Shareholder Responsibility Summarized

in business, kosher

The major halakhic authorities have not accepted the “legal-person” view of the corporation and cogently points out that even the secular law does not view the corporation’s legal personality as entirely independent of its owners. We can give examples of this principle: The law views the managers and directors as trustees of the shareholders; they have a fiduciary responsibility to the shareholders as owners of the corporation. Some rights of shareholders are manifestly rights of ownership: the right to examine the books of the company; to sue the management on behalf of the shareholders; to propose resolutions to be voted on by all shareholders.

The fiduciary duty of management to act in the interest of the shareholders also weakens position that management could be considered the true owners. The same is true of controlling interests, who are likewise viewed as fiduciaries of minority shareholders. Tellingly, minority shareholders can sue management or controlling interests for acting against their best interest. And even according to R. Feinstein, there is presumably no leniency in the case where management is not firmly entrenched against a potential corporate raider who could enlist the currently-passive small shareholder on his side; this description probably characterizes most large companies traded on the stock market in today’s environment.

To summarize, it seems that the most common view among major authorities is to view the corporation as an ordinary partnership, while accepting its limited liability to its creditors – though not to injured third parties. Each authority mentions leniencies which apply to special cases, but these are not due to the special legal status of the corporation, but rather to specific aspects of the stockholding which could apply just as well to an ordinary partnership.