You can think of corporations as robot persons.
How are corporations like robot persons?
1. Because corporations are treated like persons under the law. That means that corporations can do many things that humans can do under the law, like: own property, enter into contracts, have rights that they can enforce against others, have liabilities that can be enforced against them, and much more. In fact, corporations are sometimes even referred to as “bodies corporate”.
2. And, like robots, corporations are created and controlled by human beings; they are different and separate from the human beings that control them, but they are not autonomous from those humans. Control of a corporation can be transferred from one human to another human—without the corporation itself changing—and for that reason, corporations can live forever (in theory).
Who controls these Robot Persons?
To continue with the “robot person” analogy, here is an explanation of how these robot persons are controlled:
Corporations have three groups of people that control them in different ways: Directors, Officers, and Shareholders.
Directors
Imagine the Directors sitting in the head of the robot person. They are considered the guiding mind of the corporation. They are ultimately responsible for the corporation and what it does. Directors even have some personal liability for the actions of the corporation.
Officers
Imagine the Officers as the arms and legs of the robot person. The Officers are responsible for the day-to-day actions of the corporation. The Directors appoint the Officers, the Directors control them, and they report to the Directors. Officers usually have titles like President, CEO, Secretary, Treasurer, Vice President, CFO, etc.
Shareholders
Imagine the Shareholders as the humans standing just behind the robot person, holding a remote control for that robot person. The Shareholders can choose which Directors sit in the head of the robot person, they can choose to power down the robot person, and they can make a host of other decisions, including taking apart the robot person.
(In some companies, only one human being is the sole Shareholder, Director, and Officer.)
If corporations are like robot persons, then how are they programmed?
Corporations, like robots, have some built-in programming that places boundaries on what they can do.
How are corporations programmed?
First, corporations are, of course, not naturally occurring entities. Corporations are only formed by the authority of the government, and they are constrained by the laws under which they are formed. So what a corporation can and cannot do is programmed in part by the laws under which the corporation is formed.
Second, “Articles of Incorporation” are created when corporations are formed. Articles of Incorporation are the foundational document for the corporation. The Articles of Incorporation list the share classes (and rights associated with them) and detail certain things that cannot be done with the corporation. In some ways, this is what determines which buttons there will be on the remote control for the robot person and what groups of shareholders will have a right to push them.
Third, once a corporation is formed, there are by-laws passed to dictate the way that the corporation is governed. And shareholder agreements can also be entered into, adding another layer of governance rules to follow. Each of those prescribes how the robot person needs to operate in certain situations (and more specifically, how the Shareholders, Directors, and Officers need to interact when those situations arise).
Each set of rules places boundaries on what the corporation can do—just like programming a robot places boundaries on what it can do.
If you want to learn more about how corporations are formed using this “robot person” analogy, you can read our follow-up article, Our Process for Forming Your Corporation.
