Corporations Do Matter in Private Law Theory
Corporations are neglected in private law theory. As we argue in ‘The Corporation as a Category in Private Law’, this is unfortunate. Corporations are objects of both private and public law, with important implications across multiple fields. Our chapter—forthcoming in the Research Handbook on Private Law Theories—focuses on clarifying core juridical features of the corporate form, the categorization functions and effects of incorporation, and the ways in which corporations complicate the structure and operation of liability rules in private law. This chapter builds on arguments developed by one of us (Miller) in another piece, ‘Corporations’, forthcoming in Andrew Gold et al (eds), The Oxford Handbook of the New Private Law (OUP).
Our joint chapter argues that, taken in the most abstract terms, the corporation should be understood as a distinctive kind of legal actor for private law purposes (including tort, contract, property, and fiduciary law). Recognition that the corporation is a distinctive kind of legal actor is important, not least because the unique qualities of the legal agency of corporations have implications for private law extending well beyond corporate law and allied fields. Fundamental private law—including tort law or contract law—must, and does, make significant accommodations for the distinctive features of corporations.
Consistent with our argument that the corporate form is a form or kind of actor, we argue that the corporate form is a compound structure that blends fundamental private law and sui generis corporate law. The corporate form implicates several juridically fundamental features: personality, agency, purpose, and fiduciary duties. It has other important features, but these are contingent. For example, the corporation is often a form of organization, but it need not be (think of one-person corporations). Similarly, a corporation may feature enfranchised shareholders, but it need not (think of incorporated offices, governments, and governmental agencies).
We separate the categorization functions of the corporate form into internal and external functions. Internal functions concern the relationships between constituents and the firm. For example, the personification of corporations means that corporate property is owned by the firm itself, and not by the shareholders or other constituents. External functions implicate the systemic impact of the corporate form on private law, including the content and operation of principles of substantive, remedial, and procedural law. Notable are the ways in which private law adjusts for the exigencies of the corporate form in enabling and regulating relationships between corporations and third parties. For example, contract law combines with agency in enabling an inert principal (the corporation) to avail itself of agents in entering into binding agreements with third parties.
Tort law, contract, and agency law make other accommodations for the corporate form. A leading example is through asset partitioning (including limited liability). The unique procedural features of derivative litigation are another example. Agency law also makes adjustments, as where an agent’s knowledge is attributed to a corporate principal. In some cases, this may lead to corporate liability for fraud even where no human being has the knowledge required for scienter. Accessory liability is similarly affected, as when a third party assists directors in breaches of fiduciary duties that they owe to the corporation.
Equity’s responses to the corporate form are among the most striking. Veil piercing doctrine enables exceptional disregard of the independent legal personality of corporations where there is evidence of abuse of the corporate form. The oppression remedy is another example, discussed by one of us (Miller) here. The oppression remedy is primarily concerned with protecting the reasonable expectations of shareholders in circumstances where those expectations are not, and could not have been, adequately protected at law. When engaging in discretionary ex post review of conduct that grounds a complaint in oppression, courts use proxies for mischief of the sort that typically attract equitable intervention (eg, opportunism) but adjust intervention and remedial orders in response to prevailing law, including rules relating to corporate personhood, purpose, agency, and fiduciary duties.
The chapter concludes by identifying some implications for private law theory. Corrective justice theories are widely influential in private law theory, yet they generally ignore corporations and corporate personality. Some corrective justice theories—notably Kantian theories—will have difficulty accommodating corporations because they are premised on a narrow conception of personality that cannot readily be extended to artificial persons. Civil recourse theories also face challenges, albeit of a different sort. For example, some of these theories must explain the moral basis of a corporation’s standing to demand accountability in recognition that, at least from a social and political point of view, corporations are not the equals of natural persons.
In sum, private law theory needs to recognize the import of corporations and the core elements of the corporate form. Deliberate engagement with the conceptual and normative problems presented by bringing corporations more fulsomely within general private law theory is important if theorists are to prove faithful to interpretation of law from an internal point of view.
Andrew S. Gold is Professor of Law at Brooklyn Law School.
Paul B. Miller is Professor of Law and Associate Dean for International & Graduate Programs at Notre Dame Law School.
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