Company Law: A Real Entity Theory

The real entity theory of company law states that the company is a legal entity that acts autonomously in law and that company law establishes procedures to facilitate autonomous organizational decision-making. This theory builds on the insight that organizations or firms are social phenomena outside of the law and that they are autonomous actors in their own right. The corporate constitution is not a contract but an instrument adopted on a statutory basis through private action, and shareholders cannot limit the capacity of companies or the authority of the board to bind the company in contract. The law also integrates the interests of creditors and stakeholders.

Format: Hardback
Length: 320 pages
Publication date: 04 November 2021
Publisher: Oxford University Press

The real entity theory of company law posits that the company is a distinct legal entity that operates autonomously within the legal framework. This theory recognizes that organizations or firms are not mere aggregates of their participants but are autonomous actors in their own right. It builds upon the understanding that organizations are social phenomena that exist beyond the confines of the law and that they possess their own agency. These entities are not merely the sum of the contributions of their members but operate independently of their participants' views and interests. This unique characteristic arises from the fact that human behavior changes when individuals engage in group or organizational activities. Within a group, individuals tend to develop and conform to shared standards, while in organizations, habits, routines, processes, and procedures emerge, forming a distinct culture that influences the behavior of its members. These cultural elements take on a life of their own, exerting an impact on the actions of the participants. While participants can influence organizational behavior, it requires considerable effort and time.

The real entity theory of company law addresses this phenomenon by providing a structural framework that supports autonomous action by organizations. It overcomes the challenges posed by the social nature of organizations and the absence of a unique physical manifestation permanently associated with them. The corporate constitution, rather than being a contract, is best characterized as an instrument adopted on a statutory basis through private action. Shareholders cannot limit the capacity of companies or the board to bind the company in contract, and companies are liable in tort and crime. The statute establishes roles for shareholders, directors, a company secretary, and auditors, facilitating a process of decision-making and governance.

In conclusion, the real entity theory of company law offers a comprehensive understanding of company law as it stands. It recognizes the company as a distinct legal entity with its own agency and autonomy. It acknowledges the social nature of organizations and the impact of cultural elements on their behavior. By providing a structural framework that supports autonomous action, the theory contributes to the development of effective corporate governance and the promotion of economic growth and social well-being.

Weight: 742g
Dimension: 180 x 254 x 27 (mm)
ISBN-13: 9780198858874