Corporations are a great way to be profitable. Operating businesses in collaboration with other individuals assists in the efficient management of resources. To such associations, the law confers a corporate personality to the company independent of its owners. Predominantly, State law defines regulations for such corporations. However, federal law also lays specific dimensions for compliance.
The corporate personality offers immunity to the management against liability and responsibility against specific actions of the company. It is a settled legal principle that a corporation cannot commit treason or felony. However, some acts continue to inflict criminal liability upon the corporation for acts of the individual members. A violation under the Federal Food, Drug, and Cosmetic Act of 1938 is a prime example where the criminal liability extends to the corporation and not just the individuals.
Such exception assists in holding culprits liable and setting an example according to the deterrent theory of law to prevent future occurrences of similar events. The principle is better known as “respondeat superior” and is essentially a common law notion, though it finds its origin in American history.
The principle strives to put forth the notion that the employer must answer for the employee’s acts since the subordinates have limited economic capacity and the employer holds the authority to control their actions. This doctrine finds its place in the American legal system as a rule of public policy.
The Hon’ble Supreme Court of the United States first applied the principle of respondeat superior for imposing corporate criminal liability in case of intentional crimes in the decision of New York Central & Hudson River Railroad v. United States (212 US 481, 1909). The principle, over the years, has evolved to distinguish the difference between civil and criminal liability of corporations in case of the presence of the element of intent or unlawful purpose. However, critiques point that tortious liability suits primarily compensate one party for the damage caused by another, and intent does not play a role in such scenarios. The principle, nonetheless, continues to apply because intent, deterrence, and prevention are key role players in a criminal case. It may be true that the principle is well-suited to tort; it is an aversion to the criminal law.
Corporate Criminal Liability
Scope of Authority
Under federal law, corporate criminal liability finds a place in cases wherein the corporation’s officers, employees, or agents indulge in criminal acts during their employment, primarily for some benefit of the corporation.
A practical test to determine whether an activity is liable for prosecution is whether the individual representing the corporation engages in activities during his employment with motivation to benefit the corporation. If the answer is affirmative, the law imposes corporate criminal liability upon the entity, regardless of any warnings or caution issued by the corporation to the employees.
On the other hand, states follow the Model Penal Code, which embodies principles on corporate criminal liability. Following acts are generally liable for prosecution under the state law:
Misconduct by the top management or its members.
Misconduct by employees.
However, in the latter case, it is not sufficient to prosecute the employees if the actions were within the scope of authority and intended to benefit the corporation.
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