Coming Soon:

The following books by Robert Paul Wolff are available on Amazon.com as e-books: KANT'S THEORY OF MENTAL ACTIVITY, THE AUTONOMY OF REASON, UNDERSTANDING MARX, UNDERSTANDING RAWLS, THE POVERTY OF LIBERALISM, A LIFE IN THE ACADEMY, MONEYBAGS MUST BE SO LUCKY, AN INTRODUCTION TO THE USE OF FORMAL METHODS IN POLITICAL PHILOSOPHY.
Now Available: Volumes I, II, III, and IV of the Collected Published and Unpublished Papers.

NOW AVAILABLE ON YOUTUBE: LECTURES ON KANT'S CRITIQUE OF PURE REASON. To view the lectures, go to YouTube and search for "Robert Paul Wolff Kant." There they will be.

To contact me about organizing, email me at rpwolff750@gmail.com




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Wednesday, March 28, 2012

A CURIOUS QUESTION PROVOKED BY A MORNING WALK

During my daily four mile walk this morning [which turns out to do wonders for keeping my weight down, by the way], I found myself puzzling over a very curious question.  I shall not reveal the rather megalomaniac daydream I was having in which the question was embedded.  Certain things are probably better left off the world wide web.  Let me explain the question, and then perhaps someone who reads this blog will be able to suggest an answer [even though I would imagine that not many experts on corporation law are among the regular visitors to this site.]

When a company is launched, typically it is owned by the people who start it.  At some point, if it is successful, they may "take it public," which is to say they may invite members of the general public to purchase shares of stock in the company.  This is, as I understand it, what happens when a company has an IPO, or Initial Public Offering.  If all goes well, the company will then be listed on one of the major stock exchanges, and over time, shares may be very widely held by large numbers of investors.

Now, the directors of a company can choose at some point to buy back some of the shares that have been sold to the public, using funds that the company has accumulated in the course of doing business profitably.  It cannot compel investors to sell back their shares, I believe [I may be wrong about that -- please advise, if you know], but by offering to buy the shares at a price above the current market price, the company may well be successful in finding willing sellers.

So far as I know, there is no limit on the numbers of shares that a company is permitted to buy back -- 5%, or 20%, or 51%, say.  Let us suppose that the company manages to buy back all of the outstanding shares, even including those owned by the corporate managers [who may or may not be the people who started the company, of course]. 

My question is this:  When the total buy back is completed, who owns the corporation?

There is, by hypothesis, no human persons left who own any shares in the corporation, which is to say, no persons who own a share of the corporation.  So who owns the corporation?  So far as I can see, the only plausible answer is that the corporation owns itself.  I suppose some folks might think that is an acceptable answer, since both the United States Supreme Court and Mitt Romney say that corporations are people, but if that is the correct answer, it seems to generate some very odd subordinate questions.  For example:

To whom, if anyone, does the corporation have a fiduciary obligation to earn a profit if it can?

Is there any reason why the corporation should not pay its employees as much as it possibly can without going broke?

Indeed, if the company does go broke, is there anyone who can be said to have suffered a financial loss thereby?

Can there really be a functioning corporation that owns itself?  Shades of I, Robot!

I am genuinely puzzled by this, and would welcome enlightenment, particularly from experts in the theory of corporations, if there are any out there.

4 comments:

Superfluous Man said...

I am reminded of the famous scene in the movie 2001, A Space Odyssey

Dave Bowman: Hello, HAL. Do you read me, HAL?
HAL: Affirmative, Dave. I read you.
Dave Bowman: Open the pod bay doors, HAL.
HAL: I'm sorry, Dave. I'm afraid I can't do that.
Dave Bowman: What's the problem?
HAL: I think you know what the problem is just as well as I do.
Dave Bowman: What are you talking about, HAL?
HAL: This mission is too important for me to allow you to jeopardize it.
Dave Bowman: I don't know what you're talking about, HAL.
HAL: I know that you and Frank were planning to disconnect me, and I'm afraid that's something I cannot allow to happen.
Dave Bowman: [feigning ignorance] Where the hell did you get that idea, HAL?
HAL: Dave, although you took very thorough precautions in the pod against my hearing you, I could see your lips move.
Dave Bowman: Alright, HAL. I'll go in through the emergency airlock.
HAL: Without your space helmet, Dave? You're going to find that rather difficult.
Dave Bowman: HAL, I won't argue with you anymore! Open the doors!
HAL: Dave, this conversation can serve no purpose anymore. Goodbye.

Robert Paul Wolff said...

I love that scene, but I love even more the scene where the apeman discovers the military use of a jawbone. The dawn of culture.

David Goldman said...
This comment has been removed by the author.
David Goldman said...

I'm no expert, but I am a fan of googling things rather than working on my dissertation. This seems like what you're thinking of:
http://en.wikipedia.org/wiki/Treasury_stock
—although it's not well-cited (in a wikipedia entry! gasp!), it seems that when a company buys its own stock (and doesn't just eliminate it, in order to drive up the earnings per share of the remaining stock), that stock is not permitted to vote with the rest of the stock, or pay a dividend, or exceed a certain percentage of the company's outstanding shares.