Company Law
The Role of Companies
Lecture 3
The two big questions
Should we form a company?
If so what type of company should we fom?
The two big questions
Unregistered
- Sole traders
- Partnerships
NO SEPERATE LEGAL PERSONALITY
Registered Companies
- Private Limited (LTD)
- Public Limited (PLC)
- Designated Activity Companies (DAC)
SEPERATE LEGAL PERSONALITY
Relevant Considerations
Capital Needs
Risk Appetite
Governance
Theories of Corporate Objective
•Theoretical discrepancy not only over the meaning of corporate form but also corporate objective.
•Importantly these two theoretical debates inform one another – a particular objective may more easily
align with a particular corporate form ((ie: entity, aggregate nexus of contract).
•Different aspects of corporate law may reflect different theories meaning the 2014 Act can reflect a
mix of these theories.
, Shareholder Value Maximisation
•Origins of the principle - Adolf Berle and Gardiner Means (1932).
•“In a free enterprise, private-property system, a corporate executive is an employee of the owners of
the business. He has [a] direct responsibility to his employers. That responsibility is to conduct the
business in accordance with their desires, which generally will be to make as much money as possible
while conforming to the basic rules of the society . . . . Insofar as his actions in accord with his “social
responsibility” reduce returns to stockholders, he is spending their money”.
•Milton Friedman & Craig P. Dunn, “The Social Responsibility of Business Is to Increase Its Profits”, N.Y.
TIMES MAG., Sept. 13, 1970,
•Re Wincham Shipbuilding (1878) LR 9 CH D 322:
Jesse MR: ‘the directors are trustees for the shareholders, that is, for the company.’
•Hutton v West Cork Railway Co (1883) 23 Ch D
Bowen LJ: ‘The law does not say that there shall be no cake and ale, but there are to be no cakes and ale
except such as are required for the benefit of the company.
•Greenhalgh v Arderne Cinemas (1951) Ch 286
Lord Evershed: the ‘interests of the company as a whole’ did not mean the company as a commercial
entity, but rather meant the corporators as a general body.
Shareholder Value Maximisation- Pros
•Efficiency - Milton Friedman
•Avoidance of Two-Masters Problem– Elaine Sternberg.
•Regulation of Non-Shareholder Interests outside Corporate Law
•Capitalism - Liquidity and Efficient Allocation
•Separation of Ownership and Control
Shareholder Value Maximaisation – Cons
•“A century and a half after its birth, the modern business corporation, [is] an artificial person made in
the image of a human psychopath.”
•Joel Bakan, The Corporation: The Pathological Pursuit of Profit and Power
•Disregard of ‘externalities.’ - R. E. Freeman (1983)
The Role of Companies
Lecture 3
The two big questions
Should we form a company?
If so what type of company should we fom?
The two big questions
Unregistered
- Sole traders
- Partnerships
NO SEPERATE LEGAL PERSONALITY
Registered Companies
- Private Limited (LTD)
- Public Limited (PLC)
- Designated Activity Companies (DAC)
SEPERATE LEGAL PERSONALITY
Relevant Considerations
Capital Needs
Risk Appetite
Governance
Theories of Corporate Objective
•Theoretical discrepancy not only over the meaning of corporate form but also corporate objective.
•Importantly these two theoretical debates inform one another – a particular objective may more easily
align with a particular corporate form ((ie: entity, aggregate nexus of contract).
•Different aspects of corporate law may reflect different theories meaning the 2014 Act can reflect a
mix of these theories.
, Shareholder Value Maximisation
•Origins of the principle - Adolf Berle and Gardiner Means (1932).
•“In a free enterprise, private-property system, a corporate executive is an employee of the owners of
the business. He has [a] direct responsibility to his employers. That responsibility is to conduct the
business in accordance with their desires, which generally will be to make as much money as possible
while conforming to the basic rules of the society . . . . Insofar as his actions in accord with his “social
responsibility” reduce returns to stockholders, he is spending their money”.
•Milton Friedman & Craig P. Dunn, “The Social Responsibility of Business Is to Increase Its Profits”, N.Y.
TIMES MAG., Sept. 13, 1970,
•Re Wincham Shipbuilding (1878) LR 9 CH D 322:
Jesse MR: ‘the directors are trustees for the shareholders, that is, for the company.’
•Hutton v West Cork Railway Co (1883) 23 Ch D
Bowen LJ: ‘The law does not say that there shall be no cake and ale, but there are to be no cakes and ale
except such as are required for the benefit of the company.
•Greenhalgh v Arderne Cinemas (1951) Ch 286
Lord Evershed: the ‘interests of the company as a whole’ did not mean the company as a commercial
entity, but rather meant the corporators as a general body.
Shareholder Value Maximisation- Pros
•Efficiency - Milton Friedman
•Avoidance of Two-Masters Problem– Elaine Sternberg.
•Regulation of Non-Shareholder Interests outside Corporate Law
•Capitalism - Liquidity and Efficient Allocation
•Separation of Ownership and Control
Shareholder Value Maximaisation – Cons
•“A century and a half after its birth, the modern business corporation, [is] an artificial person made in
the image of a human psychopath.”
•Joel Bakan, The Corporation: The Pathological Pursuit of Profit and Power
•Disregard of ‘externalities.’ - R. E. Freeman (1983)
