The Nature of Shareholding and Regulating Shareholders’ Duties

Abstract

This paper criticizes the generalized idea of considering shareholders as owners of the company from historical, doctrinal and comparative law perspectives.

The relationship between the shareholders and the company’s assets - which has never been that of ownership - is studied through a brief overview about the historical evolution of company law. The paper also analyzes the different roles and degrees of influence that shareholders and managers have had in the governance of the corporation and in the decision making related to its assets. Doctrinal, legal and jurisprudential perspectives support a negative answer to the different reasons under which the shareholder could be considered owner of the company’s assets. Principles of private law and particularly those of company law reject the consideration of the shareholder as owner of the company’s assets. The differences between civil law and common law jurisdictions do not explain why some common law authors have developed a number of doctrines which treat the ‘shareholder’ as ‘owner’. To a greater or lesser degree, both legal traditions have their roots in Roman law; Roman legislation, case law and doctrines lie on a distinction between property rights (ius in rem) and personal rights (ius in personam). This paper highlights the influence of some proposals of the Economic Analysis of Law in this tenet which erroneously identifies shareholders’ economic incomes from company’s assets with the legal relationship that explains company’s assets. The external dimension of a share, its status as financial instrument, gives the shareholder property rights over the share; but the internal dimension of a share, the bundle of rights of the shareholder, prevents attribution to the shareholder of any ownership rights over the company’s assets. The consideration of a member of the company as a shareholder - not as its owner - brings valuable consequences in two currently open debates: On the one hand, in the area of corporate governance, the treatment of the member as a shareholder establishes a correct balance between ownership and control. On the other hand, the future regulation of shareholders’ duties would lead to negative consequences, were they considered owners of the company’s assets.