What Will Happen if Corporate Personhood is Eliminated?

by Pejman Yousefzadeh on November 5, 2011

Professor Bainbridge tries to explain. Alas, since most of the people who inveigh against corporate personhood are ineducable, the good Professor won’t get very far, but points for trying:

For most purposes the corporation is treated as though it were a legal person, having most of the rights and obligations of real people, and having an identity wholly apart from its constituents. Corporate law statutes, for example, typically give a corporation “the same powers as an individual to do all things necessary or convenient to carry out its business and affairs.”

Although the corporation’s legal personality obviously is a fiction, it is a very useful one. Consider a large forestry company, owning forest land in many states. If the corporation is not a legal person with the power to own land, who owns the land? Presumably the shareholders of the company. If the company were therefore required to list all of its shareholder on every deed recorded in every county in which it owned property, and also had to amend those filings every time a shareholder sold stock, there would be an intolerable burden not only on the firm but also on government agencies that deal with the firm. But did anybody in Boulder or Madison pause to consider that undesirable outcome of their proposal?

An even more useful feature of the corporation’s legal personality, however, is that it allows partitioning of business assets from the personal assets of shareholders, managers, and other corporate constituents. This partitioning has two important aspects. On the one hand, asset partitioning creates a distinct pool of assets belonging to the firm on which the firm’s creditors have a claim that is prior to the claims of personal creditors of the corporation’s constituencies. By eliminating the risk that the firm will be affected by the financial difficulties of its constituencies, asset partitioning reduces the risks borne by creditors and thus enables the firm to raise capital at a lower cost. On the other hand, asset partitioning also protects the personal assets of the corporation’s constituencies from the vicissitudes of corporate life. The doctrine of limited liability means that creditors of the firm may not reach the personal assets of shareholders or other corporate constituents. Just how do the brilliant legal minds behind this movement propose to preserve this feature of corporate personhood if they succeed?

Answer: They haven’t. And they will never devote the few collective brain cells that they have to overcome the many problems that will attend any abolition of corporate personhood. But of course, these details don’t matter to the corporate personhood bashers. Like the Occupy [INSERT NAME OF LOCATION HERE] crowd–most, if not all of whom are corporate personhood bashers–the targets of Professor Bainbridge’s ire are generally not very bright, and to the extent that they have drive and talent, they are most interested in using that drive and talent to wage class warfare, and generally indulge in the politics of ressentiment. That’s what they are good at; dealing with actual policy details, and facts of life are not their forte.

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