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Corporation Sole |
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In 1894, Sir Frederick Pollock asked his American friend Oliver Wendell Holmes. "Have you such a thing as a corporation sole still about you?" The future Justice replied, "I don’t know of any corporation sole." .
Introduction Blackstone begins his treatment of corporations with the following classification: The first division of
corporations is into aggregate and sole …Corporations sole consist of
one person only and his successors, in some particular station, who are
incorporated by law, in order to give them some legal capacities and advantages,
particularly that of perpetuity, which in their natural persons they could not
have had. He then proposes two conspicuous
examples of corporations sole, one civil In the period prior to the rise
of the modern business corporation and the A modern Holmes attempting a
reply to a modern Pollock might initially be perplexed, since the usual sources
of ready reference suggest two contradictory conclusions. On the one hand, the
sources indicate the corporation sole is "not common," "almost obsolete," or
"obsolescent."’ The standard casebooks and hornbooks of corporation and property
law do not usually treat the topic. Cases cited in legal literature
are often very old, and the only full-length journal article devoted exclusively
to the subject is from the turn of the century.’ At least one author equates it with the modern "one person" corporation,’ although the two have completely
distinct origins. On the other hand, further
research reveals functioning corporations sole in at least one-half of the
states, with explicit statutory provisions for corporations sole in about a
third. In many jurisdictions, this is the manner of incorporating Roman Catholic
dioceses, or more accurately, the bishops of those dioceses.
From this perspective, the corporation sole is a useful, even commonplace,
legal reality. The apparent discrepancy is not
real. The old common law corporation sole, which was transported to American
shores in colonial days, is indeed almost dead. However, a modern version, which
bears the same name, has evolved and is widely used today. The
transformation from the old to the new is a fascinating story, well worth the
telling. The present study proposes: 1)
to define the classic common law corporation sole; 2) to trace its development
in America; and 3) to describe the present status of the corporation sole in the
United States with analysis of its modern forms. The emphasis will be
fundamentally American, with English sources serving as points of reference and
prologue. Moreover, the English side of the story has already been
told." II. The "Old"
Common Law Corporation Sole "Legal nomenclature is for once
its own interpreter. A member of a corporation sole is one of a series of single
persons succeeding one another in some official position." The crux of this
description is no: that the corporation sole is composed of a single
person. Rather, it is really composed of a number of persons who, one after
another, hold the same office. The really crucial element of this definition
is the series itself and the seriatim succession. For example, Queen Elizabeth II,
as a corporation sole, is identical to Victoria; the present Archbishop of
Canterbury in his corporate form is one with his predecessors, Laud, Benson or
Lang. The corporation sole, unlike its business counterpart, is only vertical in
time. "There are very few points of
corporation law applicable to a corporation sole, according to Kent." There are,
however, four legal characteristics unique to it: 1. All corporations sole are
"either public officers or dignitaries of the established church." In short,
the corporation sole is the incorporation of an
office. 2. At common law, the
corporation sole can claim title to real property only. 3. Property and powers of a
corporation sole are transferred on the death of an incumbent to successors in the office, "not to heirs or through
executors." 4. The corporation sole lacks
the usual trappings of a corporation. It does not have a board of directors,
officers, stock, bylaws, official minutes, seal, or corporate name. The older
corporations sole are also devoid of a royal charter or other formal
authorization, "characteristics that are required in later
corporations." Historically, both the king and
a variety of clergy qualified as corporations in their official capacities.
However, the ecclesiastical form is older, dating to the mid-fifteenth century.
Initially, the corporation sole grew out of the efforts of judges to solve title
problems that arose from the passage of real property to a church. Although the
early common law of property was elaborate and intricate, it sometimes lacked
the sophistication to deal with these problems. At that time, legal forms did
not exist that allowed the devise of real property to a church in fee simple
absolute. The law struggled with this
problem in amusing ways. For example, property was sometimes devised to the
saint after whom a parish was named, or to the four walls of a church building.
