Incorporation

Corporate ownership is one of three broad categories defining the legal ownership structure of a business. The other two broad categories are sole proprietorship and partnership. In a sole proprietorship, the owner is personally liable for his or her business's debts and losses, there is little distinction made between personal and business income, and the business terminates upon the death of the owner or the owner's decision to change the legal character of the firm (by relinquishing part or all of his or her ownership in the enterprise). A partnership is merely joint ownership, and in terms of personal liability, is similar to a sole proprietorship. Sole proprietorships and partnerships are categories of business ownership that may be entered into and dissolved fairly easily. Incorporation, on the other hand, is a more complex process. Incorporating involves the creation of a legal entity that serves as a sort of "person" who can enter into and dissolve contracts; incur debts; initiate or be the recipient of legal action; and own, acquire, and sell goods and property. A corporation, which must be chartered by a state or the federal government, is recognized as having rights, privileges, assets, and liabilities distinct from those of its owners.

In the 1990s, a new form of business structure became available to those operating businesses in many states. By the year 2002 this form, the limited liability company (LLC) or limited liability partnership (LLP), was available in all 50 states of the union and has become the business form of choice for newly formed businesses. These limited liability entities are the only forms of business structure other than the corporation in which the personal liability of the owners is limited. This feature accounts for their popularity. For the majority of small businesses, the relative simplicity and flexibility of the LLC makes it the better choice of business structure. However, there are situations in which incorporation may still be preferable. If a company wishes to do any of the following three things, incorporation is preferable to forming a limited liability company: 1) The company expects to have multiple investors or offer stock to the public; 2) The company wishes to offer extensive fringe benefits to owner-employees, and/or 3) The company hopes to use stock options or stock bonuses as part of an incentive program. In each of these three instances, IRS rules regulating corporations makes the desired activity either possible or more easily done than would be the case for limited liability companies.

Prospective entrepreneurs and established business-people operating sole proprietorships and partnerships are encouraged to weigh several factors when considering incorporating. Indeed, incorporation can have a fundamental impact on many aspects of business operation, from taxes and document keeping requirements to raising capital and owner liability.

ADVANTAGES OF INCORPORATION

• Raising Capital—Incorporation is generally regarded as an indication that the owners are serious about their business enterprise, and intend to devote time and resources to the venture for a significant period of time. This factor, as well as the reporting requirements of incorporation and—in some cases—the owners' more formidable financial resources—make corporations more attractive to some lending institutions. In addition, corporations have the option of raising capital by selling shares in their business to investors. Stockholders know that if the business they are investing in is a corporation, their personal assets are safe if the company gets into litigation or debt trouble.
• Ease of Ownership Transfer—Ownership of the company can be transferred fairly easily by simply selling stock (though some corporations attach restrictions in this regard).
• Tax Advantages—Some businesses enjoy lower tax rates under the incorporated designation than they would if they operated as a partnership or sole proprietorship. For instance, business owners can adjust the salaries they pay themselves in ways that impact the corporation's profits and, subsequently, its tax obligations. It can also be easier for a business to invest in pension plans and other fringe benefits as a corporation because the cost of these benefits can be counted as tax-deductible business expenses.
• Liability—This factor is often cited as far and away the most important advantage to incorporation. When a company incorporates, the shareholders or owners of the corporation are liable only up to the amount of money they contribute to the firm. Moreover, while a corporation can be targeted in legal actions such as lawsuits, the personal assets of the company's owners cannot be touched if a judgement is rendered against their establishment since it is recognized as a legal entity separate from the owners/shareholders.

Still, while incorporation provides business owners with far greater liability protection than they would enjoy if they operated as a standard partnership or sole proprietorship, business experts note that certain instances remain wherein the personal assets of business owners may be vulnerable:

