Order Code RS22230
August 25, 2005
CRS Report for Congress
Received through the CRS Web
Congressional or Federal Charters: Overview
and Current Issues
Kevin R. Kosar
Analyst in American National Government
Government and Finance Division
Summary
A congressional or federal charter is a federal statute that establishes a corporation.
Congress has issued charters since 1791, although most charters were issued after the
start of the 20th century. Congress has used charters to create a variety of corporate
entities, such as banks, government-sponsored enterprises, commercial corporations,
venture capital funds, and more. Recently, Congress has faced two issues involving its
use of charters — confusion over who is responsible for the activities of chartered
corporations and the challenges of managing them. This report will be updated if
relevant legislative action occurs.
What Is a Congressional or Federal Charter?
In the Anglo-American linguistic tradition, the word “charter” has been used to refer
to many legal writs, including “articles of agreement,” “founding legislation,” “contracts,”
“articles of incorporation,” and more.1 The varied uses of this term to refer to so many
different legal writs may reflect the term’s etymology. “Charter” is derived from the Latin
1 Examples follow. The articles of agreement among nation-states that set forth the objectives
and fundamental structures of the United Nations are referred to as a charter; see Charter of the
United Nations
at [http://www.un.org/aboutun/charter/]. A New York Times editorial noted, “The
C.I.A. charter, a federal statute, prohibits...”; editorial, “The Domestic Spying Trap,” New York
Times
, May 13, 2003, p. A30. “A charter is a contract between an organized group and a
state-authorized body...”; Jeanne Allen, “Chartering Success; The Schools for Students Who
Need It Most,” Washington Times, Sept. 16, 2002, p. A21. “The resolution calling for the board
to consider changing the way that members are elected .... If the board were to follow
shareholders’ recommendation ... shareholders would have to vote to approve a change to the
company’s charter”; Christine Frey, “Costco Shareholders Split on 2 Proposals,” Seattle Post-
Intelligencer
, Jan. 30, 2004, p. C1. The U.S. National Archives refers to the U.S. Constitution,
the Declaration of Independence, and the Bill of Rights as “the Charters of Freedom”; see
[http://www.archives.gov/national-archives-experience/charters/charters.html].
Congressional Research Service ˜ The Library of Congress

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“charta” or, perhaps, the ancient Greek “chartês,” both of which mean “paper.”2 As used
in federal statutory law, the term “charter” usually has carried a much more specific
meaning. A congressional or federal charter is a federal statute that establishes a
corporation
. Such charters typically provide the following characteristics for the
corporation:
(1) Name;
(2) Purpose(s);
(3) Duration of existence;
(4) Governance structure (e.g., executives, board members, etc.);
(5) Powers of the corporation;
(6) Federal oversight powers.
Beyond conferring the powers needed to achieve its statutorily assigned goal, a charter
usually provides a corporation with a set of standard operational powers: the power to sue
and be sued; to contract and be contracted with; to acquire, hold, and convey property;
and so forth.
Congress’s Use of Charters
Many of the original 13 colonies were established by royal charters, and both
colonies and states incorporated governmental and private entities before the United
States was established.3 Yet, at the Constitutional Convention in Philadelphia in 1787,
the Founders disagreed over the wisdom of giving the proposed federal government the
power to charter corporations.4 Nevertheless, Congress chartered its first corporation —
the Bank of the United States — in February of 1791 (1 Stat. 192 §3).5 Any dispute over
Congress’s power to charter corporations was effectively put to an end by the Supreme
Court’s decision in McCulloch v. Maryland in 1819 (17 U.S. (4 Wheat.) 315). The Court
2 On the etymology, see Oxford English Dictionary Online (Oxford, U.K.: Oxford University
Press, 2005) and Charlton T. Lewis and Charles Short, A Latin Dictionary (Oxford, U.K.: Oxford
University Press, 1879).
3 Ben Perley Poore, The Federal and State Constitutions, Colonial Charters, and Other Organic
Laws of the United States
(Washington: GPO, 1878); and Joseph S. Davis, Essays in the Earlier
History of American Corporations
(Cambridge: Harvard University Press, 1917).
4 The specific objections to federal incorporation are unclear. However, one author suggests that
some Founders may have feared that the power to grant charters might be used to establish or
convey exclusive privileges and monopolies to private businesses. Simeon E. Baldwin,
“American Business Corporations Before 1789,” The American Historical Review, vol. 8,no. 3,
Apr. 1903, pp. 464-465.
5 This was not the first congressionally chartered national bank in the United States. One of the
earliest acts of Congress (May 26, 1781) under the Articles of Confederation (which were ratified
March 1, 1781) was to charter a bank.

