Reconceptualizing the Theory of the Firm – From Nature to Function
University College London - Faculty of Laws
October 26, 2013
118 Penn State Law Review 1 (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.
Number of Pages in PDF File: 53
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
Date posted: March 1, 2013 ; Last revised: November 25, 2013