Under these circumstances, the local bishop or priest was the agent or
administrator. Therefore, it was only a short leap in logic to incorporate the
agent." The hierarchical polity of the
English church was well suited to this type of corporate structure. However, it
was still another one hundred fifty years before a civil corporation sole
appeared when Lord Coke ascribed corporateness to the crown. "Blackstone
confidently called this development uniquely English." In one sense, he is
correct, but modern scholarship also finds a powerful Roman Catholic Canon Law influence on the
process. For all its singularity, the
sole corporation had many detractors. In fact, Maitland and Pollock particularly
thought it was an anomaly, a "strange conceit," a "juristic abortion," an
"unhappy freak of English law,"" and a "useless figment of shreds and
patches." Some of the criticism came from
theorists who objected to the philosophical underpinnings of the fictitious
personality of the corporation sole. But practical problems were also evident.
The courts accepted some officers as corporations, yet resisted the corporate
claims of others similarly situated. This inconsistency may explain
why the corporation sole was not widely extended to other civil
officers. Other practical questions were
also raised. What claims on corporate property might arise from the heirs of a
deceased incumbent? What limits on fraudulent transfer by a dishonest incumbent?
Is a separate accounting required for the incumbent as a corporation and as a
private person? Is there a quasi-fiduciary relationship between the corporation
sole and his successors? Added to these
questions are several other crucial problems: What happens to the corporation
during the illness or absence of the incumbent; and who manages the property,
and with what legal force, during an interregnum? These practical considerations
were more difficult than the theoretical questions. Yet for all the
inconsistency of application and the eccentricity of the concept, the
corporation sole has endured in some form for more than five
centuries. III. Transition
from "Old" to "New" "At a very early period the
religious establishment of England seems to have been adopted in the colony of
Virginia, and, of course, the common law upon that subject, so far as it was
applicable to the circumstances of that colony." Justice Story went on to count
the corporation sole as among the "general rights" of the Episcopal Church
"growing out of the common law. After the revolution, "the Episcopal Church no
longer retained its character as an exclusive religious establishment," but the
Supreme Court still recognized the rights of the parson as a corporation sole to
continue in full force. After the Declaration of
Independence, early case law indicated that the corporation sole lived on.
"However, sometimes it was found in its pure common law form, other times in a
variant form." In New England, title to the real property of territorial
parishes was occasionally vested in the resident clergyman. In the South, the
Episcopal glebe was usually held by the minister-in-charge (whatever his title),
just as in England. "The most numerous group of private corporations in the
colonies comprises those which were concerned with religious
worship." The corporation sole, however,
applied only to the clergy of the churches that were or had been legally and
formally established. In another early opinion written by Justice Story, the
Supreme Court voided a royal grant of land to the Episcopal Church in New
Hampshire. The decision was based on the grounds that no one was legally
competent to accept title, since that state had never had an established church,
even in colonial days." The link with church establishment sealed the fate of the common law corporation sole in America. The first amendment technically did not require states to disestablish a church. By implication, however, establishment was doomed by the Bill of Rights and without religious establishment; the rights of establishment were moot. The civil form of the
corporation sole never really took hold in the United States. The king was the
most obvious civil corporation sole in colonial days. After the Revolution,
however, only a few minor officers in some states were accorded a corporate
identity probate judges and town supervisors." The governor of a state was
regarded as a corporation only in Tennessee. For the most part, the powers and
duties of public officers were adequately defined by statute. Incorporation was
not necessary to guarantee bonds or contracts, or to continue lawsuits.
