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An Introduction to the Law of Corporations: Cases and Materials, Fall 2017

THEODORA HOLDING CORPORATION, Plaintiff, v. Girard B. HENDERSON, Bengt Ljunggren and Alexander Dawson, Inc., Defendants.

Headnote

Theodora deals with the issue of corporate charity.  Until the post-War period, there was some question whether a corporation had the power to make donations to charity. On the one hand, there were those who felt that a board's sole duty was to  maximize profits for stockholders and that absent express authority to make corporate charitable contributions in the corporation's certificate of incorporation, that a board does not have the authority to make such contributions. On the other hand, there were those who recognized corporations had – even back to the pre-enabling laws period – a broader social role beyond maximizing profit for stockholders in the short run.

Eventually, states legislatures put this question to rest by amending their corporate statutes to recognize the power of boards to make charitable corporate gifts. A series of court cases, including Theodora, reinforced the importance of corporate charitable contributions and the role of corporate chartitable contributions in the corporate social compact.

The power of a corporation to make charitable contributions is not unlimited, however. Theodora and AP Smith, cited in Theodora, hint at the limits to corporate largesse.