Shareholder Ownership and Primacy

Abstract

According to the traditional view, the shareholders own the corporation. Until relatively recently, this view enjoyed general acceptance. Today, however, there seems to be substantial agreement among legal scholars and others in the academy that shareholders do not own corporations. In fact, the claim that shareholders do own corporations often is dismissed as merely a “theory,” a “naked assertion,” or even a “myth.” And yet, outside of the academy, views on the corporation remain quite traditional. Most people - not just the public and the media, but also politicians, and even bureaucrats and the courts - seem to believe that the shareholders do, in fact, own corporations.

Why this disconnect? I believe that contemporary scholarship has done a better job of critiquing shareholder ownership than of disproving it. In this Article, I provide a defense of the traditional view by evaluating many of the arguments commonly raised against shareholder ownership and showing how they fall short. I then explain why the issue matters. As a theoretical matter, the issue of ownership is necessary to a proper understanding of the nature of the corporation and corporate law. As a practical matter, it is an important consideration in the allocation of rights in the corporation: if shareholders are owners, then the balance of rights will tip more heavily in their favor, and against others, than if they are not. Ownership may not settle any specific question of corporate governance, but it will make a significant difference in the analysis. Because the issue of ownership has the potential to shape all of corporate law and direct the very purpose of corporations, it is of utmost importance.

Keywords: corporate governance, shareholder rights, shareholder primacy, ownership, traditional view

JEL Classification: K22