Beginning in the first half of
the nineteenth century, however, new social and religious forces gave a revived
impetus to the sole corporation. The chief thrust came from a most unlikely
source. When John Carroll was chosen as the first Roman Catholic bishop in the
United States in 1789, gaining secure title to the property of his church in the
various states and territories was one of his most pressing tasks. This task was
by no means easy. Roman Catholicism had no legal
standing in England and its position in the new nation was awkward. Although
Catholicism shared the fruits of the first amendment, it had a structure that
many Americans judged to be autocratic and monarchical. At that time,
congregational ownership of church property was natural to many denominations in
America, but was contrary to long-established Roman Catholic
policy. Sometimes, for want of a better
method, church property was held in fee simple by the local priest or by a pious
layman. This system, however, led to endless difficulty. There was a constant
fear that church property held in a private name might be claimed by a relative
of the holder. Worse yet, the possibility existed that some unworthy claimant
with a plausible story could make out a case for ownership. In one lawsuit, an
unfrocked priest claimed to be heir to land that a deceased predecessor had
purchased to build a church. Bishop Carroll won that suit,
but for the next seventy years the Roman Catholic hierarchy struggled to find a
legally sufficient and canonically suitable manner for its church to own
property. Vesting title in a board of elected or appointed trustees was one
obvious possibility. In fact, that is the way Carroll originally incorporated in
Maryland." But "trusteeism" itself became an issue when the trustees in some
areas used their property ownership to pressure the bishops in doctrinal or
disciplinary disputes." The internal problems of the
Catholic Church were exacerbated and complicated by the rise of a national
social and political phenomenon called the "Know-Nothing" movement In addition
to their many other objections to Catholicism, these opponents had particular
objections to control of church property by the clergy, and strenuously battled
the church on this issue." The bishops battled back, in what they saw as a
defense of the doctrine and practice of their religion against bigots on the
outside and recalcitrants on the inside. Over time, the corporation sole became
a major weapon." Beginning in 1829, a series of
national bishops meetings was held to address the problems of Catholicism in
America. Invariably, property problems were on the agenda. Soon after the first
of these gatherings, Archbishop Whitfield of Baltimore sought a charter in the
form of a corporation sole from the Maryland General Assembly. In 1832, it was
granted." The link between Roman
Catholicism and the legal concept of a corporation sole was surprising for two
reasons. "First of all, in England, this mode of incorporation was limited to
the Anglican Church." In fact, the Roman Catholic hierarchy was not reinstated
in England until 1850. Second, Catholic Canon Law did not envision a one-person
corporation. The minimum number required to constitute a "collegiate moral
person" was three." Even the Pope was not a corporation sole. Even though
bishops of dioceses have great autonomy in church law, favorable action by a
board of consultants is still required on major property decisions to As Roman Catholicism spread
geographically and grew in numbers in the last decade of the nineteenth century,
new dioceses were created as new areas of the country were settled. Where they
could, the bishops incorporated as a corporation sole. In some
states, this required a private act of special incorporation; in others, a
general incorporation statute was utilized. The effort was not successful
everywhere. On at least one occasion, a legislature defeated a bishop’s request
for sole incorporation on the grounds that Catholicism would thus acquire a
legal right not held by other religious denominations. Slowly, Roman Catholics
won the battle for their church to be incorporated in a manner consistent with
church polity. During this struggle, the old common law corporation sole was
gradually transformed. There was no longer any link with an established church.
Although legislative action was often the result of activity by one church, the
laws passed were usually broad enough for others. In the courts, judges began to
require specific legislative authorization for a corporation sole. The common
law was not invoked to create sole corporations in states where the legislature
had not acted. Finally, at the beginning of this century, the Supreme Court, in
an opinion by Justice Holmes, confirmed what was already an almost universal
judicial stance: Apart from statute the law does not recognize the bishop as a
corporation sole. The transformation of the
corporation sole from its common law form to a legislative format, however
subtle, created something altogether new. Zollmann, writing in 1915, called it
"a new form vigorously flourishing and American in the true sense of the word."
The tide had turned. Momentum to secure the property rights of the Roman
Catholic Church a century ago left permanent traces in modern American law.
Today at least thirty states have a corporation sole in one form or
another. IV. The
Corporation Sole in Statutory Form Seventeen states explicitly
recognize the corporation sole under statutory law, often in a special section
for nonprofit corporations or in a section on religious societies. At least
eight other jurisdictions have at least one corporation sole created under
special or private charter, sometimes dating to a time before the passage of a
general incorporation statute. To understand the corporation
sole under both of these categories, a method of analysis will be useful. For
states that recognize the corporation sole under general law, California’s
statutes can serve as a comparative model. For the states with special or
private acts of incorporation, Maryland’s private charter for the Archbishop of
Baltimore is a useful example. The California legislation dates
to 1877 and comprises part 6 of the title division on nonprofit corporations.
