|Corporations and the Law
|Digital History ID 3168|
Earlier in American history, states attempted to keep tight reins over corporations. Corporations had to apply to a state legislature for a charter, which restricted the scope of the company's operations, limited the amount of investment, and even specified how long the charter would be in effect. But as the pace of economic activity quickened, it proved cumbersome for legislatures to grant individual charters. As a result,
state legislatures adopted general incorporation acts which allowed
any business to incorporate and removed limits on capitalization.
Even in the 19th century, states, seeking revenue, competed
with one another to get businesses to incorporate within their
One source of public anxiety over corporations is summed up
by a legal maxim, that "a corporation has no pants to kick
or soul to damn." It was unclear what powers states had to
regulate big business or who should be held responsible if a corporation
committed a legal offense, such as fixing prices or polluting
In an 1877 case, Munn v. Illinois, which is also known as the
"Granger Cases," the Supreme Court had ruled that a
state law setting maximum rates for grain storage was constitutional,
establishing the principle that states have the power to regulate
businesses with "a public interest." In subsequent cases,
the court retreated from this ruling. In an 1886 decision, Santa
Clara v. Southern Pacific Railroad Company, the court held that
the 14th Amendment's guarantee of due process applies to corporations.
In another decision that same year, in the case of Wabash, St.
Louis & Pacific Railroad v. Illinois, the court ruled that
Congress has an exclusive right to regulate interstate commerce.
The court subsequently invalidated a number of state attempts
to regulate business operations.
In 1895, in the case of U.S. v. E.C. Knight, the court held
that the Sherman Antitrust Act, adopted five years earlier, did
not apply to companies located within a single state. This decision
severely weakened the ability of the federal government to enforce
Copyright 2016 Digital History