The Capitalism Site
Laissez-faire capitalism is the political economic system based on individual rights
Under capitalism, corporations are the result of a specific contractual legal framework (provided by government), based on the principle of individual rights. Without government, the distinction between public (state owned) and private no longer exists. Corporations cannot exist without individual rights, and governments to protect those individual rights.
[However, keep in mind that corporations are not creatures of the state, no more then individuals are.]
Under capitalism: a corporation is a group of individuals organized in a specific legal form, just like a society is nothing more then a sum of individuals organized in a specific form, or a marriage is a group of individuals (a man and a woman) organized in a specific form. A marriage may have a legal framework behind it: this does not make it fictional. The same applies to the concept society. The same goes for a corporation where real individuals organize together under a “fictional” (i.e. made up name).
That depends on what you mean by “legal fiction”; as typically used the claim that a corporation is a “legal fiction” is itself a fiction. As the term is conventionally used, it is construed to mean that the owners and managers of a corporation become rightless serfs once they have assumed corporate status.
The laws underlying corporations are based on objective facts. That is, the basis of a corporation are the rights of the individuals who form it. Rights are not fictional; and neither are the laws that a corporation must abide by. These laws are neither intrinsic in reality, nor are they subjective and a matter of whim: they are objective facts that must be discovered (deduced from the basic principles while inducing the new relevant facts) within a framework of rights.
The laws governing a corporation are simply the standardization and explicit recognition of the application of individual rights by the government, i.e. the laws protecting the right to free speech are not “legal fictions” created by the government, but are laws based on the this right. For example, if I can sell you a good, under the condition of “limited liability” — well so can a corporation. If it is illegal for me to pollute your home (pollution being a violation of rights), then so it it illegal for the corporation.
The basis of treating a group of individuals who form a corporation as a single entity are the rights of the individuals who make up the corporation, i.e. the rights of the shareholders, the rights of the corporate officers, the rights of the employees (management, etc.), and the rights of all individuals who choose to trade with that corporation under the terms of the corporate agreement. The right to form a corporation is not a “privilege” as socialists allege, but is an inalienable right.
The definition of a corporation as “An artificial person or legal entity created by or under the authority of the laws of a state” (Blacks Law Dictionary) is only valid when one understands that the laws of any proper state are based on the principle of rights. The point is that the state has no authority to violate rights.
The same way you treat a husband and wife as a single entity, as in a marriage. Or, the same way that you can treat a group of men (gender neutral usage) as a single entity called “society”.
The point to keep in mind is that all laws under capitalism are the application of the principle of individual rights to various circumstances (see Dr. Harry Binswanger’s article on Objective Law).
The foundation of a corporation are the rights of its members: specifically, the right to state that one is entering trade agreements under the presumption of limited liability (for the shareholders), and under a “fictional” corporate “assumed” name. All the rights of a corporation are derived from those of its individual members; as such an individual neither gains nor loses rights in their capacity as members of a corporation.
Government’s job is not to regulate corporations and manage their affairs, but to protect their rights, just as they would any other member of society. Government’s job is to treat a corporation no different than any other citizen, granting it no special favors (corporate welfare is just as wrong as non-corporate welfare).
The limits of liability are to not hold shareholders (who have no control over the actions of the company) liable for acts of company employees — other then for what they invested into the company. Limited liability means that only the assets of the corporation are held up as “collateral” for its liabilities.
It would be ludicrous to hold all the savings of an 80 year grand mother who invested $100 in a badly run corporation-which would be the case if she were in a partnership. Limited liability means that only that $100 of the grandmother is liable; and all her other assets not invested in that corporation qua shareholder are not held liable.
Limited liability means that the shareholders are not responsible for the decisions that they do not make — only corporate officers, managers, and employees are liable to the extent that they make them.
There are some problems with corporations — the idea that they are government created “fictional” entities (as opposed to the application of individual rights to an agreement between a group of individuals who decide to do business as a single entity, i.e. ‘trust’ — in the personal realm of affairs this is what a marriage is). Essentially the problem — like everything else — is the philosophical foundation underlying corporations. Corporations are privately created entities.
Capitalism Magazine