Some sections are technical, and relate to filing provisions, applicability to
corporations organized prior to the implementation of the law, and procedures
for voluntary dissolution. The key sections are those dealing with who may
incorporate, the corporate powers, and the questions of vacancy and
succession. The California statutory system
indicates that a corporation sole may be formed by a bishop, chief priest
presiding elder, or other presiding officer of any religious denomination,
society, or church. The corporate powers specified in the California law are
comprehensive. In California,
a corporation sole may:
(a) Sue and be sued, and defend,
in all courts, and places, in all matters and proceedings
whatever. (b) Contract in the same manner
and to the same extent as a natural person, for the purposes of the
trust. (c) Borrow money, and give
promissory notes thereof, and secure the payment thereof by mortgage or other
lien upon property, real or personal. (d) Buy, sell, lease, mortgage,
and in every way deal in real and personal property in the same manner that a
natural person may, without the order of any court. (e) Receive bequests and devises
for its own use or upon trusts to the same extent as natural persons may,
subject, however, to the laws regulating the transfer of property by
will. (f) Appoint attorneys in
fact. The most complex issue regarding
the old corporation sole was that of continuing operation during a vacancy in
the office. California deals with this issue in two ways: 1) at the time of
incorporation, the manner of filling a vacancy is to be specified," and 2) the
law makes clear that the corporation has perpetual existence even during a
vacancy." In contrast with the common law
corporation sole, the California statute, like almost all its modern
counterparts, is far more precise. A comparison will be useful. The common law
or "old" corporation sole applied to some unspecified officers, and not to
others of similar origin. The statutory or "new" corporation sole, in contrast,
applies to those who are designated at the time of their incorporation. The old
corporation sole was "in abeyance" at the time of a vacancy, whereas the new
corporation sole continues through temporary agents. The old corporation sole
could hold title to real estate only, and alienation of the property was
difficult and legally questionable. The new corporation sole has the same power
over its property as any other corporation, and is not limited in the type of
property it can own. In short, the new statutory corporation sole removes the
vagaries of the old. Private charters have a parallel
history and similar content The Maryland legislation incorporating the
Archbishop of Baltimore dates to 1832. The law permits church property held by
trustees to be deeded to the Archbishop and his successors. However, such
property is limited to two acres, must be real property, and can only be used
for a church, parsonage, or burial ground. In 1868, the Maryland
legislature amended the act. The acreage designation was enlarged to five acres,
and "school house" was added to the list of uses." Up to this point, the
Maryland law did not mention the alienation of property. A later amendment, in
1874, granted the power "to dispose of, lease, sell and convey from time to time
to the same extent, [as] any private person or other corporate
body." Two subsequent amendments
completed the law. In 1894, the restriction to real property was removed. The
Archbishop, as a corporation sole, was given the power to exercise rights over
property "real, personal or mixed. Finally, in 1927, the acreage restriction was
completely removed. This original 1832 legislation, with its four amendments,
remains the charter of the Archbishop of Baltimore as a corporation sole. No
further change can now be made, because the Maryland code prohibits the General
Assembly from amending the charter of a religious corporation even if it was
previously incorporated by special act. Furthermore, the code now contains
modern provisions for subsidiary or separate Roman Catholic
corporations. The contrast between the
California and Maryland laws is very apparent. The California legislation
consists of more formal and highly structured general statutes, whereas the
Maryland private charter is rather informal, the product of patchwork amendment.
The California code carefully establishes a process for creating or dissolving a
corporation sole, whereas the Maryland law barely goes beyond the simple
statement that a corporation is deemed to exist. Clearly, the general statutes
represent a later stage in the evolutionary process. Although differences exist, the
corporation’s sole created under general corporation laws and those established
by special acts or private charters have several common features. They both
deserve to be classified under the heading of "new" or "modern" corporations
sole, because both are more than merely modes of holding title to property. Both
are meant to provide a framework for the operation of a continuing concern. They
are also both meant to provide a structure for the planning, financing,
direction and management necessary for an organization existing and working in a
sophisticated business environment. The Achilles heel of the "old"
corporation sole was that the corporation itself was a person holding an office.
When the incumbent died, the common law could only hold the corporate life and
activity in suspension, or "abeyance", until the office was filled again. In
regard to the "old" corporation sole, Maitland said, "Our corporation sole is a
man who dies." Carr added, "that is the difficulty. The artificial
personality of the corporation is not strong enough to compel us to ignore the
natural personality of the sole incorporator. The office has not been completely
personified if the death of the officeholder can cause such a
deadlock. The modern corporation sole,
created under legislative auspices, solves the succession problem quite
satisfactorily in one of two ways. Either a specified structure of continuing
operation is created in statutes, as in California, or the statutes specify some
external set of canons, practices or rules to deal with an interregnum, as in
Maryland. The fact that the modern
American corporation sole works satisfactorily is, perhaps, best illustrated by
the relative absence of recent cases carried to the appeal level. Corporate
structure is seldom at issue, but the cases tend to run the gamut: torts,
contract, civil procedure, piercing the corporate veil, workman’s
compensation, taxation, eminent domain, estates and simple fraud.
