Corporations Law Essay

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Introduction This paper uses natural entity theory to describe the corporation and the origin of corporate legitimacy. According to the natural entity viewpoint, corporations are natural products of human endeavour, not law, and they have an existence separate from their members and managers. However, natural entity fails to explain the existence of single-person corporations. It also does not resolve the impracticalities of allowing corporate entities civil and human rights. Corporations are citizens whose individual legitimacy originates in the same way as any other member of society: they must behave according to society’s expectations. Unlike individual citizens, corporations are not subjected to rigorous socialisation prior to reaching maturity; maturity is in fact instantaneous. Financial loss is the only penalty for illegal behaviour applicable to corporations; whereas individual citizens may be punished in a multitude of ways. Corporations will only achieve true collective legitimacy when measures are in place to ensure each ‘corporate mind’ understands the requirement of social responsibility and non-financial repercussions exist to punish irresponsible behaviour. History: Natural entity theory became prominent in the early 1900s. Its rise in popularity was accompanied (and perhaps caused by) many doctrinal reforms that encouraged the growth of corporate power: the abandonment of ultra vires ; the increasing inability of states to restrict foreign corporations from doing business within their boundaries; the strengthening of ‘limited liability’; and the lessening of impediments to the merger of corporations. This is a predominately American theory. The 14th Amendment to the U.S. Constitution of 1886 , and more importantly its interpretation by the courts, provided an important background to the emergence of the natural entity

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