Corporation—from the Latin corporatus, “having a tangible body.”
Some corporations have great bodies. And some corporations should go to the gym.
But, either way, corporations are the basis of civilization.
A corporation is a group of people. The members of the group share the corporation’s benefits but do not personally own the corporation’s assets. Likewise, the members of the group are not personally responsible for the corporation’s losses. They risk only what it cost them to become part of the corporation.
Actually, corporations are civilization.
If you were an ancient Roman citizen you were a member of the body of Romans, the corporatus. You got the benefits of high-flown rhetoric in the Forum, thrilling gladiator fights in the Colosseum, and Ben-Hur’s exciting chariot race where Charlton Heston kills the bad guy in the Circus Maximus.
But you didn’t actually own the Forum, Colosseum, and Circus Maximus. Which was a good thing because maintenance costs—such as washing Caesar bloodstains off the Senate floor and cleaning up after the lions ate the Christians—were high.
On the other hand, after the Fall of Rome, you didn’t have to go out and personally repair the ruins of the Forum, the Colosseum, and the Circus Maximus. All you lost was what you’d risked by being part of the Roman Civilization corporate group—which was, unfortunately, your life. But you get my general point.
If you aren’t civilized, you don’t need a corporation. In fact, when you’re an uncivilized hunter and gatherer, dragging a Forum, Colosseum, and Circus Maximus around with you is a bother.
But we are civilized. And we need not only the gigantic public corporation that is called the state, but also lots of smaller private corporations to raise capital for investment while limiting the risk of investing.
The basic asset/liability rules of for-profit incorporation were codified in Roman law more than 2000 years ago. And then conveniently forgotten.
Groups of free individuals banding together to give themselves access to extensive material resources just didn’t go down well with the feudal lords riding around in their suits of armor lancing anybody who got in their way.
Free individuals could have hired Blackstone Security to blow holes through chain mail, gauntlets, greaves, and visors with HK416 assault rifles.
But for 14 centuries after the collapse of Roman civilization, “corporations”—when they existed at all—were merely trade guilds, royal grants of monopoly, or charters for town governments.
The modern corporation is surprisingly modern. You can read both Adam Smith’s Wealth of Nations and Karl Marx’s Das Kapital and see no mention of corporations in the sense of limited liability joint stock companies. Indeed you won’t be seeing much at all, due to eyestrain, if you try to read both books in one day.
Real corporations don’t come back into existence until the British Parliament’s Limited Liability Act of 1855 and Joint Stock Company Act of 1856. And corporations don’t take their true contemporary form until the House of Lords decided the Solomon v Solomon & Co. Ltd case in 1896.
The Solomon v Solomon ruling confirmed that corporations are “legal persons.” Otherwise corporations wouldn’t have legal standing in court. You’d own shares in something that was imaginary—shares in flying ponies and candy-flavored rainbows. (Not that this can’t happen anyway. For instance if you bought Snapchat stock.)
Corporations have property rights. Corporations can make binding contracts. Corporations can sue and be sued. Corporations can be convicted of serious crimes …
And here is where “legal person” does get a little silly. I guess a corporation can, metaphorically speaking, be strapped to the lethal injection gurney. But how do you put a corporation in jail?
During the General Motors bankruptcy of 2009 some of us would have liked to see GM sent to the slammer. But taxpayers would have had to build some enormous new federal correctional facilities to lock up GM’s $82.29 billion in assets.
And then what would we have had? Thousands upon thousands of Cadillacs, Buicks, Chevys, Saturns, and Pontiacs rusting away in prison, rioting for better gasoline, and trying to get parole to sit on used car lots. (With the Pontiac Aztek in solitary for its own protection so that the other vehicles didn’t beat it into scrap metal for having such ridiculous styling.)
But there is another, more serious, aspect to the “legal person” status of corporations. Corporations, as “legal people” turn out to have personalities, just like flesh and blood people do.
Corporations take on a life of their own. According to how corporations are managed, a corporation can be as likely as the next person to do you dirt. Or, as likely to be caring and sharing and benevolent.
When deciding to buy shares in a corporation, there’s more to the decision than numbers on a spreadsheet. Especially if you’re buying the shares as a long-term hold. You need to get to know the “legal person” that you’re dealing with.
The purpose of a corporation—with its aggregation of resources, limited liability, and independent legal standing—is to watch your back. Make sure it’s not back there picking your pocket.