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The Modern Corporation's Roman Law Roots

What can ancient Roman Law teach us about the functions of a modern corporation? Professor Richard Epstein explains how the Romans established a class of slaves who could own property and were authorized to transact important business on behalf of their owner. A similar relationship exists between corporate managers and their shareholders, who provide the money for transactions. Professor Epstein also discusses how disputes involving multiple ownership can be resolved, again referring to the similarities in the Roman Law system. https://youtube.com/watch?v=q5h5bOauW20


Is a corporation a person? Is it a shareholders? Is it an entity or is it not, becomes one of central questions of modern political life. So, you do exactly the same thing that the Romans did with respect to the pecuniary obligations on the guarantees. The interesting feature under Roman law was that there was a second class of slaves, and these were people who were teachers, these were people who were merchants of one form or another, they were surely owned but they were authorized, at least within limits, to enter into business transactions with third parties. So, you now had to figure out a standard legal problem, what is the relationship between the third party, who may or may not have been represented by a slave in the transaction, the slave and the slave owners? It's in this area that we start to see a number of problems. A peculium was the origins of the limited liability corporation which we start to see many, many years later. What happened was the owner says, "I want you to be able to trade. I know that you have to have enough property in order to make these things credible. I don't know want it to be that you have specific authorizations from me for every particular transaction, here's the stuff, go to it, and enter into third parties." So essentially what happens is you get an agency relationship and a limited liability corporation meshed into one thing, and that kind of relationship still exists today, when you have closed corporations. The shareholders are insulated from the liability, but they have to put a pool of assets into the hands of the corporate managers, who can then deal with those assets to third parties. If it turns out they're not enough, you could go back and get guarantees today, and sure enough you could do that with the peculium, which is why whether you mention these things that the Roman law of guarantees and particular obligations is such an important part of the overall system, it's certainly tied up closely with the limited authorities that slaves have. The origin, essentially, of the modern corporation comes out of this particular kind of institution Now, the second arrangement that you have is slaves, like other kinds of property, can be subject to multiple ownership. When the slave enters into various transactions, the question then is which of these particular owners is going to be bound by this transaction? Which of these particular people is gonna be able to take the benefit of that transaction? What typically happens is you have a two-stage approach to the problem. The first is that the two owners, being limited partners for this particular venture, can enter into an agreement in which they specify the way in which the risk and the burdens of particular slave operations can be divided between them, and those agreements will generally be enforced as a matter of course. Typically, or at least in many cases, you see no such arrangement, so what you have to do is to figure out essentially which of these particular parties are gonna be responsible in a given case. The more people you have in these businesses the more likely there is to be an overlap so in a series of stages essentially what we say is that a corporation is "a citizen" of the state in which it's incorporated or in the state in which it has its principal point of business. This is pure fiction, and yet there's nobody who'd want to get rid of it. If I'm from New York and you're from New Jersey, the federal courts can take control of a contract dispute between us even though there's no federal statute or federal constitutional provision that turns to be involved. This is essentially the central line in statutory implication: whether or not when you look at the structure, history, text, and purpose, does the extension which is not literal, conform with the structural and purpose of ends of this thing or whether or not it turns out to be a direct assault upon it. If you understand that arrangement, then all this Roman law stuff about corporations and slaves turns out to be here.

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