Digital History

Corporations and the Law	Previous	Next
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 boundaries.

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 the environment.

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 antitrust laws.

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