating a framework of legal principles that operated as a proto-corporate law. Like modern corporate law, this maritime organizational law gave legal personality to the ship, limited liability, transferable shares, centralized management, and entity shielding. The resulting “sea corporations” were the closest to a modern corporation that was available continuously throughout the 17th through early 19th centuries in Europe and the United States.

The fact that maritime law developed all the most important features of corporate law offers important lessons for business organizational law itself. The parallel development of the same characteristics, with different and independent mechanisms, is strong evidence of the economic importance of the features of the modern corporation. The maritime law employed a unique device—the maritime lien—to achieve the same economic results as the nascent corporation. The key turn was the use of a property mechanism, rather than the contract mechanisms of partnership law, to implement in rem attributes. The vessel is property come to life in the eyes of the law, developing a form of legal personhood. Viewed in this broader context, the corporation is not a unique institutional solution to recurrent economic problems; it was a convenient vehicle for expanding and generalizing a set of economic solutions.

This new organizational theory of maritime law provides potentially important lessons for both maritime law and business organizations law. First, the theory provides a guiding principle for otherwise disorganized features of maritime law. It suggests that courts should explicitly interpret maritime law as a form of business entity law, keeping maritime law’s distinctive purposes, but drawing from the rich theoretical insights of law of other business associations to inform its unique institutions. At the same time, the long history of maritime law as business organization law provides hints for enduring challenges in corporate law, such as externalities of limited liability on involuntary creditors, such as tort creditors. Here, maritime law provides time-tested solutions, providing a system that provides priority for such creditors over contract creditors, solving one of corporate law’s most vexing problems.

--Dan Ernst

Watson's "Making of the Modern Corporation"

Susan Watson, who is Dean of the Business School and holds joint chairs in the Faculty of Law and Faculty of Business and Economics, at the University of Auckland, New Zealand, has published The Making of the Modern Company (Bloomsbury 2022).

This book adopts a historical perspective to highlight, and bring back into focus, the key features of the modern company. A central argument in the book is that legal personhood attaching to an entity containing a corporate fund seeded by shareholders is a direct and inevitable consequence of limited liability and the company's status as a separate legal entity from its shareholders. Management by a board subject to legal duties to the company as an entity that can exist in perpetuity facilitates a long term perspective by the board that can accommodate both shareholder and stakeholder interests. These defining characteristics differentiate the modern company from other business forms.

The Making of the Modern Company applies a 21st-century lens to the corporation through its history to identify turning points in its development. It sets out how key features emerged in the course of two separate developmental cycles in English corporate law: first with the English East India Company in the 17th century, and then with general incorporation statutes in the 2nd half of the 19th century. The book's historical perspective highlights that the key features are part of the 'secret sauce' of modern companies. Each cycle coincided with unparalleled periods of economic success associated with corporate activity

This book will be of interest to corporate law and governance academics, theorists and practitioners, those who study the company from related disciplines, and anyone who questions why uncertainty still exists about the structure of a legal form that has been described as 'amongst mankind's greatest inventions'

Order online at www.bloomsbury.com  – use the code GLR T5TUK for UK orders and GLR T5TUS for US orders to get 20% off. TOC after the jump.

–Dan Ernst

Pollman, "Corporate Personhood and Limited Sovereignty"

Elizabeth Pollman (University of Pennsylvania Carey Law School) has posted "Corporate Personhood and Limited Sovereignty," which is forthcoming in the Vanderbilt Law Review. Here's the abstract:

This Essay, written for a symposium celebrating the work of Professor Margaret Blair, examines how corporate rights jurisprudence helped to shape the corporate form in the United States during the nineteenth century. It argues that as the corporate form became popular because of the way it facilitated capital lock-in, perpetual succession, and provided other favorable characteristics related to legal personality that separated the corporation from its participants, the Supreme Court provided crucial reinforcement of these entity features by recognizing corporations as right-bearing legal persons separate from the government. Although the legal personality of corporations is a distinct concept from their constitutional treatment, the Court’s nineteenth-century rulings bolstered key features created by corporate law and simultaneously situated the corporation as subordinate to the state in a system of federalism. And, finally, the Essay suggests that the balance of power struck in the first century of Supreme Court jurisprudence on corporate rights has been eroded in the modern era. The Supreme Court’s failure to develop a consistent approach to corporate rights questions and its tendency to reason based on views of corporations as associations of persons have exposed a significant flaw in the Court’s evolving corporate personhood jurisprudence: it lacks a limiting principle. 

The full essay is available here.

-- Karen Tani

Pollman, "The History and Revival of the Corporate Purpose Clause"

Elizabeth Pollman (University of Pennsylvania Carey Law School) has posted, "The History and Revival of the Corporate Purpose Clause," which appears in Volume 99 of the Texas Law Review (2021). Here's the abstract:

The corporate purpose debate is experiencing a renaissance. The contours of the modern debate are relatively well developed and typically focus on whether corporations should pursue shareholder value maximization or broader social aims. A related subject that has received much less scholarly attention, however, is the formal legal mechanism by which a corporation expresses its purpose—the purpose clause of the corporate charter. This Article examines corporate purpose through the evolution of corporate charters. Starting with historic examples ranging from the Dutch East India Company to early American corporations and their modern 21st century parallels, the discussion illuminates how corporate purpose has been expressed within the charter in a changing series of practices.

Examining this evolution reveals that throughout history, the sovereign state has firmly held the reins on the legal statement of corporate purpose by determining it as a matter of special grant or by requiring its articulation in the constitutional document establishing the corporation. Early corporate charters included provisions for self-governance and purpose that served as a coordinating mechanism for long-term ventures and associations, often serving public and private interests. Over the nineteenth century, as state legislatures looked to solve their corruption problem and powerful business players pressed for greater operational freedom, the purpose clause of the corporate charter lost its specificity, and awareness of its public-tinged character diminished. Corporations increasingly relied on private documents and intangible, branded personas to create corporate identity, capture philosophies of corporate mission, and express social-minded aims. Throughout this long history, however, and despite waning attention paid to corporate purpose clauses at times, they have remained an important reflection of the public-private collaboration at the heart of the corporate enterprise. Further, the longstanding requirement of stating a purpose in the corporate charter has laid the groundwork for a contemporary revival in understanding its relevance to the corporate law doctrine of good faith, and its utility as a mechanism for creating and coordinating commitments for the benefit corporation. The purpose clause has enduring relevance even as new practices and understandings of corporate purpose have emerged in business and law.

The full article is available here.

-- Karen Tani

Labuza on Lawyers and Movie Deals after the Studio System

It’s gated but interesting: Peter Labuza has published When a Handshake Meant Something: The Rise of Entertainment Law in Post-Paramount Hollywood in the JCMS: Journal of Cinema and Media Studies 60 (Summer 2021): 61-84:

Following the end of the Hollywood studio system, the entertainment lawyer emerged as a new profession, uniting studios and independent producers through a process of contract negotiation that became central to the industry’s operations. After United States v. Paramount, Inc. (1948), attorneys adapted to the needs of the industry by using dealmaking contracts to align the incentives of cautious financiers and ambitious creatives to work together. This article follows attorney Leon Kaplan and his role in negotiating the paradoxical motivations of corporate finance and radical art that defined New Hollywood.

--Dan Ernst