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Is corporate personhood a contradiction of laissez-faire capitalism? If not, what's the argument for the governmrnt to create a special arrangement that allows owners to add a company's profits to their own assets, but not subtract its losses from the same? Actually that isn't quite hat happens, is it? I'm trying to reason my way through this as I write this post, so bear with me. When you own equity in a company, you don't literally add its profits to your bank account; you own equity in the company, which liabilities and past losses factor into, and you don't actually get anything for yourself until you decide to cash out. But how is the government protecting anyone's rights by establishing a company as an independent legal entity and separating it's assets from those of the owners?

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The principal rationale for limited liability corporations, whereby shareholders don't normally bear personal liability for the acts of a business, is that more people have money to invest than have the time and expertise to run a business.  The alternative is that all businesses would belong to their upper managers and that the capitalization of the world economy would be limited to those managers' personal assets.

 

If people make such a contract, they are the ones who created the new entity, not the government that recognizes and protects the agreement, any more than government creates marriages, bond issues or residential leases.  My understanding is that, historically, people were making limited-liability agreements before legislatures wrote laws acknowledging such agreements explicitly.

 

Robert Hessen's In Defense of the Corporation has a good reputation for explaining this at length, though I haven't read it.

.

Some minor points:

- Shareholders lose when a corporation loses; in the normal course of events the price of their stock declines.

- Shareholders usually get some of their money back as dividends without having to sell their stock.

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Is corporate personhood a contradiction of laissez-faire capitalism? If not, what's the argument for the governmrnt to create a special arrangement that allows owners to add a company's profits to their own assets, but not subtract its losses from the same? Actually that isn't quite hat happens, is it? I'm trying to reason my way through this as I write this post, so bear with me. When you own equity in a company, you don't literally add its profits to your bank account; you own equity in the company, which liabilities and past losses factor into, and you don't actually get anything for yourself until you decide to cash out. But how is the government protecting anyone's rights by establishing a company as an independent legal entity and separating it's assets from those of the owners?

Corporations are established by contract, not government mandate. A publicly available, standardized contract, to make sure everyone involved is aware of the terms. And they're not established by the government, they're established by the shareholders, executives, and (often) third party lenders who all agree to a set of standard arrangements when doing so.

 

Corporations exist because of the right to contract. It's not really anyone's job to defend the right to this type of contract, it would fall on the critics to show that it violates someone's rights. People are free to act in any way they please, unless it can be shown to violate someone's rights.

 

P.S. This is a simple answer meant to describe corporations in principle. In the real world, they are over regulated, and the corporate contractual frameworks provided by governments are too rigid. That's because legislators often go further than to just provide a convenient, streamlined legal framework for people who wish to enter corporate type contracts, and instead try to control corporations "for the public good".

Edited by Nicky

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Yes.  The shareholders have, by buying in, authorized the corporation to sign for them.  The entire point of corporations is that the shareholders have assigned responsibility to the corporation.

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This is actually a very complex issue that developed without any political influence.  Owners of a business, whose ownership is based on an infusion of capital only (their ownership being the trade for the capital infusion) are not liable beyond their capital infusion, for any liability assumed or imposed on the subject company.  This way of business is a fundamental necessity for the flow of capital.  Otherwise, investors would be required to insure against unknown future activities of the businesses they invest in.

Edited by jacassidy2

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Would an Objectivist government recognize a contract signed by a purported corporate person rather than a group (any group of people or single person) being signatories and bearing responsibility?

How exactly would a "corporate person" (an abstract concept), pick up a pen and sign something? The government will  (and should) only recognize pieces of paper, or electronic documents, signed by actual human beings.

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How exactly would a "corporate person" (an abstract concept), pick up a pen and sign something? The government will  (and should) only recognize pieces of paper, or electronic documents, signed by actual human beings.

 

My point exactly.  A corporation is as "real" (as an individual) as a collective is. 

 

A corporation cannot conceptualize, it cannot think, it cannot decide, ethics is irrelevant to it as it is not living, it cannot know or engage in any of the virtues, it cannot form nor is it coherent to subject it to moral judgment, justice, etc. A corporation cannot actually do anything an individual can do.

 

Hence:

 

1.  A corporation cannot "take responsibility", only people can.

 

2.  A separation of ownership and control in a system or an organization, whether in a contraption or a machine or how you run your kitchen or your assembly line, is not the same thing as deciding to pretend the entity for which ownership and control are separate, IS a person for purposes of the law.

