Corporate personhood

Be very careful indeed about drawing conclusions about corporate personhood from the manner in which it was achieved. For example, from the comments:

1886 Santa Clara County v. Southern Pacific Railroad Company, the Court granted Constitutional rights for the first time to Corporations and created the concept of corporate personhood. largely based on the fourteenth amendment which was meant to protect freed slaves

Interesting but irrelevant. For every legal system has ended up in pretty much the same place concerning such personhood. Whatever the background to the legal system or the specific events that led to the definitions.

The point being that the purpose of a company is to produce a legal person. That’s what the underlying idea is.

Natural persons, that’s us human beings, have certain rights, we most assuredly do. One of which is the right to be represented at law. We can be charged, we can charge someone else, we can enter into a contract, we can be held to the terms of that contract. My cat(s) cannot enter into contract, nor held responsible, at law, for anything. They are not natural people – despite, obviously, being the rulers of all they survey.

So, when we’ve got this grouping of people who want to undertake some task that grouping does not have any legal rights. It cannot sign a contract, cannot be sued under it, is not responsible before the law for anything at all. At which point we invent the concept of the legal person. This is something, someone, who is not a natural person but who also has some of the rights of a natural person. Including that most vital one we invent the concept for, being an entity which has a legal existence and can thus partake of the law.

Without corporate personhood it’s not possible for a company to sign a contract, nor can it be sued under one.

A legal person does not have all of the rights of a natural one. Or not necessarily. Citizens’ United was about whether the political free speech rights of a natural person extend to a legal one. The SC decided yes. The free movement of companies across the EU is because the EU itself decided that legal persons should have the same rights to free movement as natural persons. Either decision could be read the other way and we’d not have changed the basic underlying point – legal personhood exists so that companies can sue and be sued.

It’s entirely true that different jurisdictions have reached this point by different paths. But the path is not the important point about it at all. Some formulation akin to being a “legal person” is necessary to the very existence of a corporation in the first place, the ability to sue and be sued at law. Which is why near every jurisdiction has the same end result, whatever the path.

34 comments on “Corporate personhood

  1. Why do you say “legal personhood exists so that companies can sue and be sued.” Wouldn’t a better wording be “legal personhood exists so that companies can take legal responsibility”?

    Or am I missing something in the post / explaination?

  2. No, it really is as basic as I make out. If a company is not some form of person in some legal manner then it cannot enter into a contract, cannot sue and cannot be sued. Because only “persons” have access to the law.

    Sure, lots else flows from it but that really is the essential heart of the matter. The entire point of a company is something which can sign a contract. Thus it must be some form of “person” in law, because that’s the definition of who can use the law, a person.

  3. “So, when we’ve got this grouping of people who want to undertake some task that grouping does not have any legal rights. It cannot sign a contract, cannot be sued under it, is not responsible before the law for anything at all.”

    Not so. An unincorporated association is a group of people lacking corporate personality, but it can enter into contracts, and can be sued. it’s just that the ways in which this is done are more cumbersome.

  4. Actually, my phraseology might be improved: it’s not that the unincorporated association enters into contracts, it’s that some one person or group of persons are authorised to enter into the contract on behalf of all members of the association. That one person, or group of people, are then sued under the contract, and they join as defendants all members of the association in person. Or, alternatively, all members are sued personally.

  5. Yes, quite, we’re trying to create this “thing” which is itself sued or can sue.

  6. Worstall -v- Lud [2017] UKSC 1832: case establishing that claims in personam arising from the new tort of pendantry are actionable and that exemplary damages lie.

  7. It is odd that people who object to companies having some sort of “personhood”, insist on the State being treated as a person. Who owns nationalised industries? The State of course. It is a person. It can be sued.

    More to the point, it looks after money. That money does not belong to the people who run the State. It belongs to “the public”. That is, the fictional personhood that is the State. It is one of the best features of Western society. Islamic law does not accept the State as a person. So tax revenue belongs to the individuals who run the State. When the government changes, there is no continuity. Look how that works out for them.

    The only problem is the Left assumes the person that is the State is Angel-like. While private companies are Satanic. Why?

