Legal change in an interest-group perspective: the demise of special corporate charters

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Virginia Polytechnic Institute and State University


This dissertation presents a legal and economic history of the change in method of incorporation from special corporate charters via legislative act to general incorporation laws which make corporate privileges available to all who meet certain, minimal procedural requirements. Prior to the mid-1800's, corporate privileges were allocated by special legislative act in a market for corporate privileges. In this market, legislators had monopoly control over the use of corporate privileges within their respective jurisdictions. Thus, the issue examined is why the legislators relinquished their monopoly control. The thesis of this dissertation, stated briefly, is that legislators in both the United States and Great Britain abandoned the market for special corporate charters because events beyond their control made it difficult or impossible for them to continue to create and capture rents through the passage of special acts of incorporation. Exogenous legal and economic changes are identified and shown to be reliable predictors of the demise of special corporate chartering. In England, changes through the common law courts produced an inexpensive alternative to the corporate form and lowered the rates of return to legislators from passing special acts. In the United States, the growth of interstate commerce and an important Supreme Court decision, Paul v. Virginia, changed the legislative market for corporate privileges from one of localized monopolies into a competitive, national free market in corporate privileges. The historical experience suggests that the passage of a national incorporation law could lead to the same type of abuses that occurred prior to the development of the national free market in incorporation laws and the passage of liberal state general incorporation laws.