• Many small business owners who approach banks to secure financing for a new corporation are asked to sign a personal guarantee that assures the lending institution that they will pay back the loan if the corporation is unable to do so. Banks sometimes require similar guarantees from entrepreneurs and small business owners seeking financial assistance to lease equipment or facilities. Owners are also held personally responsible for ensuring that the corporation makes its required tax payments.
• Protection from liability can also be compromised in situations in which legal action is brought against a director or officer who is alleged to have committed some transgression outside the parameters of his or her job description. In other words, a business owner or shareholder can still be sued for personal actions.
• In some cases, key personnel of a corporation—such as board members or officers—can be held personally liable if the establishment that they operate has been found criminally negligent or guilty of willful criminal acts.
• The personal assets of business owners operating a corporation can also be threatened if it is determined that the business has not been properly established and adequately maintained. In such instances, a plaintiff may claim that the corporation and the owner are one and the same, and therefore the owner's personal assets can be used to satisfy the judgement. This is called 'piercing the corporate veil.' There are several steps that business owners can take, however, to ensure that their corporation protection is maintained. These include: 1) Keeping up with taxes and regulatory requirements; 2) Staying in full compliance with guidelines regarding corporate minutes and various organizational bylaws; 3) Keeping personal and corporate accounts completely separated from one another; and 4) Showing proper capitalization by maintaining a satisfactory debt-to-equity ratio.

DISADVANTAGES OF INCORPORATION

• Regulatory and Record keeping Requirements—Corporate operations are governed by local, state, and federal regulations to a greater degree than are other businesses.
• Added Cost of Doing Business—Regulatory and record keeping guidelines and requirements often make it necessary for corporations to make additional investments (in accounting staffing, etc.) devoted to seeing that those legal requirements are met. In addition, there are fees associated with incorporating to which business partnerships and sole proprietorships are not subject.
• "Double" Taxation—People who are owners of a corporation, and who also work as an employee of the business, can receive financial compensation in two different ways. In addition to receiving a salary or wages for work performed, the owner may also receive a dividend or distribution on the stock that he or she owns. Any distribution of income to stockholders via dividends is taxable, however, if the corporation is organized as a "C corporation." This is sometimes called "double taxation" in recognition of the fact that such income has in reality been taxed twice, first when the corporation paid taxes on its profits, and secondly when the dividends were distributed. Companies that register as an "S corporation," however, are able to avoid this added tax.
• Separation of Finances—While incorporation provides significant protection of owners' personal assets from repercussions of business downturns, it also means that a business owner is not allowed to tap into the corporation's account for assistance in meeting personal debts.

S CORPORATIONS AND C CORPORATIONS

Small business owners can choose to incorporate as one of two basic types of corporations. The C corporation is the more traditional of the arrangements, and is more frequently employed by large companies. With a regular corporation, the business's profits or losses are absorbed directly into the company. With the alternative corporate arrangement—the S corporation (also sometimes known as the Subchapter S corporation)—profits and losses pass through to the company's shareholders.

The S corporation option was actually put together by the federal government in recognition of the fact that the operating challenges faced by small businesses and large businesses can often be quite different. Indeed, the S corporation was shaped specifically to accommodate small business owners. S corporations give their owners the limited liability protections provided by corporate status, while also providing them with a more advantageous tax environment. In fact, S corporation status puts companies in the same basic tax situation as partnerships and sole proprietorships. Whereas C corporations are subject to the above-mentioned double taxation, profits registered by an S corporation are taxed only once, when they reach the company's shareholders.

To qualify as an S corporation, a business must meet the following requirements: 1) It must be a U.S. corporation; 2) It can have only a limited number of shareholders (75 in 2006); 3) It may not offer more than one class of outstanding stock. In terms of the maximum number of shareholders, starting with taxable years beginning after December 31, 2004, a family may elect to have all the members of the family that hold stock directly or indirectly in an S corporation treated as one shareholder for purposes of the number-of-shareholders limitation. This election may be made by any family member and a "members of the family" is defined as individuals with a common ancestor, lineal descendants of the common ancestor, and the spouses (or former spouses) of such lineal descendants or common ancestor. These are the primary requirements for seekers of S corporation status, although the government has additional stipulations regarding the citizenship of owners/shareholders and affiliations with other business entities. Prospective S corporations must be in accordance with all these restrictions.

THE PROCESS OF INCORPORATION

The actual fees required to incorporate generally amount to several hundred dollars, although the total cost differs from state to state (corporations usually pay both an initial filing fee and an annual fee to the states in which they operate). Hiring an attorney to assist in the process can raise the cost, but several services are available on the Internet to assist businesses with the incorporation process. The Small Business Administration has noted that the owners of a business that is going to be incorporated must agree on several important issues, including the nature of the business; the total number of shares of stock the corporation will make available; the stock that the owners will be able to purchase; the amount of financial investment that each of the owners will make; the bylaws by which the corporation will operate; the management structure of the corporation; and the name under which the business will operate.

