‘It is a fact which has received far too little notice from English lawyers, that, whenever men act in concert for a common purpose, they tend to create a body which, from no fiction of law, but from the very nature of things, differs from the individuals of whom it is constituted.’
Dicey, Law and Opinion in England
The true nature of the corporation is a matter about which English lawyers and authors are either in conflict or in the stage preceding conflict. Real persons, fictitious persons, juristic persons, moral persons, no persons ‘at all, at all’ – these and such-like phrases indicate differences more or less fundamental or important. Still more serious, however, are the differences unavowed and unrecognized. In the development of our association law in general we have been rather apt to pride ourselves on doing without general theories, while all the while engaged in applying and developing them. In our fear of idolatry we have refused to look upon the work our hands have slowly fashioned. The advantages and disadvantages of such a mode of procedure ought to be tolerably well known to us; yet in view of the enormous ‘growth of associations in our time it were well to open one eye at least, even if we run some risk in doing so. Certainly the present condition of our corporation theory might well serve us as a warning. Time will doubtless bring its own solutions, but meanwhile the student who is anxious for clear ideas must do this best to fight his own way to them, not too envious of the days when men shall know the blessedness of repose in an unchallengeable orthodoxy. Stubborn facts, facts in the making, facts not always what they seem, legal fictions which pretend to be legal theories – these are some of the material he will need to handle, happy perhaps if he come out of it all with any ideas that will hang together, or even with any ideas at all. He will do well to commence by reading Professor Maitland's Introduction to Gierke's Political Theories of the Middle Age. If he will then study something of our English corporation law, trust law, and constitutional law, and later something of what the jurists of other countries have to say on the general question, he will be in a position to return to Professor Maitland's Introduction with [365/366] the opportunity of discovering how little he had really understood of that brief but singularly brilliant essay. The reader will discern that I speak from personal experience. How far the personal experience may have served any other purposes than those implied in a moral chastening the reader must judge for himself from the propositions which follow.
1. A corporation is something distinct from the individual persons who constitute it. The position is too obvious to need proof. The whole is more than its parts. The individual members of a mining company have no direct right of property in the mine or the machinery, and if any one of them should presume to act as owner he would be liable to civil action as an ordinary trespasser. It is of more practical importance to point out, for the sake of the uninitiated, that the persons who constitute the corporation are not necessarily coincident with two other classes of persons who are directly associated with it, viz.: (a) Those persons through whom the corporation acts, (b) those persons in whose interests the corporation exists. The former are often called representatives, the latter beneficiaries. In a typical municipal corporation, the members are the mayor, aldermen, and burgesses of the borough; the beneficiaries are the inhabitants of the borough; and the ‘representatives’ are the mayor, aldermen, and town councillors. In an ordinary mining company the members and also the beneficiaries are the shareholders, whilst, for most purposes, the ‘representatives’ are the directors. Both members and ‘representatives’ of corporations are living persons – I speak throughout of corporations aggregate as distinct from corporations sole – whilst the beneficiaries may be, as in the case of the University of Cambridge, an indeterminate body embracing present and future generations.
2. A corporation is, in the eye of the law, distinct from the sum of its members. This fact received an interesting illustration in Roman law. In that system, although the torture of a slave as a means of extorting information against his master was prohibited, the slave of a corporation might be tortured as a means of gaining information against any or all of its individual members. As regards English law the following illustrations may be quoted.
(a) Each of the members of a corporation may be solvent whilst the corporation itself is insolvent.
(b) The very same persons who have registered themselves as one company may also register themselves as another and quite distinct company. If the corporation were identical with the sum of its members they would be one company, but the law holds them two.
(c) The corporation remains the same although its personnel [366/367] changes entirely. It is a totality of which the parts are constantly changing without affecting the continuity of the totality itself.
(d) Finally, the corporation is no mere partnership. Thus, partners are, whilst corporators need not be, liable for the debts of the group. Partners own, whilst corporators do not own, the group property. A partnership possesses a practically unrestricted power in dealings with third parties, while a corporation is ordinarily limited by reference to the purposes for which it is incorporated. Finally, whilst partnership can be resolved into mere contract, a corporation implies a new status. ‘Contract, that greediest of legal categories,’ writes Professor Maitland, ‘which once wanted to devour the state, resents being told that it cannot painlessly digest even a joint-stock company.’Footnote 1
3. The corporation is a legal subject of right and duties. This proposition is of the nature of re-statement. If the law recognizes a distinction between a corporation and the sum of its members, it is not as a more flight of fancy, or to indulge an inclination for metaphysics, but for the very practical and sufficient purpose of establishing the inherence of certain rights and duties which cannot be conveniently treated – or perhaps cannot be treated at all – as inhering in the members of the corporation, The property of a corporation follows the fate of the corporation whatever that may be, not the fate of its members whatever that may be. It is the corporation (not the members) which is creditor and debtor.
4. The corporation is, therefore, in law a person. The cardinal distinction of jurisprudence is between rights or duties, and the holders or subjects of rights or duties. Such subjects are persons in law. This does not mean that they are not also persons in fact, a suggestion which might occur to the layman who has a mother-in-law who is no mother in law. It will be obvious that while some human beings (e.g., slaves) are not persons, some persons are not human beings. Wherever the law attributes rights or duties to an entity or institution, it makes a person of, or recognizes a person in, that entity or institution. It becomes important, therefore, to distinguish between different kinds of persons in law. When the person in law is also a human being, it is called a natural person; when it is not a human being, it is sometimes called an artificial person. We have hitherto considered how the law regards that species of so-called artificial persons which we know as the corporation. We have now to look behind legal rules to the nature of things, and to consider whether, in distinguishing between the corporation and the sum of its members, the law is merely employing [367/368] a useful device for shorthand purposes, or is building on certain real and deep analogies to natural personality which exist wholly apart from legal recognition.
5. The personality of the corporation is not a mere metaphor or fiction. The theory of the corporation as a legal fiction has been variously expounded. The practical dilemma which it involves is obvious. If the corporate personality is a fiction, the rights attributed to it by law are either the rights of the corporators, or else rights without a subject. The latter hypothesis, though it has found exponents, is apparently in discredit, and indeed seems almost to amount to an avowal of the hopelessness of the fiction theory in general Traditional opinion has preferred the alternative view. ‘Legal persons,’ said John Austin, ‘are persons by figment, and for the sake of brevity in discourse. All rights reside in, and all duties are incumbent upon, physical or natural persons. But by ascribing theme to feigned persons, and not to the physical persons whom they in truth ‘concern, we are frequently able to abridge our descriptions of them.’Footnote 2 Similarly Ihering, ‘Modern science has placed the juristic person in the place of the isolated members for which alone it exists, as if this imaginary being, which can neither enjoy nor feel, led an independent existence.’Footnote 3 If we would do justice to such statements we must consider more closely the nature of the I something more than the sum of its members' which is dignified by law as a person of some sort, and is regarded by traditional opinion as a pure creation of the imagination.
The inquiry is one which leads us on from the subject of corporations to the wider subject of human association in general. Of this wider subject it is necessary to speak for a moment. Whenever men act in common they inevitably tend to develop a spirit which is something different from themselves taken singly or in sum. No one who has had any experience as a member of a governing body, for example, can be ignorant of the feet that the decisions of such a body, even when they are unanimous, are often inexplicable if regarded from the point of view of the several characters of the individual members considered as so many units. When at a meeting of such a board a speaker begins with the statement, ‘I speak as a member of this board, and I say –’ there will be reason to anticipate statements or proposals which are not adequately representative of the person making them. Under the inspiration of esprit de corps, the humans will give a cruel decision, the cruel a humane. In every group of men acting [368/369] together for a common purpose, the common purpose inevitably begets a common spirit which is real though it may be vague and indefinite to us because our vision is limited, or because the group is in the making. The group becomes, or tends to become, a unit, and as Bluntschli so well said, a mere sum of individuals as such can no more become a unit than a heap of sand can become a statue. So a symphony is something more than a more concurrence of sounds and a cathedral than so much stone and mortar. As regards the human group, no argument can be necessary to prove that, as the psychical realities which inspire it become distinct and emphatic; so is the efficiency of the group increased and its purpose promoted.
