THE relation between the government and the corporations is that between two existences similar in nature. As observed by Professor Maitland, 'There seems to be a genus of which State and Corporation are species. They seem to be permanently organized groups of men; they seem to be group units.' Sir Frederick Pollock says that 'the greatest of artificial persons, politically speaking, is the State.' These utterances fairly present the conclusion of the present day that every government essentially is a corporation, in the sense that 'it is an entity separate and distinct from the sum of the members that compose it.'

The government here referred to is distinct not only from its members, but from the person of its administrator, be he emperor, king, president, or governor. Whatever his style or name, the head of the government is merely what has been termed a 'Sovereign Member.' This distinction between the private person and the public person termed the sovereign, has been noted from the time of the early canonists to that of our modern satirist. The former said, 'The Commonwealth can do no act by itself, but he who rules the Commonwealth acts in virtue of the Commonwealth, and of the office which it has conferred upon him.' Thackeray contented himself with presenting in triptych caricature Ludovicus Rex resolved into Ludovicus and Rex. The most magnificent of monarchs, unapproachably absolute in power, and despite his declaration that he was the state, was

utterly incapable of absorbing the state into his own personality. Such a complete identification has been presented only in the pure theocracy of the Hebrews, whose sovereign Jehovah is identified in our English Exodus as 'I AM.'

The lofty conception of such an absolute, isolated, and all-containing sovereign is unattainable in any finite arrangement. Even in our latter-day republics, the continually declared sovereignty of 'the people' is purely idealistic. As suggested by Professor Maitland, it may be a question whether the people 'that sues and prosecutes in our courts is a collective name for some living men, a name whose meaning changes at every minute.' Some such obscurity beclouds also the current question, 'Shall the people rule?' which seems sometimes to mean only a part of the people; perhaps only a plurality, and apparently none who are able to stand alone.

This somewhat abstruse and remote introduction has been intended to lead up for the purposes of this paper to a definition of the term government. This we understand to be the power that, within its particular jurisdiction, makes and executes the positive law. In this sense the government does not include the judiciary, which executes no law and, at least in theory, makes none. The government is neither the legislature alone, nor the executive alone, nor yet the sovereign people, but is the personification of the sovereign will.

What then is the relation of this government thus defined to the other artificial entity, the corporation, and specifically the business corporation?

In the public mind, and in the mind of many publicists, the corporation derives its existence from the State as its creator. This, as Professor Maitland observes, was the teaching of the legists and canonists. The corporation is, and must be, the creature of the State. Into its nostrils the State must breathe the breath of a fictitious life, for otherwise it would be no animated body, but individualistic dust.' But, as we shall see, the fact is that, except for statutory prohibitions, substantially all of the so-called essential features of corporations and corporate action could be developed, and be exercised, pursuant to voluntary agreement, without any direct authority or assistance from any government whatever.

In its relation to current theories of the responsibility of the corporation to the state, this point is of sufficient interest to be considered somewhat particularly. Mr. Taylor, with his accustomed accuracy, has stated that there is no reason to believe that in the early times any special authorization from the state was necessary in order to form a corporation, though it became so under the Empire. Certainly it became so under the Papacy, when Innocent IV, in the plentitude of temporal power, promulgated (and apparently he was the first to conceive) the celebrated 'fiction theory': that the corporation is a person, but only by fiction. It is interesting just here to note that the Roman idea of the corporation found expression in two terms, Universitas and Collegium, which now have become absolutely divorced from all thought of trade, but are inseparable from the idea of higher education.

As stated by Blackstone, under the civil law the mere act and voluntary

association of its members was sufficient to create a corporation, 'provided such convention was not contrary to the law, for then it was "collegium illicitum."

Except as and when expressly prohibited by statute, two forms of association answering many, if not all, of the purposes of a corporation, have been developed under English law without the necessity of express governmental consent. These two methods of combining the contributions of many for the conduct of a business undertaking are (1) the partnership known as a joint-stock corporation, with transferable shares; and (2) the trust.

