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Fixing the misalignment of the concession of corporate legal personality
Published online by Cambridge University Press: 10 January 2023
Abstract
The nature of separate legal personality is a perennial debate in corporate law. This paper uses insights from a previous iteration of the debate to argue that separate legal personality is best seen as a two-step process: it is a concession from the state to something real. That real thing is the economic concept of the firm, which has been recently debated within institutional economics. Viewing separate legal personality as a two-step process lets us explore whether the concession of separate legal personality is operating as it should. Law imposes no prerequisite requirement that a firm exists before establishing a company, nor limits firms to only one company. Law thus facilitates misalignments between the firm and the company. Such misalignments will only occur if two constituencies within the company structure – the ultimate shareholders and directors – consider it in their interests to create such misalignment. As a result, these misalignments harm third parties by allowing risk to be exported to them through opportunistic misalignment. This paper then explores the methods of misalignment and reviews current legal tools which are available to be deployed to re-align the company to the firm, and argues that they should be deployed.
Keywords
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- Research Article
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- Copyright © The Author(s), 2023. Published by Cambridge University Press on behalf of The Society of Legal Scholars
Footnotes
†
The author is grateful to all those who provided input into the ideas advanced in this paper, including Professors David Cabrelli and Laura Macgregor, the two anonymous reviewers and all participants at the LSE’ Systemic Risk Centre conference on the Institutional Theory of the Firm held on 16 and 17 June 2022. All errors and omissions remain the sole responsibility of the author.
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