 

 

I see no real reason to act as though,  i.e. for a government to pretend that, a corporation is a person when clearly it is not, other than the unfortunate situation where there are a great deal of laws, regulations, and institutions for running the lives and economy of a ruled citizenry which may be undermined through literal inapplicability or complexity of enforcement... I.e. there is some degree of blind convenience by pretending corporations are persons under the law, and (as perhaps the sentiment of government may be) the ruled should not be able to escape necessary rule through complexity of association.

 

 

 

If there is any conceptually rational and legitimate reason for "personhood" of an organization with separation of control and ownership I would be interested to know, particularly in the context of an unregulated truly free Objectivist society (with minimal government, 3 branches, etc.).

Edited by StrictlyLogical

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Thoughts any one?

 

I don't know a ton about this subject, but okay...

 

I see no real reason to act as though,  i.e. for a government to pretend that, a corporation is a person when clearly it is not...

 

Right.  I don't typically like the idea of "pretending" in this fashion.  It would seem to be better to treat things as they are.

 

But what's the central question here?  Why does it matter how we "treat" corporations at all?  (Again, I don't know the subject, so I'm spitballing...)

 

In my imagination -- and I'm relying on others to correct me -- what it comes down to is roughly this: I have some money and I invest it in Company X.  Thus, I have some amount of ownership of Company X, large or small...

 

Suppose Company X engages in activities that land it in hot water.  Maybe it winds up on the losing end of some lawsuit.  When it does, am I (one of the "owners") responsible for meeting the terms of that lawsuit?

 

I don't know what my opinion is on that question, or even if that's the right question to ask, but I suspect it has to do with the idea of "limited liability," and a decision to treat a corporation "as a person" in the sense that the corporation is accounted the entity responsible for fulfilling the terms of the lawsuit as opposed to the individual actors which may comprise its workplace, or its board of directors, or its investors.

 

Earlier, jacassidy2 seemed to defend the corporation on these (or similar) grounds:

 

This is actually a very complex issue that developed without any political influence. Owners of a business, whose ownership is based on an infusion of capital only (their ownership being the trade for the capital infusion) are not liable beyond their capital infusion, for any liability assumed or imposed on the subject company. This way of business is a fundamental necessity for the flow of capital. Otherwise, investors would be required to insure against unknown future activities of the businesses they invest in.

 

I guess my question to that is, if investors would otherwise "be required to insure against unknown future activities of the businesses they invest in," well, what's the harm in that?  "Be required," being a passive construction, conceals the information of who is doing the requiring.  In this case, wouldn't investors "be required" to take on insurance in the same manner that people are often "required" to insure themselves against potential disaster, i.e. by reality?

 

Of course it is a separate question as to whether such an insurance would potentially be required by regulators in a given political climate, but I trust that we're all against that.

 

If the argument is that a legally protected corporate structure is necessary for "the flow of capital," it seems to suggest to me that, were people legally accountable for the actions of their investments (which again is a kind of ownership), they would have to be more scrupulous and careful in their investments; that the limitation on "the flow" would be due to this greater exercise of caution, in the same manner that you're careful about who you cosign for, because you don't want to be on the hook for someone else's stupidity.  You don't cosign for just anyone.

 

But is that necessarily a bad thing?  Does the limitation of liability free people to be more frivolous with their capital investments and associations, and/or potentially prop up corporations which are more likely to act in inept or harmful manners?

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DonAthos - thanks for the reference and I liked your questioning of it.  I meant "required" not by outside regulation, but that if the law changed to hold investors liable beyond their capital input, then investors "may" want to insure the risk.  Your thoughts tickled another idea from me.

 

Let's say I'm just a silent investor and John is a high level management employee in the company I'm invested in.  John commits an act with a customer or supplier whose equivalent would be a crime for an individual.  I maintain that corporate structure, while protecting investor liability to infused capital, should hold John to a higher standard based on his individual decision. John may claim if he didn't screw the third party, he would have lost his job because his decision was prompted by his bosses.  I say do what you know to be ethical or quit and that, those kinds of decisions, in any case, are outside the context of a silent investor.

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I maintain that corporate structure, while protecting investor liability to infused capital, should hold John to a higher standard based on his individual decision. 

Why higher? Shouldn't it be the same standard? 

Also, in your example, the boss should be criminally liable too, if it is proven that he was part of a criminal conspiracy.

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Why higher? Shouldn't it be the same standard? 

Also, in your example, the boss should be criminally liable too, if it is proven that he was part of a criminal conspiracy.