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ruled that incorporation could be a “necessary and proper” means for the federal
government to achieve the ends assigned to it by the U.S. Constitution.6
After chartering the national bank, though, for the next century, Congress issued
charters almost solely in its role as manager of the affairs of the District of Columbia
(Article I, §8, cl. 17). The District of Columbia, which became the seat of the federal
government in 1790, had neither a general incorporation law nor a legislature that could
grant charters. So it fell to Congress incorporate the District’s corporations. Thus,
Congress issued charters to establish the office of the mayor and the “Council of the City
of Washington” in 1802 (2 Stat. 195-197) and to found the Washington City Orphan
Asylum in 1828 (6 Stat. 381).7
In the 20th century, Congress began chartering a large number of corporations for
diverse purposes. In part, Congress’s resort to the corporate device was a response to a
host of national crises, such as the two World Wars (which required the production of an
enormous number of goods) and the Great Depression (which revealed the limited power
the federal government had over the national economy). Corporations, it was thought,
were by nature better suited than typical government agencies to handle policy areas that
required commercial-type activities (for example, selling electrical power, as the
Tennessee Valley Authority does).8
While each congressionally chartered corporation is unique in that it is fashioned for
a very particular purpose, these entities still may be sorted into rough types. An
elementary division is between those chartered as nonprofit corporations versus those that
are not.9 Table 1 provides a further — but not exhaustive — typology of congressionally
chartered corporations.
6 Thus, the power to incorporate, the Court ruled, lies with both of the sovereigns in the U.S.
federal system — states and the federal government.
7 For more information on early congressional charters, see Margaret Fennell, Corporations
Chartered by Special Act of Congress, 1791-1943
(Washington: Library of Congress, 1944).
8 U.S. Senate, Committee on Governmental Affairs, Managing the Public’s Business: Federal
Government Corporations,
by Ronald C. Moe, S.Prt. 104-18, 104th Cong., 1st sess. (Washington:
GPO, 1995).
9 While the term “not-for-profit corporation” may be more accurate than “nonprofit corporation”
— the former is defined in tax law, the latter is a colloquialism that, strictly read, denotes that
an entity is not bringing in more revenues than its expenditures — the latter is used because it is
the preferred term of the U.S. Code.

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Table 1: Types of Congressionally Chartered Corporations
Type
Purpose(s)
Examples
Nonprofit Corporations
Title 36 Corporations10
Fraternal and patriotic
Daughters of the American
organizations.
Revolution
Foundations, Trusts, and
Accept and expend
National Park Foundation,
Miscellaneous Corporations
government and private
National Trust for Historic
Supporting Nonprofit Uses
funds on goods and services
Preservation in the United
that may be under-provided
States, Legal Services
by the private market.
Corporation
Corporations
Banks
Provide financial services
Export-Import Bank,
and promote the health of
Federal Reserve Banks
the economy.
Commercial Corporations
Sell products and services.
Tennessee Valley
(also called “government
Authority
corporations”)11
Government-Sponsored
Add liquidity to secondary
Fannie Mae and Freddie
Enterprises12
loan markets
Mac
Public Authorities and
Interstate bond-issuing
Washington Metropolitan
Commissions13
entities that build and
Area Transit Authority,
operate transportation
Owensboro Bridge
systems.
Commission
Venture Capital Funds14
Invest in small firms to
Telecommunications
develop technologies and
Development Fund15
private firms.
10 These entities are referred to as “Title 36 corporations” because they are found in Title 36 of
the U.S. Code. CRS Report RL30340, Congressionally Chartered Nonprofit Organizations
(“Title 36 Corporations”): What They Are and How Congress Treats Them
, by Ronald C. Moe
and Kevin R. Kosar.
11 CRS Report RL30365, Federal Government Corporations: An Overview, by Ronald C. Moe
and Kevin R. Kosar.
12 CRS Report RS21663, Government Sponsored Enterprises (GSEs): An Institutional Overview,
by Kevin R. Kosar.
13 Jameson Doig, Empire on the Hudson: Entrepreneurial Vision and Political Power at the Port
of New York Authorit
y (New York: Columbia University Press, 2002).
14 CRS Report RL30533, The Quasi Government: Hybrid Organizations with Both Government
and Private Sector Legal Characteristics
, by Ronald C. Moe and Kevin R. Kosar.
15 In some instances, federal venture capital funds have been established without a charter. For
more information, see CRS Report RL30533, The Quasi Government: Hybrid Organizations with
Both Government and Private Sector Legal Characteristics.


