Table Of ContentOUP UNCORRECTED AUTOPAGE PROOF – REVISES, Fri Sep 24 2021, NEWGEN
Company Law
MMiicchheelleerr006600552211__PPKK__LLAAWWUUKK..iinndddd 11 /17_revised_proof/revises_i/files_to_typesetting/validation 2244--SSeepp--2211 1188::2211::1133
OUP UNCORRECTED AUTOPAGE PROOF – REVISES, Fri Sep 24 2021, NEWGEN
MMiicchheelleerr006600552211__PPKK__LLAAWWUUKK..iinndddd 22 /17_revised_proof/revises_i/files_to_typesetting/validation 2244--SSeepp--2211 1188::2211::1133
OUP UNCORRECTED AUTOPAGE PROOF – REVISES, Fri Sep 24 2021, NEWGEN
Company Law
A Real Entity Theory
EVA MICHELER
1
MMiicchheelleerr006600552211__PPKK__LLAAWWUUKK..iinndddd 33 /17_revised_proof/revises_i/files_to_typesetting/validation 2244--SSeepp--2211 1188::2211::1133
OUP UNCORRECTED AUTOPAGE PROOF – REVISES, Fri Sep 24 2021, NEWGEN
3
Great Clarendon Street, Oxford, OX2 6DP,
United Kingdom
Oxford University Press is a department of the University of Oxford.
It furthers the University’s objective of excellence in research, scholarship,
and education by publishing worldwide. Oxford is a registered trade mark of
Oxford University Press in the UK and in certain other countries
© Eva Micheler 2021
The moral rights of the author have been asserted
First Edition published in 2021
Impression: 1
All rights reserved. No part of this publication may be reproduced, stored in
a retrieval system, or transmitted, in any form or by any means, without the
prior permission in writing of Oxford University Press, or as expressly permitted
by law, by licence or under terms agreed with the appropriate reprographics
rights organization. Enquiries concerning reproduction outside the scope of the
above should be sent to the Rights Department, Oxford University Press, at the
address above
You must not circulate this work in any other form
and you must impose this same condition on any acquirer
Public sector information reproduced under Open Government Licence v3.0
(http:// www.nationalarchives.gov.uk/ doc/ open- government- licence/ open- government- licence.htm)
Published in the United States of America by Oxford University Press
198 Madison Avenue, New York, NY 10016, United States of America
British Library Cataloguing in Publication Data
Data available
Library of Congress Control Number: 2021940439
ISBN 978– 0– 19– 885887– 4
DOI: 10.1093/ oso/ 9780198858874.001.0001
Printed and bound by
CPI Group (UK) Ltd, Croydon, CR0 4YY
Links to third party websites are provided by Oxford in good faith and
for information only. Oxford disclaims any responsibility for the materials
contained in any third party website referenced in this work.
MMiicchheelleerr006600552211__PPKK__LLAAWWUUKK..iinndddd 44 /17_revised_proof/revises_i/files_to_typesetting/validation 2244--SSeepp--2211 1188::2211::1133
OUP UNCORRECTED AUTOPAGE PROOF – REVISES, Fri Sep 24 2021, NEWGEN
This book would never have been written without the help of my family. I would like to
thank Steven for his love and support, Aurelia and Theodore for their encouragement and
understanding and Elisabeth for being a wonderful sister.
MMiicchheelleerr006600552211__PPKK__LLAAWWUUKK..iinndddd 55 /17_revised_proof/revises_i/files_to_typesetting/validation 2244--SSeepp--2211 1188::2211::1133
OUP UNCORRECTED AUTOPAGE PROOF – REVISES, Fri Sep 24 2021, NEWGEN
Foreword
This book is the product of over 20 years of company law teaching, both at grad-
uate and at undergraduate level. During this time, I have found that the current
approaches for analysing company law are useful for some purposes but fall short
for others. I took a sabbatical in 2015 to investigate an alternative model, real en-
tity theory, which dominated company law scholarship into the first half of the 20th
century. Real entity theorists at that time based their work on intuition. The study of
organizations and human behaviour in organizational contexts had just started with
contributors such as Frederick Winslow Taylor writing about optimizing production
processes. Unfortunately, real entity theory started to wane in legal circles at about
the same time as the study of organizations began to emerge in other social sciences.
Today, we benefit from a rich body of contributions analysing and explaining how so-
cial forces shape organizational action and individual actions within organizations.
This book relies on these contributions to advance a modern version of a real entity
theory of company law.
The nexus of contract model and agency theory have cast a long shadow over the anal-
ysis of company law. Historically, the nexus of contract model does a reasonable job of
explaining the deed of settlement companies that preceded the Companies Act 1844.
