From Fictions and Aggregates to Real Entities in the Theory of the Firm

According to the dominant ‘nexus of contracts’ and ‘collection of assets’ views of the firm, the firm is a either a fiction or an aggregate. Although legal personality is important in both accounts, everything is said to be achieved by private contract alone and the law’s role in creating legal entity status is dismissed. The paper challenges both these aspects by reconsidering an alternative ‘real entity theory’ that dominated debates at the turn of the twentieth century. This forgotten view holds that the firm is neither a fiction nor an aggregate but a real entity, and underlines the creation of legal entity status as a fundamental role of the law. The paper discusses this view’s ontological and legal insights, clarifies the proposition that the firm is a real entity, and proposes it as a starting point for a theory of the firm.