  8. Well, yes, the State can be sued and in that sense has corporate personality. But it’s a quite unique and completely dreadful corporate personality, because it does not have shareholders and its ‘directors’ are accountable to all sorts of riff-raff. As far as I can see, it’s just a fig leaf to make nationalisation easier.

  9. “The only problem is the Left assumes the person that is the State is Angel-like. While private companies are Satanic. Why?”

    Because they have psychological issues arising from their childhoods. Mainly that they have never achieved separation from their parents and become a fully autonomous person. The State represents Mummy and Daddy and is therefore good, everything and everybody else is outside the family unit and therefore unknown and to be frightened of. You can’t admit as an adult that MacDonalds plc frightens you, so you assign evilness to it instead to explain your fear.

  10. isn’t it more that companies allow the people behind them to avoid being sued? You can sue and be sued as a person or as a group, but if you set up a company, you can limit your liability.

  11. And if you give a personal guarantee to a company which defaults on its obligations then you can be sued to make good on those obligations.

  12. napsjam : see Tim’s next (but one?) post. Limited liability does not extend to criminal acts.

    Also, having established that a firm can have a legal personality, shareholders can sue the firm.

    Doesn’t seem to happen that often in the UK, probably since limited liability was restricted to the Crown and only available as a gift from parliament, so bit of a cultural hangover, but the colonials seem to be quite comfortable with the idea.

  13. IIRC you cannot be sued for what your cat does, but can be sued for what your dog does.

    Not that I have a dog in this fight, mind. We long ago had him emancipated at the vets’ when he got too old for walkies.

  14. I suppose a number of us here have been involved in deliberately “killing” a legal person in cold blood, but we’re safe to walk the streets ‘cos it wasn’t a natural person.

  15. I wonder what the correlation is between people who maintain that corporations are indistinguishable from natural persons and those who complain that no bankers were jailed as a result of the 2008 liquidity crunch. Perhaps a Venn diagram would best illustrate the result?

  16. Ducky, granted, but I did say sued, not prosecuted, and limit, not exclude. No biggie. Just puzzling over what Tim is getting at, and it still seems to me the most basic reason to have a company is to protect the shareholder, not enable the corporation.

  17. “IIRC you cannot be sued for what your cat does, but can be sued for what your dog does.”

    That might imply all cats have incorporated as limited liability companies. And having had experience of the evil, treacherous, little bastards, over the years, really wouldn’t surprise me.

  18. The mental framework I usually use for this sort of thing is by considering it as one of the difficulties in generalizing first-order properties of elements to properties of sets.

    I have no idea if this mental framework gives suitable conclusions — if the answers it gives look at all like the answers historically given by legal decisions. I just posted this comment in the hopes that other commenters with some math background might share their opinions.

  19. Napsjam – yes, but limited liability and legal personality are two distinct things. Not all things with legal personality have limited liability.

    “A company for carrying on an undertaking of great advantage, but nobody to know what it is.”

  20. Not disagreeing with you, Tim, but the American view of corporations is to create an entity that insulates the participants from liability. Businesses ARE the owner; the owner is personally liable for the business. Incorporating puts the owners at arms length, they are not personally liable for the corporation.

    You own a company, they can take your house. Own a corporation, they can’t.

  21. Oops. Dunno what happened there. Anyway,

    Assume that such a company attracts some investors/members, then hires a ship and crew from me for the great undertaking, but I don’t get paid. Who do I sue, and who pays? Edward Lud’s scenario could have me sue each member personally. Given the, umm, mission statement, could each member deny that the ship hire was authorised? If I win, could each member sue the guy I dealt with for recovery? Who has a contract with who here? Or can I get away with suing just a single member, or the ones I can find, for the entire amount? That would blow a massive hole in the concept of membership from an equity view.

    In this sense, the important bit of the 1855 act is the creation of the register.

  22. Gamecock, that looks suspiciously like the difference between a company limited by guarantee, versus a company limited by shares (or paid in capital).

  23. Mr McDuckface, yes each member could deny that authority was given. Whether their denials were met with judicial approval would depend on the facts of the given case.

