It is certainly true that a corporation per se is not a real person. No group is. But that does not stop us from conveniently referring to a group’s rights. This is acceptable as long as we remember that a group has only the rights that the individuals composing it have.
The big question is: are the corporation’s distinctive features derivable from the common law and contract, or do they depend on a grant of government privilege?...
The upshot is that, first, corporations are not creations of the state but networks of contracts among individuals, and, second, as a consequence they have the same rights as those individuals...
Not long afterward, in a post to the LeftLibertarian yahoogroup, he explained that he'd reconsidered his stance under the influence of a two-part article by Piet-Hein Van Eeghen in Journal of Libertarian Studies: "The Corporation at Issue" (that post, incidentally, resulted in several weeks worth of debate on the nature of corporate legal status).
A couple of stipulations here. First, I have not read the Hessen book. Second, I repeat my frequent disclaimer that as a layman, I am hopelessly lost in the maze of corporation law, and am in over my depth in counterfactual speculation as to the general effects of removing this or that feature of it. In following the fascinating debates on LeftLibertarian, I have generally agreed with the last opinion stated.
That being said, the argument in Van Eeghen's article is well worth reading. In Part I, "The Clash With Classical Liberal Values and the Negative Consequences for Capitalist Practice," he introduces the subject:
While it is common to list various typical corporate features, such as entity status, limited liability and perpetuity, there is really only one defining feature: entity status. Entity status means that certain legal rights and duties are held by the corporation as a separate, impersonal legal entity. In the case of the private business corporation, entity status implies that title to the firm’s assets is held by the corporation in its own right, separate from its shareholders. Illustrative of the fact that the corporate form of private enterprise deviates from traditional forms of private property, entity status renders the legal position of both corporate shareholders and managers (directors) awkward and ambiguous. As for corporate shareholders, they are commonly regarded as the owners of the corporation, but they are owners only in a limited sense. Shareholders do not have title to the assets of the corporate firm, but merely possess the right to appoint management and to receive dividends as and when these are declared; title to the firm’s assets reverts back to shareholders only when its corporate status is terminated. The lack of ownership rights over assets is illustrated by the fact that, in contrast to partners in an unincorporated partnership, corporate shareholders cannot lay claim to their share of the assets of the corporate firm nor do they have the right to force their co-partners to buy them out. Corporate shareholders can liquidate their investment only by selling their shares to third parties. In short, the ambiguity in the legal position of shareholders lies in the fact that, while certain traditional ownership rights rest with them (profit accrual and power to appoint agents to manage the firm for them), other traditional ownership rights are exercised by the corporation as a legal entity separate from them (title to the firm’s assets).
As for corporate management, their legal position is equally ambiguous. Managers are appointed by directors who are the representatives of shareholders. Ultimately, management is thus the agent for shareholders, managing the corporation as their representative. This, however, is only part of the picture. While management is the agent for shareholders in the sense of being ultimately appointed by and accountable to them, it is also the agent for the corporation itself. After all, in order to manage the corporation’s assets, management must legally represent the corporation as the titleholder to these assets. And because the corporation is an impersonal legal entity, agency for the corporation lends a significant degree of autonomy to the position of management, which is precisely why it has proved so difficult to make shareholder control over management more effective, despite the many legislative measures aimed at enhancing management accountability to shareholders. The significant degree of autonomy inherent in the legal position of corporate management was, of course, the main theme of Berle and Means’s (1932) seminal work on the corporation. To sum up, the position of management is ambiguous because management acts as agent for two principals, the shareholders and the corporation.
Other typical features of the corporation like limited liability and perpetuity are not independent, original attributes, but are derived from its entity status.
Shareholders possess limited liability because they do not own the corporation’s assets and are, consequently, also not liable for claims against these assets. Responsibility for corporate debt rests with the corporation in its own right rather than with them....