Indeed, it is a good idea to reserve the proposed name of the corporation with the state before filing articles of incorporation. The owners of the business must make sure that they have a clear right to that name, since only one corporation may possess any given name in each state. If a business owner files articles of incorporation using a name that already belongs to another corporation, the application will be rejected. The name of the business must also include either corporation, company, limited, or incorporated as part of its legal name; such terms serve notice to people and businesses outside the company that it is a legal entity unto itself and thus subject to different laws than other business types.

Since the corporation will be a legal entity separate from its owners, separate financial accounts and record keeping practices also need to be established. Once the shareholders have reached agreement on these issues, they must prepare and file articles of incorporation or a certificate of incorporation with the corporate office of the state in which they have decided to incorporate. Any corporation—with the exception of banks and insurance companies—can incorporate under Section 3 of the Model Business Corporation Act.

Business experts also counsel organizers of a corporation to put together a pre-incorporation agreement that specifies the various roles and responsibilities that each owner will take on in the corporation once it has come into being. Pre-incorporation agreements typically cover many of the above-mentioned issues, and can be supplemented with other legal documents governing various business operations, such as inventory purchases and lease agreements. Pre-incorporation agreements are also sometimes drawn up with third parties. Such contracts generally address: 1) Scope of potential liability; 2) Rights and obligations for both the corporation and its organizers once it has been formed; 3) Provisions to address business issues if incorporation never occurs for some reason; and 4) Provisions for declining the contract once the corporation has been formed.

Once a company has incorporated, stock can be distributed and the shareholders can elect a board of directors to take formal control of the business. Small corporations often institute buy-sell agreements for their shareholders. Under this agreement, stock that is given up by a shareholder—either because of death or a desire to sell—must first be made available to the business's other established shareholders. Stock issues and shareholder responsibilities are usually fairly straightforward in smaller companies, but larger corporations with large numbers of shareholders generally have to register with state regulatory agencies or the federal Securities and Exchange Commission (SEC).

In addition, incorporation requires the adoption of corporate bylaws. The bylaws, which are not public record, include more specific information about how the corporation will be run. These are the rules and regulations that govern the internal affairs of the corporation, although they may not conflict with the Articles of Incorporation or the corporate laws of your state. The bylaws are adopted by the board or the corporation's shareholders and may be amended or repealed at a later date. When preparing bylaws, it is sometimes easiest to start with the model bylaws that typically arrive with corporate kits or incorporation guides, although these may be altered. The bylaws should specify such information as:

• The location of corporate offices
• The names and powers of shareholders and directors
• The date and time for regular shareholders' and board of directors' meetings
• The content of such meetings
• The period of notice required before such meetings
• Voting eligibility
• Voting procedures
• Election procedures for seating directors and officers
• The names and duties of officers
• How financial transactions will be conducted
• The procedures for amending or repealing bylaws
• Stipulations as to whether powers or duties of board of directors may be relegated to ad hoc committees
• Procedures to be followed in the event of a merger with another company or the dissolution of the corporation itself

CORPORATE OWNERSHIP AND CONTROL

The owners of a corporation remain the ultimate controllers of that business's operations, but exercising that control is a more complicated process than it is for owners of partnerships or sole proprietorships. Control depends in part on whether the owners decide to make the corporation a public company—in which shares in the company are available to the general public—or a private or closely held corporation, where shares are concentrated in the hands of a few owners.

In most cases, small businesses have a modest number of shareholders or owners. When it comes to the day-to-day operations of the corporation, shareholders generally have very few powers. They are responsible for electing the board of directors and removing them from office. In smaller corporations, the shareholders can give themselves more operational powers by including provisions in the articles and bylaws of the corporation. In most cases, however, it is the shareholder-appointed board of directors that runs the company. Directors are responsible for all aspects of the company's operation, and it is the board that appoints the key personnel responsible for overseeing the business's daily operations. The officers (president, vice-president, treasurer, etc.), though appointed by the board of directors, often wield the greatest power in a corporation; indeed, in some corporations, officers are also members of the board of directors. Of course, in situations where only one person owns the incorporated company, he or she will bear many of the above responsibilities.

