In Corporate Law and the Theory of the Firm, author Wm. Dennis Huber, an attorney and CPA with graduate degrees in economics and finance, challenges decades of judicial opinions, as well as accounting, economic, and legal research by providing persuasive, well-supported arguments that there is no separation of ownership and control of corporations, because shareholders do not own corporations. He further argues that directors are neither the agents nor trustees of shareholders. While not the first to make such arguments, the author uses corporate statutory law and principles of contract law, property law, agency law, and trust law to support his arguments.
Huber devotes an entire chapter to the contradictions of corporate, contract, property, agency, and trust law. He cites one example to demonstrate the confusion: If directors are agents of shareholders, then agency law must apply. This would make shareholders the principals of the directors. According to agency law, this would then make shareholders liable for the acts of the directors. But shareholders are not liable for the acts of the directors—therefore, directors are not their agents, even though the theory of the firm rests on agency theory.
These contradictions are further illustrated by Huber: According to corporate statutory law and property law, corporations own their (property) assets. Corporations alone are liable for their debts. Assets minus liabilities equals net assets, which is equity. So if corporations own the assets and owe the liabilities, then corporate assets minus corporate liabilities equals corporate net assets. It is the corporations that own the net assets, not the shareholders. It is the corporations’ equity, not the shareholders’ equity—yet it is called shareholders’ equity.
The author then ventures into the social construction of corporations and shareholders, and the cultural power and cultural reproduction of corporate and shareholder power, which he argues are constructed on assumptions contrary to law.
The book is aimed primarily at lawyers, law students, and legal scholars, as well as accounting, finance, and economics researchers and students, but is written in plain, easy to understand language. To make sure all readers have a shared understanding of basic law, accounting, and economics the author reviews basic contract law, property law, and agency law, as well as basic economic and accounting principles.
Huber’s work will no doubt be met with resistance, if not outright hostility. But it is well worth reading to get a different perspective on corporate law.