The unity of spirit and purpose just referred to is fostered and developed by continuous action in common. It is not so obvious, though quite as true, that the same unity tends to beget a different kind of action – the action of some in behalf of all. As psychical realities in the individual find means of expression in individual action, so psychical realities in the group find means of expression in corporate action. But the individual is an organism with predetermined organs for expressing the individual will. The group is not an organism, and numberless difficulties have to be overcome when the group-mind seeks realization in the external world.Footnote 4 The difficulties will be overcome somehow, though possibly the group may never pass beyond the stage when action of the whole is only possible by combined action of each of the parts. In all highly developed groups, however, some one person or number of persons acquires e, capacity to express in action the will of the group. If we may employ an extremely useful and suggestive analogy, he or they are the organ of the group for the purpose of giving external expression to the corporate will. Inevitably, such expression will lack the directness and spontaneity which exist in the case of the individual; but the group-purpose is promoted in proportion as such directness and spontaneity are approached. The member of a highly developed group is thus part of a new power or force. For this privilege, however, he has to forgo something of his own liberty of action. In becoming a member of an organized whole, he loses apparently something of his significance as a unit. He ceases to become a member of an undisciplined mob that he may become a soldier in a disciplined army.
I return to the corporation. This is clearly a group of a very special kind. It may exhibit some of the psychic bonds which I have referred to in an inferior degree, while displaying others [369/370] in an exceptionally developed degree. Differences of opinion may exist within it, but there is at least one will which is general, the will to continue the collective work. It is in fact a very efficiently organized unity which the state has recognized in some form or other. To it, as we have seen, the law ascribes a distinctive existence, a capacity for right and duty, a personality. This personality differs from the personalities of the natural persons composing it, but shares with them the important characteristic of a capacity for will and action. When the personality is described as a fiction of the law, the novice might suppose that no more was meant than that the corporation was not a man. Were this the case, there would be no need for controversy. What is meant, however, appears to be that the corporate personality has no existence beyond that which the state chooses to give it. The state has made it what it is. Such a view is, of course, in direct opposition to the statements made in the paragraphs immediately preceding, and becomes increasingly difficult to defend in our day owing to the enormous development of associated activities. We may readily ignore what we see seldom or in incipient stages; what appears before us at every moment and at highly developed stages refuses to be ignored. To the moderns it is becoming increasingly clear that ‘the something more than the sum of its members’ which the state implicitly recognizes as a person is no more creation of the juristic imagination, but is rather a reality as indisputable as that very material subject of rights and duties – the natural person.
The real character of corporate personality is suggested by certain facts in the early history of corporations in England. The chief attributes of the corporation, such as the right of perpetual succession, the right to sue and be sued by name, to purchase lands, to have a common seal and to make by-laws, were long recognized before the conception of the corporation was thought of. Their attainment marked stages which corresponded to the developments of social life rather than of juristic thought. ‘All the ancient boroughs of England, or nearly all,’ wrote Stubbs, ‘must have possessed all the rights of corporations and been corporations by prescription long before the reign of Henry VI; and the acquisition of a formal charter of incorporation could only recognize, not bestow, these rights.’Footnote 5 So far from the corporation having been the creature of the law, it is truer to regard it as an entity which has compelled the law to grant it official recognition. In reality, the function of the state in the matter has been permissive and regulative rather then creative. The relation suggests the judicial [370/371] adoption of a social usage. In a sense the judges have made a new rule of law. But this is only one side of the question. Similarly in regard to corporations, statute and charter may make new corporations, or confer official recognition on corporate bodies already existing. Before either statute or judicial decision, the thing itself has been in being.
Those to whom the past history of corporations in English law is inconclusive will do well to reflect upon the enormous range and variety of those unincorporated institutions which exist to- day, and of which many already present the more important characteristics of personality without having been officially and openly recognized as legal persons. When such an unincorporate group chooses to incorporate, the change, as Professor Maitland has well said, may amount to no more than a mere event in its history. ‘We could not even compare it to the attainment of full age. Rather it is as if a “natural person” bought a typewriting machine or took lessons in stenography.’
The untenability of the fiction theory is most clearly seen when we compare corporate personalities with personalities which are really fictitious. Austin classifies ‘fictitious or legal persons’ under three heads: -
1. Collections of physical persons, e.g., corporations aggregate.
2. Things, e.g., the praedium dominans.
3. Collections of rights and duties, e. g., the haereditas jacens.Footnote 6
No argument can be necessary to prove that in the second and third of these cases the attribution of personality is a mere legal fiction designed to facilitate certain practical objects. If the jurist visualizes the haereditas jacens as a person, it is merely because he finds it convenient to do so, and not because of any realities in the haereditas jacens itself which bear a close analogy to natural personality. Communities of spirit and purpose, will and action, are wholly lacking. To talk of them is absurd.
To the discerning, then, it would seem that the fiction theory is but a stage in the evolution of legal ideas. When at a certain stage in national development, lawyers find themselves brought face to face with the fact of corporate personality, they find it difficult to know what to do with it. Existing legal categories find no place for it. No material reality, nothing apparent to the senses is at hand. A crude realism denies that there can be any person except the corporators. Yet realities press with increasing urgency for legal recognition. It is seen that it is necessary to recognize in the group a capacity for legal rights and duties – the test of personality. To call the group a, person is then the first [371/372] stage – person not by reality, but by fiction of the law. There is nothing beyond the corporators, it is said, but lot us suppose a person for convenience sake. As groups multiply and ideas develop, this provisional solution of law is seen to owe more to realities and less to the juristic imagination than was at first supposed. The corporate person is stated to be real person. The statement is true, though, as I shall proceed to show, it is liable to be misunderstood.
6. The corporate person must be carefully distinguished from the actual or physical person. The outcome of the preceding argument may be briefly expressed by saying that the corporation is a person, and that this person is not a legal fiction. That it must be in consequence a real person seems to follow necessarily. Yet we must be careful to remember that in such a connexion the term real person is not the same as actual person. Personality is a legal conception. A natural person is a legal conception, a physical reality; and an organism. A corporation is a legal conception, but neither a physical reality nor an organism. When we say that a corporation is a person, we need imply no more than that it is a legal conception. When we say that this corporate person is not a legal fiction, we imply no more than that it is a representation of psychical realities which the law recognizes rather than creates. The whole conception of group personality belongs then to the world, not of material, but of psychical realities. The differences between corporations and physical persons are so numerous and significant that it is exceedingly important in the interests of justice and clear thinking not to lose sight of them – a thing we are very apt to do if we press certain highly practical and profoundly, suggestive analogies beyond legitimate limits. It may be worth while to consider for a moment some of the differences referred to, with special relation to (a) origins, and (b) the will and act.
(a) Origins. In the first place, as regards the coming into being of corporations, and indeed of all group persons, there is much more of conscious foresight than is the case with regard to ordinary physical persons. In early times, especially, the state is apt to appear rather conspicuously as a sort of artisan. The forces making for communalism in our twelfth and thirteenth centuries were largely governmental and seignorial. ‘Men are drilled and regimented into communities in order that the state may be strong and the land may be at peace. Much of the communal life that we see is not spontaneous. The community is a community, not because it is a self-sufficient organism, but because it is a subordinate member of a greater community, [372/373] a nation.’Footnote 7 Alike in mediaeval and modem times there is in the development of all group personality, whether recognized by the state or not, a great deal that looks like manufacture rather than growth. The unities upon which that personality rests are often apt to suggest creation rather than creature – something less born than made by wills animated by a conscious purpose. Growth there is, but it is growth directed by conscious foresight.
