The Corporation is Not a Nexus of Contracts. It's an iPhone

28 Pages Posted: 24 Oct 2016

Date Written: July 20, 2016

Abstract

A dominant view in the Coasean law-and-economics tradition is that the firm (including in its form as the corporation) is nothing but a nexus of contracts: the firm is entirely a matter of contract law, and the corporate entity, the legal fiction of corporate personhood, is nothing but a name for a bundle of contracts. This view has implication both for the theory of the firm and for the political economy of the corporation – for the question of the “rights” of corporate entities. By asserting that the corporation is nothing but a set of contractual arrangements, the nexus-of-contracts view implies that any rights possessed by contracting individuals “pass through” to the corporation itself. Unsurprisingly, the powerful phalanx of writers who wish to limit the rights of the corporation take square and largely exclusive aim at the nexus-of-contracts view, assuming that arguments against that view are necessarily arguments against all kinds of “bottom up” accounts of the corporate form. I will argue that critics of the nexus-of-contracts view are indeed right in one sense (though by no means in every sense). Yet, despite this, the fact that the corporation cannot be constructed solely out of voluntary contract narrowly understood does not destroy the argument that the corporation is ultimately “nothing but” a form of cooperation among rights-holding individuals. The corporation understood from the perspective of property rights is both an object of ownership and a form of ownership. Much of the confusion in the literature arises from a procrustean attempt to appraise the corporation in light of simplified and partial accounts of the rights involved.

Keywords: Legal Fiction, Corporation, Property Rights

JEL Classification: D23, K2, L2, L5

Suggested Citation

Langlois, Richard N., The Corporation is Not a Nexus of Contracts. It's an iPhone (July 20, 2016). Available at SSRN: https://ssrn.com/abstract=2856631 or http://dx.doi.org/10.2139/ssrn.2856631

Richard N. Langlois (Contact Author)

University of Connecticut ( email )

304 Oak Hall
Unit 1063
Storrs, CT 06269-1063
United States
860-486-3472 (Phone)
860-486-4463 (Fax)

HOME PAGE: http://langlois.uconn.edu/

Do you want regular updates from SSRN on Twitter?

Paper statistics

Downloads
368
Abstract Views
2,116
rank
111,934
PlumX Metrics