Who Legally Owns a Corporation?

By Louis Kroeck

There are different schools of thought as to who legally owns a corporation. Many people argue, as the late economist Milton Friedman believed, that the shareholders of a corporation are the owners, because they have an expressed stake in the corporation, voting rights and other ownership-like rights. Others, such as UCLA law professor Stephen Bainbridge, claim that shareholders are not the true owners of a corporation and that a corporation is not capable of being owned; they argue that a corporation is a distinct and separate entity. This concept is known as "corporate personhood."

There are different schools of thought as to who legally owns a corporation. Many people argue, as the late economist Milton Friedman believed, that the shareholders of a corporation are the owners, because they have an expressed stake in the corporation, voting rights and other ownership-like rights. Others, such as UCLA law professor Stephen Bainbridge, claim that shareholders are not the true owners of a corporation and that a corporation is not capable of being owned; they argue that a corporation is a distinct and separate entity. This concept is known as "corporate personhood."

Shareholders

A shareholder, also called a stockholder, is an individual who owns shares in a corporation. Sale of stock in a corporation may be public or private, so some corporations will have thousands of shareholders while others may have just a few. In addition to public or private corporations, some corporations also have different classes of stock, meaning that some shareholders within a corporation may have different rights than other shareholders.

Ready to incorporate your business? Get Started Now

Rights of Shareholders

Most shareholders have the following rights with regard to a corporation: the right to sell their stock in the corporation, the right to elect and remove the corporation's directors, the right to any dividends, the right to purchase additional stock should the corporation make an offering and the right to any share of assets left over after the liquidation of the corporation.

Ownership

Although shareholders have many rights that are similar to ownership, they do not legally "own" a corporation, and they do not have the same rights as a true owner would. Shareholders are not free to use corporation assets as they see fit, as a true owner could. Although shareholders may have the ability to appoint and remove directors depending on the structure of the corporation, this power still does not grant actual managerial rights or rights to posses or otherwise use the assets of the corporation.

Corporate Personhood

Corporations are comprised of many different groups of people, including employees, directors, shareholders and executives. Despite the varying parties with different interests in the corporation, corporations are viewed as their own distinct entity. Corporations have some rights similar to those of people, including the right to make political contributions, the right to enforce contracts, and the right to buy and sell property. Because corporations have so many distinct rights it could be argued that they aren't legally owned by any individual: They comprise many individuals operating under a common agreement.

Ready to incorporate your business? Get Started Now
Can a Corporation Be a Partner in a Partnership?

References

Resources

Related articles

Can an Owner Be Voted Out of an S Corporation?

S corporations are corporations that have made a special election with the Internal Revenue Service to be taxed only at the individual shareholder level rather than at both the corporate and individual levels. Owners of the company, known as shareholders, do not participate directly in business operations and may not be voted out. If a shareholder takes on an additional function as a director or officer, he may be removed from that position. However, this removal does not affect the shareholder's ownership in the company.

How to Write an S Corp Operating Agreement

An S corporation is a qualifying corporation that has elected to be taxed under Subchapter S of the Internal Revenue Code. Corporate operating agreements, commonly known as bylaws, specify how the corporation is to be governed. To draft corporate bylaws you must research state law and familiarize yourself with the issues at stake.

What Is a Disadvantage of the Corporate Form of Business Entity?

Compared to other business entities, corporations offer many advantages, such as liability protection and ease of transferring ownership shares. Though corporations are very common, a corporation may not be the best structure for every situation, and it does have some disadvantages.

LLCs, Corporations, Patents, Attorney Help

Related articles

Corporation Law Notes

A corporation is a legal entity that gradually developed into its modern form over hundreds of years. It is designed to ...

What Is Needed to Be Done When a Partner Leaves a Corporation or an LLC?

Business entities that are structured as a corporation or limited liability company don’t have partners – ...

New York Corporation Laws

Although municipal law may apply to operational issues such as the acquisition of business licenses, and federal law ...

What Is the Difference in the Board of Directors and the Stockholders of a Corporation?

A corporation with many owners functions similarly to the American government in that it would be almost impossible for ...

Browse by category