The Neglected Benefits of the Corporate Form: Entity Status and the Separation of Asset Ownership from Control
This chapter criticizes current contractarian views of the firm in law and economics, reminding that the forgotten merit of the corporate form of enterprise is precisely the separation between individual investors/claimants and the firm as a juridical person and separate entity, that is not ‘owned’ by either investors, nor managers, nor any other participant in the enterprise. Furthermore, it is argued — and corroborated with historical evidence on the emergence of corporate law in the US and on the case of Singer — that shareholders themselves ‘are better off because they have, in the corporation, a mechanism for committing capital to an enterprise and yielding control rights to directors almost irrevocably’. In other terms, the separation of ownership and control, rather than being ‘a problem’ and in spite of entailing some costs, is the very virtue of the corporate form. The chapter concludes with a review of implications for devising effective institutions, especially in transition economies.
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