1 We use the term corporate personality here in a wide sense, i.e. the personality of all supra-individual and non-individual entities. In this way the notion corresponds with the French term, “personnalité morale”, with the German term “Rechtspersönlichkeit”, with the Dutch term “rechtspersoonlijkheid”. In this sense “corporate personality” does not only apply to corporations in the strict legal-technical sense but also to non-commercial, non-profit-making entities such as professional associations, non-profit-associations, foundations, one-person-companies, etc. We agree that the use of the notion “corporate personality” may be somewhat misleading. On the other hand we preferred this notion above rather artificial English translations such as legal personality and legal entity.

2 Hart, H. L. A., Definition and Theory in Jurisprudence (Oxford, 1953) 17Google Scholar. A similar remark was made by the Dutch Professor B. M. Telders. He argued for a ban on the printing of publications, dealing with the nature of corporate personality without referring to their usefulness for legal practice (see van Schilfgaarde, P., Rechtspersonen, General Part (Deventer, 1976) 12Google Scholar.

3 See his works: Das Deutsche Genossenschaftsrecht (Berlin, 1881)Google Scholar; Die Grundbegriffe des Staatsrechts und die neuesten Staatsrechtstheorien (Berlin, 2nd ed., 1915)Google Scholar; Die Genossenschaftstheorie und die Deutsche Rechtsprechung (Berlin, 1887)Google Scholar; Labands Staatrecht und die Deutsche Rechtswissenschaft, Schmollers Jahrbuch (4th ed., 1883)Google Scholar.

4 See his The Legal Nature of the Corporations (1897).

5 See his Avant-Projet de Révision du Code Civil (Bruylant, Bruxelles, 1882)Google Scholar.

6 See his Collected Papers, Fisher, H. A. L., ed. (1911)Google Scholar; his introduction to Gierke's Political Theories of the Middle Ages, Maitland, F. W., ed. (1900)Google Scholar.

7 With regard to the notion of corporate personality Roman law remains silent. The Roman “societas”, which we may consider the forerunner of our modern corporations in civil and commercial law, did not entail the existence of a corporate body, separate from the partners. The “societas” was basically regarded as a relationship between partners, without a separate existence towards third parties, without a separate patrimony, without a limited liability. Moreover, due to the very practical attitude of the Romans toward legal problems, we may not expect from them heavy theoretical dissertations about the nature of corporate personality. About the “societas” in Roman law, see van Oven, J. C., Leerboek van Romeinsch Privaatrecht (Leiden, 1948) 280Google Scholar.

8 See, for instance, Berman, H., Law and Revolution. The Formation of the Western Legal Tradition (Harvard University Press, 1983)Google Scholar; van Caenegem, R. C., Geschiedkundige Inleiding tot het Privaatrecht (Gent, 1981)Google Scholar; Introduction historique au droit privé (Bruxelles, 1988)Google Scholar.

9 For a detailed legal analysis of this feudal framework see Ganshof, F. L., Qu'est ce que la féodalité? (Tallandier, 5th ed., 1982)Google Scholar.

10 For a “property rights” explanation of this medieval economic boom, see North, Douglas and Thomas, Paul, The Rise of the Western World (Cambridge, 1976)Google Scholar.

11 For an excellent account of the meaning of this papal revolution for Western legal culture, see H. Berman, op. cit. supra n. 8, at 199-269.

12 See Pollock, and Maitland, , History of English Law, Vol. 1 (Cambridge, 1968) 445Google Scholar.

13 The canonical theory about corporation was, more particularly, developed by Pope Innocent IV. He stated “… cum collegium in causa universitatis fingatur una persona”. About the criminal immunity of the corporation the canonist Johannes Andreae stated: “universitas non est capax poenae capitalis, corporalis, spiritualis, … cum corpus animatum non habeat ad hoc aptum”. See Pollock and Maitland, op. cit. supra n. 12, at 494.

14 This legal “deadness” of monks, was still used by the above-mentioned (supra n. 5) anti-clerical Belgian lawyer François Laurent as an argument against incorporation of monasteries and religious orders. He labelled monks and nuns as “cadavres”, who could not, by this definition, constitute a genuine corporation: see Laurent, F., Principes de Droit Civil, Vol. VI (Bruxelles, 1869–1878) 119–121Google Scholar.

