The doctrine of legal entity: contemporary tendencies
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Abstract
This article approaches an issue of inadequacy of traditional legal entity doctrine in solving contemporary creditor protection problems. Undoubtedly, historically the idea of personhood of legal entity aimed to justify the priority of economic interest against equity requirements. However today such an approach is no longer constructive as it fails to comply with changed social circumstances where the necessity of the protection of third parties from the negligent behaviour of legal entity is evident.
The doctrine of legal entity traditionally pertained on social needs. Seeking to disclose the dependence of legal entity doctrine on the historical circumstances, in the article four key transformations of legal entity that required reviewing the legal entity doctrine are discussed. Three basic theories – the agregate theory, artificial person, and real entity that have been significant in the development of the doctrine of legal person are introduced.
The article reveals the main reasons why in seeking to solve the problem of risk transfer from legal entity founders to creditors efficiently today it is not enough to review only the traditional doctrine. First of all, contemporary objectives of legal regulation are tremendously different – historically legal entity theories were constructed to substantiate the independence of legal persons from their founders; today this complete independence of legal entity from the shareholders became vicious and should not be fully sustained.
Therefore, proposition is made for an economic concept of legal entity as of nexus of contracts. The methodology of the theory of nexus of contracts, allows drawing a distinction between tort and contract creditors. Limited liability is considered as one of the contract terms between shareholders and creditors.
Conclusion is made, that since the issue of limited liability is the problem of interrelation between legal entity’s members and creditors, the traditional doctrine of legal entity directed exclusively to the analysis of relations between the legal entity itself and its owners may not serve as a methodology in analyzing the problem of limited liability misuse. The nexus of contracts theory based on the economic theory of enterprise is used as an analytical tool to analyse the issue of legal entity’s limited liability. Based on this theory the regime of limited liability is substantiated in regard to creditors the claims of which originate from transactions.
The doctrine of legal entity traditionally pertained on social needs. Seeking to disclose the dependence of legal entity doctrine on the historical circumstances, in the article four key transformations of legal entity that required reviewing the legal entity doctrine are discussed. Three basic theories – the agregate theory, artificial person, and real entity that have been significant in the development of the doctrine of legal person are introduced.
The article reveals the main reasons why in seeking to solve the problem of risk transfer from legal entity founders to creditors efficiently today it is not enough to review only the traditional doctrine. First of all, contemporary objectives of legal regulation are tremendously different – historically legal entity theories were constructed to substantiate the independence of legal persons from their founders; today this complete independence of legal entity from the shareholders became vicious and should not be fully sustained.
Therefore, proposition is made for an economic concept of legal entity as of nexus of contracts. The methodology of the theory of nexus of contracts, allows drawing a distinction between tort and contract creditors. Limited liability is considered as one of the contract terms between shareholders and creditors.
Conclusion is made, that since the issue of limited liability is the problem of interrelation between legal entity’s members and creditors, the traditional doctrine of legal entity directed exclusively to the analysis of relations between the legal entity itself and its owners may not serve as a methodology in analyzing the problem of limited liability misuse. The nexus of contracts theory based on the economic theory of enterprise is used as an analytical tool to analyse the issue of legal entity’s limited liability. Based on this theory the regime of limited liability is substantiated in regard to creditors the claims of which originate from transactions.
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Articles
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Authors retain copyright of their work, with first publication rights granted to the Association for Learning Technology.
Please see Copyright and Licence Agreement for further details.
