The Corporation

In response to a discussion of the modern corporation.

Let me clearly state what I am getting at. You have never met a corporation, seen a corporation, talked to a corporation or heard from a corporation. Corporations are pure fiction. But, some times fiction is a very useful thing. By creating the legal fiction that a person (the corporation) exists we can do some wonderful things. All of the employees and officers of an incorporated business are the agents of this fictional person. They act in the name of and on behalf of the fictional person. Since the only principle in the business is simply a legal fiction, corporations are run purely through agents.

This legal fiction provides limited liability. The actual owners of the corporation are the shareholders. But, they do not hold legal title to the property of the corporation. Legal title to all business property is held by the fictional person, in whom law requires that we all must believe. This legal fantasy is held responsible if something goes wrong. Thus, when someone sues a corporation they can only reach the assets of the corporation, i.e. the make-believe person is at fault. The shareholders cannot be held responsible. They did nothing wrong. It is the invisible corporation who did it. Because of this fiction, the plaintiff can not reach the personal assets of the shareholders. The shareholders liability is limited. They can lose what they invested, but nothing more.

This insulation from personal risk has caused people to willing invest much more into businesses. Think of how anxious you would be to purchase a share of stock if you knew that an angry customer could take away your house, car and bank account because you “own” the business.

Thus, the concept of using law to create a fictional person who can act only through his agents and who stands as a barrier between shareholders and an angry world protecting them from personal liability is one of the great ideas that has revolutionized the world over the last 200 years. Trillions and trillions of dollars in investment capital hang on our maintaining this legal fiction.

		February 9, 2007 *Mr. Corporation in the Land of Make Believe.*
	In response to a discussion of the modern corporation. Let me clearly state what I am getting at. You have never met a corporation, seen a corporation, talked to a corporation or heard from a corporation. Corporations are pure fiction. But, some times fiction is a very useful thing. By creating the legal fiction that a person (the corporation) exists we can do some wonderful things. All of the employees and officers of an incorporated business are the agents of this fictional person. They act in the name of and on behalf of the fictional person. Since the only principle in the business is simply a legal fiction, corporations are run purely through agents. This legal fiction provides limited liability. The actual owners of the corporation are the shareholders. But, they do not hold legal title to the property of the corporation. Legal title to all business property is held by the fictional person, in whom law requires that we all must believe. This legal fantasy is held responsible if something goes wrong. Thus, when someone sues a corporation they can only reach the assets of the corporation, i.e. the make-believe person is at fault. The shareholders cannot be held responsible. They did nothing wrong. It is the invisible corporation who did it. Because of this fiction, the plaintiff can not reach the personal assets of the shareholders. The shareholders liability is limited. They can lose what they invested, but nothing more. This insulation from personal risk has caused people to willing invest much more into businesses. Think of how anxious you would be to purchase a share of stock if you knew that an angry customer could take away your house, car and bank account because you “own” the business. Thus, the concept of using law to create a fictional person who can act only through his agents and who stands as a barrier between shareholders and an angry world protecting them from personal liability is one of the great ideas that has revolutionized the world over the last 200 years. Trillions and trillions of dollars in investment capital hang on our maintaining this legal fiction.