15 Pollock and Maitland offer us an interesting account about the gradual historical development of the corporate personality of religious units. The story about parish churches is especially interesting. Parish churches were, by German folk-law, considered the property of the owner of the land on which it had been built. Later on the Saint, to whom the church was dedicated, came to be regarded as the owner. As it was rather difficult to sue Saints for debts and torts of the church that could encompass the exploitation of land and farms, legal practice gradually conceived the parish churches as corporate persons, with the parish priest as their guardian: see Pollock and Maitland, supra n. 12, at 497-500.

16 See Pollock and Maitland, ibid., at 507.

17 Ibid., at 509.

18 For more examples of such trading of privileges and monopolies for tax returns, see D. North and P. Thomas op. cit. supra n. 10, at 97-101.

19 See, for instance, Hadden, Tom, Company Law and Capitalism (London, 2nd ed., 1972) 9Google Scholar.

20 See, for instance, de Juglart, Michel and Ippolito, Benjamin, Droit Commercial, vol. 2 (1970) 13Google Scholar.

21 See Tom Hadden, op. cit. supra n. 19, at 9; see M. de Juglart and B. Ippolito, op. cit. supra n. 20, at 13.

22 About these social-contractual characteristics of the Medieval “communes” see H. Berman, supra n. 8, at 357-403.

23 See Pollock and Maitland, supra n. 12, at 634-688.

24 Ibid., at 495-496.

25 See Black, A., Guilds & Civil Society (1984) 18Google Scholar.

26 See A. Black, ibid; Tom Hadden, supra n. 19, at 6; H. Berman, supra n. 8, at 390-392.

27 See A. Black, op. cit. supra n. 25, at 3-11.

28 Ibid., at 18-25.

29 See Tom Hadden, supra n. 19, at 9-11; M. de Juglart and B. Ippolito, supra n. 20, at 14; Wildavski, Aaron, A History of Taxation and Expenditure in the Western World (Simon & Schuster, New York, 1986) 268Google Scholar.

30 See Tom Hadden, supra n. 19, at 13-15.

31 The fact that the technique of corporate personality arose spontaneously on the market place by way of contractual arrangements and was not at all due to government interference is particularly stressed by Anderson, Gary M. and Tollison, Robert D., “The Myth of the Corporation as a Creation of the State” (1983) 3 Int'l. R. L. & Econ. 107–120CrossRefGoogle Scholar.

32 See Tom Hadden, supra n. 19, at 14-16. Officially the reason for passing the Bubble Act concerned the protection of the general public against fraud by insolvent companies. There are many reasons for questioning this official motive. Firstly, modern company law, with its liberal approach to the conditions for incorporation, does not lead to generalized fraudulent practices. Secondly, one can discover many other advantages for the state maintaining its ban on incorporation. It allows the state and politicians to “sell” the privilege of incorporation and monopolies in return for taxes and other advantages. See, for instance, Gary M. Anderson and Robert D. Tollison, supra n. 31, at 111-113.

33 About the application of the Bubble Act, Shannon, H. A., “The Coming of General Limited Liability” (1931) 2 Economic History 269Google Scholar — quoted by Gary M. Anderson and Robert D. Tollison, supra n. 31, at 111 — states: “This Act, in regulating a commercial matter, outlined the offense in almost unintelligible language and attached to it the gravest penalty known to English law. It seemed phrased to stultify itself. And except for a minor prosecution in 1723, it remained a dead letter until 1808”.

34 See Tom Hadden, supra n. 19, at 19-20.

35 See M. de Juglart and B. Ippolito, supra n. 20, at 14-15.

36 See Horwitz, M., “Santa Clara Revisited” in Corporations and Society, Samuels, W. J. and Miller, A. S., eds. (New York, 1987) 20Google Scholar.

37 See Baker, J. H., An Introduction to English Legal History (Butterworths, London, 1979) 376–381Google Scholar.

38 For instance, by the contract clause, Art. A, section 10, clause 1: “No state shall (…) pass any (…) Law impairing the Obligation of Contracts”. Of course this free trade principle referred only to inner-American trade, not to international trade.

