Triantis, George --- "The Personification and Property of Legal Entities" [2011] ELECD 153; in Ayotte, Kenneth; Smith, E. Henry (eds), "Research Handbook on the Economics of Property Law" (Edward Elgar Publishing, 2011)

Book Title: Research Handbook on the Economics of Property Law

Editor(s): Ayotte, Kenneth; Smith, E. Henry

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781847209795

Section: Chapter 9

Section Title: The Personification and Property of Legal Entities

Author(s): Triantis, George

Number of pages: 16

Extract:

9 The personification and property of legal entities
George Triantis*


Property rights in productive assets are commonly held by legal entities rather than indi-
viduals. Only persons can own property, and the law defines persons to include organiza-
tions such as corporations, partnerships, and trusts (referred to collectively hereafter as
`entities' or `firms'). This chapter addresses the related issues of the justification for firm
ownership of property and the efficient division of assets among distinct legal entities.1
In brief, firm ownership coordinates the productive activity of self-interested individu-
als. Earlier scholarship by economists suggested that the allocation of control over assets
reduces the inefficiencies of incomplete contracts caused by imperfect information.
Thus, economic integration brings assets into common ownership to avoid or simplify
contracting. These theories, however, do not distinguish between assets owned directly
by an individual and assets controlled indirectly through an entity. They also do not
distinguish between assets held within a single entity and assets partitioned among mul-
tiple entities within common control. More recent literature fills this gap by explaining
the legal significance of the boundaries of distinct entities, whether or not they fall under
the control of a single owner.
The starting point for understanding firm boundaries is the observation that the
person who is best situated to control the use of an asset may not be in the best posi-
tion to finance its use. Berle and Means (1932) famously noted that the corporation is
a vehicle for achieving such separation and ...