(b) Will and Act. When a corporate person comes to will and to act, important differences arise between this person and the individual. The ordinary principle of willing by a majority is itself a triumph of conscious art. ‘The canon lawyers,’ it has been said, ‘escaped the fallacy that some natural law enables a majority of members in a duly convened meeting to express the will of the corporation.’Footnote 8 The law assumes, it is sometimes urged, that the will of a majority represents what would be the unanimous will of the corporation if unanimity were insisted upon. It need hardly be said that this is pure assumption, justified by expediency and not by any a priori necessity. Again, natural persons act, without the mediation of another person. The corporate person can only act through the mediation of natural persons. The real significance of this difference is seen when we try to find a name for the natural persons who act for the group. Shall we call them agents? representatives? or organs? To call them agents is clearly open to objection, since an agent is appointed by a principal who himself wills and acts. To choose between representative and organ is more difficult. The term representative suggests a distinct person whose will and act are accepted as the will and act of another person. A more intimate term is needed to describe the persons whose acts are attributed to the corporation. They are members of the corporation, and their will has more claim to incarnate the corporate will than the will of the guardian, for example, to incarnate the will of the ward. That this is true is exemplified by common speech, which identifies the will of the natural persons acting for the group with the group itself, while refraining from speaking of the will of the guardian as the will of the ward. We say the community sold; we do not say as much of the idiot, argues Le Mestre.Footnote 9 On the whole the term organ seems more apt to suggest the true inwardness of things than any other that can be suggested. Nevertheless, it is clear that between the organ of the group and the organ of the [373/374] individual there are important differences. The one has an independent existence, the other has not; the one is a person, the other is not; the one is variable, the other is necessary and unchangeable. The natural person who follows a scriptural injunction as to offending members may find himself eternally bereft; the group person is more fortunate. The dangers of a too literal interpretation of the word organ are well illustrated by the anthropomorphism of an early time in accordance with which it was held that a corporation could not survive the loss of its head. So wrote King James of the body politic. ‘And for the similitude of the head and the body,’ declared King James in his defence of monarchy, ‘it may well fall out that the head will be forced to garre cut off some rotten member to keep the rest of the body in integritie; but what state can the body be in if the head for any infirmitie that can fall to it be cut off, I leave it to the reader's judgment.’Footnote 10
7. If neither actual nor fictitious, then what?. The argument under the two propositions immediately preceding may appear to be in some conflict. Such conflict, real or apparent, serves to illustrate the difficulty of the subject with which we have to deal. I have objected to the description of the corporation as a fictitious person because the ‘something more’ which the law treats as a, subject of rights and duties is not a creation of the juristic imagination, but a psychical reality – a reality arising from unities of spirit, purpose, interests, and organization. On the other hand, I have insisted upon the importance of the distinction between corporate persons and actual or physical persons. The question then arises, since both ‘natural persons’ and corporate persons are real, what epithet we should employ to distinguish them. The term ‘artificial’ is less objectionable than the term ‘fictitious,’ but it must be rejected because the development of normal group personality is essenti0y growth not manufacture. The term ‘juristic’ is open to objection; natural persons are also juristic persons. When, moreover, juristic is opposed to natural, the term is apt to suggest the interpretation which is put upon it by Professor Sohm: ‘Positive law finds among its data but one kind of personality, and that is the personality of human beings, which personality is the postulate and source of all legal development. The personality of organized bodies, on the other band, is a thing which positive law creates for itself at a particular stage of its development. This is what the term ‘juristic person' is meant to convey, and it would be difficult to find a more appropriate expression.’Footnote 11 The term ‘moral person’ [374/375] appears to be popular in France, and is perhaps less objectionable than most others. But it can scarcely be employed by the lawyer for the reason that it has been already appropriated by the philosopher. As the natural person of the lawyer requires to be distinguished from the physical person of the vernacular, so the group person of the lawyer must be distinguished from the group person, i.e. the moral person, of the philosopher. The term ideal person has been sometimes employed, and doubtless finds its justification in the fact that the corporate person is one of the realities which is not dependent upon anything material. But the natural person is also an ideal person, just as it is a juristic person. On the whole, I should prefer to use the expression collective person, as less open to objection than the terms generally in use.
8. The corporation in relation to other persons. If we are to find a place for the corporation in a complete scheme of persons, we need to distinguish between several classes. In the first place, we have to distinguish between persons recognized as such in law, and persons not so recognized. The latter are analogous to the former; they may be, so to speak, legal persons in the malting, if not even already regarded as such for certain isolated purposes. They include slaves, outlaws, children en ventre sa mère, and such group personalities as present psychological unities of which the law takes no cognizance. No degree of psychological unity, it may be remarked, will serve to make a group for legal purposes a person. A family may be a psychological unity; it is not as such a person. A large number of natural persons may pledge themselves, soul and body, to secure a political reform; they do not as such become legal persons. In the second place, among legal persons we must distinguish between those which consist of an individual and those which consist of a group of individuals. The distinction is sometimes indicated by the antithesis between natural and moral. But moral persons themselves have considerable claims to be described as natural. I shall accordingly venture to suggest the terms individual and collective. Both individual and collective persons are real persons and have to be again distinguished from legal persons which are fictitious. Instances of the last-mentioned abounded in later Roman law. A person who dedicated property for certain purposes, whether by will or by gift inter vivos, thereby created a new subject of rights and duties – it may be a hospital, poor-house, convent, or church. In English law we have an instance in the corporation sole. We attribute personality to the succession of the holders of a certain office. There can be no pretence to psychological unity in such cases. The attribution of personality may be serviceable, but is [375/376] fictitious. Combining these various principles in a general scheme, we arrive at the following table:
Such a classification may leave much to be desired from the point of view of logic, but it is perhaps as logical as the facts will allow. To develop it in detail were a task which cannot be attempted in the present brief survey, since it would involve inter alia an investigation of the nature of the many unincorporate institutions of English life whose present legal position is very far from clear.
9. The corporation and the state. The state is not ordinarily spoken of as a corporation, though its analogies to a corporation are indisputable and apparent. While lawyers admit the existence of ‘personality which is a fiction’ in the typical corporation, other people are loudly affirming the existence of ‘a personality which is no fiction’ in the state. The historian who sees in the state a growth, the scientist or sociologist who holds it an organism, the political philosopher who talks of social solidarity, the social consciousness, conscience, will, and intellect – all alike bear testimony to the power and growth of a conception in the presence of which political philosophy and political science acquire a now meaning and value. Even that much abused individual., the man in the street, is beginning to feel that the state into which he is born and in which he lives and dies, which comes out of the past and passes on to an indefinite future, may have many ‘personal’ qualities- and an existence from many points of view superior to his own. Meanwhile, however, from the point of view of English law, if we are to believe what we are told, the state is no person, ideal or fictitious. In Great Britain, it is not the state, but the crown, which owns property, is responsible for debts, enjoys rights and privileges, administers justice, makes laws, and levies taxes. Truly the ways of transgressors are hard. Prohibited from admitting the personality of the state, either by the [376/377] poverty of our ideas or by the conservatism of our temperament, we are driven to the device of attributing privileges and responsibilities to the king which no one can suppose to be really his. A sounder legal theory, however, knocks loudly at our door, and some day we shall awake to find we have been talking in our sleep. When that day has come, some legal fictions which are real fictions will make way for a legal theory which is a true theory – a theory, I may add, which is already implicit in many legal rules.Footnote 12
Although the legal recognition of the state as a, collective real person is simply a matter of time, there will be always certain highly important differences between the state and other collective real persons. In the first place, the state's will is sovereign, and therefore subject to no regulation from above; its powers over members are numerous, indefinite, and irresistible; and its purposes, general rather than special, touch human life at every point. In the second place, it has far more claims to be considered a natural growth than most corporations. Conscious art has far less to do in its origin. It is born before the individuals whose lives go to form it are quite aware of what they are doing. With self-consciousness comes a demand for philosophical justification of the state-building process, but that process has been going on in obedience to elemental instinct. ‘Law and institutions are only possible,’ writes Professor Bosanquet, ‘because man is already what they gradually make more and more explicit.’Footnote 13 Hence, in the third place, the personality of the state is more highly developed than that of other collective persons. The shareholder in a joint-stock company is united to other shareholders by unities in almost every way inferior in degree and intensity to those which bind together the citizens of a, state. Both company and state are organized groups, but in the mind of the component individuals which go to form them, the social self in one case is strictly limited, whilst in the other case it is unlimited, extending in its range over the whole compass of individuality.