    For example, Bloggs as Treasurer of the Lower Buttocks-cum-Harda golf club contracts in his official capacity with a provider of lap dancing services, using club money, to obtain those services in various laybys. The other club members probably wouldn’t have much difficulty demonstrating that his authority had been exceeded.

    On the other hand, if Bloggs merely enters into a photocopier contract, and a related lease agreement, for the benefit of the club then, even if individual members were not aware of that particular deal then, depending on the explicit authority devolved to Bloggs, they would have a much harder time demonstrating that he was not acting as their lawful agent.

  24. Well, not really, Because if that were so then the SC wouldn’t have had to decide upon which rights of natural persons also accrue to legal persons….

  25. DMD

    Businesses ARE the owner; the owner is personally liable for the business. Incorporating puts the owners at arms length, they are not personally liable for the corporation.

    You own a company, they can take your house. Own a corporation, they can’t.

    Gamecock, that looks suspiciously like the difference between a company limited by guarantee, versus a company limited by shares (or paid in capital).

    Unless I am mis-reading you (?), companies “limited by guarantee” are still limited liability, or at arms’ length, same as for share capital.

    Limited by guarantee is generally used for charities and similar, where there is no expectation of profit or of a return to the investors. Hence, the trustees will guarantee (often say £1 each, that would be the limit of any potential liability), instead of invest capital, and that comprises the capital committed to the company for that purpose.

  26. IIRC you cannot be sued for what your cat does, but can be sued for what your dog does.

    This is because a dog is owned – which is why they have (had?) to be licenced – whereas a cat is officially a wild animal.

  27. PF, no, well, yes, sort of. Yes, in the normal run of things there’s no effective difference.

    Yes, a company limited by guarantee has legal personality and limited liability. But, the limited liability is not “firewalled” within the legal entity, it extends out to the members. Which isn’t really what many would expect to happen when they join Lower Buttocks-cum-Harda Golf Club Limited. The limit on liability is supposed to be specified in the Mem & Arts, which become really, really, important. As do any amendments to the Mem & Arts. They’re really important as well. And what actions the Board takes, it’s really quite handy if they are fully compatible with the Mem & Arts. And all the amendments. Which really should be filed properly with the registrar. Scribbling in the margins is Not A Good Idea.

    You used to be able to form a company limited by guarantee, that also had paid in capital.

  28. Mr Lud,

    “Whether their denials were met with judicial approval would depend on the facts of the given case.”

    Yes, but it’s a tad inefficient to sue a couple of thousand individuals for a pound each, in order to recover a £2,000 debt. Or would it be possible to sue a single member for £2,000, and let him recover the £1,999 from the others?

  29. Was only originally meant as an aside to liberal yank on his use of slave in the incidence thread but interesting topic in its own right

  30. Mr McDFace, yes, it is possible.

    But many wouldn’t bother, because you almost certainly wouldn’t get your legal costs back, for such a small claim.

    Equally, a lot of organisations such as our hypothetical golf club require as a condition of membership that the members indemnify the officers against claims. Of course, whether they stump up the readies when the claims are served is another matter.

    Bottom line? Don’t have financial dealings with chancers. Easier said than done, of course.

  31. DuckyMcDuckface asked:
    “would it be possible to sue a single member for £2,000, and let him recover the £1,999 from the others?”

    Yes, it’s called “joint and several liability” – means that each member is liable jointly but also severally (individually) for the whole lot.

  32. And I originally drastically stretched the definition of slave to rag on richie. My impression of his writing style must be improving if the intentionally convoluted concept was enough to drive a separate blog post.

    After reading a few summaries of the case in question it seems I am not the only one who found that the deciding factor was the valuation of fences for tax purchases.

  33. As companies are apparently people when it comes to tax, one wonders why the Left are so keen on making sure that a two legged person ends up in court when a company fucks up and someone dies as a result? Surely just prosecuting the company and putting it in jail will suffice?

  34. We’ve just changed the legal consitution of a society I’m a member of because we need to employ staff. Previously, the society was a group of humans and the only way we could employ anybody or purchase anything was for the treasurer in their own role as an individual human being to employ people and purchase things. The sole possible contractee and su-ee was the treasurer as an individual.

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