Archive for the ‘Legal fictions’ Category

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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