The Case for Corporate Personhood

 Corporations take a lot of heat and one of them is the concept of corporate personhood. I hear it from left wingers that hate corporations and even from libertarians trying to fit in with the narrative (though a left winger hates a corporation in a totally different way).

I find the arguments against corporate personhood to be quite manipulative and utterly unhelpful. My plan is to make the case for corporate personhood here and simply explain why it’s not even that controversial. It’s important for me to make the distinction between two separates parts of corporate law, as two arguments are needed here. There’s the aspect of personhood rights and the other is limited liability.

Personhood Rights

I think this is the easier argument to make despite many people having issue with it. Many, especially on the left, view these rights as special rights. That these corporations are given rights that people have and that shouldn’t happen because they’re businesses.

The reality of it is that a business is owned by individuals. The business itself doesn’t have rights, it’s the people (the owners) that have the rights. Personhood is the recognition of these rights of the individuals that own the business. They’re not special. They’re not up and above what any other individual in the market has. They’re not anything different than what anyone else can do.

You have to think of personhood in a practical manner. The main purpose is for the right of contracting and the right of property owning. The corporation can contract and own property on behalf of the individuals that own it (which hold the same rights). Could you imagine a business with 10,000 stockholders trying to contract without that business having personhood? It would require all stockholders to sign for it (making business horribly inefficient). The same is true of property.

There isn’t much to say beyond this. Personhood is the ability of a group of people to exercise their rights as a group.

Limited Liability

This is the larger side of the argument against corporate personhood. The previous section gets lumped in with it for some odd reason, so that’s why I’m tackling these issues separately. It’s definitely easier and more debatable to be against limited liability, but personhood rights is something I don’t see too many solid arguments against.

People have a sour view of limited liability because there is a line with how far liability extends. The problem with this type of thinking is that, unspoken, there is such a thing as unlimited liability. All liability is limited in some capacity. Unlimited liability is a very unworkable and absolutely crazy concept when you think about it.

Imagine that you get sued. You own shares in Microsoft and Apple. Therefore they’re liable. And they’re owned by a lot of shareholders, and they’re liable. And these shareholders own stocks in other companies, and they’re liable. And on and on. It’s just insanity.

Another example, you’re planning to watch the game tonight and you ask a buddy to pick up the pizza on his drive to your place. Your buddy ends up getting in a car accident and is sued. You’re involved in the pizza, so can you lose your house? With unlimited liability it could happen.

With a corporation, the government has set in law what the limitations on that liability are. It’s as simple as that. Obviously arguments could be made on the limitations of liability, but not the very concept of limited liability. Opponents of limited liability often cite that a corporation could cause a lot of damage (say to the environment) and then not have enough money to fix their liability.

In this case, I think it’s important to note that being a corporation isn’t a free way to do bad things. Courts have often gone around limited liability when criminal or gross negligence was used to cause issues. This was the case with Bernie Madoff.

It’s important to note that limited liability is a real concept that individuals can control. The best example I’ve experienced this was when I visited Cambodia. I was taking a bus from Phnom Penh to Siem Reap and before leaving they announced “we’re not responsible for any lost bags or damaged property.” That’s a very simple means of limited liability. It’s the same for many loans and even hotel rooms.

An individual investing with the terms of “no liability” is a very real concept. If I’m investing for my retirement and I’m not involved in the day to day of the business, I’m going to limit my own liability. Again, an argument can be made that an individual should be able to choose the terms of their liability rather than the government determining it through corporate laws. It’s a fair argument, but doesn’t change the limited nature of liability.

Conclusion

Corporate personhood makes up two concepts; personhood rights and limited liability. When it comes to personhood rights, we’re talking about the rights of the individuals that own the business. They’re not special rights or rights that supersede others. They allow a corporation to act with the same rights it’s owners have - such as owning property and entering into contracts.

Limited liability is something that sets the line on how far liability will go. There is no such thing as unlimited liability. There’s always a limit and for corporations the government has defined it in law. An argument can be made on the range of that limit, but not on it being limited. It’s also important to note that individuals can limit their liability, which doesn’t require the government to define that limit.