INCORPORATING IN DELAWARE AND NEVADA

Over the years, many companies have chosen to incorporate in Delaware or Nevada because of those states' business-friendly environment regarding taxation and liability issues. But some business experts caution small businesses from automatically casting their lots with these states. Small businesses with a small number of shareholder-employees should probably incorporate within their own state of operation. Although Delaware may offer some tax breaks and potentially more statutory protection from liability for corporate directors than most other states, for a small corporation the advantages are usually outweighed by the disadvantages. For instance, a company incorporated in Delaware but operating elsewhere must appoint someone in Delaware to be an agent for the corporation (there are companies in Delaware that do this). In addition, such a firm will have to pay an annual franchise (corporate) tax to the state of Delaware as well as file an application in its home state to do business as a foreign corporation. This designation will require them to pay a franchise fee in addition to their usual state income taxes.

see also Articles of Incorporation; C Corporation; Limited Liability Company; S Corporation

BIBLIOGRAPHY

Colville, John. "Incorporation: Pros and Cons." Accountancy. July 2000.

Fink, Philip R. "Limited Liability Companies: Tax and Business Law." The Tax Adviser. June 2005.

"How-and Why-to Incorporate Your Business." Entrepreneur.com. Available from http://www.entrepreneur.com/article/0,4621,321322,00.html. 11 May 2005.

Krebsbach, Karen. "Community Banks Press IRS Change: De novo and startup banks are eager to consider LLC status. But to be truly worthwhile, an IRS rule change is needed to make the switch more tax advantageous. So what's the holdup?" US Banker. October 2005.

Lee, Min-Yun. "Incorporating Could Become Your Company's Profitable First Step." Houston Business Journal. 22 September 2000.

Mancuso, Anthony. LLC or Corporation? How to Choose the Right Form for Your Business. Nolo Press, 2004.

Oster, Rick. "S Corporation Vs. LLCs, The Pros and Cons of Each Business Form." Entrepreneur. 23 April 2001.

Schnee, Edward J. "Debt Allocation and LLCs." Journal of Accountancy. September 2004.

Thompson, Margaret Gallagher. "Where We Were and Where We Are in Family Limited Partnerships." The Legal Intelligencer. 1 August 2005.

U.S. Department of the Treasury. Internal Revenue Service. "S Corporations." Available from http://www.irs.gov/businesses/small/article/0,,id=98263,00.html Retrieved on 10 April 2006.

U.S. Small Business Administration Brittin, Jocelyn West. Selecting the Legal Structure for Your Business. n.d.

                                Hillstrom, Northern Lights

                                  updated by Magee, ECDI

INCORPORATION DOCTRINE

According to the incorporation doctrine the fourteenth amendment incorporates or absorbs the bill of rights, making its guarantees applicable to the states. Whether the Bill of Rights applied to the states, restricting their powers as it did those of the national government, was a question that arose in connection with the framing and ratification of the Fourteenth Amendment. Before 1868 nothing in the Constitution of the United States prevented a state from imprisoning religious heretics or political dissenters, or from abolishing trial by jury, or from torturing suspects to extort confessions of guilt. The Bill of Rights limited only the United States, not the states. james madison, who framed the amendments that became the Bill of Rights, had included one providing that "no State shall violate the equal rights of conscience, of the freedom of the press, or the trial by jury in criminal cases." The Senate defeated that proposal. History, therefore, was on the side of the Supreme Court when it unanimously decided in barron v. baltimore (1833) that "the fifth amendment must be understood as restraining the power of the general government, not as applicable to the States," and said that the other amendments composing the Bill of Rights were equally inapplicable to the States.

Thus, a double standard existed in the nation. The Bill of Rights commanded the national government to refrain from enacting certain laws and to respect certain procedures, but it left the states free to do as they wished in relation to the same matters. State constitutions and commonlaw practices, rather than the Constitution of the United States, were the sources of restraints on the states with respect to the subjects of the Bill of Rights.

Whether the Fourteenth Amendment was intended to alter this situation is a matter on which the historical record is complex, confusing, and probably inconclusive. Even if history spoke with a loud, clear, and decisive voice, however, it ought not necessarily control judgment on the question whether the Supreme Court should interpret the amendment as incorporating the Bill of Rights. Whatever the framers of the Fourteenth intended, they did not possess ultimate wisdom as to the meaning of their words for subsequent generations. Moreover, the privileges and immunities, due process, and equal protection clauses of section 1 of the amendment are written in language that blocks fixed meanings. Its text must be read as revelations of general purposes that were to be achieved or as expressions of imperishable principles that are comprehensive in character. The principles and purposes, not their framers' original technical understanding, are what was intended to endure. We cannot avoid the influence of history but are not constitutionally obligated to obey history which is merely a guide. The task of constitutional interpretation is one of statecraft: to read the text in the light of changing needs in accordance with the noblest ideals of a democratic society.

