CORPORATION

Along with sole proprietorships and partnerships, corporations were one of the three basic ways of organizing a business. Virtually all of the largest and most powerful businesses in the United States were corporations, and thousands of many very small businesses were as well.

Corporations had specific legal rights and characteristics that made them ideal for engaging in major economic enterprises. The owners of a corporation were not legally liable for more than their own investment in the corporation. In contrast, if the business of a sole proprietor accumulated massive debts the proprietor was personally, legally responsible for all of them. Corporations were thus also known as "limited liability companies." The corporation also did not have to reincorporate or legally reorganize itself every time one of its owners transferred his or her ownership. The buying, selling, and transferring of the ownership shares (called stock) in a corporation did not affect the corporation's legal identity. More, a corporation was a legal "person" in the sense that it could establish contracts, sue (and be sued), and own property just like an individual person. Finally, a corporation would continue to exist even if all the people who originally incorporated it died or ceased to participate in it. Corporations could raise huge amounts of capital by "going public," that is, selling ownership shares to anyone who wanted them. However, even private corporations, owned by only a small group of people (sometimes a family), enjoyed tax advantages that made incorporating an efficient way to organize a business.

The first U.S. corporations began to appear in the early nineteenth century and represented a new version of three older types of business organization: the joint stock company, the monopoly chartered by a monarch, and the medieval corporation (such as universities and trade guilds). The growing American economy needed large, financially strong organizations to build expensive highways, canals, and railroads. At first, individual states issued thousands of special "charters" to establish these new corporations. After the American Civil War (1861–65), states began to compete with each other to attract corporations by writing incorporation laws that offered corporations an increasingly generous range of powers and advantages. Beginning with the Sherman Anti-Trust Act in 1890 the federal government successfully curtailed the power of the big corporations. A century later, this consumer protection process against the corporation was enacted again when the U.S. government sued Microsoft Corporation for "monopolistic" practices.

See also: Civil War (Economic Impact of), Microsoft, Monopolies, Sherman Anti-Trust Act