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Current Issues
In recent years, Congress has faced issues regarding congressionally chartered
corporations. Primarily, these issues have centered on the questions of who is responsible
for the activities of these entities and the federal government’s power to manage the
corporations.
Responsibility for the Actions of Congressionally Chartered
Corporations. The awarding of a charter to an already existent fraternal or patriotic
organization is purely honorific. Unlike other congressional charters, a Title 36
corporation charter does not create a body corporate where one did not previously exist.
Yet, when a charter is awarded to such an entity, many members of the public perceive
this action as an expression of congressional support for all of the group’s activities.
Thus, for example, when the congressionally chartered American Gold Star Mothers
refused to admit to membership a non-U.S. citizen, some individuals and members of the
media called upon Congress to intervene and rectify this situation.16 Approximately 100
Title 36 corporations exist, which raises the potential for more requests for congressional
intervention in these groups’ activities.17
This issue is not limited to federally chartered fraternal groups. Many non-Title
36 corporations have been chartered which are neither clearly governmental nor private.
The lines of accountability for such an entity’s actions may be unclear. For example, the
nonprofit National Endowment for Democracy (NED), which was chartered to support
democratic movements and governments abroad, advertises itself as private.18 Yet, NED
regularly receives appropriations — $60 million for FY2005 alone (P.L. 108-447, Title
IV). Its board of directors includes many current and former members of the legislative
and executive branches. These features have prompted some to speak of NED as an
instrumentality of the federal government.19 The chartering of corporations that are not
16 Shawn Cohen, “Gold Star Denial of GI’s Mom Blasted,” May 27, 2005, p.1; and Peter
Applebome, “Some Mothers Are More Equal Than Others,” New York Times, June 1, 2005, p.
B1. Under its charter (36 U.S.C. 21104), American Gold Star Mothers, like many Title 36
corporations, was given considerable latitude to define its criteria for membership eligibility.
Rectifying this situation, then, would have required Congress to pass a law that rewrote this
organization’s charter so that it would expand its membership eligibility criteria. As it happened,
American Gold Star Mothers amended its constitution to permit non-U.S. citizen mothers to join.
17 Some of the more well-known ones include the American Legion, Big Brothers-Big Sisters of
America, Boy Scouts of America, Girl Scouts of the United States of America, National
Academy of Sciences, United Service Organizations, Inc. (commonly referred to as the U.S.O.),
and Veterans of Foreign Wars of the United States. In recent years, Congress has avoided
chartering new Title 36 corporations. On Title 36 corporations generally and for a list of all Title
36 corporations, see CRS Report RL30340, Congressionally Chartered Nonprofit Organizations
(“Title 36 Corporations”)
, pp. 15-17.
18 See website of NED [http://www.ned.org/about/about.html].
19 Juan Forero, “The Chavez Victory: A Blow to the Bush Administration’s Strategy in
Venezuela,” New York Times, Aug. 20, 2004, p. A1.

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clearly governmental or private has caused sufficient confusion that in some instances the
Supreme Court has been asked to intervene and make a determination of their status.20
Federal Management of Corporations. In centuries past, states and
municipalities often limited the duration of a charter; a corporation would expire unless
the sovereign renewed its charter. This “sunset and review” practice has fallen by the
wayside; usually, Congress charters entities to exist without temporal limits. Critics argue
that a cost of this practice is that it permits a corporation to continue to operate whether
or not it well serves the public. A corporation chartered to have “perpetual succession”
can be abolished only through enactment of a new law — which seldom occurs. Long-
living chartered entities have been accused of taking business from the private sector,
moving into areas of business or activities outside the bounds of their charters, and
developing networks of influence to protect themselves from abolition.21
The management of government corporations has been made difficult by a few
factors. First, no single federal department or office is charged with overseeing the
activities of federally chartered corporations. Second, some of these entities are
established within departments, whose secretaries oversee them (e.g., the St. Lawrence
Seaway Development Corporation in the Department of Transportation and the Federal
Financing Bank in the U.S. Department of the Treasury). Many, though, are established
independently of any department and have few, if any, federal appointees on their boards
or in their executive ranks. (This is especially the case with nonprofit corporations
chartered as “private” entities.) This separation of corporations from departments has
made the federal management of corporations more difficult.22 Finally, the Government
Corporation Control Act (31 U.S.C. 9101-10) provides many tools for managing chartered
corporations’ activities. Congress has excepted many corporations from some or all of
the act’s provisions.
20 In these instances, the Court found that the entities in question were, in fact, governmental,
despite the entities’ assertions to the contrary. Cherry Cotton Mills v. United States (327 U.S.
536 (1946)) and Michael A. Lebron v. National Railroad Passenger Corporation (513 U.S. 374
(1995)). For an analysis of entities that blend private and public sector attributes, see Ronald C.
Moe, “The Importance of Public Law: New and Old Paradigms of Government Management,”
in Phillip J. Cooper and Chester A. Newland, eds., Handbook of Public Law and Administration
(San Francisco: Jossey-Bass Publishers, 1997), pp. 41-57.
21 Richard Geddes, ed., Competing with the Government: Anticompetitive Behavior and Public
Enterprises
(Stanford, CA: Hoover Institution Press, 2004), pp. 1-58, 85-112. GSEs reportedly
used their government privileges to raise funds for nonmortgage investments. U.S. General
Accounting Office, Federal Oversight Need in Nonmortgage Investments, GAO/GGD-98-48
(Washington: GAO, 1998). On political influence, see Jonathan Koppell, The Politics of the
Quasi-Government
(Cambridge, UK: Cambridge University Press, 2003), pp. 103-118.
22 This is due to the exacerbation of the principal-agent problem. In public administration theory,
the principal-agent problem refers to the difficulty that the principal (in this case, the
government) has in knowing and, therefore, directing the activities of the agent (here, the
corporation). The more closely that a corporation is tethered to a department, the higher the
probability is that the department heads will have adequate information to direct the corporation’s
activities.