Corporations can be understood as solutions to team production problems, rather than as property. Incorporation involves creation of a new legal entity in which control rights are separated from residual claim rights. The corporation itself, not the shareholders nor any other corporate participants, becomes the owner of assets used in production, and of output. Decision-making authority is vested in an organizational hierarchy, headed by a board of directors that is legally independent of shareholders. Understanding corporations in this way helps explain a number of features of corporate law, and provides new insights into the theory of the firm.
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Find related papers by JEL classification: D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance K22 - Law and Economics - - Regulation and Business Law - - - Corporation and Securities Law L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
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