Connecticut’s General Incorporation Law Was The First Of Its Kind

On this day in 1873, Connecticut enacted the country’s first general incorporation law applicable to all types of business. Today, any person who wishes to form a corporation may do so, following certain requirements set forth by state law. Prior to the late 1800s, however, the concept and process of forming a corporation was quite different.

 

To begin with, corporations were not necessarily the favored method of organizing a business. The benefits of corporate organization, such limited liability, were not yet standard, and investors were concerned that corporations were not a safe bet for their money. Further, the corporate form of business organization was not available freely. Rather, a corporation could only be formed by receiving a charter from the legislature.

 

 

 

Looking through Connecticut’s session laws from this time, it is evident that they spent a good deal of time on the matter of granting charters for corporations. The private laws are full of acts that granted charters, amended charters, and increased the capital stock of organizations.

 

This was the system used throughout the country, inherited from England. There was a fear that without the legislature approving each corporate charter, the corporation would spread too quickly. The drawbacks are apparent, however. For those with political connections, obtaining a corporate charter was no great matter, but for those without any influence on the legislature, it could be a long, costly process with no guarantee of success. Additionally, the limited time of the lawmakers was burdened by reviewing and approving charters.

 

In 1873, the General Assembly passed the country’s first general incorporation law, which allowed for the formation of corporations without a charter from the legislature. Although a few states had allowed for general incorporation for limited types of industries, Connecticut was the first to allow it for corporations engaged in any type of legitimate business.

 

After the passage of the Connecticut law, general incorporation laws spread rapidly through the country. Although at first the laws were permissive in that a corporation could still receive a charter from the legislature, before long many states prohibited special law-granted corporate charters.

 

 

Sources:

Gary Walton & Hugh Rockoff, History of the American Economy (Cengage Learning, 2013)

David McBride, General Corporation Laws: History and Economics, 74 L. & Contemp. Prob. 1 (2011)

Jason Kaufman, Corporate Law and the Sovereignty of the State, 73 Am. Soc. R. 402 (2008)