39 Known defenders of this fiction-theory were: in Germany, von Savigny, F., System des Heutigen römischen Rechts (1973, reprint) Vol. II, p. 275Google Scholar; in Holland, Houwing, Ph. A. N., Subjectief recht, rechtssubject, rechtspersoon (Zwolle, 1939) 61, 70Google Scholar; in Belgium, Fr. Laurent, Avant-Projet de Révision du Code Civil, supra n. 5. In the U.S.A. the “artificial entity” theory was based on the ruling of Chief Justice John Marshall, in the case Bank of United States v. Deveaux (1809). He ruled that the corporation was an “invisible, intangible, artificial being”, a “mere legal entity” and “certainly not a citizen”.

40 This is illustrated by the Jacksonian approach in the U.S.A. during the middle of the 19th century. Although the Jacksonian democrats still relied on the orthodox “artificial entity” theory of Chief Justice John Marshall, they favoured general incorporation laws in order to avoid corruption and fraud among legislation and state officials. See M. Barzelay and R. M. Smith, “The One Best System? A Political Analysis of Neo-Classical Institutionalist Perspectives on the Modern Corporation”, in Corporations and Society, op. cit. supra n. 36, at 81-110.

41 See Fr. Laurent, supra n. 14, Vol. II, at 425-529; his position was severely criticized for being openly partial by van den Heuvel, P. in “La liberté d'Association et l'Avant-Projet de M. Laurent” (Bruxelles, 1883)Google Scholar.

42 An early example of such a non-positivistic and at the same time non-corporatist approach to corporations is the American lawyer Victor Morawetz in his work A Treatise on the Law of Private Corporations, published in 1882. Morawetz redefined the corporation as a more complicated contractual partnership. For more details on this early contractualist view, see M. Horwitz, supra n. 36, at 37-40.

43 About this school of “social” law see Gurvitch, Georges, L'Idée du Droit Social (Sirey, Paris, 1932)Google Scholar.

44 See his Das Deutsche Genossenschaftsrecht (Berlin, 1881) Vol. II, p. 30Google Scholar and following.

45 See his Die Grundbegriffe des Staatsrechts und die neuesten Staatsrechtstheorieen, (Berlin, 2nd ed., 1915) 94–99Google Scholar.

46 See his Deutsches Privatrecht, (1895) Vol. I, p. 268Google Scholar; Das Deutsche Genossenschaftsrecht, Vol. II, p. 887Google Scholar.

47 See his Das Deutsche Genossenschaftsrecht, Vol. I, p. 220Google Scholar and following, p. 865 and following, p. 1031 and following, Vol. II, p. 892 and following.

48 See his Das Deutsche Genossenschaftsrecht, Vol. I, p. 1037Google Scholar. According to Gierke the capitalist firm was an institution of domination with much more limited aims than the older feudal ones. Its aims were confined to merely economic exploitation in order to maximize profits. Gierke sympathized with the English trade-union movement and French associationist anarchists. He refused any bureaucratic method to solve the “social question”. Workers had to unite in “selbstgewollte Genossen schaften” and so transform the capitalist firm into a real “Genossenschaft”. It is remarkable how this point of view of this conservative-corporatist author corresponds with the modern progressive defenders of an “industrial democracy”.

49 Gierke's political influence was partially continued by his disciple Hugo Preuss. The latter was the author of the Weimar Constitution in which a “wirtschaftliche Verfassung” was adopted, partially reflecting the theories of Gierke and aiming at the constitution of a “Sozialstaat”. See G. Gurvitch, supra n. 43, at 566.

50 “Auf der philosophischen Grundlage des Nominalismus, dessert Axiome hierbei stets als unbestritten hingenommen werden, nimmt man algemein ann doss wie überhaupt “universalia non sunt oliquid reale extra animam”, so auch die “universitas” als solche keine reale Existeme hat, sondern nichts als die Summe der Eimelnen ist”: Gierke, O., Das Deutsche Genossenschaftsrecht, Vol. III, p. 425Google Scholar.

51 About realism, intellectualism and nominalism in Medieval philosophy, see Carre, M. H., Realists and Nominalists (Oxford University Press, 1967)Google Scholar.

