What is the role and purpose of a corporation? Are corporations in the business of charitable contributions?

So you own some shares of a corporation.  They do business, they make money, and they spread around the profits as best they can to the shareholders.  Corporations can sue and be sued.  Corporations can make contracts for guaranty and suretyship.  Corporations can own real property, and can conduct business. That was the purpose of doing business in the first place.


So what happens when the business starts using its operating capital or excess profits to donate to charities or other causes instead of paying dividends to the shareholders?  That’s not to say that the charities or organizations aren’t worthwhile, and in need of funds to help their good causes going.  For discussion purposes of this article, what happens when Mr. Scrooge doesn’t agree with those decisions? He would rather that each of the shareholders individually choose to donate their own money to their own charity or special organization, instead of being forced into donating to one person’s organization of choice.  Mr. Scrooge might be thinking to himself that the purpose of the business in the first place was to make money for the shareholders, not to spread the wealth around to everyone with a hand out.  What recourse does Mr. Scrooge have?


Unfortunately for him, not much recourse at all.  There have been many who have tried to sue the charity minded corporations or their officers, but to no avail.  States have recognized that corporations can have a great deal of influence for good in their communities and have tried to encourage charitably giving through their respective Corporations Code.


Delaware, whose code is the foundation for a good number of fortune five hundred companies, states that “Every corporation created under this chapter shall have the power to make donations for the public welfare or for charitable, scientific or educational purposes, and in time of war or other national emergency in aid thereof.” Delaware General Corporation Law, § 122.


California gives corporations the power to “make donations, regardless of specific corporate benefit, for the public welfare or for community fund, hospital, charitable, educational scientific, civic or similar purposes.” California Corporations Code,  §207(e).


New York includes in the general powers of corporations, the power “to make donations, irrespective of corporate benefit, for the public welfare or for community fund, hospital, charitable, educational, scientific, civic or similar purposes, and in time of war or other national emergency in aid thereof.”


Pennsylvania provides that directors, as part of its rules on duties of directors, “may, in considering the best interests of the corporations,” consider the effects of their actions on “any or all groups affected by such actions, including shareholders, employees, suppliers, customers, and creditors of the corporation, and upon communities in which offices or other establishments of the corporation are located.” Pennsylvania Consolidated Statues, Title 15, § 102(d).


Thus, corporations are not only in the business of looking out for the interests of their shareholders, but also for the interests of the members of the communities around them.  Most businesses should be smart with how much money they give, because most business are limited to deducting only 10% of their taxable income for charitable contributions.  Internal Revenue Code of 1986, § 170(b)(2).


Thus, if this issue really concerns you.  Make sure that you invest in a company who’s charitable giving outlook is aligned with your own.   If you are going to start your own corporation and this issue bothers you, make sure that your attorney lays out specific processes and procedures for charitable contributions to be made by your corporation.  Contact your local counsel to make sure you make the right decisions for your corporation and your specific circumstances.


Photo By: Mira66