Reifying the corporation, in law and in fact

July 11

David Post expresses doubts as to whether we should resist reifying the corporation. Here’s one part of his argument:

Let me suggest, to begin with, that the law has been “reifying the corporation” for well on these last 200 years or so – treating them as separate and distinct legal persons apart from their shareholders and employees and officers, “treating the abstraction  as substantially existing” – and that to stop now would involve a rather profound transformation of a very wide swath of American law.  It is difficult for me to believe that Congress intended that transformation when it inserted the word “person” in RFRA, and if that is at the foundation of the majority’s opinion in Hobby Lobby it strikes me as a rather thin reed.

Obviously the law ought to reify the corporation in the sense of treating it as a distinct entity with personality, because it’s convenient to do so. That allows the corporation to sue and be sued, make contracts, hold patents, and so on. That’s a different question from whether we ought to reify the corporation in our minds when we discuss good policy: whenever the law treats the corporation as doing these things, we should consider to be a convenient shorthand for a bunch of people doing these things together subject to some complicated contracts.

Let me be more specific: Obviously the law ought to reify the corporation for most purposes. Whenever it’s convenient to ignore the corporation and look to the people, the law ought to do so. For instance, corporate law condones veil-piercing in various limited circumstances, for instance (roughly speaking) when the owner of a corporation has used the corporation in bad faith to do his personal business (I’m vaguely remembering from my Corporations class 13 years ago); and for all I know, that’s probably an excellent idea in limited circumstances.

Similarly, when constitutional rights are at issue, it often makes sense to treat the corporation as holding rights, because there are people who have rights. Of course, you can come up with some constitutional rights without needing to have recourse to people: if corporations can own property, then they can be victims of unlawful takings or due process violations without having to mention the people. Similarly, you can say that corporations can engage in objectively expressive conduct like publishing stuff, so you don’t need to refer back to the people. Nonetheless, I prefer to, because I like to keep the normative basis clear in my head.

And sometimes I don’t see how to avoid referring to the people. For instance, David has questioned whether a corporation can exercise religion, and I don’t necessarily disagree for now. So how about free exercise claims that don’t fall within Smith, the Lukumi-type claims that a religion was unfairly targeted? (I seem to recall that there was some questioning along similar lines in the Hobby Lobby oral arguments.) Surely, if kosher butchering were banned for anti-Semitic reasons, a butcher’s shop could raise a constitutional free exercise claim even if it were incorporated. And, moving on to claims that are losers after Smith, if Congress believed in the religious exemptions theory behind RFRA, surely that theory supports a statutory claim by the incorporated butcher’s shop even if the butchering statute were neutral (e.g., motivated by health concerns).

It seems to me that in these cases, it makes sense for the law (whether constitutional or statutory) to ignore the corporate form and look to the people, because it’s convenient to do so in that case. More general, the law should “reify” the corporation in the sense of treating it as its own thing most of the time for most purposes, but we shouldn’t; and the law should ignore the corporate form whenever it’s convenient or necessary to do so.

David’s second argument is:

Second, I take it that the “no reification” position applies equally to public corporations – imposing an obligation on McDonalds, Inc. is just imposing it on each of its owners.  So McDonalds, Inc. too, is a “person” who can claim that its “exercise of religion” has been “substantially burdened” under RFRA, and – to use Ilya’s example above – McDonalds, Inc. can bring a RFRA claim (because it has Orthodox Jews among its shareholders).

I basically agree that my theory applies to public corporations just as it applies to closely held corporations. But that doesn’t mean I think a RFRA analysis should necessarily come to the same result in both cases. My tentative view is that, in the case of a public corporation, a statute might often fail to impose a substantial burden.

For example, suppose I believe in closing on Saturdays (and giving all my employees Saturdays off, regardless of their religion) but the statute requires businesses to be open on Saturdays. If I’m my own guy doing business in my own name (without a corporation), it seems plausible that the statute imposes a substantial burden. (Assume it does.) If I incorporate but I’m the sole shareholder, it seems that the statute imposes just as substantial a burden. Essentially, if I want to avoid the statute, I have to sell the business, but that’s as burdensome as telling me I had to sell the business when it wasn’t incorporated.

But if it’s a publicly traded company and I just happen to be a shareholder, then selling the business isn’t nearly as burdensome because publicly traded companies have a liquid ownership market. I can easily sell the business for a roughly equivalent value and invest my money elsewhere. It’s still a burden, but a much lesser one than when there wasn’t a liquid market.

So under RFRA, sometimes a burden that would have been substantial for individuals or closely held corporations will fail to be substantial for publicly traded corporations.

Not that that’s always the case. I think that if the publicly traded corporation (unlike McDonalds) puts religious stuff in its mission statement and everyone buys stock knowing that that’s the mission statement and understanding that the corporation will always put that mission before profit-making, maybe a statutory burden could still be substantial. All I’m saying is that I agree with David that the logic applies to publicly traded corporations too, but denying that the RFRA analysis must always proceed in the same way.

David’s third argument is too long to excerpt, but you can read it in his original post; basically,  he argues that “aggregations of things have characteristics and attributes that the individual things themselves do not have, and vice versa”; that “some [constitutional or statutory rights] make sense when applied to the aggregation, and others don’t”; and that while free speech makes sense in a corporate context, free exercise doesn’t. I think the kosher butcher example above responds to this point. I agree with David’s point generally: as I’ve said, the law should respect the corporate form where it makes sense to do so, and ignore the corporate form where it doesn’t. But I think it does makes sense to include corporations in a constitutional or statutory religious-exemptions regime, because in some cases that would be necessary to implement what you might think are sensible religious exemptions. The kosher butcher is equally burdened whether he operates with or without the corporate form, though those burdens tend to be less if the butcher has access to a liquid market for ownership. Therefore, it’s quite plausible that Congress wouldn’t have wanted to abandon the standard presumption that “people” could include corporations.

Sasha Volokh lives in Atlanta with his wife and three kids, and is an associate professor at Emory Law School. He has written numerous articles and commentaries on law and economics, privatization, antitrust, prisons, constitutional law, regulation, torts, and legal history.
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David Post | July 11