Property disputes are relatively rare, perhaps because there would be first
amendment implications for most corporations sole. The corporation sole seems to
have a settled existence. There has been no rash of new legislation, nor have
there been any repeals of earlier laws. V. Special
Circumstances Eight additional states have
circumstances meriting comment. The constitutions of Virginia and West Virginia
specify that no charter of incorporation can be granted to any church or
religious denomination. At least one commentator attributes this prohibition to
the influence of Thomas Jefferson and James Madison. Although the tradition of
church-state separation in Virginia may indeed be traced to the two former
presidents, the constitutional provision in Virginia dates to 1851 long after
the deaths of both. The West Virginia courts have
acknowledged that the provision in that state is descended from Virginia. While
these constitutional provisions pose no problems to the titles of church
property in either state, they obviously preclude a corporation sole. An article
in the Kansas constitution, which required title to property of religious
corporations to be vested in elected trustees, was repealed in
l974. Connecticut has a provision in
its corporation code that gives the local archbishop or bishop special powers in
trust if a Catholic parish corporation violates or surrenders its charter. The
courts have interpreted this provision to mean that, if a charter is
surrendered, all the property vests in the bishop and his successors, as a
corporation sole. This section provides emergency powers that are not normally
required. Oklahoma allows for trust
succession in the name of an ecclesiastical office. Vermont, in contrast,
specifically forbids any such succession. Finally, case law in Arkansas
and Florida also deserves attention. The Supreme Court of Arkansas, in dicta,
has recognized the Roman Catholic Bishop of Little Rock as a corporation sole
without any special act of the legislature. The Florida situation is even more
unique. The Supreme Court of Florida has repeatedly held that the common law
corporation sole is in full force in Florida. The court relies on the fact that
the common law has been adopted in Florida and remains in force unless expressly
or impliedly repealed by organic or statutory law. This unique position
initially attracted journal comment, perhaps because it seemed contrary to the
earlier United States Supreme Court position. VI. A Federal
Corporation Sole Only rarely has there been
mention of a federal charter for a religious or quasi-religious
organization. When Congress voted, in 1811, to incorporate an
Episcopal church in the District of Columbia, President Madison vetoed it in his
veto message, the President implied that a charter of incorporation was in some
sense an approval of a religion, in violation of the
Constitution. More than a century later when
incorporation was so common, the Congress and the President took another view.
In 1948, the Vatican completely severed the Archdiocese of Washington from the
Archdiocese of Baltimore. The new Archbishop of Washington, with the help of
President Truman, sought to have a corporation sole established as a framework
for the new ecclesiastical territory. Congress complied by passing a private law
that established the Archbishop of Washington and his successors as a
corporation sole. VII. A Yet More
Modern Form? A number of authorities warn
against confusing the corporation sole with the modern "one-person corporation."
In fact, courts have held that a stock corporation is not automatically
transformed into a corporation sole, simply because one person has purchased all
of the stock It is possible, however, to structure a one-person corporation in such a way that it closely resembles a corporation sole in operation. In fact, the Roman Catholic Diocese of Wilmington is so structured under the general corporation laws of Delaware. The Wilmington diocese is not incorporated under the terms of the Delaware Code for Religious Societies and Corporations. Rather, the diocese is incorporated under the General Corporation Law which, already contains provisions for a board of one, for non-stock operation, and for formation of a close corporation. By carefully writing the by-laws, and by addressing the problems of succession, the Roman Catholic Diocese of Wilmington has fashioned a corporation that contains all the advantages of the corporation sole in a state that has no regular provision for one. VIII.
Summary
From its quaint beginnings in English law, the corporation sole has established a modest, yet solid, foothold in the United States. To churches with a hierarchical structure, and particularly to the Roman Catholic Church, it has been a secure method for both ownership of property and daily operation. In a society characterized by religious and ethnic pluralism, the corporation sole has provided a useful legal option, well adapted to the needs of certain groups. The corporation sole has, arguably, made a greater contribution in the United States than in its native land. The corporation sole is destined to be a continuing part of American law for years to come FOOTNOTES
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