Integrating Economic and Organization Theory
Edited by Anna Grandori
Chapter 23: The four functions of corporate personhood
In this chapter I argue that the legal device of creating separate juridical ‘persons’ for certain business activities serves at least four functions that became especially important to business organizers during and after the industrial revolution, and that those functions are still important to most large, publicly traded corporations. These are, first, providing continuity, and a clear line of succession in the holding of property and the carrying out of contracts. Second, providing an ‘identifiable persona’ to serve as a central actor in carrying out the business activity. Employees and investors in the enterprise, as well as customers of the enterprise, recognize and perhaps identify with this persona, which serves as the bearer of important intangible assets such as goodwill, reputation and brand. This persona is the counterparty to all contracts that the corporation enters into with its various participants (employees, customers, suppliers, and investors), and can sue and be sued in its own name. Third, providing a mechanism for separating pools of assets according to which assets are dedicated to the business, and which assets are the personal assets of the human persons who are participating in the business. The ability to partition assets in this way makes it easier to commit specialized assets to an enterprise, and lock those assets in so that they remain committed to the enterprise and can realize their full value (Blair 2003; Hansmann & Kraakman 2000).
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