The Nature of the Business Corporation: Its Legal Structure and Economic Functions

31 Pages Posted: 12 May 2003

See all articles by Katsuhito Iwai

Katsuhito Iwai

The Japan Academy; The University of Tokyo; International Christian University


Between a classical firm and a business corporation lies a fundamental difference in legal structure. While the first consists of a single ownership relation between owners and assets, the second consists of two overlapping ownership relations - between shareholders and the corporation, and between the corporation and corporate assets. The latter legal relation is indirect and exists only through the intermediary of the corporation that performs the dual role of a thing and a person. This paper shows how such two-tier ownership structure of the business corporation fundamentally affects the form of its organization, the ways and means of its governance and the efficiency of its performances.

JEL Classification: D23, G30, K00, K22, L20

Suggested Citation

Iwai, Katsuhito, The Nature of the Business Corporation: Its Legal Structure and Economic Functions. Japanese Economic Review, Vol. 53, pp. 243-273, 2002. Available at SSRN:

Katsuhito Iwai (Contact Author)

The Japan Academy ( email )

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The University of Tokyo ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033

International Christian University ( email )

3-10-2 Osawa
Tokyo 181-8585
Mitaka-shi, Tokyo 181-8585
81333136235 (Phone)

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