Frankenstein
Most of us haven’t seen the original black and white Frankenstein movie. But we know the story of the mad scientist who stiched together body parts, then found a way to “shock” them into life. “He’s Alive, He’s Alive!” is the famous line – followed by “…now I know how God feels,” foreshadowing the catastrophic outcome of his experiment.
But we (our society) does this process all the time. It doesn’t happen in the dungeon of some dark castle on the hill. Instead, it’s in Secretaries of State offices in state capitals all over this land. It’s the process of bringing a new entity to legal “existence”, creating a new legal “life” where there wasn’t one before.
It almost sounds like magic: “Abracadabra”, and something exists with legal rights and responsibilities. We even have a magical sounding term for it: incorporation. That derives from the Latin term corpus meaning “body”. From that root we have the terms: corpse (a dead body), corps (lots of live bodies), corporate (bodies organized in some fashion) and corporeal (dealing with the body, not the spirit). So to “incorporate” something is actually to “create a body” – “It’s Alive, Alive!”
But there’s no magical conjuring going on in the basement of the Secretary of State’s office at 22 North 4th St in Columbus. Nor is there a “mad scientist” waiting for lightning to power a “creation machine”. Fill out the necessary legal papers, and submit $99 ($150 if you’re in a hurry) and you can create a corporation, an actual entity in the eyes of the law: It’s Alive, Alive!”
Incorporation
Corporations have been around since the 16th century. And they add strong value to the economy. They allow real individuals to combine their wealth and “risk it” on some commercial enterprise. By combining, the real individuals protect their personal wealth, only risking whatever they invested in the “corporation”. So if the enterprise, the corporation, were to fail (die), the most the investors would lose would be all that they invested.
This is different than a partnership or a solely owned business, where the owner(s) are wholly liable for all of the businesses’ debts, all the way to their own personal fortunes. Partnerships and solely owed businesses aren’t entities in the same way that corporations are.
In fact, corporations can “take the fall” if they go bankrupt, rather than take all the investors down with them. Partnerships and solely owned businesses cannot. No legal “being” is created to “take the fall” for the partners or owners. That’s why one form of incorporation is called an LLC, Limited Liability Corporation.
You are now thinking: what sin did I commit to end up in this “Intro to Commercial Law” class on the “Our America” online law school? But understanding the legal standing of corporations is important this week. That’s because Cyrus Vance, the District Attorney of Manhattan, New York, is about to bring criminal charges against the Trumps. And these first ones aren’t probably against Chief Financial Officer Allen Weisselberg, or Eric, Don Jr and Ivanka, or even old Number 45 himself. These charges are against the “Trump Organization – Incorporated”. The organization, a legal “body” is going to be charged with crimes.
Enron and Andersen
“Corporations” can’t go to prison. So the ultimate penalty for a corporation’s crime, is to take the lifeblood of that paper incorporation – money. Corporate fines can be such that the corporation ceases to exist – ask the Arthur Andersen Company, one of the “Big Five” accounting firms in the United States until 2002. Arthur Andersen Company hid evidence as part of the Enron scandal. The Corporation was found guilty and sentenced to the maximum $500,000 in fines and five years’ probation.
You remember Enron, right? Enron was a natural gas and electricity “broker”, that made energy trades into financial instruments (derivatives) to trade on Wall Street. They hid incredible losses from their investors ultimately amounting to $74 billion. They also lost their employees the entire pension investment. Enron itself declared bankruptcy – the “corporation” died.
That, along with a series of other crimes committed and multiple millions of dollars in fines, put Arthur Andersen out of business as well. If you were an officer of that corporation you might lose your business. But it’s probably better than getting charged with crimes yourself. Ask Ken Lay and Jeff Skilling, the chief officers of Enron. Both served several years in Federal prison. The Arthur Andersen Company dissolved, but part of it was “reincarnated” as Accenture. It is incorporated and headquartered in far away Ireland.
First Step
A Manhattan criminal trial against the Trump Organization could require the dissolution of the corporation itself. Oh, did I forget to add that when a corporation is indicted for crimes, all the folks that loaned money to the corporation want their money back – now? We know that the Trump Organization is famously indebted to multiple banks. And, as the Enron case proved, just because the corporation is charged, doesn’t mean that the individuals that ran the corporation can’t be held personally liable for crimes.
The corporate charges might just be the first step in criminal actions.