1. As to the joint-stock company or partnership with transferable shares, the facts have been summarized by Sir Nathaniel Lindley with such clearness and authority as to render unnecessary any different statement. He says:

'Upon the whole, therefore, it appears that there is no case deciding that a joint-stock company with transferable shares and not incorporated by charter or Act of Parliament, is illegal at common law; that opinions have, nevertheless, differed upon this question; that the tendency of the courts was formerly to declare such companies illegal; that this tendency exists no longer; and that an unincorporated company with transferable shares will not be held illegal at common law, unless it can be shown to be of a dangerous and mischievous character, tending to the grievance of her Majesty's subjects. The legality at common law of such companies may, therefore, be considered as finally established. . . .

'If these propositions are assented to, it will, it is conceived, be found impossible to establish the illegality at common law of unincorporated joint-stock companies with transferable shares.

'To say that such a partnership is illegal, because it assumes to act as a

corporation, is untrue; for none of the above acts are characteristic of corporations. What distinguishes corporations from other bodies is their independent personality; and no society which does not arrogate to itself this character can fairly be said to assume to act as a corporation. Besides this, it is by no means clear that it is illegal at common law to assume to act as a body corporate.'

This statement, of course, is as to the common law unmodified by any statute of prohibition. The idea was familiar also to the civil law and to the canon law under which flourished unincorporated associations of persons not merging or losing the individuality of their participation, but joining in a common undertaking. Such an association was termed societas, as the collective name for its members, who were called socii, and required no express governmental sanction.

These voluntary associations grew and multiplied in England through the favor of the trading-community, until the passage of the notorious Bubble Act of 1719, which declared such associations to be common nuisances and indictable as such. The futility, if not the folly, of such legislation, absolutely prohibiting a natural development of an honest commercial instinct and convenience, had become clear in 1825, when Parliament unconditionally repealed the Bubble Act, after a century's experience of its demonstrated ineffectiveness.

The only real inconvenience to the members of such voluntary associations was the liability of each member or partner for all of the debts of the joint undertaking.

2. This inconvenience, however, was avoided, and substantially all of the benefits secured, by the ingenious invention of the other form of voluntary association, briefly termed the Trust,

which continues to the present day, and which is tolerated tacitly even by the Sherman Anti-Trust Law, except when operating as a monopoly or in restraint of interstate commerce. This form of association is constituted by an agreement investing certain persons designated as trustees, and their successors, with certain property, and powers specified in respect thereof. It possessed, and still possesses, all the advantages of a corporation excepting existence for an indefinite period, which, however, is impossible only because of statutes which may be described generally as prohibiting perpetuities. Trusts of this kind are familiar in respect of real estate in Massachusetts, and were recognized by the United States Supreme Court, in the case of Eliot v. Freeman (220 U. S. 178), as not being corporations, and as exempt from the Federal corporation tax.

This particular discussion has been carried into this detail as a basis for the conclusion that the ground of state interference with corporations is not that the so-called characteristic features of corporate activity could have developed only by express grant from some government, which in virtue thereof was entitled to exercise over corporations a control not deemed reasonable in respect of natural persons. Without now disputing that such control may be exercised, it is desirable to eliminate a general and erroneous idea as to the foundation of this generally exercised power.

From this point we may proceed to consider those artificial persons strictly and accurately called corporations, which, until the nineteenth century, existed in common-law jurisdiction only by prescription or by special grant from the state, either the sovereign or the legislature. The essential features of a corporation, those which distinguish it from every other form of asso

ciation, have eluded analysis and definition despite pursuit and insight by the keenest and most untiring of human intellects. One test after another has had to be abandoned as insufficient or indiscriminate. To-day, about the nearest approach to general agreement is that the essence of a corporation consists in a capacity: (1) To have perpetual (or definite) succession under a special name and in an artificial form; (2) to take and grant property, contract obligations, sue and be sued by its corporate name as an individual; and (3) to receive and enjoy in common grants of privileges and immunities.

Mr. Taylor has undertaken to indicate the points of corporate character which are lacking in an ordinary partnership, but is obliged immediately to recognize that not all of these points distinguish all corporations. He says, 'An ordinary partnership differs from a corporation at common law in the following points: First, it is not an artificial person; secondly, a change of partners dissolves the firm; thirdly, the partners are personally liable for all firm debts; fourthly, they are each other's agents in respect to the firm business; and, fifthly, a partnership requires no special sanction for its exist

ence.

'Not all of these points of difference remain to-day. It is no longer clear that a corporation is a distinct person; and, as to the third of these points, it may be said, that in many corporations the members are personally liable, and that in some limited partnerships not all the partners are personally liable.'

