Corporate Death Penalty

As noted in Massey, Delaware does not charter lawbreakers. Lawbreaking business organizations may have their organizational documents revoked. This is typically done by the attorney general bringing an action for a judge to dissolve the entity. DGCL § 284 (for corporations); Del. LLC Act § 18-112(a) (for LLCs);  Cal Corp Code § 1801(a); Neb. Rev. Stat. § 21-2,197(a). This revocation is sometimes called the “corporate death penalty.”

This is a rare remedy and is used only if the organization's crimes are severe and continual.

For example, Delaware revoked the franchise of Backpages.com, which repeatedly advertised prostitution and child exploitation. Denn v. Backpage.com, 2018 WL 6136132 (Del.Ch.) (Nov. 2018) ("Having abandoned the responsibilities that come with status as Delaware limited liability companies, Defendants must be forever denied the rights and privileges that also come with that status, and their certificates of formation must therefore be canceled.").

The severity of the abuse varies by jurisdiction. A Nashville baseball club had its charter revoked by a trial court because it repeatedly played games on Sunday, in violation of local Sabbath laws. State ex rel. Pitts v. Nashville Baseball Club, 127 Tenn. 292 (1912). The Tennesse Supreme Court reversed, finding that this crime was too minor ("[If] violations do not authorize an indictment for a misdemeanor, certaily they could not authorize proceedings to forfeit the charter of this defendant."). Id.

In contrast, a medical school in Illinois lost its charter because it issued medical degrees to anyone willing to pay $25. Indep. Med. Coll. v. People, 182 Ill. 274, 277, 55 N.E. 345, 346 (1899). The court allowed the revocation without finding the college committed a crime.