One practical conclusion of great importance results from the conception of the state as a person. It relates to the sovereignty and its location. In most civilized communities there is some- where an authority whose will, in the eye of the law, is unlimited and irresistible. If in a political society no such authority can be found, or if it can only be found with such difficulty that for practical purposes we may say it is non-existent, that political [377/378] society labours under great disadvantages – disadvantages of which we seem to have an illustration in the United States of America. Where, however, the authority exists, we have what has been called a legal sovereign. In Great Britain the authority is constituted of the king and parliament. If we regard this authority from the point of view adopted in the present essay, it will appear to us as an organ exercising its functions for the community of which it is a part. Whatever powers it possesses or exercises derive ultimately from the organized community as a whole. There may then be said to be two subjects of legal sovereignty – one immediate and one ultimate. ‘Let us see, then,’ wrote Grotius, ‘in what subject sovereign power resides. The subject in which a power resides is either common or special; as the common subject in which the sight resides is the body, but the special subject is the eye. And in like manner the common subject in which the sovereignty resides is the state. . . . The special subject is one or more persons according to the laws and customs of each nation.’Footnote 14 The conception of legal sovereignty as inhering in a portion of the community needs then to be revised by reference to the fact that such portion is but an organ of the community as a whole. When lawyers have escaped from the tyranny of forms and have overcome the superstition that they must not regard things in their totality, when they have learnt that on the contrary it is only when we so regard them we can hope to comprehend them, they will find some place in legal theory for ideas which have already profoundly affected less conservative branches of learning. They will not fear to think of the state as a unity, a personality, a sovereign – a sovereign in whose presence the visible ruler can aspire to no higher title than that of sovereign-organ. The law may elect to accept the declared will of that visible ruler as conclusive of the will of the sovereign, but the fact need not prevent the lawyer from recognizing, even as a lawyer, that the visible ruler is but an organ of the organized community. It has been said of a great scientist that he closed the door of his laboratory before he entered the door of his church. The attitude is suggestive of the provisional order of things, since a theological theory which will not somehow square with the laboratory can afford no resting-place. Similarly a lawyer who leaves what he has learnt from history and science behind him when he opens his Law Reports is merely postponing a difficulty. That difficulty will have, to be met somehow. When it has been met legal theory will not be the less, but the more, worthy of his homage.
In conclusion, I will venture to say one word in answer to those [378/379] who would admit that the State may be a collective person but would deny the title to a, joint-stock company. The individual takes to every group with which he associates something of the group spirit with which inheritance and circumstance have endowed him. In every group sufficiently organized to act as a group there exist, though at different degrees of development, the phenomena which justify us in regarding society as an organic whole. Law is not in haste to recognize the fact; but when the group is large and its organization becomes complex, recognition becomes sooner or later inevitable. As a member of such a group the individual is affected, however slightly, yet to some extent; qualities have been developed in him which cannot be explained save by reference to the union. More obviously, the group itself is something which cannot be analysed into the mere sum of its parts. The sum of the parts may survive the destruction of the group, but could no more explain the group than the dead material of a murdered organism will explain the organism. Such facts may appear when so stated to savour of metaphysics, but the metaphysics is already implicit in the led legal lore which asserts that a corporation is more than a more partnership.
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Editorial introduction
Although there is now a thriving subdiscipline of economics and law, so far economists working on the theory of the firm have paid relatively little attention to earlier legal doctrines. One neglected juridical school of thought is the ‘real entity’ theory developed by William Jethro Brown (1868–1930) and others. Some writers have recently suggested that this has implications for our understanding of the nature of the firm.
Brown was an Australian jurist and professor of law.Footnote 1 Born at Mintaro in South Australia as the son of a farmer, he was educated at Stanley Grammar School in Watervale in the same territory. From 1882 to 1886 he was a teacher at Moonta Mines State School. Leaving South Australia for England, he became a student at St. John's College, Cambridge. He graduated in 1890 with a B.A. and LL.B. with first-class honours. The jurist and historian Frederic W. Maitland was among his teachers, and became a friend. In 1891 Brown was called to the Bar at the Middle Temple, London. In 1893 he was one of three foundation lecturers in the University of Tasmania, teaching law and modern history. In 1896 he was promoted to a full professor, and in 1898 temporarily occupied the chair of law at Sydney. In 1900 he became professor of constitutional law and history at University College London. In the following year he was appointed professor of comparative law at the University College of Wales. From 1906 to 1916 he was professor of law at the University of Adelaide. His publications include The New Democracy (1899), The Austinian Theory of Law (1906), The Underlying Principles of Modern Legislation (1912), and The Prevention and Control of Monopolies (1914). In 1916 he was became president of the Industrial Court of South Australia.
Influenced by Thomas H. Green and other social liberals, Brown advocated a form of pragmatic social engineering. He interpreted law as a process, rather than a body of knowledge or the will of a ruling person or institution. Law must adapt to meet the changing needs of society, and serve social welfare and harmony. He argued that business should openly disclose its dealings and proposed the outlawing of predatory trade practices. Along corporatist lines, he proposed the establishment of expert tribunals with worker and business representatives to control prices, wages, and tariffs. Like many others of his generation he favoured a form of eugenics. He also held strong feminist views.
In the essay reprinted below, Brown proposes a ‘real entity theory’ of the corporation. Real entity theories of the firm have a long history and are traceable to Otto von Gierke (Reference Gierke1868–81) and earlier. Maitland translated some of Gierke's works into English and followed the German jurist in proposing that the corporation was an organism, with a real will of its own. This attribution of organizations and states with the (metaphorical or literal) qualities of a living organism was also found in the contemporary writings of the older German historical school, particularly Wilhem Roscher, Karl Knies, Albert Schäffle, and Paul von Lilienfeld (Hutter, Reference Hutter and Mirowski1994; Krabbe, Reference Krabbe1996; Hodgson, Reference Hodgson2001), and in the works of Herbert Spencer (Wiltshire Reference Wiltshire1978). Incidentally, Alfred Marshall (Reference Marshall1920: 25, 461) was exposed to multiple doses of this kind of organicist thinking, through his teacher Knies, through the strong influence of Spencer on his work, and probably through the influence of Maitland at Cambridge. However, the treatment of organisations as organisms has been widely criticised in the twentieth century, including by American institutionalists such as John R. Commons (Reference Commons1934).
Brown was a leading member of a second generation of real entity theorists who broke from the idea of the corporation as an organism and attempted to establish its status as an entity by different means. Unlike his organo-vitalist predecessors, Brown (Reference Brown1905: 374) insists on a ‘distinction between corporate persons and actual or physical persons’.Footnote 2 However, before we consider further details of Brown's argument it would be useful to consider alternative interpretations that contrast with real entity theory. In his useful account, Michael J. Phillips (Reference Phillips1994) discusses several theories of the corporation, namely the concession view, the fiction view, the aggregate view, the nexus of contracts view, and the real entity view. Some of these different views are mutually consistent and they are combined in some accounts.
The concession view is that the corporation derives its being by an act of the state and it is exclusively a creature of state law. Often conjoined to this is the idea that the corporation is not real but a convenient fiction. Accordingly, the corporation is simply an artificial description or an imaginary legal person, as economists Michael Jensen and William Meckling (1976: 310) suggest. The aggregate view is that the properties of the firm are simply the properties of the constituent entities or participating individuals, and nothing more. According to the nexus of contracts view, the firm is a set of contracts among the participants in the enterprise. This view was famously foreshadowed by Ronald Coase (Reference Coase1937) and has become popular in both law and economics (Jensen and Meckling, Reference Jensen and Meckling1976; Fama; Reference Fama1980, Bratton, Reference Bratton1989a, Reference Bratton1989b). By regarding contracts as constituent elements, the nexus of contracts view can be regarded as a specific form of the aggregate doctrine. Similar remarks apply to the definition of a firm as a collection of assets by Grossman and Hart (Reference Grossman and Hart1986).
