While We're on the Subject of Dartmouth College

The artificial person-a.k.a. concession-theory of the corporation

The previous post discussed Chief Justice John Marshall’s decision in Trustees of Dartmouth College v. William H. Woodward; specifically focusing on his determination that a corporation’s charter is a contract between the sovereign who chartered the corporation and the corporation and its shareholders. It was a seminal holding that retains potency even today.

Corporate Charters as Contracts in Dartmouth College

Dartmouth College also had significance as the leading statement in US law of the artificial person theory of the corporation (a.k.a., the concession theory).

Chief Justice John Marshall

A theory of the corporation might be defined as an attempt to abstractly define the firm's nature or essence. Although developing such a theory may seem unduly metaphysical to a working lawyer, normative analysis of corporate law cannot proceed coherently without a foundational theory of the corporation. It is one thing to analyze the legal doctrine surrounding the business judgment rule; it is quite another to argue that courts should impose broader fiduciary duties to stakeholders or that corporations should be required to pursue environmental or social goals.

These normative prescriptions, and many others like them, are necessarily grounded in assumptions—often implicit—about what the corporation is, what it ought to be, and who it is for. In other words, normative scholarship requires a theory of the corporation. Without such a theory, normative arguments risk incoherence, internal contradiction, or mere assertion.

Traditionally, three theories of the corporation have dominated American legal thinking: the corporation is a real entity; the corporation is a nexus of contracts; and, our topic today, the corporation is an artificial person.