Berle (1947) (1).pdf - The Theory of Enterprise Entity...

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The Theory of Enterprise EntityAuthor(s): Adolf A. Berle, Jr.Source:Columbia Law Review, Vol. 47, No. 3 (Apr., 1947), pp. 343-358Published by: Columbia Law Review Association, Inc.Stable URL: Accessed: 25-11-2016 13:44 UTCREFERENCESLinked references are available on JSTOR for this article:You may need to log in to JSTOR to access the linked references.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusteddigital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information aboutJSTOR, please contact [email protected]Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available atColumbia Law Review Association, Inc.is collaborating with JSTOR to digitize, preserve and extendaccess toColumbia Law ReviewThis content downloaded from 58.176.147.185 on Fri, 25 Nov 2016 13:44:26 UTCAll use subject to
COLUMBIA LAW REVIEWVol. 47 APRIL, 1947 No. 3THE THEORY OF ENTERPRISE ENTITYADOLF A. BERLE, JR.Classically, a corporation was conceived as an artificial person, cominginto existence through creation by a sovereign power.Thence proceeded certain advantages, which led the corporate form tbecome the principal method of organization of commercial, and especiallyindustrial, activity. Its primary business advantage, of course, was insulatioof individual stockholders composing the corporation from liability for thdebts of the corporate enterprise.1 Realistic appraisal would today probablyinclude a second advantage of weight: the distribution of responsibility forthe enterprise among managing officials.2 Many men are prepared to accepresponsibility for a particular job in an enterprise who would not accept geeral responsibility for its entire functioning. Practically, in large-scale enteprises, few individuals can accept full management responsibility for an enter-prise any more than they can accept full financial liability for its obligationAs the scale of business enterprises enlarged, the process of sub-divisionbegan; hence subsidiary corporations wholly-owned or partly-owned; or holing companies combined into a series of corporations constituting a combineconomic enterprise; and so forth. More often than not, a single large-scalbusiness is conducted, not by a single corporation, but by a constellation ofcorporations controlled by a central holding company, the various sectorsbeing separately incorporated, either because they were once independent anhave been acquired, or because the central concern, entering new fieldcreated new corporations to develop them, or for tax reasons. In some in-stances, departments of the business are separately incorporated and operatas separate legal units.3 Since under modern corporation statutes any thr

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