Page 30 - Delaware Lawyer - Fall 2021

FEATURE
Corporations
Michael Hanrahan
A Home for
Article IX and the Delaware General Incorporation Law
Article IX of Delaware’s 1897 Constitution fundamentally altered incorporation in Delaware, catapulting Delaware to corporate law pre-eminence.1
Delaware’s present position as the country’s corporate law mecca is directly traceable to the provisions of Article IX of the 1897 Constitution, which at once abolished the procedure of incorporation by special act and laid the groundwork for the creation of a general corporation law of uniform application.2
Constitutional History Prior to 1897
Delaware’s 1776 constitution con- tained no provision on incorporation, though Article 25 adopted English com- mon law, which permitted incorporations through special act of the legislature.3 The 1792 Constitution only provided that the rights and privileges of “corporate bodies” would remain the same.4
Under Article II, Section 17, of Dela- ware’s 1831 constitution, special acts re- mained the only incorporation method. The section required those acts to be approved by two-thirds of both legisla- tive branches, to contain a reserved re- vocation power in the legislature, and to impose a 20-year limit on corporate ex- istence (except for public-improvement corporations).5 The limitations did not apply to existing corporations because Trustees of Dartmouth College v. Wood- ward, 17 U.S. (4 Wheat) 518 (1819), had held that existing acts of incorpora- tion were contracts, so unilaterally alter- ing them might violate Article I, Section
10, of the U.S. Constitution.6
Section 17 was amended in 1875 to
authorize a “general incorporation act” for limited types of companies, provided the legislature’s power of revocation was pre- served.7 General laws thus were passed in 1875 and 1883,8 but they were not exclu- sive, and the procedure was cumbersome and time-consuming.9 Consequently, bills for special acts granting, renewing or amending corporate charters continued to consume substantial legislative time and resources, which led to lobbyists pushing “wild-cat schemes” through the legislature for a fee.10
The Constitutional Convention of 1896–1897
When Delaware, at the constitutional convention held December 1, 1896 to June 4, 1897, considered constitutional provisions mandating incorporation un- der a general law, 34 states already had constitutional requirements for incorpora- tions under a general statute.11 The initial report of the convention’s Committee on Corporations proposed 13 constitutional provisions.12 Various sections were consoli- dated or eliminated to avoid cluttering the constitution with unnecessary provisions; others were voted down.13 The Commit- tee’s second report contained only eight proposals. Six provisions were approved by the convention.14 (Continued on page 26)
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