Those Evil Corporations

It is curious to me, as a lawyer who has worked for corporations, and formed corporations for clients, to see how much lightning they can attract in a down economy.  Who is to blame for our economy?  The Corporations!  Who should not be allowed to influence our public debate?  The Corporations!  Who is responsible for any harm done anywhere in the world - the Corporations!  If there is a mine explosion, who is responsible:  the Mine Safety Officer, the OSHA inspectors, the union safety representative, a co-worker who made a mistake that day, the inherent dangers of deep mining … or THE CORPORATION?  As I sit here in my office, I receive heat, light and water from corporations.  My furniture is largely made by corporations.  My office equipment - desk phone, cell phone, computer, internet access - is all manufactured, transported, marketed, sold and delivered by corporations.  I pay my rent to a management corporation, which then sends the check to the owner, a Pennsylvania non-profit corporation.  Clients come to me and ask me to form corporations for them.  Corporations are everywhere, and provide everything in our economy.  So what actually are these "corporations" and why do they have the capacity for such evil?

Just like trying to explain what an "American" is, there is no one simple answer.  A corporation is a legal entity, like a trust or a partnership, that is permitted to be created under state law, and given a legal life subject to the duties and responsibilities of the applicable state law.  Corporations can be owned by thousands of people or one person.  They can be for profit or non-profit.  They can be stock or non-stock.  If they issue stock, if may be publicly traded or privately held.  There are C Corporations, and S Corporations, and limited liability corporations.  Some are taxed one way, some taxed in a different way.  Some are managed by a board of directors and a slate of officers, while others are managed like a partnership or sole proprietorship.  Some are registered with the federal Securities and Exchange Commission, others with the Pennsylvania Securities Commission, and others are registered only with the state office that tracks the birth and death of its state corporations.  The Pennsylvania Corporations Bureau notes on its website that is the records repository for more than 2.4 million companies that do business in Pennsylvania.  Upwards of 26 million companies do business and file tax returns in the United States. 

One of the more common fallacies I have heard is that many corporations pay no income tax.  That is a statement that has some truth to it - there are corporations that routinely pay no income tax - but the statement needs context before you can come to judgment on whether that is a good thing or a bad thing.  A corporation is treated as a separate person for filing tax returns, and so files local, state and federal income tax returns.  Originally, each dollar of income that came in to a corporation was taxed at a corporate rate (at both state and federal levels), and then if what remained was passed out to the owner, in the form of dividends, the owner paid tax on that income as well.  The same income was taxed twice.  The inherent unfairness of this result led to the authorization of Subchapter S corporations - where certain smaller corporations who elected this treatment would be treated the same as if they were partnerships or sole proprietorships - the income would "pass through" the corporate entity - and then would only be taxed to the owner who ultimately received the income.  The relatively new entity, the limited liability company, shares this characteristic as well - the income passes through and is taxed to the owner.  Non-profit corporations, formed for a charitable purpose, as a rule do not pay income tax on the income they receive.  They are doing work that might otherwise fall to the government to perform, and so as a matter of legislative grace, their income is not taxed.  Each of these corporations pay no income tax.  Is that a good thing or a bad thing?  

With the organizational and management paperwork, the multiple filings, the double taxation, the bad press of being a "corporation" in a politically correct society, why would anyone choose to do business this way?  The main benefits of the corporate form have always been (1) the ability to pool resources of many people in order to undertake a particular venture or business, combined with (2) the limitation of the liability of the owners to the money they put at risk.  If the owners put money into the corporation, if they dot their i's and cross their t's and run the business professionally, and if ultimately the business is a failure, then the owners lose their investment in that business, but they do not lose everything else that they own.  Creditors can pick over the carcass of the failed corporation, but generally they can not come after the owners of the business (with some exceptions as always for the people who abused the privilege).  If you owned 100 shares of General Motors when it went bankrupt, then you would have lost your investment, but you would not be forced to liquidate your bank accounts and sell your home in order to pay the creditors of the company for any shortfall that they can not collect from the assets of the company.  As an owner of that business, you have limited liability. 

The corporation, with its ability to pool resources, spread risk, and limit liability, is the engine of our economic system, here and in the world at large.  The only other economic system that has tried to improve upon this system is communism, where the government owns all of the property, and so provides resource pooling, risk spreading and limited liability for its owners - the entire population.  That experiment lasted for most of the 20th century, but the result is largely on the ash heap of history.  It did not take into account what motivates people to work hard and take risks - the promise of some commensurate reward. 

The corporations I have been involved are all run by people, and employ people, and their officers and directors are people, their accountants and engineers and management and secretaries are all people, and with so many people in the process, they come with the baggage of the human condition.  When there is excess - greed, stupidity, foolishness, negligence - then it is because of the people involved, not the legal entity they chose to conduct their business.  Blame the people involved, not the "corporations".

