The Corporation as a Nexus of Property

Abstract

The study of property is thriving. Having been long dominated by a disintegrative approach building on the bundle of rights concept, property scholarship is reintroducing essentialist models, with the right to exclude featuring prominently as property’s core.

While the new essentialism school studies various resources, from land to intellectual property, largely missing from its accounts is the most prominent source of wealth: the business corporation. Whereas corporate law theory is increasingly looking beyond the “nexus of contracts” model to illuminate the firm’s proprietary foundations, property theory has yet to fit the business corporation into its newly integrative framework.

The Article argues that this deficiency is not merely a coincidence. In many ways, the business corporation undermines the paradigms of current property theory. To start with, the underlying notion of divorce of ownership from control in the business corporation seems antagonistic to the owner’s right to exclude in property. In addition, while property theory recognizes the need to pool together resources and overcome collective action problems, conventional models of property governance, such as residential community associations, seem alienated from the power relations and vertical authority within the business firm. Specifically, the setting of a majority shareholder enjoying a control premium alongside owing fiduciary duties to dispersed minority shareholders is allegedly at odds with the horizontal governance assumption in contemporary property paradigms.

This dissonance does not release, however, property theory from accounting for the core features of the business corporation. Moreover, the Article argues that once we move from a model of substantive essentialism to one that identifies the institutional and structural traits of property, then the corporation becomes a much better fit for property theory. This shift sets the ground for reconceptualizing the firm as a “nexus of property.”

Keywords: corporations, property, nexus of contracts, hierarchy, markets, control, bundle of rights, new institutional economics

JEL Classification: D23, K11, L22