It cannot be doubted, however, that in America the general (though not the unanimous) opinion is that expressed by Mr. Machen, (1) that a corporation is an entity distinct from the sum of the members that compose it, and (2) that this entity is a person.'

Mr. Machen happily illustrates his

first proposition by invoking the figure of Alma Mater.

'Was there ever a school-boy who had any difficulty in understanding that his school is something distinct from the boys that compose it? He does not need to be told that the school may preserve its identity after a new generation of boys have grown up so that not a single pupil remains the same, and though every teacher may have changed, and though the school building may have moved to a different location. He finds nothing strange or mystical in the conception of the school as an entity.'

This recalls Judge Cowen's quotation of Heraclitus: 'One cannot step into the same river twice'; and of Aristotle: "The river retains the same name although some water is always coming and some going.'

The truth is that from the twilight of our tribal ancestors men have acted in groups rather than separately, and that they have conceived of these groups as distinct entities.

Mr. Machen's second proposition, that a corporation is a person, is reasonably explained by him in its popular sense, as a metaphor to express the truth that a corporation bears some analogy or resemblance to a person, and is to be treated in law in certain respects as if it were a person or a rational being capable of feeling and volition.'

The point is of more than academic interest for, under the Federal Constitution, rights of great consequence have been recognized as belonging to corporations as being persons within the intendment of one article, and have been denied to them as not being persons under another article.

But, despite philosophic differences of the doctors, the shrewd common sense of the business world at the beginning of the nineteenth century came

to recognize the practical advantages of statutory authority for a corporation with a distinctive name and definite capacity, even though it was possible to obtain and to exercise all this under more or less complicated voluntary agreements.

The American war for independence involved a revolt, not only against the rule of Britain, but also against concessions of special privileges, and naturally enough American sentiment first developed the idea of 'free-for-all' acts of incorporation.

The model statute of this kind, which it is believed was the first of the kind in the world, was, 'An Act relative to incorporations for manufacturing purposes,' passed by the legislature of New York on March 22, 1811. This statute, consisting of only eight sections and eighty-seven lines, was a model of its kind in the skillfulness, comprehensiveness, and conciseness of its expression. It permitted any five persons, by making and filing a certificate, to form a manufacturing corporation with a capital not exceeding one hundred thousand dollars.

This general incorporation act was followed by one in Massachusetts in 1836, one in Michigan and one in Connecticut in 1837, and one in Indiana in 1838. Since then the world has fallen into line, the English Companies' Act, called by Sir Francis Palmer the 'Magna Charta of coöperative enterprises,' having been passed in 1862.

These general laws terminated the era of monopolies and special privilege, for, as observed in 1819 by Chief Justice Spencer,

"There is nothing of an exclusive nature in the statute; but the benefits from associating and becoming incorporated for the purposes held out in the act are offered to all who will conform to its requisitions. There are no franchises or privileges which are not com

mon to the whole community. In this respect incorporations under the statute differ from corporations to whom some exclusive or peculiar privileges are granted.'

More acutely it has been remarked by Mr. Morawetz that, "The right of forming a corporation, and of acting under the general incorporation laws, can be called a franchise only in the sense in which the right of forming a limited partnership, or of executing a conveyance of land by deed, can be called a franchise.'

Under these enlightened laws, as said by Professor Maitland, 'It has become difficult to maintain that the state makes corporations in any other sense than that in which the state makes marriages when it declares that people who want to marry can do so by going, and cannot do so without going, to church or registry. The age of corporations created by way of privilege is passing away.'

And so it is; the ordinary business corporation of the present day is the creation, not of the state, but of the subscribers who, except for statutory prohibition, could unite by simple mutual agreement, embodying therein substantially all of the miscalled sovereign franchises.

Thus we are brought to the point where we may answer our question as to the essential relation of the presentday business corporation to the state, by saying that generally it is the same as that which mutual contractors bear to the register of their contract; and that it is not that of the clay to the potter, or of the offspring to the parent.

The consequences of the sovereign power's relaxation of its prohibitions upon liberty of such mutual contracts have been stupendous, and of enormous public advantage; for, as profoundly observed in 1839 by Mr. Ingersoll, in