I had some initial thoughts on today’s Hobby Lobby decision by the Supreme Court.

The most prominent of these thoughts was this: If business owners want to opt out of certain laws for religious reasons, they should be required to file as sole proprietorships (vs. corporations).

After reading more about the decision, I find that there’s really nothing in it I care to comment about, nothing that I have strong opinions on. But I will talk specifically about the thinking behind my comment above.

First of all let’s talk about corporations vs. sole proprietorships.

“Corporations”, are, of course, a legal invention. In an ordinary world, I’m responsible for my own stuff, my own dealings with people, and my own actions. When I die, the stuff gets divvied up and becomes someone else’s problem/responsibility. A business run this way is known as a sole proprietorship.

At some point we decided that there might be some benefits to treating a business as separate from its owners. So we invented corporations. Now, instead of being directly responsible for my own stuff, and dealings with people, I can create a stack of papers (a “corporation”) that says that these things are now ultimately not my problem:

  • The business’s stuff is now owned by the corporation, not by me
  • I’m not personally liable for whatever bad happens. If someone sues the corporation, my personal assets can’t be used to satisfy any judgments against it.

Of course, a big feature of corporations is that they allow for multiple part-owners. But it’s important to remember: all of this still holds true even if I’m the only shareholder. Note that in this case there’s no actual difference in the way I run the business. It’s still me running it, controlling the assets, hiring and firing employees. The only difference is the presence or absence of corporate documents. Without them, I’m ultimately personally responsible for all of this stuff; but with them, I’m not.

Obviously in order to invent something that’s not “real” (corporations), the government has to commit to making and enforcing a lot of additional rules. We’re OK with that because there are economic benefits that flow from allowing businesses to exist in perpetuity, be owned by multiple shareholders, shielding owners from personal liability and so forth. And we’ve gotten used to those benefits.

But it’s not a free lunch for the government or the public either, because there are also big problems that come with the existence of corporations. For example, without additional regulation, corporations would have an incentive to lie about their own financial health, inflating their value until the whole thing evaporates, causing massive losses for shareholders. Corporations in many markets would also have both the capability and the incentive to merge with each other until competition becomes effectively impossible.

So not only does government have to invent and uphold the rules allowing for the existence of corporations themselves, it also has to invent and enforce all kinds of extra regulation (securities law, anti-trust law, labor law, etc.) to limit the downsides of corporations.

In the example of my own hypothetical business: if I decide to create a corporate entity for it instead of running it as a sole proprietorship, the government basically says: “OK, you can have limited personal liability, and the business can exist in perpetuity. But in exchange for all the hassle you’re causing us, we’re going to tax you differently, especially if the business grows to any significant size.” So the government and I make this tradeoff, and we agree that there’s now this new legal thing “Joel, Inc.”, that’s not me, that owns the business’s stuff, and that takes the hit for any business liabilities.

So now finally getting back to the Hobby Lobby case. If congress enacts some law that applies to all corporations but that also genuinely bothers me in my heart of hearts (i.e., I would feel complicit in some moral evil if I followed it), what might I do?

If I were like the owners of Hobby Lobby, I would say, “this law violates my corporation’s conscience.” — Not my conscience, but the corporation’s. Because remember, the business is now this separate legal being that shields me from liability.

My big question, and the question many others have had, is this: what exactly does it mean for an abstract legal entity to have a conscience? Especially when that legal fiction’s main purpose is shield individual business owners from personal responsibility?

Remember, this corporation’s existence as a corporation is enabled solely by government regulation and intervention in the market. Without this regulation, there are no corporations, and business owners go back to being personally responsible for their business’s practices.

All of the above seems to me more or less incontrovertible.

Now, my personal opinion is that a corporation, being an abstract thing we all imagine based on documents and legal agreements, cannot really be said to have a conscience. People have consciences (and those need to be respected), but corporations do not.

My further opinion is that if you feel a deep need to exempt your business from certain laws based on the dictates of your conscience, you should be able to do so.

But if you’re going to claim that your conscience makes you so personally responsible for some detail of your business that a law should not apply to it, you also make yourself personally responsible for every aspect of your business: you should run it as a sole proprietor (or as a general partnership).

In other words, if you’re going to create a faceless legal being that shields you from personal responsibility in every other area of the company’s operation, it’s not reasonable to claim that the dictates of your conscience somehow pierce through that shield in any one specific area.

So much for my opinion. The legal reality in this country is that Congress (via the Religious Freedom Restoration Act ) and the Supreme Court (in this and other decisions) have effectively decided that legal abstractions like corporations can have consciences too.

The main effect of this is simply to make room for the kind of hypocrisy I outlined above, and which we see in the owners of Hobby Lobby. Again: Hobby Lobby’s owners make use of a corporate business structure in large measure to be able to legally disclaim personal responsibility in just about every area of their business, but have decided a certain law ought not to apply to them because of their personal responsibility.

At this point, Hobby Lobby’s owners don’t legally have to do anything differently. But if they wanted to follow their consciences without being schmucks and hypocrites, they would dismantle their corporate structure and instead operate in a way that legally does make them personally responsible — and liable — for every area of their business.

In my ideal world (or at least, my idea of a better world than the one we have), the RFRA would have been clearly written apply to individuals and not to abstract legal entities.

The legal system should allow for business owners to follow their consciences, but should not allow them to use this freedom to exempt themselves from certain laws while at the same time using a government-subsidized legal invention to shield them from all other personal responsibility.

Jacob Levy made much the same argument (via Joe Martin):

Corporations are persons; the creation of a distinct artificial legal person is and always has been the meaning and the point of the corporate form. …The judgment today maintains that a closely-held corporation like Hobby Lobby is so close to the natural persons behind it that it’s not really a distinct corporate person at all; it’s just a costume that the Green family puts on and takes off as it suits them.

…But the entity that is Hobby Lobby, a for-profit corporation like IBM, can’t be described as itself having a religious belief. Making sense of that idea requires making the corporate person disappear from the description and talking about the Green family, treating the “closely held” corporation as if it were a partnership or sole proprietorship that doesn’t have a corporate-style separateness from the natural persons. Try as I might, I can’t persuade myself that that’s right.

Joel (Author) ·