The Legal Structure of the Firm : Accounting, Economics, and Law

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Accounting, Economics and Law - A Convivium

Ed. by Avi-Yonah, Reuven S. / Biondi, Yuri / Sunder, Shyam

The Legal Structure of the Firm

Jean-Philippe Robé1

1Ecole de Droit de Sciences Po

Citation Information: Accounting, Economics, and Law. Volume 1, Issue 1, ISSN (Online) 2152-2820, DOI: 10.2202/2152-2820.1001, January 2011

Publication History

Published Online:
2011-01-31

The notions of “firm” and “corporation” are very often confused in the literature on the theory of the firm. In this paper, the two notions are sharply distinguished: the corporation is a legal entity entitled to operate in the legal system and in particular to own assets, to enter into contracts and to incur liabilities. It is used to legally structure firms for numerous reasons, including the need to locate property rights key for the operation of the firm in the ownership of separate, “fictitious”, legal persons. This avoids ex post-contracting bargaining by parties which otherwise would hold residual control rights over key assets used in the firm’s operations. The assets partitioning effect of corporate legal personality has also several economizing properties reviewed in the article. The firm is the economic activity developed as a consequence of the cluster of contracts connecting the corporation owning these assets to various holders of resources required in the firm’s operations. Numerous consequences deriving from this sharp distinction between corporation and firm are explained in this article, including the need to extend the circle of the beneficiaries of the firm management’s fiduciary duties.

Keywords: firm; corporation; assets partitioning; property rights; cluster of contracts

Citing Articles

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[1]
Thomas Lopdrup-Hjorth
Journal of Cultural Economy, 2015, Page 1
[2]
Marco Bisogno, Serena Santis, and Aurelio Tommasetti
International Journal of Public Administration, 2015, Volume 38, Number 4, Page 311
[3]
John Buchanan, Dominic Heesang Chai, and Simon Deakin
Corporate Governance: An International Review, 2014, Volume 22, Number 4, Page 296
[4]
Jeroen Veldman
British Journal of Management, 2013, Volume 24, Page S18

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