How Elizabeth Warren Is Reviving the Concession Theory of the Corporation

There are three main theories of the corporation as a legal entity: the concession theory, the real entity theory, and the aggregate (contractarian) theory.[1] Once the most prominent of the three, the concession theory fell out of favor long ago but seems to be making a comeback, due in large part to Senator Elizabeth Warren and her Accountable Capitalism Act (the “ACA”).

The Rise and Fall of the Concession Theory

The concession theory holds that corporate personhood and associated privileges are granted to corporations by the state where they are incorporated. In other words, the theory posits that it is an act of the state, i.e. the issuance of the charter, that creates a corporation as a legal fiction. Accordingly, “a corporation is an artificial being, invisible, intangible, and existing only in contemplation of law”.[2] Viewing the corporation in this way, the concession theory is inherently receptive to regulating corporations.[3] Further reinforcing this notion is that corporations are granted special privileges such as perpetual legal personality (and associated rights such as the right to sue and to be sued, have property rights separate from its shareholders etc.) and limited liability by the state, and they should thus serve a public purpose in exchange.

The concession theory reflects the historical background of how corporations were established in the United States in the 19th century,[4] when corporate charters were granted via statutes by state legislatures.[5] In most cases, charters were issued for a specific purpose, such as an infrastructure project or exercise of control over natural resources.[6] The privileges granted to the corporation seemed justifiable at the time given that corporations helped create public benefits. Gradually, the public perception that issuing corporate charters often involved corruption[7] prompted passage of general incorporation laws. As the corporation became the dominant form of business organization, special charters began to disappear.[8]

As the concession theory faded, so did the emphasis on regulating corporations. In their place rose the real entity and the aggregate theories[9] and the emphasis on reducing state interference in corporate affairs.[10] The granting of charters evolved into a mere formality, and supporters of regulation sought alternative theories to justify their views,[11] all but eliminating the concession theory from modern corporate law discourse.[12]

The Revival: The Accountable Capitalism Act

Though the recent debate on corporations and constitutional rights sparked a glimmer of interest in the concession theory,[13] it received a substantial boost in August 2018, when Senator Elizabeth Warren, a leading candidate for the 2020 Democratic presidential nomination, introduced the ACA.

She has argued that employees, customers, and communities at large do not benefit from the current corporate boom.[14] Citing two Business Roundtable statements, one dated 1981 and the other 1997, as a sign of businesses’ shifting focus away from shareholders,[15] she makes the case for legislation to re-orient corporate law and governance.

Warren’s recent Wall Street Journal op-ed suggests she draws inspiration from the concession theory:[16]

American corporations exist only because the American people grant them charters. Those charters confer valuable privileges – such as limited legal liability for their owners – that enable businesses to turn a profit. What do Americans get in return? What are the obligations of corporate citizenship in the U.S.?

Recognizing that collective action problems and the race to the bottom on incorporation rules[17] put states in a poor position to effect reform, Warren and the ACA aim at reviving corporate charters, a hallmark of the concession theory, at the federal level.

The ACA requires large American corporations to obtain a federal charter that includes a corporate purpose of creating a “general public benefit”.[18] Notably, a letter from investors and academics supporting the bill calls this the “original purpose of the public privilege,”[19] additional evidence that the bill is based on the concession theory. Requiring directors to consider the interests of all corporate stakeholders, also included in the bill, similarly has the objective of re-orienting the corporate purpose.

The bill also requires directors to consider all stakeholders, not just shareholders, but Warren goes further, proposing that at least 40 percent of all board seats in corporations with federal charters be filled by employee-nominated directors. The proposed rule is not only compatible with the concession theory but also in conflict with the other two theories of the corporation.

The real entity theory conceptualizes the corporation as being equal to more than a sum of its parts: a real and independent entity. A proponent of the theory would therefore oppose representation of a particular group like employees on the board, because that would emphasize one faction (i.e. workers) rather than the whole (i.e. the corporate entity). A supporter of the aggregate theory would likewise reject Warren’s push for employee representation on boards, though for different reasons. The aggregate theory also sees the corporation as a sum of its parts but emphasizes shareholders rather than all stakeholders. And the nexus of contracts approach, typically associated with the aggregate theory, would suggest that employees do not need board representation because they should be able to present their demands when negotiating with the corporation.

Finally, if a federally-chartered corporation engages in repeated and egregious illegal conduct, it may have its charter revoked under the ACA, effectively a federal death sentence. This, again, makes perfect sense from a concession theory point of view: If the corporation is a creature of the government,[20] then there should be no issue with the government putting an end to its existence. Perhaps the term “artificial entity” theory, which is simply another name for the concession theory, should be employed in this context.