The corporate feature of perpetuity can also be traced back to the corporation’s entity status. It is because assets are owned by the corporation in its own right rather than by shareholders that the death or departure of shareholders does not affect its continued existence. While unincorporated partnerships need to be legally reconstituted each time partners leave, die, or are added, corporations continue irrespective of who holds their shares. The corporation’s entity status thus gives it a life independent of the life of its shareholders, which is the sense in which it is commonly said to possess perpetuity or immortality.
Above all, Van Eeghen objects to the corporate form as illiberal because entity status gives the corporation statelike features:
Originally only state institutions (central, regional, and local government) possessed corporate status, which seems entirely natural and appropriate. If we wish to escape Louis XIV’s infamous dictum “l’état c’est moi” (“I am the state”), which is the starkest, most chilling expression of state absolutism from which even ardent monarchists at the time recoiled, the state should indeed be given a legal entity separate from its officials. Only if such a separation exists can state power be vested in the office rather than the person; and only when state power is vested in the office can it be circumscribed by law. All this is the ABC of liberty and the rule of law. But if it is essential to the preservation of liberty and the rule of law that the state has a natural right to corporate status (entity status), it should equally be essential to the preservation of liberty and the rule of law that private individuals, when pursuing their own interests, are denied such a right and act in their personal capacity, which obviously does not exclude the possibility of private individuals acting as agents for each other....
Free incorporation for private business is objectionable from a liberal point of view because it grants a distinctive feature of the public sector, namely entity status, to private concerns without the accompanying restraints of democratic and legal control. As such, the private corporation constitutes an illegitimate mixing of the legitimate domains of the private and public sectors. If it is agreed that entity status is indeed a typical attribute of the state, then anarchocapitalists who advocate a stateless society have even more reason to oppose private firms taking on state-like attributes such as happens when they acquire corporate status.
Another objection is that the corporate form
contravenes the basic liberal (and common law) principle of personal responsibility..... Andrew Fraser... remarks in this vein: “Corporate law has been designed to facilitate a legalized flight from responsibility by those who nominally own the corporate system.”
Corporate shareholdership is a licentious and irresponsible form of ownership because it is granted privileges of ownership (accrual of profits and the appointment of agent-managers) without carrying the obligations of ownership (payment for losses). If shareholders receive the full benefit of enterprise when things go well, why should they not also carry the full cost of enterprise when things turn awry?8 Similarly, corporate management is licentious because it enjoys the privileges of ownership (control over assets by virtue of being the agent for the corporation) without having to face the burdens of ownership (payment for acquisition or loss bearing) and without being accountable to natural persons who do carry the full extent of these burdens, as shareholders don’t do either. As already mentioned, insofar as management is accountable to shareholders, such accountability is difficult to make effective especially when shareholdership has become highly diluted.
It's also worth noting that the immortality that goes with corporate entity status was, in the past associated with illiberal concentrations of power. For example, the Church (whose precise legal status as a quasi-public agency varied from country to country) was able to accumulate property from one generation to the next without ever lacking an heir, which meant that the process of accumulation was never reversed. The mass of property accumulated in its "dead hand" ratcheted steadily upward over the generations, and became the source of ever-greater political influence. The statutes of mortmain ("dead hand") were specifically designed to counteract this process. In modern society, the immortal corporation becomes a comparable concentration of wealth and political influence.
In Part II, "A Critique of Robert Hesson's In Defense of the Corporation and Proposed Conditions for Private Incorporation," Van Eeghen addresses Hessen's denial that the corporation "obtains legal status as owner of the firm’s assets separate from its shareholders." In contrast to the concession theory, which "regards incorporation as a government concession," Hessen advocates
the inherence theory. According to this theory, the corporation has come into being as the product of contracting between private individuals for which no state involvement (active or passive) is needed beyond the enforcing of contracts in general. In consequence, the corporation is simply the product of the freedom of association, and any criticism of the corporate form is regarded as an attack on that freedom....
First, Van Eeghen challenges Hessen's argument that concession theory assumes a background of monarchical absolutism, in which assorted rights of property and contract are denied without a specific grant of privilege.
