Reconceptualizing the Theory of the Firm – From Nature to Function

53 Pages Posted: 1 Mar 2013 Last revised: 25 Nov 2013

See all articles by Martin Petrin

Martin Petrin

University College London - Faculty of Laws; Western University

Date Written: October 26, 2013


What is the “firm”? This Article revisits and explores the theory of the firm and corporate personhood and shows how the century old discourse in this area still firmly shapes how scholars, judges, and legislatures treat legal entities in corporate law, constitutional law, tort law, and criminal law, causing unnecessary complications and flawed outcomes.

Traditionally, the firm is characterized as either a real entity, a fiction, or an aggregate. Conversely, the Article proposes a novel answer to the perennial question as to how to conceptualize the firm. The new approach refocuses the debate away from the nature of the firm and contends that explanations of the firm should focus on its economic and social function, purpose, and effects. It also argues that compared to current approaches, a purely functional approach, as developed in more detail in the Article, provides a more useful analytical framework to ascertain what rights and duties corporations and other legal entities should have.

Keywords: Theory of the Firm, Legal Entity, Real Entity, Fiction Theory, Aggregate Theory, Nexus of Contracts, First Amendment, Corporate Rights

JEL Classification: K00, K13, K14, K22

Suggested Citation

Petrin, Martin, Reconceptualizing the Theory of the Firm – From Nature to Function (October 26, 2013). 118 Penn State Law Review 1 (2013), Available at SSRN: or

Martin Petrin (Contact Author)

University College London - Faculty of Laws ( email )

Western University ( email )

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