The Court has, in fact, proved to be adept at reading into the Constitution the policy values that meet its approval, and its freedom to do so is virtually legislative in scope. Regrettably in its first Fourteenth Amendment decision, in the slaughterhouse cases (1873), the Court unnecessarily emasculated the privileges and immunities clause by ruling that it protected only the privileges and immunities of national citizenship but not the privileges and immunities of state citizenship, which included "nearly every civil right for the establishment and protection of which organized government is instituted." Among the rights deriving from state, not national, citizenship were those referred to by the Bill of Rights as well as other "fundamental" rights. Justice stephen j. field, dissenting, rightly said that the majority's interpretation had rendered the clause "a vain and idle enactment, which accomplished nothing.…" The privileges and immunities clause was central to the incorporation issue because to the extent that any of the framers of the amendment intended incorporation, they relied principally on that clause. Notwithstanding the amendment, Barron v. Baltimore remained controlling law. The Court simply opposed the revolution in the federal system which the amendment's text suggested. The privileges and immunities of national citizenship after Slaughterhouse were those that Congress or the Court could have protected, under the supremacy clause, with or without the new amendment.

In hurtado v. california (1884) the Court initiated a long line of decisions that eroded the traditional procedures associated with due process of law. Hurtado was not an incorporation case, because the question it posed was not whether the Fourteenth Amendment incorporated the clause of the Fifth guaranteeing indictment by grand jury but whether the concept of due process necessarily required indictment in a capital case. In cases arising after Hurtado, counsel argued that even if the concept of due process did not mean indictment, or freedom from cruel and unusual punishment, or trial by a twelve-member jury, or the right against self-incrimination, the provisions of the Bill of Rights applied to the states through the Fourteenth Amendment; that is, the amendment incorporated them either by the privileges and immunities clause, or by the due process clause's protection of "liberty." In O'Neil v. Vermont (1892), that argument was accepted for the first time by three Justices, dissenting; however, only one of them, john marshall harlan, steadfastly adhered to it in maxwell v. dow (1900) and twining v. new jersey (1908), when all other Justices rejected it. Harlan, dissenting in Patterson v. Colorado (1907), stated "that the privilege of free speech and a free press belong to every citizen of the United States, constitute essential parts of every man's liberty, and are protected against violation by that clause of the Fourteenth Amendment forbidding a state to deprive any person of his liberty without due process of law." The Court casually adopted that view in obiter dictum in gitlow v. new york (1925).

Before Gitlow the Court had done a good deal of property-minded, not liberty-minded, incorporating. As early as Hepburn v. Griswold (1870), it had read the protection of the contract clause into the Fifth Amendment's due process clause as a limitation on the powers of Congress, a viewpoint repeated in the sinking fund cases (1879). The Court in 1894 had incorporated the Fifth's just compensation clause into the Fourteenth's due process clause and in 1897 it had incorporated the same clause into the Fourteenth's equal protection clause. In the same decade the Court had accepted substantive due process, incorporating within the Fourteenth a variety of doctrines that secured property, particularly corporate property, against "unreasonable" rate regulations and reformist labor legislation. By 1915, however, procedural due process for persons accused of crime had so shriveled in meaning that Justice oliver wendell holmes, dissenting, was forced to say that "mob law does not become due process of law by securing the assent of a terrorized jury."

The word "liberty" in the due process clause had absorbed all first amendment guarantees by the time of the decision in everson v. board of education (1947). Incorporation developed much more slowly in the field of criminal justice. powell v. alabama (1932) applied to the states the sixth amendment ' s right to counsel in capital cases, as a "necessary requisite of due process of law." The Court reached a watershed, however, in palko v. connecticut (1937), where it refused to incorporate the ban on double jeopardy. Justice benjamin n. cardozo sought to provide a "rationalizing principle" to explain the selective or piecemeal incorporation process. He repudiated the notion that the Fourteenth Amendment embraced the entire Bill of Rights, because the rights it guaranteed fell into two categories. Some were of such a nature that liberty and justice could not exist if they were sacrificed. These had been brought "within the Fourteenth Amendment by a process of absorption" because they were "of the very essence of a scheme of ordered liberty." In short, they were "fundamental," like the concept of due process. Other rights, however, were not essential to a "fair and enlightened system of justice." First Amendment rights were "the indispensable condition" of nearly every other form of freedom, but jury trials, indictments, immunity against compulsory self-incrimination, and double jeopardy "might be lost, and justice still be done."