The connection between the aforementioned literature in corporate juris-prudence and modern economics – including the new institutional economics – should now be clear. The reader will also be reminded of debates concerning ‘methodological individualism’ in particular and social theory more generally. Actually, the primary questions involved are ontological, concerning social being. The proposition that the corporation is no more than an aggregate of its individual members flows from an ontological individualism, upholding that social entities or institutions consist of no more than their constituent individuals.Footnote 3
Brown's (Reference Brown1905: 368) response to this is direct: ‘a mere sum of individuals as such can no more become a unit than a heap of sand can become a statue’. This suggests that the entities in question consist of more than simply an aggregate of their constituent elements, because these elements are structured and arranged in a particular way. Accordingly, a corporation involves structural arrangements between individuals, as well as its individual members. Brown (Reference Brown1905: 368–369) develops an additional argument at greater length, that corporations acquire group properties because individuals interacting in such groups develop properties that would not be found if the individuals were kept apart:
Whenever men act in common they inevitably tend to develop a spirit which is something different from themselves taken singly or in sum. . . . The individual takes to every group with which he associates something of the group spirit with which inheritance and circumstance have endowed him. In every group sufficiently organized to act as a group there exist, though at different degrees of development, the phenomena which justify us in regarding society as an organic whole. . . . As a member of such a group the individual is affected, however slightly, yet to some extent; qualities have been developed in him which cannot be explained save by reference to the union. More obviously, the group itself is something which cannot be analysed into the mere sum of its parts.
The important point here is that individual-group interactions can change the aims, preferences and capacities of the individuals involved. This emphasis on structured interactions between individuals and their consequences is also present in modern social ontologies (Weissman, Reference Weissman2000). Such observations are missing in standard theories of the firm, including the transaction cost and property rights approaches. In such theories the individual is taken as given. Brown objects to this, as does Mary Douglas (Reference Douglas and Williamson1990: 102) in her critique of Oliver Williamson:
He believes firms vary, but not individuals. He has the same representative rational individual marching into one kind of contract or refusing to renew it and entering another kind for the same set of reasons, namely, the cost of transactions in a given economic environment.
However, according to Brown, a corporation is more than a group. After all, if individual interactions change the characteristics of individuals, then we should expect changes through market interactions as well as membership of firms. As well as being a group, what is special about the corporation? Brown (Reference Brown1905: 370) first answers in terms of common will or purpose: ‘Differences of opinion may exist within it, but there is at least one will which is general, the will to continue the collective work. It is in fact a very efficiently organized unity which the state has recognized in some form or other.’ Brown thus emphasises both the common purpose de facto and its de jure recognition by the state. Both conditions are necessary for the firm to become a juridical or collective person. Families or political campaigning groups may have a common purpose, but their lack of state recognition means that they are not collective legal persons. Brown then goes on to argue that the state itself is a legal person in this collective meaning.
It is also notable that the role of the state in constituting the corporation is neglected in both orthodox and heterodox theories of the firm (Hodgson, Reference Hodgson2002). Brown's point is that state recognition and incorporation help to define the common purpose and strengthen the unity of the corporate unit.
However, despite the efforts of the second generation, the real entity view of the corporation fell out of favour in the 1920s. Only recently has it experienced a tentative reconsideration (Phillips, Reference Phillips1994; Blair, Reference Blair, Blair and Roe1999, Reference Blair, Margaret2003; Hansmann et al., Reference Hansmann, Kraakman and Squire2006). But it has yet to have a significant impact on economics.Footnote 4 What would be its implications for the theory of the firm? At present we have only a few indications and a partly formed agenda for future research.
Consider some arguments from the legal side of the disciplinary divide. Margaret Blair (Reference Blair, Blair and Roe1999: 59) writes:
the entity view of the firm should be brought back to center stage in the law because the legal device for creating a separate judicial person may be an important mechanism for protecting enterprise-specific investments made by all participants in the firm, including both employers and employees. . . . A growing body of economic theory suggests that specialized investments – investments whose value in a particular enterprise greatly exceeds their value in alternative uses – play a critical role in determining the boundaries of firms and the allocation of risks, rewards, and control rights within firms.
Blair (Reference Blair, Margaret2003) further proposes that corporate status as a distinct legal person, rather than say a mere partnership, has helped firms to agglomerate and lock in capital, and thereby invest in long-term projects and assets. Similarly, Henry Hansmann et al. (Reference Hansmann, Kraakman and Squire2006) argue that the creation of corporate entities, which are legally distinct from their owners or managers, not only limits the legal liability of shareholders but also gives rise to what they call ‘entity shielding’ that protects corporate assets from the personal creditors of the owners. This creates important economic benefits including a lower cost of credit for firm owners and enhanced corporate stability, as well as costs including those that may result from opportunistic abuses of the system. The work of these authors is redolent of the real entity theory of the corporation and signals its rehabilitation by legal scholars.
If the arguments of Blair, Hansmann and their colleagues are correct, then the evolution of corporate forms in the business world in the last two or three centuries has had had enormous repercussions for the amassing of industrial capital and economic growth. Understanding corporations as institutions and real entities is useful to appreciate the unique mechanisms involved. For these reasons, the work of entity theorists in general and Brown in particular should be given much greater attention by institutional and other economists.
Geoffrey M. Hodgson
‘It is a fact which has received far too little notice from English lawyers, that, whenever men act in concert for a common purpose, they tend to create a body which, from no fiction of law, but from the very nature of things, differs from the individuals of whom it is constituted.’
Dicey, Law and Opinion in EnglandThe true nature of the corporation is a matter about which English lawyers and authors are either in conflict or in the stage preceding conflict. Real persons, fictitious persons, juristic persons, moral persons, no persons ‘at all, at all’ – these and such-like phrases indicate differences more or less fundamental or important. Still more serious, however, are the differences unavowed and unrecognized. In the development of our association law in general we have been rather apt to pride ourselves on doing without general theories, while all the while engaged in applying and developing them. In our fear of idolatry we have refused to look upon the work our hands have slowly fashioned. The advantages and disadvantages of such a mode of procedure ought to be tolerably well known to us; yet in view of the enormous ‘growth of associations in our time it were well to open one eye at least, even if we run some risk in doing so. Certainly the present condition of our corporation theory might well serve us as a warning. Time will doubtless bring its own solutions, but meanwhile the student who is anxious for clear ideas must do this best to fight his own way to them, not too envious of the days when men shall know the blessedness of repose in an unchallengeable orthodoxy. Stubborn facts, facts in the making, facts not always what they seem, legal fictions which pretend to be legal theories – these are some of the material he will need to handle, happy perhaps if he come out of it all with any ideas that will hang together, or even with any ideas at all. He will do well to commence by reading Professor Maitland's Introduction to Gierke's Political Theories of the Middle Age. If he will then study something of our English corporation law, trust law, and constitutional law, and later something of what the jurists of other countries have to say on the general question, he will be in a position to return to Professor Maitland's Introduction with [365/366] the opportunity of discovering how little he had really understood of that brief but singularly brilliant essay. The reader will discern that I speak from personal experience. How far the personal experience may have served any other purposes than those implied in a moral chastening the reader must judge for himself from the propositions which follow.
1. A corporation is something distinct from the individual persons who constitute it. The position is too obvious to need proof. The whole is more than its parts. The individual members of a mining company have no direct right of property in the mine or the machinery, and if any one of them should presume to act as owner he would be liable to civil action as an ordinary trespasser. It is of more practical importance to point out, for the sake of the uninitiated, that the persons who constitute the corporation are not necessarily coincident with two other classes of persons who are directly associated with it, viz.: (a) Those persons through whom the corporation acts, (b) those persons in whose interests the corporation exists. The former are often called representatives, the latter beneficiaries. In a typical municipal corporation, the members are the mayor, aldermen, and burgesses of the borough; the beneficiaries are the inhabitants of the borough; and the ‘representatives’ are the mayor, aldermen, and town councillors. In an ordinary mining company the members and also the beneficiaries are the shareholders, whilst, for most purposes, the ‘representatives’ are the directors. Both members and ‘representatives’ of corporations are living persons – I speak throughout of corporations aggregate as distinct from corporations sole – whilst the beneficiaries may be, as in the case of the University of Cambridge, an indeterminate body embracing present and future generations.
