The Early American Corporation

This chapter sets the scene for our analysis by describing the evolution of the American corporation through the nineteenth and early twentieth centuries, when many of the characteristics associated with the modern corporationThe Modern Corporation came to form. Throughout much of early American history, corporations could only be created by the affirmative act of legislators, and legislators tended to be relatively parsimonious in their grants of corporate status. Those seeking to organize as corporations had to demonstrate a business purpose that advanced the public interest in order to receive a charter. The provisions of a corporation’s organizational documents were hashed out through the legislative process and there were considerable limitations on the ability to amend those provisions without the approval of the state. The rigidity of the corporate structure gave way as America industrialized in the nineteenth century. State governments faced pressure from business interests and entrepreneurs to take a liberal approach towards granting corporate charters and to provide for a more flexible corporate form that would facilitate the type of risk-taking needed to undertake manufacturing and the other capital-intensive businesses driving the Industrial Revolution. The corporation was a rare form of business organization through the eighteenth century and the early nineteenth century and corporations were often closely held by a few shareholders. By the outset of the twentieth century, the number of corporations in the United States was in the thousands, with medium and large-sized corporations having tens or hundreds of thousands of shareholders.