Higher for the employee and the boss than the investor because they made the choices that led to the liability, not the investor.  Remember, the investor is at risk for the amount of investment and the question in this thread was about the nature of that limit.  That is, should an investor be liable for more than their investment - the question being asked in the context of liability protection of being incorporated.

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My point exactly.

No, it's not. Your point is that "the government is pretending that corporations are people".

No one's pretending here. The concepts "person" (meaning a human being) and "legal person" (meaning entities that can be parties to contracts and lawsuits) are obviously not the same thing.

 

Corporate persons can be parties to contracts because their appointed executives have the legal right to sign contracts on the corporation's behalf. There's no "pretending" going on. No one's pretending that corporations are people, and no one's pretending that a corporation can pick up a pen and sign a document.

 

"legal personality" is a concept that simplifies the way corporate laws are formulated. It's a perfectly valid concept, and it's perfectly fine to use the word "person" in it. Words are used with multiple meanings all the time. Only people who get confused by that are the ones trying to get confused.

Edited by Nicky

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Higher for the employee and the boss than the investor because they made the choices that led to the liability, not the investor.  

Got it... I did not realize you meant as opposed to an investor. The hands-off shareholder would not have any personal criminal liability. However, by their investment, they have agreed to stand to lose their stake if the organization is found to be liable. 

 

BTW, there was a time when corporations would not "call" on the entire shareholder commitment. For instance, a new company may sell shares for $5 each, but with a provision that they can call on shareholders for another $5. Another practice now in disuse was to have some directors of banks continue to be personally liable for the liabilities of the bank (a bit as though they had underwritten the bank with their personal wealth).

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No, it's not. Your point is that "the government is pretending that corporations are people".

No one's pretending here. The concepts "person" (meaning a human being) and "legal person" (meaning entities that can be parties to contracts and lawsuits) are obviously not the same thing.

 

Corporate persons can be parties to contracts because their appointed executives have the legal right to sign contracts on the corporation's behalf. There's no "pretending" going on. No one's pretending that corporations are people, and no one's pretending that a corporation can pick up a pen and sign a document.

 

"legal personality" is a concept that simplifies the way corporate laws are formulated. It's a perfectly valid concept, and it's perfectly fine to use the word "person" in it. Words are used with multiple meanings all the time. Only people who get confused by that are the ones trying to get confused.

 

OK Nicky.  Let me try to understand the "perfectly valid concept" of "legal personality".

 

 

Premise 1:  The proper and only role of government, is the protection of individual rights, in accordance with the non-initiation of force, and is limited to delegation of sovereign right to retaliation against force or fraud etc.

 

Premise 2:  Individual rights are neither subjective nor intrinsic but are Objective.  Entities which are non-individuals -  tables, trees, or ceiling wax, do not possess them, nor can they be "assigned" them.  Furthermore, fictional entities and abstractions which are also non-individuals, cannot possess nor be assigned individual rights.

 

Corollary 1 (to Premise 2):  Individual rights, if they are and to the extent they are alienable, transferable or assignable, are only so (on a voluntary basis) only TO other individuals. 

 

Corollary 2 (to Premise 2):  Individual rights, in every possible instance are always possessed ever only by individuals 

 

 

Conclusion: Government (proper objectivist laissez faire govt) only recognizes rights of individual people and acts only in protection of them.

 

 

What is a "corporation" to the eyes of such a government?  What would government recognize the corporation to be?

(factually people have arranged themselves with contracts... some of which.. and some terms of which would be recognized and upheld while others would not be upheld... for example: if three people agree by contract to assign their rights to life and property to a table... the Objectivist government would not recognize the table as thereafter having those rights ... and would not recognize the three people's attempt to divest themselves of those rights as successful)

 

What therefore is a valid concept of a "legal personality", (legal as in upheld by a proper government) which "personality" is not an individual?

Edited by StrictlyLogical

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Furthermore, fictional entities and abstractions which are also non-individuals, cannot possess nor be assigned individual rights.

As framed, aren't you begging the question here?

It is true that all rights have individuals at their base/origin; but, the basis of the rights of a corporation are rights of the owning individuals.

 

The one exception is limited liability, so keep that out of the discussion for now and consider other rights. Without limited liability, we're talking more generically about rights of organizations. So the question becomes: can a person who has rights create an organization -- either alone or with others -- and then enforce those rights, qua organization?

 

A good example would be an investment club. Suppose I pool some money, along with some friends or family, and set up an investment club. Our club opens an investment account at a brokerage. We title the account as "Nerdy Spinsters Investment Club" and we submit our founding documents. These documents state what share each of us gets, who is authorized to trade on our behalf, and so on. 

