Just why is a corporation, anyhow?

Dean takes off on quite a rant about Maryland’s requiring Wal Mart, and only Wal Mart, to contribute towards employee health care. The rant and many of the comments that follow seem to have a leftist view of one of the chief accountability methods of modern capitalism. The debate on forcing employers to spend money on employee benefits is one thing. The problems with understanding the nature and reasons for corporations, especially in the obfuscation of size of organization and structure of organization, should warrant concern.

Wal-Mart isn’t a person, it’s a paper beast that can only exist because the state wills it to exist.

The fact is that a publicly-traded Chapter C corporation is not an individual. It is a creation of, a fiction sustained by, the government. Without government, few if any corporations would be able to exist–period.
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Furthermore, large corporations like Wal-Mart, due to the artificial advantages that they have over the everyday businessman–you know, an actual PERSON who runs a business, who has a face, who has to answer to people, who has the limitations of a human being–gets squeezed out by these giant collectivist enterprises we call corporations.
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But since the state provides all these special powers and privileges to corporations, then Wal-Mart can continue for centuries. “Lassez-Faire” my butt: Wal-Mart and other corporations like them are not examples of free markets in action, they’re examples of what happens when the state allows businessmen to set up fake paper “persons” with state-sanctioned “rights” and requires the courts and everyday people to recognize all that.
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The paper entity known as Wal-Mart–a golem that can only exist because the government lets it–destroys small businesses, and a lot of jobs that go with those small businesses.

And more in this vein.

The question that comes out of this is why a state would do this? If incorporation was such an awful thing, why do states have extensive law on the books for forming and operating these things? And that doesn’t even begin to address the law regarding publicly traded corporations. Think Enron. Think Sarbanes-Oxley. Then think of the private corporations, the small ones, the nonprofit ones, and so on. Is there something special in being a large one that makes it different from being a small one in regards to the points of the rant? How big is big? Where is the line? What defines it?

Liability is one thing that shows in the rant. But then, what about LLC’s and other such forms of business that also provide liability protections for individuals in business? What is the trade-off that makes such laws a reasonable contract?

The question from another point of view is to wonder what would happen of there were no definition in law for corporations. Here, the history can be a source of learning. Dean does mention it:

the government began to declare that individuals could set up their own corporations if they followed certain rules, and that courts must grant these fictional state creations certain rights.

What seems to go right by the board is this “if they followed certain rules.” Why would an organization trade its freedom, subject itself to “certain rules” if it didn’t have some inducement to do so?

The fact is that we do have very large and well financed business entitites existing in many states that are not incorporated. These are organizations who don’t want to be bound by any rules. They are also organizations that can provide an example of what the state gains by its corporate laws. What organizations are these? Think drug cartels for one.

Wal Mart doesn’t exist because the State of Maryland wills it to exist. It isn’t faceless, either. Without government, there would be no need for incorporation and any agreements between financial entities and social groups would be much like what we see in the mid-east, for example, and are trying to change in Afghanistan and Iraq.

Wal Mart will not continue for centuries just because it enters into a contractual agreement with Maryland called incorporation. It, like all other business entities must compete successfully else it will fail as many other incorporated entities, large and small, have in the past.

Wal Mart does not go around destroying other businesses like a mean ogre and destroying jobs and economies. It must stay within the law regarding appropriate business practice and, because of its size, is often under a scrutiny many other businesses can avoid. The whole issue in Maryland is due to the very large number of employees it has. Saying it destroys jobs seems rather conflicted in this light.

There are many good issues that get buried when basic business law gets lost in such animosity as this. Many have been hashed out in making the laws that exist today. The corporate liability shield will only go so far as Enron executives found out. Size has its efficiencies but also its problems as anyone trying to grow a business finds out. Incorporation ads a level of taxation and regulation that should influence anyone looking to use this form of business. Going public and seeking outside venture capital is a completely different game. The stress of competition and its impact on efficiency and focus and business knowhow is also tied up in this.

But how can any constructive learning occur when rants like Dean’s cloud the issues?