The difficulty with Palko 's rationalizing scheme was that it was subjective. It offered no principle explaining why some rights were fundamental or essential to ordered liberty and others were not; it measured all rights against some abstract or idealized system, rather than the Anglo-American accusatory system of criminal justice. Selective incorporation also completely lacked historical justification. And it was logically flawed. The Court read the substantive content of the First Amendment into the "liberty" of the due process clause, but that clause permitted the abridgment of liberty with due process of law. On the other hand, selective incorporation, as contrasted with total incorporation, allowed the Court to decide constitutional issues as they arose on a case-by-case basis, and allowed, too, the exclusion from the incorporation doctrine of some rights whose incorporation would wreak havoc in state systems of justice. Grand jury indictment for all felonies and trials by twelve-member juries in civil suits involving more than twenty dollars are among Bill of Rights guarantees that would have that result, if incorporated.

In Adamson v. California (1947) a 5–4 Court rejected the total incorporation theory advanced by the dissenters led by Justice hugo l. black. Black lambasted the majority's due process standards as grossly subjective; he argued that only the Justices' personal idiosyncrasies could give content to "canons of decency" and "fundamental justice." Black believed that both history and objectivity required resort to the "specifics" of the Bill of Rights. Justices frank murphy and wiley rutledge would have gone further. They accepted total incorporation but observed that due process might require invalidating some state practices "despite the absence of a specific provision in the Bill of Rights." Justice felix frankfurter, replying to Black, denied the subjectivity charge and turned it against the dissenters. Murphy's total-incorporation-"plus" was subjective; total incorporation impractically fastened the entire Bill of Rights, with impedimenta, on the states along with the accretions each right had gathered in the United States courts. Selective incorporation on the basis of individual Justices' preferences meant "a merely subjective test" in determining which rights were in and which were out.

Frankfurter also made a logical point long familiar in constitutional jurisprudence. The due process clause of the Fourteenth, which was the vehicle for incorporation, having been copied from the identical clause of the Fifth, could not mean one thing in the latter and something very different in the former. The Fifth itself included a variety of clauses. To incorporate them into the Fourteenth would mean that those clauses of the Fifth and in the remainder of the Bill of Rights were redundant, or the due process clause, if signifying all the rest, was meaningless or superfluous. The answer to Frankfurter and to those still holding his view is historical, not logical. The history of due process shows that it did mean trial by jury and a cluster of traditional rights of accused persons that the Bill of Rights separately specified. Its framers were in many respects careless draftsmen. They enumerated particular rights associated with due process and then added the due process clause partly for political reasons and partly as a rhetorical flourish—a reinforced guarantee and a genuflection toward traditional usage going back to medieval reenactments of magna carta.

Numerous cases of the 1950s showed that the majority's reliance on the concept of due process rather than the "specifics" of the Bill of Rights made for unpredictable and unconvincing results. For that reason the Court resumed selective incorporation in the 1960s, beginning with mapp v. ohio (1961) and ending with Benton v. Maryland (1969). The Warren Court's "revolution in criminal justice" applied against the states the rights of the Fourth through Eighth Amendments, excepting only indictment, twelve-member civil juries, and bail. in re winship (1970) even held that proof of crime beyond a reasonable doubt, though not a specific provision of the Bill of Rights, was essential to due process, and various decisions have suggested the Court's readiness to extend to the states the Eighth Amendment's provision against excessive bail.

