2.3.2. The Mid-Atlantic States (1825-1865): The Cradle of Corporate America


  • The rise of the modern corporation.  Few corporations existed in pre-industrial England and the American colonies:  most businesses operated on a small scale as sole proprietorships or partnerships.  A business could not operate as a corporation unless it could persuade the legislature to give it a charter.  After the Revolution it became essential to develop new forms of business organization in order to facilitate America’s rapid physical and economic growth.
  • Mid-Atlantic states led the way in transforming the traditional concept of the corporation in order to accommodate this need.  The key transformation was limited liability:  corporate shareholders, unlike sole proprietors and partners, were not personally liable for their companies’ debts.  This encouraged Americans to invest in business and accept the risk which accompanied entrepreneurship.
  • Pennsylvania and New Jersey began experimenting with modern industrial corporations as early as the 1780s.  New Jersey’s legislature granted a charter to Alexander Hamilton’s Society for Useful Manufacturers in 1791. The SUM ultimately failed, but it established New Jersey’s reputation as a corporate haven – a position the state retained for a century. 
  • General incorporation laws.  In 1811, New York became the first state to enact a general incorporation law.  This was a new route to incorporation – a more democratic, which avoided the need to curry legislative favor in order to do business.   Early laws were confined to limited categories of business, but during the 1830s and 1840s Jacksonians in the mid-Atlantic states fought for expansion of such laws in order to make the advantages of incorporation accessible to small businessmen as well as large capitalists. 
  • In Trustees of Dartmouth College v. Woodward (1819) that corporate charters were a contract between the corporation and the state, therefore any regulatory laws enacted after the corporation was chartered would not affect the corporation because they would impair the contract.  Jacksonians persuaded  Pennsylvania (1838) and New York (1846) to add “anti-Dartmouth” clauses to their constitutions, reserving the state’s right to regulate corporations at any time and providing that new companies must accept this condition in order to obtain corporate status.

 

New York

New Jersey

Pennsylvania

1776-1825

 

 

 

1811:  First general incorporation law (selected manufacturing industries only)

 

1791:  Legislature charters Alexander Hamilton’s Society for Useful Manufactures

 

1816, 1819:  First general incorporation laws (limited in scope)

1787:  Legislature charters Pennsylvania Society  for the Encouragement of Manufactures and the Useful Arts

1825-1865

1821:  New constitution provides that corporations may only be created by 2/3 vote of legislature

1828:  Legislature confirms that shareholders are not personally liable for corporate debts

1829:  State establishes Bank Safety Fund, allowing proliferation of banks

1838:  General banking act passed in response to concerns that special charters conferred unfair privileges on banks

1846:  New constitution provides that corporations may only be created under general laws, not by special charter; anti-Dartmouth provision added

 

 

 

 

1830:  Legislature grants exclusive charter to Camden & Amboy Railroad over route between Philadelphia and New York in exchange for substantial annual payments

 

1846:  General incorporation law enacted (manufacturing companies only)

1847:  General incorporations laws extended to companies other than manufacturers

 

 

 

 

 

 

 

1838:  New constitution places extensive restrictions on banking corporations

 

 

 

1849:  Legislature provides for incorporation by general laws only

1857:  Constitution amended to include anti-Dartmouth provision


Vanderpoel & Smith's Varnish Factory, New York (1855) - courtesy New York Public Library



“There has been enough of fancy stocks in New York and Philadelphia; they are more intended to put coppers into speculators’ pockets than to get them out of the earth.  If they wish to work in good faith, we have already a general law on the subject [incorporations] which is liberal enough and sufficient for any honest purposes.”
– Assemblyman Jonathan Pickel (New Jersey), 1848