52 For a conceptualist approach to corporate personality, see van Haersolte, R. A. V., Personificatie van sociale systemen (Kluwer Deventer, 1971) 1–24Google Scholar.

53 Such methodological abbreviations Germans use to call Gebrauchsdefinitionen. Bentham called them “paraphrases”: Bentham, J., Works (Edinborough, 1843) Vol. XV, 246Google Scholar.

54 About the use of such metaphorical statements and its value, see Boudon, R., La Logique du Social (Hachette, 1979) 53–84Google Scholar.

55 About the difference between definitions in alethic use and definitions in deontic use, see R. A. V. van Haersolte, op. cit. supra n. 52, at 16-25.

56 In the same sense, see R. A. V. van Haersolte, supra n. 52, at 16.

57 Of course individuals can “resign” from their “membership” within these public corporations by leaving the country, the region, the municipality. This is what public-choice-theorists call “voting with the feet”, or for East Germany more particularly “voting with the wheels”. This does not imply there would be no difference with associations and corporations in the private sector. Most of these latter ones are non-territorial, i.e. becoming a member or resigning as a member does not entail that one has to move to another place or to leave a place. But even when those private associations acquire a territorial character an essential difference with public bodies remains. Such territorial private clubs, such as for instance, condominiums, companies which require in their contracts that workers live in their neighbourhood, emerge spontaneously. Because they are private and voluntary they have to define their territory by a voluntary agreement between the individual owners of neighbouring real properties. The state and the other public bodies, on the other hand, impose their authority unilaterally on the national territory and force the citizens in this way to become “members” of the state. Gierke was quite well aware of this dominance-character of the state. A consequent application of his associationist theory should have led him to an anarchist position. However, he never arrived at this position. In his theory the state remained there as a “superassociation” (höchstes irdisches Verband) in order to protect and to regulate the other associations. He recognized that the state would always remain a metalegal power, with an unlimited power and able to suppress all corporations on its territory. (See Das Deutsche Genossenschaftsrecht, Vol. I, pp. 151, 648, 845, 848Google Scholar).

58 For modern elaborations of individualist legal theory see Nozick, , Anarchy, State and Utopia (Basic Books, New York, 1974)Google Scholar; Machan, Tibor, Human Rights and Human Liberties (Chicago, 1975)Google Scholar; van Dun, Frank, Het Fundamenteel Rechtsbeginsel (Antwerpen, 1983)Google Scholar; for a classical view on legal individualism, see Waline, E., L'individualisme et le droit (Domat Montchrestien, Paris, 1945)Google Scholar; Beudant, Ch., Le Droit Individuel et l'Etat (Paris, 1891)Google Scholar.

59 See for instance, Talmon, J. L., The Origin of Totalitarian Democracy (London, 1970)Google Scholar; Bouckaert, B., “Between Freedom and State Sovereignty. La Déclaration des droits de l'homme et du citoyen. An Ambiguous Legacy?” (1990) Rechtstheorie en Rechtsfilosofie 1Google Scholar.

60 Another weakness of Gierke's approach to the medieval guild-system lies in its nationalistic interpretation. Gierke liked to oppose the typical Germanic spirit of association to the typical Latin antagonism between the individual and the state. Consequently, he blamed the Roman and canonic lawyers for their hostility towards this Germanic associative tradition. Black indicates that this reproach is without any foundation. Although the Justinian Code provided strong restrictions on free associations of crafts, the medieval lawyers of the Roman and Canonic tradition were quite inventive at developing sophisticated arguments to circumvent the Justinian restrictions. In fact, the canonic lawyers, inspired by the Gregorian reform which had given cathedral chapters new powers actually encouraged the formation of free associations (see A. Black, supra n. 25, at 18-26).

61 About the hostility, or at least the suspicion against the notion of corporate personality by 19th century individualists in the U.S.A., see M. Horwitz, supra n. 36, at 40.

