A corporation is a business enterprise (a collective entity) based on a complex legal contractual framework (based on the principle of individual rights) to deal with the problem of limiting liability regarding enterprises where there is a separation of management and ownership.

A corporation (trust) is a group of individuals that form a voluntary, contractual association, or trust, under a fictional name in order to be recognized as a single legal entity (typically for limited liability of the corporation’s shareholders).

The purpose of the corporation (whether business, religious, political, etc.) and the terms between all individuals in the association are contractually spelled out in the corporation’s charter.

Under capitalism, a corporation is a group of individuals organized in a specific form (as spelled out in a corporation’s charter.). Similarly, a government is a group of individuals organized in a specific form (as spelled out in a government’s constitution.) Similarly, a marriage is a group of individuals (a man and a woman traditionally) organized in a specific form (as spelled out in the marriage agreement).

The basis of all such associations (whether a corporation, government, labor union, or marriage, etc.) are the inalienable right of its members to form contracts and associate with others free from private or state coercion.

The foundation of a corporation are the rights of its members: the right to state that one is entering trade agreements under the presumption of limited liability (for the shareholders), under a corporate “assumed” name. All the rights of a corporation are derived from those of its members; as such, an individual neither gains nor loses rights in their capacity as members of a corporation. They are simply stating the terms of dealing with the business enterprise upfront.

The basis of treating a group of individuals who form a corporation as a single entity is the rights of the individuals who make up the corporation.

In this case, this encompasses the rights of the shareholders, the rights of the corporate officers, the rights of the employees (management and workers.), and the rights of all individuals who choose to trade with that corporation under the terms of the corporate agreement.

The legal basis of a corporation: individual rights

The laws underlying corporations are based on the principle of individual rights. That is, the basis of a corporation are the rights of the individuals who form it. Rights are not fictional, and neither are the laws that a corporation must abide by. These laws are neither intrinsic, nor are they subjective and a matter of whim: they are objective facts that must be discovered (deduced from the basic principles while inducing the relevant facts) within a framework of rights.

The laws governing a corporation are the standardization and explicit recognition of the application of individual rights by the government. The laws protecting the right to free speech are not “legal fictions” created by the government but are laws based on this right. For example, if I can sell you a good, under the condition of “limited liability” — well so can a corporation. If it is illegal for me to pollute your home (pollution being a violation of rights), then so is it illegal for the corporation.

Government’s job is not to regulate corporations and manage their affairs as a dictator, but to protect their rights as a referee. Government’s job is to treat a corporation no different than any other citizen, granting it no special favors (corporate welfare is just as wrong as non-corporate welfare) or special punishments.

There are some problems with corporations — the idea that they are government-created “fictional” entities as opposed to the application of individual rights to an agreement between a group of individuals who decide to do business as a single entity under a fictional name, i.e. ‘trust.’ The problem is not corporations themselves, but the philosophical foundation underlying the legal status of corporations.

A fictional name does not mean corporations lose their rights

Whether a corporation is a “legal fiction” depends on the meaning assigned to the term. As the term is used by anti-capitalists, “legal-fiction” is construed to mean that the owners and managers of a business entity become rightless serfs once they have assumed corporate status. Under capitalism, the name of a corporation is made up (fictional), but the charter underlying the corporation is protected by right. A marriage may have a legal framework behind it: this does not make it fictional. The same principle applies to the concept of society, and the same goes for a corporation where real individuals organize together under a fictional (i.e., made up ) name.

The rights of a corporation are not a “privilege” as socialists allege. The definition of a corporation as “An artificial person or legal entity created by or under the authority of the laws of a state” (Black’s Law Dictionary) is only valid when one understands that the laws of any proper society are based on the principle of rights. The point is that the state has no authority to violate rights. How can one treat a group of producers and traders as a single entity? The same way one can treat a husband and wife as a single entity, as in a marriage. Or, the same way that one can treat a group of human beings as a single entity called “society.”

Corporations and limited liability

The limits of liability are not to hold shareholders (who have no control over the actions of the company) liable for acts of company employees — other than for what they invested in the company. Limited liability means that only the assets of the corporation are held up as “collateral” for its liabilities.

It would be ludicrous to hold all the savings of an 80-year grandmother who invested $100 in a poorly run corporation–which would be the case if she were in a partnership. Limited liability means that only that $100 of the grandmother is liable, and all her other assets not invested in that corporation – as a shareholder — are not held liable.

Limited liability means that the shareholders are not responsible for the decisions that they do not make — only corporate officers, managers, and employees are liable to the extent that they make them.