2. A corporation is, in the eye of the law, distinct from the sum of its members. This fact received an interesting illustration in Roman law. In that system, although the torture of a slave as a means of extorting information against his master was prohibited, the slave of a corporation might be tortured as a means of gaining information against any or all of its individual members. As regards English law the following illustrations may be quoted.
(a) Each of the members of a corporation may be solvent whilst the corporation itself is insolvent.
(b) The very same persons who have registered themselves as one company may also register themselves as another and quite distinct company. If the corporation were identical with the sum of its members they would be one company, but the law holds them two.
(c) The corporation remains the same although its personnel [366/367] changes entirely. It is a totality of which the parts are constantly changing without affecting the continuity of the totality itself.
(d) Finally, the corporation is no mere partnership. Thus, partners are, whilst corporators need not be, liable for the debts of the group. Partners own, whilst corporators do not own, the group property. A partnership possesses a practically unrestricted power in dealings with third parties, while a corporation is ordinarily limited by reference to the purposes for which it is incorporated. Finally, whilst partnership can be resolved into mere contract, a corporation implies a new status. ‘Contract, that greediest of legal categories,’ writes Professor Maitland, ‘which once wanted to devour the state, resents being told that it cannot painlessly digest even a joint-stock company.’Footnote 1
3. The corporation is a legal subject of right and duties. This proposition is of the nature of re-statement. If the law recognizes a distinction between a corporation and the sum of its members, it is not as a more flight of fancy, or to indulge an inclination for metaphysics, but for the very practical and sufficient purpose of establishing the inherence of certain rights and duties which cannot be conveniently treated – or perhaps cannot be treated at all – as inhering in the members of the corporation, The property of a corporation follows the fate of the corporation whatever that may be, not the fate of its members whatever that may be. It is the corporation (not the members) which is creditor and debtor.
4. The corporation is, therefore, in law a person. The cardinal distinction of jurisprudence is between rights or duties, and the holders or subjects of rights or duties. Such subjects are persons in law. This does not mean that they are not also persons in fact, a suggestion which might occur to the layman who has a mother-in-law who is no mother in law. It will be obvious that while some human beings (e.g., slaves) are not persons, some persons are not human beings. Wherever the law attributes rights or duties to an entity or institution, it makes a person of, or recognizes a person in, that entity or institution. It becomes important, therefore, to distinguish between different kinds of persons in law. When the person in law is also a human being, it is called a natural person; when it is not a human being, it is sometimes called an artificial person. We have hitherto considered how the law regards that species of so-called artificial persons which we know as the corporation. We have now to look behind legal rules to the nature of things, and to consider whether, in distinguishing between the corporation and the sum of its members, the law is merely employing [367/368] a useful device for shorthand purposes, or is building on certain real and deep analogies to natural personality which exist wholly apart from legal recognition.
5. The personality of the corporation is not a mere metaphor or fiction. The theory of the corporation as a legal fiction has been variously expounded. The practical dilemma which it involves is obvious. If the corporate personality is a fiction, the rights attributed to it by law are either the rights of the corporators, or else rights without a subject. The latter hypothesis, though it has found exponents, is apparently in discredit, and indeed seems almost to amount to an avowal of the hopelessness of the fiction theory in general Traditional opinion has preferred the alternative view. ‘Legal persons,’ said John Austin, ‘are persons by figment, and for the sake of brevity in discourse. All rights reside in, and all duties are incumbent upon, physical or natural persons. But by ascribing theme to feigned persons, and not to the physical persons whom they in truth ‘concern, we are frequently able to abridge our descriptions of them.’Footnote 2 Similarly Ihering, ‘Modern science has placed the juristic person in the place of the isolated members for which alone it exists, as if this imaginary being, which can neither enjoy nor feel, led an independent existence.’Footnote 3 If we would do justice to such statements we must consider more closely the nature of the I something more than the sum of its members' which is dignified by law as a person of some sort, and is regarded by traditional opinion as a pure creation of the imagination.
The inquiry is one which leads us on from the subject of corporations to the wider subject of human association in general. Of this wider subject it is necessary to speak for a moment. Whenever men act in common they inevitably tend to develop a spirit which is something different from themselves taken singly or in sum. No one who has had any experience as a member of a governing body, for example, can be ignorant of the feet that the decisions of such a body, even when they are unanimous, are often inexplicable if regarded from the point of view of the several characters of the individual members considered as so many units. When at a meeting of such a board a speaker begins with the statement, ‘I speak as a member of this board, and I say –’ there will be reason to anticipate statements or proposals which are not adequately representative of the person making them. Under the inspiration of esprit de corps, the humans will give a cruel decision, the cruel a humane. In every group of men acting [368/369] together for a common purpose, the common purpose inevitably begets a common spirit which is real though it may be vague and indefinite to us because our vision is limited, or because the group is in the making. The group becomes, or tends to become, a unit, and as Bluntschli so well said, a mere sum of individuals as such can no more become a unit than a heap of sand can become a statue. So a symphony is something more than a more concurrence of sounds and a cathedral than so much stone and mortar. As regards the human group, no argument can be necessary to prove that, as the psychical realities which inspire it become distinct and emphatic; so is the efficiency of the group increased and its purpose promoted.
The unity of spirit and purpose just referred to is fostered and developed by continuous action in common. It is not so obvious, though quite as true, that the same unity tends to beget a different kind of action – the action of some in behalf of all. As psychical realities in the individual find means of expression in individual action, so psychical realities in the group find means of expression in corporate action. But the individual is an organism with predetermined organs for expressing the individual will. The group is not an organism, and numberless difficulties have to be overcome when the group-mind seeks realization in the external world.Footnote 4 The difficulties will be overcome somehow, though possibly the group may never pass beyond the stage when action of the whole is only possible by combined action of each of the parts. In all highly developed groups, however, some one person or number of persons acquires e, capacity to express in action the will of the group. If we may employ an extremely useful and suggestive analogy, he or they are the organ of the group for the purpose of giving external expression to the corporate will. Inevitably, such expression will lack the directness and spontaneity which exist in the case of the individual; but the group-purpose is promoted in proportion as such directness and spontaneity are approached. The member of a highly developed group is thus part of a new power or force. For this privilege, however, he has to forgo something of his own liberty of action. In becoming a member of an organized whole, he loses apparently something of his significance as a unit. He ceases to become a member of an undisciplined mob that he may become a soldier in a disciplined army.
I return to the corporation. This is clearly a group of a very special kind. It may exhibit some of the psychic bonds which I have referred to in an inferior degree, while displaying others [369/370] in an exceptionally developed degree. Differences of opinion may exist within it, but there is at least one will which is general, the will to continue the collective work. It is in fact a very efficiently organized unity which the state has recognized in some form or other. To it, as we have seen, the law ascribes a distinctive existence, a capacity for right and duty, a personality. This personality differs from the personalities of the natural persons composing it, but shares with them the important characteristic of a capacity for will and action. When the personality is described as a fiction of the law, the novice might suppose that no more was meant than that the corporation was not a man. Were this the case, there would be no need for controversy. What is meant, however, appears to be that the corporate personality has no existence beyond that which the state chooses to give it. The state has made it what it is. Such a view is, of course, in direct opposition to the statements made in the paragraphs immediately preceding, and becomes increasingly difficult to defend in our day owing to the enormous development of associated activities. We may readily ignore what we see seldom or in incipient stages; what appears before us at every moment and at highly developed stages refuses to be ignored. To the moderns it is becoming increasingly clear that ‘the something more than the sum of its members’ which the state implicitly recognizes as a person is no more creation of the juristic imagination, but is rather a reality as indisputable as that very material subject of rights and duties – the natural person.
The real character of corporate personality is suggested by certain facts in the early history of corporations in England. The chief attributes of the corporation, such as the right of perpetual succession, the right to sue and be sued by name, to purchase lands, to have a common seal and to make by-laws, were long recognized before the conception of the corporation was thought of. Their attainment marked stages which corresponded to the developments of social life rather than of juristic thought. ‘All the ancient boroughs of England, or nearly all,’ wrote Stubbs, ‘must have possessed all the rights of corporations and been corporations by prescription long before the reign of Henry VI; and the acquisition of a formal charter of incorporation could only recognize, not bestow, these rights.’Footnote 5 So far from the corporation having been the creature of the law, it is truer to regard it as an entity which has compelled the law to grant it official recognition. In reality, the function of the state in the matter has been permissive and regulative rather then creative. The relation suggests the judicial [370/371] adoption of a social usage. In a sense the judges have made a new rule of law. But this is only one side of the question. Similarly in regard to corporations, statute and charter may make new corporations, or confer official recognition on corporate bodies already existing. Before either statute or judicial decision, the thing itself has been in being.
