What is Corporation? ---The Corporate Personality Controversy and Comparative Corporate Governance

The law speaks of a corporation as a 'legal person' -- as a subject of rights and duties capable of owning real property, entering into contracts, and suing and being sued in its own name separate and distinct from its shareholders. For many centuries there have been a heated controversy between corporate nominalists and corporate realists as to the 'essence' of this soulless and bodiless person. The first purpose of this paper is to end this age-old 'corporate personality controversy' once and for all. It is, however, not by declaring victory for one side or the other, but by declaring victory for both. The key to this claim is the observation that an incorporated firm is composed of not one but two ownership relations: the shareholders own the corporation and the corporation in turn owns the corporate assets. The corporation thus plays a dual role of a 'person' and a 'thing' in the system of law. This paper then shows how this person/thing duality of corporation is capable of generating two seemingly contradictory corporate structures -- one 'nominalistic' and the other 'realistic.' The second purpose of this paper is to reexamine the theory of corporate governance. The fact that an incorporated firm is characterized by two-tier ownership structure implies that corporate managers cannot be regarded as agents of shareholders. They are instead 'fiduciaries' of the corporation. Indeed, this paper advocates the return to the pre-Law&Economics orthodoxy, maintaining that the foundation of every corporate governance system should be the managers' fiduciary duties to the corporation and that the law governing these duties should be essentially mandatory. It also argues that a variety of corporate governance systems across countries is due to the difference in governance mechanisms that supplement the costly implementation of fiduciary law by courts.