The Proprietary Foundations of Corporate Law

Abstract

Recent work in both the theory of the firm and of corporate law has called into question the appropriateness of analysing corporate law as 'merely' a set of standard form contracts. This article develops these ideas by focusing on property law's role in underpinning corporate enterprise. Rights to control assets are a significant mechanism of governance in the firm. Practical circumstances dictate that such rights must be shared. Property law protects the rights of co-owners against each other's opportunistic attempts to grant entitlements to third parties. At the same time, it uses a range of strategies to minimise the costs such protection imposes on third parties. The choice of strategy significantly affects co-owners' freedom to customise their control-sharing arrangements. This theory is applied to give an account of the 'proprietary foundations' of corporate law, which has significant implications for the way in which the subject's functions are understood and evaluated.

Keywords: theory of corporate law, shared ownership, property rights

JEL Classification: D23, G34, K11, K22