Those to whom the past history of corporations in English law is inconclusive will do well to reflect upon the enormous range and variety of those unincorporated institutions which exist to- day, and of which many already present the more important characteristics of personality without having been officially and openly recognized as legal persons. When such an unincorporate group chooses to incorporate, the change, as Professor Maitland has well said, may amount to no more than a mere event in its history. ‘We could not even compare it to the attainment of full age. Rather it is as if a “natural person” bought a typewriting machine or took lessons in stenography.’
The untenability of the fiction theory is most clearly seen when we compare corporate personalities with personalities which are really fictitious. Austin classifies ‘fictitious or legal persons’ under three heads: -
1. Collections of physical persons, e.g., corporations aggregate.
2. Things, e.g., the praedium dominans.
3. Collections of rights and duties, e. g., the haereditas jacens.Footnote 6
No argument can be necessary to prove that in the second and third of these cases the attribution of personality is a mere legal fiction designed to facilitate certain practical objects. If the jurist visualizes the haereditas jacens as a person, it is merely because he finds it convenient to do so, and not because of any realities in the haereditas jacens itself which bear a close analogy to natural personality. Communities of spirit and purpose, will and action, are wholly lacking. To talk of them is absurd.
To the discerning, then, it would seem that the fiction theory is but a stage in the evolution of legal ideas. When at a certain stage in national development, lawyers find themselves brought face to face with the fact of corporate personality, they find it difficult to know what to do with it. Existing legal categories find no place for it. No material reality, nothing apparent to the senses is at hand. A crude realism denies that there can be any person except the corporators. Yet realities press with increasing urgency for legal recognition. It is seen that it is necessary to recognize in the group a capacity for legal rights and duties – the test of personality. To call the group a, person is then the first [371/372] stage – person not by reality, but by fiction of the law. There is nothing beyond the corporators, it is said, but lot us suppose a person for convenience sake. As groups multiply and ideas develop, this provisional solution of law is seen to owe more to realities and less to the juristic imagination than was at first supposed. The corporate person is stated to be real person. The statement is true, though, as I shall proceed to show, it is liable to be misunderstood.
6. The corporate person must be carefully distinguished from the actual or physical person. The outcome of the preceding argument may be briefly expressed by saying that the corporation is a person, and that this person is not a legal fiction. That it must be in consequence a real person seems to follow necessarily. Yet we must be careful to remember that in such a connexion the term real person is not the same as actual person. Personality is a legal conception. A natural person is a legal conception, a physical reality; and an organism. A corporation is a legal conception, but neither a physical reality nor an organism. When we say that a corporation is a person, we need imply no more than that it is a legal conception. When we say that this corporate person is not a legal fiction, we imply no more than that it is a representation of psychical realities which the law recognizes rather than creates. The whole conception of group personality belongs then to the world, not of material, but of psychical realities. The differences between corporations and physical persons are so numerous and significant that it is exceedingly important in the interests of justice and clear thinking not to lose sight of them – a thing we are very apt to do if we press certain highly practical and profoundly, suggestive analogies beyond legitimate limits. It may be worth while to consider for a moment some of the differences referred to, with special relation to (a) origins, and (b) the will and act.
(a) Origins. In the first place, as regards the coming into being of corporations, and indeed of all group persons, there is much more of conscious foresight than is the case with regard to ordinary physical persons. In early times, especially, the state is apt to appear rather conspicuously as a sort of artisan. The forces making for communalism in our twelfth and thirteenth centuries were largely governmental and seignorial. ‘Men are drilled and regimented into communities in order that the state may be strong and the land may be at peace. Much of the communal life that we see is not spontaneous. The community is a community, not because it is a self-sufficient organism, but because it is a subordinate member of a greater community, [372/373] a nation.’Footnote 7 Alike in mediaeval and modem times there is in the development of all group personality, whether recognized by the state or not, a great deal that looks like manufacture rather than growth. The unities upon which that personality rests are often apt to suggest creation rather than creature – something less born than made by wills animated by a conscious purpose. Growth there is, but it is growth directed by conscious foresight.
(b) Will and Act. When a corporate person comes to will and to act, important differences arise between this person and the individual. The ordinary principle of willing by a majority is itself a triumph of conscious art. ‘The canon lawyers,’ it has been said, ‘escaped the fallacy that some natural law enables a majority of members in a duly convened meeting to express the will of the corporation.’Footnote 8 The law assumes, it is sometimes urged, that the will of a majority represents what would be the unanimous will of the corporation if unanimity were insisted upon. It need hardly be said that this is pure assumption, justified by expediency and not by any a priori necessity. Again, natural persons act, without the mediation of another person. The corporate person can only act through the mediation of natural persons. The real significance of this difference is seen when we try to find a name for the natural persons who act for the group. Shall we call them agents? representatives? or organs? To call them agents is clearly open to objection, since an agent is appointed by a principal who himself wills and acts. To choose between representative and organ is more difficult. The term representative suggests a distinct person whose will and act are accepted as the will and act of another person. A more intimate term is needed to describe the persons whose acts are attributed to the corporation. They are members of the corporation, and their will has more claim to incarnate the corporate will than the will of the guardian, for example, to incarnate the will of the ward. That this is true is exemplified by common speech, which identifies the will of the natural persons acting for the group with the group itself, while refraining from speaking of the will of the guardian as the will of the ward. We say the community sold; we do not say as much of the idiot, argues Le Mestre.Footnote 9 On the whole the term organ seems more apt to suggest the true inwardness of things than any other that can be suggested. Nevertheless, it is clear that between the organ of the group and the organ of the [373/374] individual there are important differences. The one has an independent existence, the other has not; the one is a person, the other is not; the one is variable, the other is necessary and unchangeable. The natural person who follows a scriptural injunction as to offending members may find himself eternally bereft; the group person is more fortunate. The dangers of a too literal interpretation of the word organ are well illustrated by the anthropomorphism of an early time in accordance with which it was held that a corporation could not survive the loss of its head. So wrote King James of the body politic. ‘And for the similitude of the head and the body,’ declared King James in his defence of monarchy, ‘it may well fall out that the head will be forced to garre cut off some rotten member to keep the rest of the body in integritie; but what state can the body be in if the head for any infirmitie that can fall to it be cut off, I leave it to the reader's judgment.’Footnote 10
7. If neither actual nor fictitious, then what?. The argument under the two propositions immediately preceding may appear to be in some conflict. Such conflict, real or apparent, serves to illustrate the difficulty of the subject with which we have to deal. I have objected to the description of the corporation as a fictitious person because the ‘something more’ which the law treats as a, subject of rights and duties is not a creation of the juristic imagination, but a psychical reality – a reality arising from unities of spirit, purpose, interests, and organization. On the other hand, I have insisted upon the importance of the distinction between corporate persons and actual or physical persons. The question then arises, since both ‘natural persons’ and corporate persons are real, what epithet we should employ to distinguish them. The term ‘artificial’ is less objectionable than the term ‘fictitious,’ but it must be rejected because the development of normal group personality is essenti0y growth not manufacture. The term ‘juristic’ is open to objection; natural persons are also juristic persons. When, moreover, juristic is opposed to natural, the term is apt to suggest the interpretation which is put upon it by Professor Sohm: ‘Positive law finds among its data but one kind of personality, and that is the personality of human beings, which personality is the postulate and source of all legal development. The personality of organized bodies, on the other band, is a thing which positive law creates for itself at a particular stage of its development. This is what the term ‘juristic person' is meant to convey, and it would be difficult to find a more appropriate expression.’Footnote 11 The term ‘moral person’ [374/375] appears to be popular in France, and is perhaps less objectionable than most others. But it can scarcely be employed by the lawyer for the reason that it has been already appropriated by the philosopher. As the natural person of the lawyer requires to be distinguished from the physical person of the vernacular, so the group person of the lawyer must be distinguished from the group person, i.e. the moral person, of the philosopher. The term ideal person has been sometimes employed, and doubtless finds its justification in the fact that the corporate person is one of the realities which is not dependent upon anything material. But the natural person is also an ideal person, just as it is a juristic person. On the whole, I should prefer to use the expression collective person, as less open to objection than the terms generally in use.
