I was recently asked an interesting question: A corporation historically had only those powers that were specifically granted it by the legislature. If the corporation took actions that it lacked power to undertake, those actions were deemed ultra vites and thus void.
Today, the ultra vires doctrine is mostly a dead letter. One of the reasons is that during the antebellum period states began abandoning any effort to regulate the substantive conduct of corporations through the incorporation process. In particular, MBCA § 3.02 says that every corporation shall have “the same powers as an individual to do all things necessary or convenient to carry out its business and affairs.” including a list of specified powers. I note by way of digression that this grant of power is subject to the qualification that the corporation possesses such power unless the articles of incorporation provide otherwise. Presumably, a corporation that wished to do so could include a provision in its articles of incorporation disavowing the power to make political contributions. This option provides little help for anti-Citizens United activists, however, because adopting an amendment to the articles to so provide requires approval by the board of directors and a vote of the shareholders. If the board does not approve the proposed amendment there is no way to get it before the shareholders and, of course, if the board did approve you would still need to persuade the shareholders to also do so.
DGCL § 122 sets out an extensive list of powers that corporations automatically possess by operation of law. In addition, DGCL § 121 provides that "every corporation, its officers, directors and stockholders shall possess and may exercise all the powers and privileges granted by this chapter or by any other law or by its certificate of incorporation, together with any powers incidental thereto, so far as such powers and privileges are necessary or convenient to the conduct, promotion or attainment of the business or purposes set forth in its certificate of incorporation."
I discuss the issue of corporate powers and the ultra vires doctrine in more detail in my book Corporate Law (Concepts and Insights).
Let us suppose that the MBCA or the DGCL were amended so as to provide that corporations have no power to make political contributions. Would that fly? As a matter of corporate law, I assume so. In many states, many state statutes qualify the broad grants of power conferred by statutes like MBCA § 3.02 by including express limitations on the powers corporations may exercise. DGCL sec. 125, for example, provides that corporations have no “power to confer academic or honorary degrees unless the certificate of incorporation or an amendment thereof shall so provide and unless the certificate of incorporation or an amendment thereof prior to its being filed in the office of the Secretary of State shall have endorsed thereon the approval of the Department of Education of this State.” DGCL sec. 126 provides that no business corporation organized under the DGCL “shall possess the power of issuing bills, notes, or other evidences of debt for circulation as money, or the power of carrying on the business of receiving deposits of money.”
But would it be constitutional? Here we run into the perennial problem that the Supreme Court lacks a coherent theory of the corporation. Its opinions reflect little if any understanding of how corporate law and governance work, how various provisions interact, and the theoretical foundations that underlie corporate law and governance.
In my view, the unconstitutional conditions doctrine would come into play. Yes, corporations are creatures of state law and there is case law positing that incorporation is not a right but rather a privilege granted by the state. But "the modern 'unconstitutional conditions' doctrine holds that the government 'may not deny a benefit to a person on a basis that infringes his constitutionally protected ... freedom of speech' even if he has no entitlement to that benefit." Bd. of Cnty. Com'rs, Wabaunsee Cnty., Kan. v. Umbehr, 518 U.S. 668, 674 (1996). The same is true of other constitutional rights.
Notice, by the way, that we have been discussing so far a state amendment denying corporations the power to make political contributions. But what about independent expenditures? What about a proposal that said corporations may not speak on political issues. Setting aside the practical issues of how you constitutionally carve out an exception for corporations like the New York Times, such a proposal would even more explicitly raise speech issues and thus the unconstitutional condition issue.
In Am. Tradition Partn., Inc. v. Bullock, 567 U.S. 516 (2012), a one paragraph per curiam opinion, a 5-4 majority held that a Montana state statute providing that a “corporation may not make ... an expenditure in connection with a candidate or a political committee that supports or opposes a candidate or a political party” was unconstitutional. "The question presented in this case is whether the holding of Citizens United applies to the Montana state law. There can be no serious doubt that it does."
Bullock would seem dispositive. After all, as the Supreme Court observed in Citizens United:
Either as support for its antidistortion rationale or as a further argument, the Austin majority undertook to distinguish wealthy individuals from corporations on the ground that “[s]tate law grants corporations special advantages—such as limited liability, perpetual life, and favorable treatment of the accumulation and distribution of assets.” This does not suffice, however, to allow laws prohibiting speech. “It is rudimentary that the State cannot exact as the price of those special advantages the forfeiture of First Amendment rights.”
