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British kings granted charters to the British East India Company, the Hudson's Bay Company and many American colonies, enabling the kings and their cronies to control property and commerce. The royal charter creating Maryland, for example, required that all of the colony's exports be shipped to or through Great Britain.
The American colonists did not revolt simply over a tax on tea. The laborers, small farmers, traders, artisans, seamstresses, mechanics and landed gentry who sent King George III packing, feared corporations. As pamphleteer Thomas Earle was to write in 1823: "Chartered privileges are a burden, under which the people of Britain, and other European nations, groan in misery."
While American volunteers were routing the king's armies, they vowed to put corporations under democratic command. After the revolution, people were determined to keep investment and production decisions local and democratic. They believed corporations were neither inevitable nor always appropriate.
Many colonial citizens argued that under the Constitution, no business could be granted special privileges. Others worded that once incorporators amassed wealth, they would use their corporate shields to control jobs and production, buy off the press and dominate elections and the courts.
American colonists feared corporations and vowed to put them under democratic control
Craft and industrial workers feared absentee corporate owners would turn them into "a commodity being as much an article of commerce as woolens, cotton, or yarn," according to historian Louis Hartz.
Having thrown off British rule, the revolutionaries delegated their elected state legislators to issue corporate charters on the people's behalf. For 100 years after the signing of the Declaration of Independence, citizen vigilance and activism forced legislators to keep corporations on a short civic leash.
Because of widespread opposition to corporations, those early legislators granted very few charters. They denied charters altogether when communities opposed the plans of prospective incorporators.
Citizens governed corporations by specifying rules and operating conditions -- not just in the charters, but also in state constitutions and laws. Incorporated businesses were banned from taking any action that citizens and legislators did not specifically allow.
States limited corporate charters to a set number of years. Citizen authority clauses dictated rules for issuing stock, for shareholder voting, for obtaining corporate information, for paying dividends and for keeping records. They limited corporate capitalization, debts, land holdings and sometimes profits. They required a company's books to be turned over to a legislature upon request.
The power of large shareholders was limited by scaled voting, so that large and small investors had equal voting rights. Interlocking corporation directorates were outlawed. Shareholders had the right to remove directors at will.
Side by side with these legislative controls, citizens experimented with various forms of enterprise and finance. Artisans and mechanics owned and managed diverse businesses. Farmers and millers organized profitable cooperatives, shoemakers created unincorporated business associations. None of these enterprises had the rights and powers of modern corporations.
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In 19th-century America, many citizens believed that it was society's inalienable right to abolish an evil. The penalty for abuse or misuse of corporate charters, therefore, was not simply a plea bargain or corporate fine, as in International Paper's case.
It was revocation of the charter and dissolution of the corporation.
Accordingly, revocation clauses were written into Pennsylvania charters as early as 1784. The first revocation clauses were added to insurance company charters in 1809, and to banking charters in 1814. During the 1840s and 1850s, states revoked charters routinely. In Ohio, Pennsylvania and Mississippi, banks lost charters for activities that "were likely to leave them in an insolvent or financially unsound condition," according to business scholar Edwin M. Dodd. Massachusetts and New York revoked turnpike charters when corporations were found guilty of "not keeping their roads in repair."
In 1825, Pennsylvania legislators adopted broad powers to "revoke, alter or annul" corporate charters whenever they thought proper. An 1857 constitutional amendment instructed the state's legislators to "alter, revoke or annul any charter of a corporation hereafter conferred . . . whenever in their opinion it may be injurious to citizens of the community. . . ." By the 1870s, the people of 19 states had amended their constitutions to make corporate charters subject to alteration or revocation by legislatures.
President Andrew Jackson enjoyed wide popular support when he vetoed a law extending the charter of the corrupt and tyrannical Second Bank of the United States in 1832. That same year, the state of Pennsylvania revoked the charter of ten banks for operating contrary to the public interest.
New York, Ohio, Michigan and Nebraska successfully revoked the charters of oil, match, sugar and whiskey trusts. In 1894, the Central Labor Union of New York City, citing a pattern of abuses, asked the state's attorney general to request the state supreme court to revoke the charter of the Standard Oil Trust of New York, which the court did.
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