8. The corporation in relation to other persons. If we are to find a place for the corporation in a complete scheme of persons, we need to distinguish between several classes. In the first place, we have to distinguish between persons recognized as such in law, and persons not so recognized. The latter are analogous to the former; they may be, so to speak, legal persons in the malting, if not even already regarded as such for certain isolated purposes. They include slaves, outlaws, children en ventre sa mère, and such group personalities as present psychological unities of which the law takes no cognizance. No degree of psychological unity, it may be remarked, will serve to make a group for legal purposes a person. A family may be a psychological unity; it is not as such a person. A large number of natural persons may pledge themselves, soul and body, to secure a political reform; they do not as such become legal persons. In the second place, among legal persons we must distinguish between those which consist of an individual and those which consist of a group of individuals. The distinction is sometimes indicated by the antithesis between natural and moral. But moral persons themselves have considerable claims to be described as natural. I shall accordingly venture to suggest the terms individual and collective. Both individual and collective persons are real persons and have to be again distinguished from legal persons which are fictitious. Instances of the last-mentioned abounded in later Roman law. A person who dedicated property for certain purposes, whether by will or by gift inter vivos, thereby created a new subject of rights and duties – it may be a hospital, poor-house, convent, or church. In English law we have an instance in the corporation sole. We attribute personality to the succession of the holders of a certain office. There can be no pretence to psychological unity in such cases. The attribution of personality may be serviceable, but is [375/376] fictitious. Combining these various principles in a general scheme, we arrive at the following table:
Such a classification may leave much to be desired from the point of view of logic, but it is perhaps as logical as the facts will allow. To develop it in detail were a task which cannot be attempted in the present brief survey, since it would involve inter alia an investigation of the nature of the many unincorporate institutions of English life whose present legal position is very far from clear.
9. The corporation and the state. The state is not ordinarily spoken of as a corporation, though its analogies to a corporation are indisputable and apparent. While lawyers admit the existence of ‘personality which is a fiction’ in the typical corporation, other people are loudly affirming the existence of ‘a personality which is no fiction’ in the state. The historian who sees in the state a growth, the scientist or sociologist who holds it an organism, the political philosopher who talks of social solidarity, the social consciousness, conscience, will, and intellect – all alike bear testimony to the power and growth of a conception in the presence of which political philosophy and political science acquire a now meaning and value. Even that much abused individual., the man in the street, is beginning to feel that the state into which he is born and in which he lives and dies, which comes out of the past and passes on to an indefinite future, may have many ‘personal’ qualities- and an existence from many points of view superior to his own. Meanwhile, however, from the point of view of English law, if we are to believe what we are told, the state is no person, ideal or fictitious. In Great Britain, it is not the state, but the crown, which owns property, is responsible for debts, enjoys rights and privileges, administers justice, makes laws, and levies taxes. Truly the ways of transgressors are hard. Prohibited from admitting the personality of the state, either by the [376/377] poverty of our ideas or by the conservatism of our temperament, we are driven to the device of attributing privileges and responsibilities to the king which no one can suppose to be really his. A sounder legal theory, however, knocks loudly at our door, and some day we shall awake to find we have been talking in our sleep. When that day has come, some legal fictions which are real fictions will make way for a legal theory which is a true theory – a theory, I may add, which is already implicit in many legal rules.Footnote 12
Although the legal recognition of the state as a, collective real person is simply a matter of time, there will be always certain highly important differences between the state and other collective real persons. In the first place, the state's will is sovereign, and therefore subject to no regulation from above; its powers over members are numerous, indefinite, and irresistible; and its purposes, general rather than special, touch human life at every point. In the second place, it has far more claims to be considered a natural growth than most corporations. Conscious art has far less to do in its origin. It is born before the individuals whose lives go to form it are quite aware of what they are doing. With self-consciousness comes a demand for philosophical justification of the state-building process, but that process has been going on in obedience to elemental instinct. ‘Law and institutions are only possible,’ writes Professor Bosanquet, ‘because man is already what they gradually make more and more explicit.’Footnote 13 Hence, in the third place, the personality of the state is more highly developed than that of other collective persons. The shareholder in a joint-stock company is united to other shareholders by unities in almost every way inferior in degree and intensity to those which bind together the citizens of a, state. Both company and state are organized groups, but in the mind of the component individuals which go to form them, the social self in one case is strictly limited, whilst in the other case it is unlimited, extending in its range over the whole compass of individuality.
One practical conclusion of great importance results from the conception of the state as a person. It relates to the sovereignty and its location. In most civilized communities there is some- where an authority whose will, in the eye of the law, is unlimited and irresistible. If in a political society no such authority can be found, or if it can only be found with such difficulty that for practical purposes we may say it is non-existent, that political [377/378] society labours under great disadvantages – disadvantages of which we seem to have an illustration in the United States of America. Where, however, the authority exists, we have what has been called a legal sovereign. In Great Britain the authority is constituted of the king and parliament. If we regard this authority from the point of view adopted in the present essay, it will appear to us as an organ exercising its functions for the community of which it is a part. Whatever powers it possesses or exercises derive ultimately from the organized community as a whole. There may then be said to be two subjects of legal sovereignty – one immediate and one ultimate. ‘Let us see, then,’ wrote Grotius, ‘in what subject sovereign power resides. The subject in which a power resides is either common or special; as the common subject in which the sight resides is the body, but the special subject is the eye. And in like manner the common subject in which the sovereignty resides is the state. . . . The special subject is one or more persons according to the laws and customs of each nation.’Footnote 14 The conception of legal sovereignty as inhering in a portion of the community needs then to be revised by reference to the fact that such portion is but an organ of the community as a whole. When lawyers have escaped from the tyranny of forms and have overcome the superstition that they must not regard things in their totality, when they have learnt that on the contrary it is only when we so regard them we can hope to comprehend them, they will find some place in legal theory for ideas which have already profoundly affected less conservative branches of learning. They will not fear to think of the state as a unity, a personality, a sovereign – a sovereign in whose presence the visible ruler can aspire to no higher title than that of sovereign-organ. The law may elect to accept the declared will of that visible ruler as conclusive of the will of the sovereign, but the fact need not prevent the lawyer from recognizing, even as a lawyer, that the visible ruler is but an organ of the organized community. It has been said of a great scientist that he closed the door of his laboratory before he entered the door of his church. The attitude is suggestive of the provisional order of things, since a theological theory which will not somehow square with the laboratory can afford no resting-place. Similarly a lawyer who leaves what he has learnt from history and science behind him when he opens his Law Reports is merely postponing a difficulty. That difficulty will have, to be met somehow. When it has been met legal theory will not be the less, but the more, worthy of his homage.
In conclusion, I will venture to say one word in answer to those [378/379] who would admit that the State may be a collective person but would deny the title to a, joint-stock company. The individual takes to every group with which he associates something of the group spirit with which inheritance and circumstance have endowed him. In every group sufficiently organized to act as a group there exist, though at different degrees of development, the phenomena which justify us in regarding society as an organic whole. Law is not in haste to recognize the fact; but when the group is large and its organization becomes complex, recognition becomes sooner or later inevitable. As a member of such a group the individual is affected, however slightly, yet to some extent; qualities have been developed in him which cannot be explained save by reference to the union. More obviously, the group itself is something which cannot be analysed into the mere sum of its parts. The sum of the parts may survive the destruction of the group, but could no more explain the group than the dead material of a murdered organism will explain the organism. Such facts may appear when so stated to savour of metaphysics, but the metaphysics is already implicit in the led legal lore which asserts that a corporation is more than a more partnership.