Personhood of Corporations

There is a growing movement opposed to the granting of person-based legal rights to corporations.

Discussion

Corporations as legal entities

Piet-Hein Van Eeghen:

"While it is common to list various typical corporate features, such as entity status, limited liability and perpetuity, there is really only one defining feature: entity status. Entity status means that certain legal rights and duties are held by the corporation as a separate, impersonal legal entity. In the case of the private business corporation, entity status implies that title to the firm’s assets is held by the corporation in its own right, separate from its shareholders. Illustrative of the fact that the corporate form of private enterprise deviates from traditional forms of private property, entity status renders the legal position of both corporate shareholders and managers (directors) awkward and ambiguous. As for corporate shareholders, they are commonly regarded as the owners of the corporation, but they are owners only in a limited sense. Shareholders do not have title to the assets of the corporate firm, but merely possess the right to appoint management and to receive dividends as and when these are declared; title to the firm’s assets reverts back to shareholders only when its corporate status is terminated. The lack of ownership rights over assets is illustrated by the fact that, in contrast to partners in an unincorporated partnership, corporate shareholders cannot lay claim to their share of the assets of the corporate firm nor do they have the right to force their co-partners to buy them out. Corporate shareholders can liquidate their investment only by selling their shares to third parties. In short, the ambiguity in the legal position of shareholders lies in the fact that, while certain traditional ownership rights rest with them (profit accrual and power to appoint agents to manage the firm for them), other traditional ownership rights are exercised by the corporation as a legal entity separate from them (title to the firm’s assets).

As for corporate management, their legal position is equally ambiguous. Managers are appointed by directors who are the representatives of shareholders. Ultimately, management is thus the agent for shareholders, managing the corporation as their representative. This, however, is only part of the picture. While management is the agent for shareholders in the sense of being ultimately appointed by and accountable to them, it is also the agent for the corporation itself. After all, in order to manage the corporation’s assets, management must legally represent the corporation as the titleholder to these assets. And because the corporation is an impersonal legal entity, agency for the corporation lends a significant degree of autonomy to the position of management, which is precisely why it has proved so difficult to make shareholder control over management more effective, despite the many legislative measures aimed at enhancing management accountability to shareholders. The significant degree of autonomy inherent in the legal position of corporate management was, of course, the main theme of Berle and Means’s (1932) seminal work on the corporation. To sum up, the position of management is ambiguous because management acts as agent for two principals, the shareholders and the corporation.

Other typical features of the corporation like limited liability and perpetuity are not independent, original attributes, but are derived from its entity status.

Shareholders possess limited liability because they do not own the corporation’s assets and are, consequently, also not liable for claims against these assets. Responsibility for corporate debt rests with the corporation in its own right rather than with them....

The corporate feature of perpetuity can also be traced back to the corporation’s entity status. It is because assets are owned by the corporation in its own right rather than by shareholders that the death or departure of shareholders does not affect its continued existence. While unincorporated partnerships need to be legally reconstituted each time partners leave, die, or are added, corporations continue irrespective of who holds their shares. The corporation’s entity status thus gives it a life independent of the life of its shareholders, which is the sense in which it is commonly said to possess perpetuity or immortality." (http://mutualist.blogspot.com/2006/04/corporate-personhood.html)

Source: Piet-Hein Van Eeghen in Journal of Libertarian Studies. Part I, "The Clash With Classical Liberal Values and the Negative Consequences for Capitalist Practice.

Liberal Objections

Kevin Carson (italic), continuing to cite Van Eeghen:

"Above all, Van Eeghen objects to the corporate form as illiberal because entity status gives the corporation statelike features:

Originally only state institutions (central, regional, and local government) possessed corporate status, which seems entirely natural and appropriate. If we wish to escape Louis XIV’s infamous dictum “l’état c’est moi" (“I am the state", which is the starkest, most chilling expression of state absolutism from which even ardent monarchists at the time recoiled, the state should indeed be given a legal entity separate from its officials. Only if such a separation exists can state power be vested in the office rather than the person; and only when state power is vested in the office can it be circumscribed by law. All this is the ABC of liberty and the rule of law. But if it is essential to the preservation of liberty and the rule of law that the state has a natural right to corporate status (entity status), it should equally be essential to the preservation of liberty and the rule of law that private individuals, when pursuing their own interests, are denied such a right and act in their personal capacity, which obviously does not exclude the possibility of private individuals acting as agents for each other....

ree incorporation for private business is objectionable from a liberal point of view because it grants a distinctive feature of the public sector, namely entity status, to private concerns without the accompanying restraints of democratic and legal control. As such, the private corporation constitutes an illegitimate mixing of the legitimate domains of the private and public sectors. If it is agreed that entity status is indeed a typical attribute of the state, then anarchocapitalists who advocate a stateless society have even more reason to oppose private firms taking on state-like attributes such as happens when they acquire corporate status.

Another objection is that the corporate form

contravenes the basic liberal (and common law) principle of personal responsibility..... Andrew Fraser... remarks in this vein: “Corporate law has been designed to facilitate a legalized flight from responsibility by those who nominally own the corporate system."

Corporate shareholdership is a licentious and irresponsible form of ownership because it is granted privileges of ownership (accrual of profits and the appointment of agent-managers) without carrying the obligations of ownership (payment for losses). If shareholders receive the full benefit of enterprise when things go well, why should they not also carry the full cost of enterprise when things turn awry?8 Similarly, corporate management is licentious because it enjoys the privileges of ownership (control over assets by virtue of being the agent for the corporation) without having to face the burdens of ownership (payment for acquisition or loss bearing) and without being accountable to natural persons who do carry the full extent of these burdens, as shareholders don’t do either. As already mentioned, insofar as management is accountable to shareholders, such accountability is difficult to make effective especially when shareholdership has become highly diluted.

It's also worth noting that the immortality that goes with corporate entity status was, in the past associated with illiberal concentrations of power. For example, the Church (whose precise legal status as a quasi-public agency varied from country to country) was able to accumulate property from one generation to the next without ever lacking an heir, which meant that the process of accumulation was never reversed. The mass of property accumulated in its "dead hand" ratcheted steadily upward over the generations, and became the source of ever-greater political influence. The statutes of mortmain ("dead hand") were specifically designed to counteract this process. In modern society, the immortal corporation becomes a comparable concentration of wealth and political influence." (http://mutualist.blogspot.com/2006/04/corporate-personhood.html)

More Information

Two activist organisations opposed to corporate personhood: For more information, see http://www.poclad.org/ and http://duhc.org/

Kevin Carson on 'Corporate Personhood', at http://mutualist.blogspot.com/2006/04/corporate-personhood.html

Key Books to Read

Unequal Protection, by Thom Hartmann.

The case for denying 'personhood' to corporations.