These companies did not have a statutory basis. They were created by contracts and
used trust law in a way that is similar to modern unit trusts. Unsurprisingly, the char-
acteristics of the predecessors of modern companies informed the rules adopted in the
early Companies Acts. The reforms that have taken place since then, however, have
caused the law to outgrow the nexus of contract model. Shareholders continue to have
some freedom to adopt a bespoke constitution, but the extent to which modern com-
pany law can be explained by contract law can be overstated. The nexus of contract
model understates the extent to which the modern Companies Act contains mandatory
rules. It also ignores that case law routinely declines to apply contract law to the analysis
of the corporate constitution and that the ability of shareholders to enforce the consti-
tution is severely limited. It will be concluded in chapter six that the constitution, which
is sometimes referred to as a statutory contract, is better conceptualized as a statutory
instrument adopted by private action.
Agency theory, for its part, helps with the analysis of conflicts of interest. It concep-
tualizes directors as agents of the shareholders and brings the inability of human be-
ings to over- ride their self- interest into sharp analytical focus. This perspective is worth
having. It falls short, however, of providing us with an accurate picture of the rules
governing directors. The law explicitly states that the directors owe their duties to the
MMiicchheelleerr006600552211__PPKK__LLAAWWUUKK..iinndddd 77 /17_revised_proof/revises_i/files_to_typesetting/validation 2244--SSeepp--2211 1188::2211::1133
OUP UNCORRECTED AUTOPAGE PROOF – REVISES, Fri Sep 24 2021, NEWGEN
viii Foreword
company. The Companies Act does not provide for a legal relationship between the dir-
ectors and the shareholders or any other constituency.
Moreover, agency theory prevents us from fully appreciating the role of directors. The
Companies Act imposes a number of duties on directors. These do not require dir-
ectors to maximize return for the shareholders. The overall picture is more nuanced.
Shareholder interests take priority, but it would be wrong to conclude that the company
is a vehicle serving shareholder interests only.
The current approaches for analysing companies also fall short because they do not fit
with our experience of companies. In everyday life, we do not conceive of companies
as contracts. We refer to them and experience them as actors. We speak of the corner
shop, the GP practice, the school, the university, the library or the supermarket as an
actor affecting our lives in particular ways.
This fits with evidence that human beings act in distinctive ways in groups and organ-
izations. Human action is shaped by social forces. Interactions between human beings
bring about habits, routines, processes and procedures causing organizations to be-
come autonomous actors in their own right. These take on a life of their own affecting
the behaviour of the participants. Participants can themselves affect organizational be-
haviour and modify habits, routines, procedures and culture but this takes time and ef-
fort. Organizations do not have a unique physical manifestation. They are nevertheless
real in their consequences.
Company law finds this phenomenon and evolves with a view to supporting autono-
mous action by organizations. It will be demonstrated in this book that an approach
that conceives companies as autonomous actors shaping the actions of individual par-
ticipants through social forces explains cardinal features of company law as it stands.
It will also be suggested that when corporate behaviour needs to be modified this is
best done by interventions that alter corporate decision-m aking procedures. This is
more likely to achieve the desired result than, for example, the adoption of a corporate
purpose.
Real entity theory is sometimes expressed through a metaphor that likens the com-
pany to a human body, with the directors as the 'brain', taking the decision to be imple-
mented by the workforce. This metaphor is not helpful. Organizations as real entities
are not usefully compared to physical, biological entities. Instead, organizations are real
because they create social rules that affect the behaviour of their participants. Company
law helps organizations to operate autonomously and the law’s content shaped by their
special characteristics.
It is important to me that the theory advanced in this book holds true irrespective of
how much influence any particular jurisdiction allocates to shareholders over other
constituencies. This book does not argue in favour or against a stakeholder- oriented
model of the company. From the perspective of this book, the shareholder versus stake-
holder debate is a distraction. The debate is the product of the practice, supported by
MMiicchheelleerr006600552211__PPKK__LLAAWWUUKK..iinndddd 88 /17_revised_proof/revises_i/files_to_typesetting/validation 2244--SSeepp--2211 1188::2211::1133
OUP UNCORRECTED AUTOPAGE PROOF – REVISES, Fri Sep 24 2021, NEWGEN
Foreword ix
agency theory, of analysing company law through the lens of agents and principals.
While this perspective helps us to better understand conflicts of interests, we should
not limit ourselves to a perspective that distracts us from understanding the essence of
organizational action.
Eva Micheler
August 2021
MMiicchheelleerr006600552211__PPKK__LLAAWWUUKK..iinndddd 99 /17_revised_proof/revises_i/files_to_typesetting/validation 2244--SSeepp--2211 1188::2211::1133
