In general, the power to create and regulate private corporations is in the state governments and not in the federal government. It is a branch of the general police power, that is, the power to legislate as to the relation of individuals to each other. As already indicated in the preceding section, this authority is incident to the general legislative power without further specification, and is exercised by the legislative department by virtue of provisions in a state constitution for the creation of a legislative department. There are limitations on the power of the state in this respect, found in the provisions of the federal constitution that no state shall impair the obligation of contracts (Art. I, § 10, ¶ 1); and that no state shall deprive any person of life, liberty, or property without due process of law, nor deny to any person within its jurisdiction the equal protection of the laws (Amend. XIV, § 1).

The importance of the provisions as to the impairing of the obligation of contracts grows out of the fact that the privilege which is granted by the state to a private corporation, whether it be for pecuniary purposes or for purposes not pecuniary, is considered to be granted as the result of a contract between the state and the corporation, and therefore any impairment or restriction of the powers of such a corporation ( Trustees of Dartmouth College v. Woodward) otherwise than as the right to do so may have been reserved by the state at the time of its creation (either by special provision in the charter or by general provision in the constitution or statutes in the state) would be an impairment of the contract with the state (see below, § 269). The provisions as to due process of law and equal protection of the laws are applicable to private corporations, which are deemed persons within the language of those clauses of the constitution, although they are artificial and not natural persons; a private corporation is in this sense a person, although it is not a citizen. (See below, § 259.)

One further distinction must here be made relating to the government control of private corporations. With reference to their property and business they are subject to the same supervision under the police power as private individuals. But so far as their business is public in its nature, such as the carriage of goods and passengers for hire, the supply of water, gas, electric light, and other public utilities, or the operation of pipe lines for the transmission of oil or gas, or of warehouses, telegraphs, and telephones, they are peculiarly subject to the police regulation as to rates. (Munn v. Illinois. See also above, § 48.)