The specifics of the Bill of Rights, however, have proved to offer only an illusion of objectivity, because its most important clauses, including all that have been incorporated, are inherently ambiguous. Indeed, the only truly specific clauses are the ones that have not been incorporated—indictment by grand jury and civil trials by twelve-member juries. The "specific" injunctions of the Bill of Rights do not exclude exceptions, nor are they self-defining. What is "an establishment of religion " and what, given libels, pornography, and perjury, is "the freedom of speech" or "of the press"? These freedoms cannot be abridged, but what is an abridgment? Freedom of religion may not be prohibited; may freedom of religion be abridged by a regulation short of prohibition? What is an " unreasonable " search, " probable " cause, or "excessive" bail? What punishment is "cruel and unusual"? Is it really true that a person cannot be compelled to be a witness against himself in a criminal case and that the Sixth Amendment extends to "all" criminal prosecutions? What is a "criminal prosecution," a " speedy " trial, or an "impartial" jury? Ambiguity cannot be strictly construed. Neutral principles and specifics turn out to be subjective or provoke subjectivity. Moreover, applying to the states the federal standard does not always turn out as expected. After duncan v. louisiana (1968) extended the trial by jury clause of the Sixth Amendment to the states, the Court decided that a criminal jury of less than twelve (but not less than six) would not violate the Fourteenth Amendment, nor would a non-unanimous jury decision. (See jury size.) Examples can be multiplied to show that the incorporation doctrine has scarcely diminished the need for judgment and that judgment tends to be personal in character.

On the whole, however, the Court has abolished the double standard by nationalizing the Bill of Rights. The results have been mixed. More than ever justice tends to travel on leaden feet. Swift and certain punishment has always been about as effective a deterrent to crime as our criminal justice system can provide, and the prolongation of the criminal process from arrest to final appeal, which is one result of the incorporation doctrine, adds to the congestion of prosecutorial caseloads and court dockets. However, the fundamental problem is the staggering rise in the number of crimes committed, not the decisions of the Court. Even when the police used truncheons to beat suspects into confessions and searched and seized almost at will, they did not reduce the crime rate. In the long run a democratic society is probably hurt more by lawless conduct on the part of law-enforcement agencies than by the impediments of the incorporation doctrine. In the First Amendment field, the incorporation doctrine has few critics, however vigorously particular First Amendment decisions may be criticized.

Leonard W. Levy
(1986)

Bibliography

Abraham, Henry J. 1977 Freedom and the Court, 3rd ed. Pages 33–105. New York: Oxford University Press.

Cortner, Richard C. 1981 The Supreme Court and the Second Bill of Rights: The Fourteenth Amendment and the Nationalization of Civil Liberties. Madison: University of Wisconsin Press.

Friendly, Henry J. 1967 Benchmarks. Pages 235–265. Chicago: University of Chicago Press.

Henkin, Louis 1963 "Selective Incorporation" in the Fourteenth Amendment. Yale Law Journal 73:74–88.

North, Arthur A. 1966 The Supreme Court: Judicial Process and Judicial Politics. Pages 65–133. New York: Appleton-Century-Crofts.

INCORPORATION DOCTRINE

A constitutional doctrine whereby selected provisions of thebill of rightsare made applicable to the states through thedue process clauseof thefourteenth amendment.

The doctrine of selective incorporation, or simply the incorporation doctrine, makes the first ten amendments to the Constitution—known as the Bill of Rights—binding on the states. Through incorporation, state governments largely are held to the same standards as the federal government with regard to many constitutional rights, including the first amendment freedoms of speech, religion, and assembly, and the separation of church and state; the fourth amendment freedoms from unwarranted arrest and unreasonable searches and seizures; the fifth amendment privilege against self-incrimination; and the sixth amendment right to a speedy, fair, and public trial. Some provisions of the Bill of Rights—including the requirement of indictment by a grand jury (Sixth Amendment) and the right to a jury trial in civil cases (Seventh Amendment)—have not been applied to the states through the incorporation doctrine.

Until the early twentieth century, the Bill of Rights was interpreted as applying only to the federal government. In the 1833 case Barron ex rel. Tiernon v. Mayor of Baltimore, 32 U.S. (7 Pet.) 243, 8 L. Ed. 672, the Supreme Court expressly limited application of the Bill of Rights to the federal government. By the mid-nineteenth century, this view was being challenged. For example, Republicans who were opposed to southern state laws that made it a crime to speak and publish against slavery alleged that such laws violated First Amendment rights regarding freedom of speech and freedom of the press.

