Hawaii Law to Strip Corporate Powers Faces Legal Challenge

The Hawaii Department of Attorney General once described a pending state law as an untested legal theory that uses a dangerous mechanism. The mechanism is the full revocation of all corporate powers within the state. The law, Act 11, was passed by the last legislature and is set to go into effect in July 2027.

The bill was designed as a workaround to the 2010 U.S. Supreme Court decision in Citizens United v. Federal Election Commission. That decision, cited as 558 U.S. 310, established rules for corporate spending in elections. Act 11 would prohibit corporations, LLCs, and other artificial entities from spending money or acting directly or indirectly to support or oppose any political candidate or ballot measure.

The state Attorney General’s office, which defends state laws in court, raised concerns before the bill was finalized. One agency comment stated the bill relies on a theory that collapses upon further examination. The theory holds that states can define corporate powers and strip the power to speak based on the content of that speech. This speech is otherwise protected by the First Amendment and the Citizens United ruling.

The legal team noted the approach would likely face strict scrutiny. The law removes speech related to elections and ballot initiatives from a corporation’s powers while permitting speech in other contexts. The agency called this a solution much more far-reaching than the problem of money expended in favor of or against candidates.

The law defines exceptions, including for bona fide news stories, commentary, or editorials distributed through broadcasting stations, print, online, or digital newspapers, magazines, blogs, or other periodicals. However, the bill uses the phrase directly or indirectly in its definitions. This phrase is open to interpretation by the enforcing agency.

A recent example involved Proposition 2, which relates to RISE Bonds. If the law were in effect, publishing views on that proposition could be considered ballot-issue activity. Unless the action fell within the news media exception, the organization could face sanctions. These sanctions include tax exemption revocation or involuntary corporate dissolution.

The Tax Foundation of Hawaii, a corporation, highlighted the risk. If they published an article on Proposition 2 while Act 11 was in effect, they could face draconian sanctions depending on the enforcing agency's mood. The foundation argued that when citizens form associations or corporations, the rules for speech should remain similar to those for ordinary citizens.

The bill follows a trend in the early era of Trump 2.0, where large law firms were targeted for punishment based on what they said, who they hired, or which clients they represented. Courts later struck down several executive orders that targeted these firms, vindicating their positions. However, some firms made substantial concessions to make the threats go away.

The law is now set for a legal challenge. The expectation among critics is that courts will evaluate whether the state can strip corporate powers based on the content of political speech. The outcome will determine if the revocation mechanism survives under the First Amendment.