Dramatic as the ACA’s proposed changes might be, the bill represents just the beginning of a push for stronger federal regulation of corporations.[21] Senator Tammy Baldwin’s Reward Work Act, co-sponsored by Senators Warren, Sanders and Gillibrand, similarly endorses the concession theory.[22] Why the sudden interest in the concession theory?

Rising inequality and negative views of corporate America have created fertile ground for audacious policies like Warren’s, and in that context the concession theory makes sense. It offers a straightforward justification for regulating corporations and allows politicians to present their plans in an appealing way. Whether it will prove effective is still unclear, but there’s already growing evidence that the concession theory is alive and well.


[1] See generally David Millon, Theories of the Corporation, 1990 Duke L.J. 201 (1990); Morton J. Horwitz, Santa Clara Revisited: The Development of Corporate Theory, 88 W. VA. L. REV. 173 (1985).

[2] Trustees of Dartmouth Coll. v. Woodward, 17 U.S. 518, 636 (1819).

[3] Stefan J. Padfield, The Role of Corporate Personality Theory in Opting out of Shareholder Wealth Maximization, 19 Transactions: TENN. J. BUS. L. 415, 418-419 (2017); Reza Dibadj, (Mis)Conceptions of the Corporation, 29 GA. ST. U. L. REV. 731, 759 (2013) (“Conceptualizing the corporation as an artificial entity necessarily allows the government to place limits on its behavior. After all, if the corporation is a creature of the state, then the state can regulate it if it wishes.”).

[4] William W. Bratton, The New Economic Theory of the Firm: Critical Perspectives from History, 41 Stan. L. Rev. 1471, 1484 (1989) (“With the special charter as the dominant mode of corporate creation, this concession-based corporate theory accurately described American corporate practice.”).


[6] Id., at 191.

[7] Reuven S. Avi- Yonah, The Cyclical Transformations of the Corporate Form: A Historical Perspective on Corporate Social Responsibility, 30 DEL. J. CORP. L. 767, 792 (2005).

[8] FRIEDMAN, supra note 5, at 512.

[9] Eric C. Chaffee, The Origins of Corporate Social Responsibility, 85 U. CIN. L. REV. 353, 357 (2017).

[10] Stefan Padfield, Rehabilitating Concession Theory, 66 OKLA. L. REV. 327, 335 (2017) (“[T]here is ample support for the view that real entity theory and aggregate theory emerged primarily in response to the perceived excessive regulatory power of the state”); Horwitz, supra note 1, at 183 (“The collapse of the grant theory eventually produced the best of all possible worlds for the expansion of corporate power. By rendering the corporate form normal and regular, late nineteenth century corporate theory shifted the presumption of corporate regulation against the state.”)

[11] Gregory A. Mark, The Personification of the Business Corporation in American Law, 54 U. CHI. L. REV. 1441, 1457 (1987).

[12] STEPHEN M. BAINBRIDGE, M. TODD HENDERSON, LIMITED LIABILITY: A LEGAL AND ECONOMIC ANALYSIS 68-69 (2016). (“([I]t has been over half-a-century since corporate legal theory, of any political or economic stripe, took the concession theory seriously.”).

[13] See generally, Padfield, supra note 10; Dibadj, supra note 3.

[14] Elizabeth Warren, Companies Shouldn’t Be Accountable Only to Shareholders, WALL ST. J., August 15, 2018, at A17.

[15] Almost one year after Warren introduced the ACA, the Business Roundtable has signaled a change in this approach by endorsing a more stakeholder-oriented corporate purpose. See: Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans’ (Aug. 19, 2019),

[16] Warren, supra note 14.

[17] Id.; Federal Corporate Charter Letter of Support (hereinafter Letter) (Aug. 15, 2018),, (“States are, as mentioned before, both too small and too “divided and conquered” to solve this massive cluster of collective action problems with which the regime of “free incorporation” now confronts them”).

[18] Defined as “a material positive impact on society resulting from the business and operations of a United States corporation, when taken as a whole” in the bill, The Accountable Capitalism Act, S. 3348, 115th Cong., §(5)(a)(1), (2018).

[19] Letter, supra note 17.

[20] While whether a state or the federal government issues the charter of a corporation has practical implications some of which are discussed above, it does not make much of a difference as far as the theoretical aspect is concerned.

[21] Newmyer, Tory, The Finance 202: Elizabeth Warren takes on corporate giants as she lays 2020 marker, WASH. POST: POWER POST (Aug. 16, 2018) (quoting Professor Robert Hockett, a contributor to Warren’s bill, who said: “As more Americans become aware again of how the corporate privilege used to work, they’ll see this bill is really a modest first step in the direction of what we used to have”).

[22] The Staff Report on Reward Work Act, 9, (Mar. 23, 2019),

This post comes to us from Abdurrahman Kayıklık, a research assistant at Koç University Law School in Istanbul, Turkey and an LLM graduate of Harvard Law School.