 

Now, if the brokerage commits some fraud and we sue, the courts would treat this as "Nerdy Spinsters Club vs. Honest Brokers Inc.". We -- individuals -- are behind the club. We are suing, but we are not all suing as some random group, but qua club. If we win, the settlement will be doled out to us based on the agreement in our founding documents.

 

Would you have any problems with the example thus far?

 

if not, then -- aside from limited liability -- how is a corporation different?

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What is a "corporation" to the eyes of such a government?  What would government recognize the corporation to be?

I already explained what a corporation is.

What therefore is a valid concept of a "legal personality", (legal as in upheld by a proper government) which "personality" is not an individual?

That therefor seems to imply some kind of logical connection between tables (which you talk about in your previous paragraph) and legal persons. There is no connection, so instead I'd like to answer the question: "What should and what shouldn't be treated as a legal person?"

The government should treat all mentally competent adults as legal persons, as well as any group or organization that is formed by mentally competent adults (if they wish their group to be treated as a legal person, obviously). That's all. Nothing else should be a legal person.

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Are you joking?

This is far more fundamental than the issue at hand.

"Fictions" and "abstractions" possessing RIGHTS?

The only person who thinks a group of people is fiction is you.

And yes, groups formed voluntarily obviously have rights. That's a logical consequence of individual rights. Without that logical extension, most trade would become impossible. As soon as two people decided to start any kind of business venture together, anyone could freely steal their stuff because you decided a group of people can't have property rights.

Edited by Nicky

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The only person who thinks a group of people is fiction is you.

And yes, groups formed voluntarily obviously have rights. That's a logical consequence of individual rights. Without that logical extension, most trade would become impossible. As soon as two people decided to start any kind of business venture together, anyone could freely steal their stuff because you decided a group of people can't have property rights.

 

Are you saying individual people, which happen to form a group each have rights to a share of something or that the "collective" or the "group" itself has rights... because these are two different concepts.

 

Can you understand that these are two different concepts?

 

 

Here is a primer on collective rights...

 

http://aynrandlexicon.com/lexicon/collective_rights.html

Edited by StrictlyLogical

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The group does not have rights, although the individuals in the group may share common rights.  EXPLANATION - A GROUP is a derived concept, the concept "group" has none of the attributes/characteristics of the specific referents it depends upon except by reference in reduction to the individuals that make up the group.  Thought, sense perception, reason, values, etc. are not identities of a group, although, these identities may be shared by the individuals may share common attributes.

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Hence the crux here jacassidy2 which I am debating with others in this thread, is the conceptual and legal treatment of a corporation as an independent person.

 

Certainly there are complex systems which involve various different people, their rights, and their property, organized into action, and utilization to be a business concern providing services and goods etc.  The mere fact that a complex system exists, or that that system exhibits amongst its constituents separation of ownership of resources etc. and their control, does not in any way change the metaphysical status of that complex system to magically transform it into an individual who has rights, can think and take responsibility, to which ethics, and justice applies, etc.

 

A corporation is not a person, and government would have no reason to treat it as such.

 

 

LP has this to say:

 

http://aynrandlexicon.com/lexicon/corporations.html

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Without that logical extension, most trade would become impossible. As soon as two people decided to start any kind of business venture together, anyone could freely steal their stuff because you decided a group of people can't have property rights.

 

Wrong.

 

The law deals with joint ownership quite easily, with no need to conjure up an independent entity over and above the joint owners.

 

If you and I own a boat jointly, you and I have rights in that boat.  No one can steal the boat because that would be a violation of my individual rights to the boat and your individual rights to the boat.

 

It is neither the case that

1. there is (or should be) some mystical third "YouAndI" person which comes into existence, whose rights would be violated, if someone tried to steal the boat, nor that

2. because we own it jointly there would be NO rights in the boat... and as you say "anyone could freely steal" it

 

THIS is a false dichotomy. 

 

Rights are always ever possessed by individuals and they can bundle those rights to various things, actions, responsibilities etc. in many different ways.  A proper government would not need a fictitious person, and better yet, because it would be Objective, it would not even SEE such a thing, it would only see the contracts and rights of individual people, and only to the extent Objectively valid and enforceable.

 

 

You and I could not sign a contract to have a Chimp, a dog, a tree, a table, a piece of paper, or a floating concept, OWN our boat, and title VEST to the "transferee".  Whether attempting to do so results in complete divestment of the boat or simply no change in a previous state of ownership would be a thing an Objectivist court would have to decide, but only individual people possess rights.

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