A Corporation Is NOT a Legal Fiction

A “corporation” is an artificial creation of the “legal system”, its a non-existent entity, it’s a fiction. It can’t “do” stuff — it can’t control, nor help anybody. It’s the men and women who “do” stuff, in the “name” of the corporation.

An argument similar to anarchist arguments against the state.

So what’s the problem with the corporation argument? At first glance, we might incline to agree: only individuals act, a corporation is not an individual, therefore corporations don’t act – they don’t do anything. Corporations are made up of people, and only those can be said to act, not the corporations themselves.

But…

Consider this case:

We have individuals A, B, C. These decide voluntarilly to pool some capital (money, goods, ideas) in order to be of benefit to them. This pool can also be called “corporation” or “company.”

Also, A, B and C elect another person: D, who will decide the day-to-day matters of the company (we will call him the CEO). So far, we see no problem, all matters are decided voluntarily.

Now, A, B and C might decide to put some of their control of the company into shares, which they could sell to someone else. Thus, they can get back some money early in the game, and also have additional capital for investments. So we have an entire range of people: S1, S2, …, whom we will call “shareholders.” It can also happen that A, B and C have sold off all their shares and the company resides entirely in public hands. This still does not change the voluntary nature of the company.

By investing their capital in the company, A, B, C, as well as the Ses are making voluntary decisions. We cannot say that an artificial creation has emerged that acts on its own self. All “actions” of corporations can be traced down to invidiual actions and choices.

Equally, an individual has the choice of wether or not to engage in relationships with the corporation (either as an employee, shareholder or customer).

So we can conclude that corporations are indeed not legal fictions. They are groups of individuals acting together towards common goals.

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8 comments so far

  1. Gabriel M. on

    Who is acting? Shareholders as such don’t act.
    Owning shares entitles you to dividents and a vote if/when a general assembly is called. But that’s about it.

    Most of the contemporary law regarding liability is design to allow for a certain degree of risk-taking. Making management completely responsible would make corporations more careful but also more risk-averse.

    The role of the notion or corporation, any organisation in fact, is not to provide a subject for propositions such as “X does so and so.” but rather to represent a set of rules, the ways in which the individuals in questions interact.

    As any institution, the corporations appears most likely for efficiency reasons (easier ownership and transfer of capital) and it enjoys different legal treatments in different communities (not that different in this case): i.e. legal personhood in the US.

    So, “corporation” is neither a legal fiction nor the group as such. It’s an institution: a set of rules, practices, legal treatment, etc.

  2. aaronkinney on

    In the same vein, couldnt a government also be considered an entity that is created and directed by individuals working toward common goals (in this case, coercion and control of other people)?

  3. adi11235 on

    Who is acting? Shareholders as such don’t act.
    Owning shares entitles you to dividents and a vote if/when a general assembly is called. But that’s about it.

    Buying, selling shares and voting is action.

    My point is that a company or corporation can be said to act, but all action can be traced back to individual decisions and actions. Which should clear up some misconceptions in the anarchist side regarding the topic. It’s not wrong to say the term “corporation” originated from the state (the granting of monopoly privileges), but the structure in itself as it is today is can be covered completely with voluntary contracts.

    Neither is it wrong, nor opposite to my point to say that the corporation (the charter at least) to be a set of organizational rules.

  4. Craig Ewert on

    A corporation isn’t a legal fiction. It is a legal construction; there are laws about various kinds of corporations and how they must be constructed, and what they may and may not do.

    The legal fiction you may be thinking of is that a corporation is a person. Even though everyone knows that a corporation isn’t a person, some parts of the law treat a corporation like a person, just for convenience.

  5. kabababrubarta on

    Cool! kabababrubarta

  6. Samuel L. on

    Not that I’m impressed a lot, but this is more than I expected when I found a link on Delicious telling that the info here is quite decent. Thanks.

  7. WorBlux on

    So then someone in the “corporation” commits a tort, does A, B ,C and D as well as any shareholder each need to hire legal counsel? Or will a single counsel be retained in the name of the aggregate.?

    It’s reasonable to assume a customary legal system might just use the legal fiction of the aggregate to simplify proceedings.

    The problem is not so much in the legal fiction per se, but that it is used to get rid of the consequences of facts (the reponsiblity of A, B, C and sometimes even D for the mistakes and failures of the aggregate)

  8. MoS on

    Has anyone here even the slightest legal education? Do you grasp the history of corporate personhood, how and why it was created? You’re all talking utter rubbish.


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