Sunday, September 28, 2008
Shareholder Ownership and Primacy, by Julian Velasco, Notre Dame Law School, was recently posted on SSRN. Here is the abstract:
According to the traditional view, the shareholders own the corporation. Until recently, this view enjoyed general acceptance. Today, however, there seems to be substantial agreement among legal scholars and others in the academy that shareholders do not own corporations. In fact, the claim that shareholders do own corporations is often dismissed as merely a theory or even a naked assertion. And yet, outside of the academy, views on the corporation remain quite traditional. Most people - not just the public and the media, but also politicians, and even bureaucrats and the courts - seem to believe that the shareholders do, in fact, own the corporation.
Why this disconnect? I believe it is because contemporary scholarship has done a better job of critiquing shareholder ownership than of disproving it. In this article, I will provide a defense of the traditional view by evaluating many of the arguments commonly raised against shareholder ownership and showing how they fall short. I will then explain why the issue matters. As a theoretical matter, the issue of ownership is necessary to a proper understanding of the nature of the corporation and corporate law. As a practical matter, it is an important consideration in the allocation of rights in the corporation: if shareholders are owners, the balance of rights is likely to tip more heavily in their favor, and against others, than if they are not. Ownership may not settle any specific question of corporate governance, but it will make a significant difference in the analysis. Thus, the issue is important regardless of the normative desirability of shareholder rights. Advocates on both sides should be concerned, albeit for very different reasons.