COMPANY LAW 1.3 THEORIES OF CORPORATE LAW
THEORIES OF CORPORATE LAW[1].
The concession /Grant Theory: that the company derives its personality and power from the concession granted to it by the State.
Fiction Theory: Adherents include; Pope Innocent IV, Von Savigny, Blackstone, Edward Coke, Salmond amongst others. That the company is a fictional personality distinct from its members-Salomon V Salomon. It is artificial, invisible and intangible… devoid of mental element-Dartmouth College V Woodward. See also Lee V Lee’s Air Farming Ltd.
Realist/Aggregagte Theory: That a co is not artificial but real and recognised by statute. The Realist theory seems to have gained grounds in recent times-See the Suttons Hospital Case.
Economic Theory: That the company is established as a vehicle to make profit.
Property Rights and Social Institutions Theory: Asks the question; whether the company is to uphold the interest of the shareholders[2] or stakeholders[3]. Professor Berle advocated for shareholders while Professor Dodd advocates for the stakeholders (CSR). Dodd’s Corporate Social Responsibility view seems to be gaining prominence.
The Contractual Theory: Originates from Ronal H. Coase through the “nexus-of-contract” theory. Here the company is regarded as a less costly alternative to market transactions. Assets are more productive where they are combined by individuals as a joint team to increase profit.
Communitarianism Theory: That companies should seek to serve the community not just the shareholders-Farrar.
Team Production Theory: Alchian and Demsetz view the corporation as a team effort. Production is as a result of various input and team effort. Margaret Blair and Lynn Stout introduced the concept of “mediating hierarchy” which is an independent unquestionable board of directors who oversee the administrative affairs of the corporation to ensure maximum output.
[1] Not in the course outline for this semester… you can still read it to gain extra knowledge.
[2] Those that invested in the business to make profit.
[3] Employees, manufacturers, consumers, host communities and the world as a whole.
