On Corporations and People

One of the favorite leftist arguments is the idea that corporations are supposedly absolutely distinct legal persons, not people, and that thus their freedom is far less valuable. While this reasoning seems superficially correct, I will try to show that it is mistaken.

Any undissolved corporation has ultimate owners who consciously stand behind it at any moment in time unless the corporation becomes insolvent, i.e. shareholders. Now it does not mean that each of potentially many shareholders agrees with all the decisions made on her behalf by either the majority of shareholders, or the management. But does the fact the shareholders agree to such an arrangement mean that they do not actually have property in the corporation and only have debt claims of some sort (which would mean that the corporation is absolutely legally distinct from its shareholders)?

Let us look at a non-corporate analogy. Suppose that I own a house and hire a guy to dye its walls and go to another place during the works. Does the fact that the guy who is dying the walls may draw swastikas on them against my wishes mean that I have ceased to be the owner of the house? Not at all. My property in the house involves my right to take risks with respect to the house. I would not want some third-party enforcer of property rights to ensure that every or most physical actions of  third persons with respect to my house is in strict compliance with my wishes at the particular moment. This would make my property in the house far less valuable to me. I would rather want third-party persons to act without my explicit request only in cases where they have very good reasons to believe that my property rights are being violated.

The same holds true for corporations and shareholders. The so-called legal personhood of  a corporation is not a restriction of the property rights (and ultimately freedom) of its shareholders. It is, rather, an integral part of such property/freedom. That the content of risks that a typical shareholder faces differs from the one faced by an owner of the house does not change the principle.

UPD: I should not have used the word ‘legal’ in the first sentence of this post which creates a wrong impression that I am denying the existence of certain legal rules governing corporations (e.g. the rule that the claims against the corporation may not generally be satisfied out of the property of its shareholders).


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