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The Legal Structure of the Firm

Author

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  • Jean-Philippe Robé

    (EdD - École de Droit de Sciences Po (Sciences Po) - Sciences Po - Sciences Po)

Abstract

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.

Suggested Citation

  • Jean-Philippe Robé, 2011. "The Legal Structure of the Firm," SciencePo Working papers Main hal-04212777, HAL.
    • Handle: RePEc:hal:spmain:hal-04212777
    DOI: 10.2202/2152-2820.1001
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-04212777
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    Keywords

    firm corporation assets partitioning property rights cluster of contracts JEL Classification Codes: K22 M20; firm; corporation; assets partitioning; property rights;
    All these keywords.

    JEL classification:

    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General

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