62 Michael Barzelay and Rogers M. Smith notice a striking difference between the conventional neoclassical position of economists such as Frank Knight, Milton Friedman and F. A. Hayek and the institutionalist reformulation of it by economists such as Richard Posner, Jensen, Meckling, Fama and Henry Marine. The latter approach regards corporate structures as efficient outcomes of a competitive process while the former regards them more as a potential danger to the competitive process (see M. Barzelay and R. M. Smith, supra n. 40, at 81-110). F. A. Hayek, for instance, made some proposals to create a more competitive market for capital. By giving stockholders the right to determine the distribution of profits between dividends and retained earnings and by the elimination of voting rights accompanying corporate ownership of stock in another company (see Hayek, F. A., Studies in Philosophy, Politics and Economy (London, 1967) 300 pp)Google Scholar.

63 About transaction costs, see for instance, Breeden, C. H. and Toumanoff, P. G., “Transaction Costs and Economic Institutions”, in The Political Economy of Freedom, Leube, K. and Zlabinger, A. H., eds. (München, 1984)Google Scholar; Mackaay, E., “La règie juridique observée par le prisme de l'économiste” (1986) Revue Internationale de Droit Economique, MontréalGoogle Scholar.

64 Posner, Richard, Economic Analysis of Law (Boston, Little Brown and Company, 1986) 367–372Google Scholar.

65 In the same sense, see G. M. Anderson and R. D. Tollison, supra n. 31, at 114-115. They mention, for instance, the case of the Phoenix Fire Office in 1787, issuing an advertisement which read in part: “That such an (insurance) office be founded like the Phoenix without any Charter or Reservation but with full responsibility to the Public for all its engagements”. By inserting such clauses, firms facilitated creditor actions designed to collect debts from shareholders. The incentive for bearing this additional risk was the expected higher return due to the availability of lower interest loans to the firm.

Though we may assume that the introduction of private personality with limited liability does not change considerably the investment-rate as a macro-economic aggregate, it may affect the readiness to invest in particular cases. The basic reason for this is the subjective evaluation of risk-rates, and as a consequence, the difference of assessment of the risk-premium. Risk-averse persons will charge a higher risk-premium than less-risk-averse, risk-neutral or risk-preferring persons. Suppose, for instance, that the market interest rate without risk-premium is at 5%. A partnership, operating under a regime of full liability, is ready to offer an interest rate of 6%. Suppose there are two potential investors: the first (A) is the least risk-averse and charges only 1% as a risk-premium, while the second (B), more risk-averse, charges 2%. Only (A) will agree to the loan. Suppose that the partnership is transformed into a corporation with limited liability. Because the risks of the partners are now limited, the corporation is ready to offer 8% interest rate on loans. Both investors will of course increase the risk-premium because of the limitation of the collateral. However, because their risk assessment may be different from that of the former partners, now shareholders of the corporation, both loans might be agreed. Suppose that (A), the least risk-averse, increases his risk-premium by 0.5% and (B), the more risk-aversive, by 1%, both still will be ready to accept the offer of the corporation.

66 In fact, corporate personality can be classified as clauses, defined by the legislator and the courts, which are applicable to contracts between creditors and corporations when not contradicted by explicit clauses, excluding, for instance, limited liability. The law regarding corporate personality is in this sense non-coercive and merely supplementary (“lois supplétives”, “aanvullend recht”, “Nachgiebiges Recht, ius dis positivum”).

67 See R. Posner, op. cit. supra n. 64, at 379-382.

68 Ibid., at 380.

69 We have to remark that the “law and economics”-approach has given rise to a flourishing literature about corporation and corporate law. Because we were not able to deal in this short paper with the full richness of this approach we mention for further reading: Steven Cheung, N. S., “The Contractual Nature of the Firm” (1983) 26 J. Law & Econ.Google Scholar; “Corporations and Private Property” (1983) 26 J. Law & Econ.Google Scholar, with several articles published from a Conference held at the Hoover Institution, 19-20 November 1982; Baysinger, Barry D. and Butler, Henry N., “The Role of Corporate Law in the Theory of the Firm” (1985) 28 J. Law & Econ.CrossRefGoogle Scholar; Winter, Ralph K. Jr., “State Law, Shareholder Protection and the Theory of the Corporation” (1977) 6 J. Legal StudiesCrossRefGoogle Scholar; Butler, H. N., “Nineteenth-Century Jurisdictional Competition in the Granting of Corporate Privileges” (1985) 14 J. Legal StudiesCrossRefGoogle Scholar.