For a brief time following the ratification of the Fourteenth Amendment in 1868, it appeared that the Supreme Court might use the privileges and immunities clause of the Fourteenth Amendment to apply the Bill of Rights to the states. However, in the slaughter-house cases, 83 U.S. (16 Wall.) 36, 21 L. Ed. 394 (1873), the first significant Supreme Court ruling on the Fourteenth Amendment, the Court handed down an extremely limiting interpretation of that clause. The Court held that the clause created a distinction between rights associated with state citizenship and rights associated with U.S., or federal, citizenship. It concluded that the Fourteenth Amendment prohibited states from passing laws abridging the rights of U.S. citizen-ship (which, it implied, were few in number) but had no authority over laws abridging the rights of state citizenship. The effect of this ruling was to put much state legislation beyond the review of the Supreme Court.

Instead of applying the Bill of Rights as a whole to the states, as it might have done through the Privileges and Immunities Clause, the Supreme Court has gradually applied selected elements of the first ten amendments to the states through the Due Process Clause of the Fourteenth Amendment. This process, known as selective incorporation, began in earnest in the 1920s. In gitlow v. new york, 268 U.S. 652, 45 S. Ct. 625, 69 L. Ed. 1138 (1925), one of the earliest examples of the use of the incorporation doctrine, the Court held that the First Amendment protection of freedom of speech applied to the states through the Due Process Clause. By the late 1940s, many civil freedoms, including freedom of the press (near v. minnesota, 283 U.S. 697, 51 S. Ct. 625, 75 L. Ed. 1357 [1931]), had been incorporated into the Fourteenth Amendment, as had many of the rights that applied to defendants in criminal cases, including the right to representation by counsel in capital cases (powell v. alabama, 287 U.S. 45, 53 S. Ct. 55, 77 L. Ed. 158 [1931]). In 1937, the Court decided that some of the privileges and immunities of the Bill of Rights were so fundamental that states were required to abide by them through the Due Process Clause (Palko v. Connecticut, 302 U.S. 319, 58 S. Ct. 149, 82 L. Ed. 288).

In 1947, the Court rejected an argument that the Fifth Amendment's right against self-incrimination applied to the states through the Fourteenth Amendment (Adamson v. People of the State of California, 332 U.S. 46, 67 S. Ct. 1672, 91 L. Ed. 2d 1903 [1947]). However, in one of the most famous dissents in history, Justice hugo l. black argued that the Fourteenth Amendment incorporated all aspects of the Bill of Rights and applied them to the states. Justice felix frankfurter, who wrote a concurrence in Adamson, disagreed forcefully with Black, arguing that some rights guaranteed by the Fourteenth Amendment may overlap with the guarantees of the Bill of Rights, but are not based directly upon such rights. The Court was hesitant to apply the incorporation doctrine until 1962, when Frankfurter retired from the Court. Following his retirement, most provisions of the Bill of Rights were eventually incorporated to apply to the states.

further readings

Amar, Akhil Reed. 2002. "2000 Daniel J. Meador Lecture: Hugo Black and the Hall of Fame." Alabama Law Review 1221.

cross-references

Due Process of Law.

in·cor·po·rate • v. / inˈkôrpəˌrāt/ [tr.] 1. put or take in (something) as part of a whole; include: he has incorporated in his proposals a large number of measures territories that had been incorporated into the Japanese Empire. ∎  contain or include (something) as part of a whole: the guide incorporates all the recent changes in legislation. ∎  combine (ingredients) into one substance: add the cheeses and butter and process briefly to incorporate them.2. (often be incorporated) constitute (a company, city, or other organization) as a legal corporation.• adj. / -ˈkôrp(ə)rit/ archaic 1. another term for incorporated.2. poetic/lit. having a bodily form; embodied.DERIVATIVES: in·cor·po·ra·tion / -ˌkôrpəˈrāshən/ n.in·cor·po·ra·tor / -ˌrātər/ n.ORIGIN: late Middle English: from late Latin incorporat- ‘embodied,’ from the verb incorporare, from in- ‘into’ + Latin corporare ‘form into a body’ (from corpus, corpor- ‘body’).

incorporation The process whereby social groups, classes, and individuals are integrated into a larger social entity. This can be seen as being achieved either through the extension of rights and the subsequent exacting of obligations, as in citizenship communities, or through mechanisms such as social mobility, intermarriage, and urban desegregation. As with social closure, incorporation implies marginalized groups, élite-mass relations, and co-optation. The term has been widely employed in discussions about the allegedly revolutionary role of the proletariat, a historical mission which (it is claimed by some) has been frustrated by the incorporation of this class, via the mechanisms of the welfare state, political representation, home ownership, and more recently share ownership. See also CORPORATE SOCIETY.