How and when did the use of corporations begin?

In earlier times, business in the United States tended to be much more local in nature and of primary concern to each state. Corporations during this period were often created for public purposes like building roads, canals, bridges, and toll roads.

They usually enjoyed the privileges of a monopoly. After more intensive industrial development began in the early 1800’s, the corporation proved to be an ideal structure or form for development due to its ability to raise large amounts of capital from numerous investors and yet provide centralized direction of a large industrial concern.

In the early 19th century, several states enacted general incorporation laws authorizing all general business corporations to incorporate without specific legislative approval. Then various states began to eliminate the restrictions in an effort to attract business to their state. They did so because the incorporation business provided tax revenue for the state, fees for lawyers and accountants, and revenue for local newspapers, printers, etc.

Other states followed suit in an effort to hold on to their corporate businesses. Delaware became the uncontested winner in the race to attract the incorporation business. Over one half of all corporations listed on the New York Stock Exchange are incorporated in Delaware. As a result, the Delaware Legislature and Supreme Court have become principle sources of modern corporation law.

In addition to Delaware, a second major influence on modern corporation law was the enactment of the Model Business Corporation Act (MBCA) by a committee of the American Bar Association. The main purpose of the MBCA was to attempt to standardize the various state incorporation laws. The MBCA was first published in 1950 and revised in 1984.

Many state corporation laws now closely parallel the revised MBCA although there are some differences in each state. Although most corporate regulation is found at the state level, the enactment of the Securities Act of 1933 and the Securities Exchange Act of 1934 have provided considerable regulation of the internal affairs of publicly held corporations on the federal level.