©2010  Douglas P. Humes

Anatomical Gifts - the gifts that keep giving …

(originally published May 22, 2009)

News Item:  "Natalie Cole, singer and daughter of Nat King Cole, received a kidney transplant on May 19, 2009 at Cedars-Sinai Medical Center in Los Angeles, California.  The kidney came from an anonymous donor who recently died.  Her family directed that her kidney be given to Natalie." 

I saw this headline and was reminded of a former client and friend, I'll call him Theodore (1), going through divorce and an early mid-life crisis, who adopted a New Age name and went off to live in various group communities.  While living in Boston, he heard about people who voluntary donate one of their kidneys to strangers in need, took inventory of his kidneys, found he had one to spare, and so agreed to donate one.  Not when he died.  While he was still living.  And so he signed up with a particular hospital, they found a compatible match from their waiting list of people who needed a kidney, and then performed the simultaneous surgery, removing one of my friend's healthy kidneys, and then inserting it in place of a failed kidney in the woman recipient.  To my knowledge, the surgery was a success, and both patients are living happily ever after.  In both cases, the donor made an "anatomical gift" of their body parts to a willing recipient. 

The first instance was a case of "directed donation":  the donor selects the person to receive the anatomical gift.  This is more common among family members - who are likely to be compatible for donations of this type.  It is rare that you see directed donations to strangers.  You see examples of directed donation with blood donations, such as parents to children, and among family members.  Because family members have shared genes, they typically are more compatible for other procedures such as bone marrow transplants used in treating certain cancers.  They also have that common bond of family and love, and so are more motivated to help their own child, brother or sister.  But as the example of Natalie Cole indicates, you can direct your donation to a particular stranger, if you are so inclined, and you are a compatible match to the person in need. 

The second example, my friend Theodore, was what is called an "altruistic donor":  the person who is willing to give up a piece of his anatomy, a spare organ, for the good it will do for others.  The sale of organs is prohibited, and so the motivation to take this step comes from deeper within the donor.  Those of us who regularly donate blood to the Red Cross are motivated in that sense.  This is altruistic donation:  we don't know where our blood is going, but we do so hoping that it does some good for someone in need.  My son, following my college tradition at Penn State, regularly donates his plasma:  the plasma center withdraws a pint of blood, centrifuges it to separate the red cells from the white, keeps the white, returns the red cells to the donor, and repeats the process one more time.  However, there is a mixed motivation here:  the plasma centers pay college students to do this; and the pay is pretty good for an hour of their time.  But it feels good to know that your plasma is going to someone in need.  I have signed up for the national marrow donor registry.  I did so after learning about Alexandra "Alex" Scott and her famous lemonade stand.  Alex, from Wynnewood, Pennsylvania, was diagnosed with neuroblastoma, a type of childhood cancer, before she had turned one.  At age four, she decided to take matters into her own hands, and opened up a lemonade stand on her front lawn, to raise money for cancer research.  Alex passed away at age 8 in 2004, but her lemonade stand has raised over $25 million to fight pediatric cancer.  On her website, I read about the National Marrow Donor Registry, and followed through, receiving a kit in the mail and sending off swabs of cheek tissue to be tested and added to the registry.  If this little girl could endure what she endured, and make such a significant contribution in her eight short years, then the least I could do would be to volunteer to try to be a match for some other little boy or girl in need.  

Blood regenerates.  Plasma regenerates.  Marrow regenerates.  There are other bodily parts that regenerate, and that are now being transplanted from living donors, including the lung, liver and pancreas.  A living donor is able to donate a portion of their liver to someone in need of a liver transplant.  The liver is the only organ that can regenerate and will grow back to nearly 100 % of its size in a short amount of time.  Then you can do it again!

And the latest idea in this field:  paired donors.  One altruistic donor is needed to start the ball rolling:  he or she gives the gift of life to a compatible stranger, who has lined up their spouse or other loved one to "match" the gift; that gift is given to another compatible stranger who is willing to again "match" the gift.  And on it goes.  According to the March 12 issue of the New England Journal of Medicine, to date the longest paired-donor kidney transplantation chain has involved 10 organ transplants.  Talk about a matching gift.  Ten lives saved as a result of one altruistic donor.

According to the national registry maintained by the Department of Health and Human Services, as of May 15, 2009, there are 102,118 people registered to receive an organ of some kind when a donor is found:  80% of those are for kidneys; 15% for livers; and then pancreas, hearts, lungs, intestines rounding out the list of need.  We all may need blood from time to time.  We or our loved ones, all may need plasma, or marrow.  We are relying on the generosity of altruistic donors in each of these cases.  We have a population of over 300 million in this country.  It makes the number of people who need an organ transplant, 102,118, look small by comparison.  No matter how altruistic we may be, we can't actually give our hearts to these people; but we can certainly use the motivation that comes from that part of us to consider what we can do for those in need, whether while living, or upon our death.  When reviewing your estate plan, think about that issue.  It might not be for everyone, but it might be for you.  And for the people who would benefit for such a generous gift. 

1.  Theodore:  gift of God

©2009  Douglas P. Humes