It is indeed an instance of monarchic absolutism when the king seizes all the land, prohibits private citizens from trading internationally unless they have his express permission, or appropriates the right to grant incorporation to local government at his discretion. Private agents should already have the right to own land or trade internationally, for which they should, therefore, not be obliged to seek the king’s favor. And local government should already have the right to corporate status, which is therefore not the king’s business to grant or withhold. On the other hand, though, if we accept that private agents do not have a natural right to assign the ownership of their assets to impersonal, state-like entities, it is not at all evidence of arbitrary state absolutism when the state grants incorporation to private agents only as a privilege and only under certain conditions, provided the state is democratically elected and the relevant conditions for incorporation do not otherwise clash with liberal principles—to be discussed below. Hence to argue that the concession theory is rooted in state absolutism is to beg the question whether private parties have a natural right to free incorporation or not; state absolutism can be shown to exist only if private agents do have such a natural right, which is exactly the point at issue here.
In response to Hessen's denial of entity status--that is, his argument that the legal rights of the corporation are only a contractual amalgamation of the individual rights of the shareholders--Van Eeghen writes
As far as entity status is concerned, Hessen starts out by giving it a subtly altered meaning. Entity status no longer refers to the fact that the corporation is a legal entity separate from shareholders, but merely to the fact that shareholders act as a unified collective in a court of law... The implicit suggestion is that the corporation is the undifferentiated collective of shareholders rather than a legal entity separate from shareholders. It is alleged that this view of entity status, which seems to confuse the joint-stock principle with corporate status, neither implies any fundamental difference from unincorporated business forms, nor does it amount to the privileged treatment of corporate shareholders vis-à-vis the outside world since the advantage of suing as a unity is neutralized by the disadvantage of being sued as a unity....
Hessen’s assertions in this regard seem contrived. First, the fact that shareholders have no legal title to the assets of the corporation, even when they seek to exercise such rights collectively (provided the corporation is not thereby broken up), clearly suggests that the corporation is a legal entity separate from the collective of shareholders and that title to these assets rests with the former. Second, if entity status refers to the collective of shareholders and it is the product of private contracting, there should be private contracts between individual shareholders in existence which stipulate their collective ownership in respect of the firm’s assets. But these contracts are simply not there....
Elsewhere Hessen criticizes the idea that the corporation is a legal entity separate from shareholders on the grounds that it introduces metaphors or fictitious entities into the discussion... But a legal entity is most certainly not fictitious or metaphorical by virtue of not referring to a natural person or a group of natural persons. The state (e.g., the Republic of South Africa, the United States of America) is also not fictitious even though it most certainly constitutes a legal entity separate from its citizens as natural persons.
If it is agreed that the corporation is a legal entity separate from shareholders, then Hessen’s claim that it can be the product of private contracting is obviously severely weakened if not dismissed. It is clear that private contracting can achieve only joint ownership of the contractors’ assets (a partnership); it cannot establish a legal entity separate from the natural persons of the contractors themselves to which they assign their assets. Not surprisingly, Hessen does not offer any meaningful explanation of how this can happen, beyond the naïve suggestion that private people can create a corporation simply by writing their own incorporation contract and lodging it with the relevant state authorities.... It is not remarkable that state involvement seems absent here, because the legislation that authorizes free incorporation is already on the statute books. The point is that free private incorporation does require special legislation, as history in fact has shown, because to allow private people to freely create impersonal legal entities for the furtherance of their own personal interests is in clear violation of common law tradition, not to mention basic liberal principles.
Van Eeghen also responds to Hessen's argument that the corporation and the partnership differ in degree rather than in kind, and his comparison of the corporate shareholder to a non-managing partner:
But there does seem to be a fundamental difference between partnerships and corporations. Whereas in the case of modified partnerships the rights and responsibilities of ownership are rearranged between nonmanaging and managing partners, these rights and responsibilities are partially cancelled for all corporate shareholders. There are no longer any managing shareholders in a corporation; instead all corporate shareholders are silent partners. From a liberal point of view, such modified partnerships are perfectly in order (e.g., the limited partnership or the Italian commenda), provided that some partners carry the full rights and responsibilities of ownership and that accountability towards third parties is thus not compromised.