In the first chapter of the second part of this book, I have shown the importance of differentiating firms from corporations. Firms are economic organizations operating in the World Wide Web of Contracts via nexuses of contracts. These contracts are executed by legal persons which can be individuals or partnerships or corporations or any other legal entity entitled to have a business activity. The firm is the economic organization and the corporation is a particular category of legal person used to legally structure firms. Corporations are key legal tools for the structuring of large firms because they have extraordinary capabilities, in particular with regard to the concentration of capital and the continuity of their existence.

Now we will look deeper into the features of business corporations.

Business corporations have very peculiar characteristics which explain their widespread use in the structuring of business activities.

The head paragraphs of what follows have been written with the late Lynn Stout, and with Paddy Ireland, in The Modern Corporation Statement on Company Law and have been endorsed by legal scholars worldwide, each one being knowledgeable about corporate law in a large number of State legal systems. This project arose from our shared conclusion that certain beliefs about corporations and corporate law, which are widely held and relied upon by business experts, the financial press and economists who study the firm, are unfounded. The most serious error is the assertion in law schools, business schools and the financial press that shareholders ‘own’ the firm or the corporation or the company. This fundamental mistake is the cornerstone of intellectual constructions in which corporate issues, and particularly issues of governance, are all reducible to private property and private contractual issues, and thus can be addressed via liberal market economics. Some of these widely held constructions, such as ‘agency theory’ or the purported duty to ‘maximize shareholder value’ are severely mistaken and lead to numerous shared errors in the way corporate law concepts are understood. We thus decided to draft and make available a summary of certain fundamentals of corporate law, applicable in almost all jurisdictions. The intent was to help prevent analytical errors which can have severe and damaging effects on corporate governance and the social and natural environments in which it operates.