Global Journal of Management and Business Research, D: Accounting and Auditing, Volume 22 Issue 2

1996, 713) Table 1 shows the Incidents of Ownership of Honoré sorted by Hohfeld’s legal relations. 15 These legal relations capture whether firm-members have a claim to firm-assets. Table 1: Incidents of Ownership Legal Relations Incidents of Ownership* Rights (1) Right to possess—to have exclusive control of the thing. (2) Right to use—personal use and enjoyment of the thing. (3) Right to income—to receive exclusive benefits from others using the thing (4) Right to capital—to have the exclusive control over destroying the thing and exclusive benefit of what remains. (5) Right to manage—to have exclusive control over use of the thing. (6) Right to residuarity—to have the right to receive rights and powers of others when contracts expire. Powers (7) Power to alienate—the ability to sell ownership to others. (8) Power to transfer—the ability to transfer ownership to successors. Duties (9) Duty to prohibit harmful use—to have personal liability if the thing harms others. Liabilities (10) Liability of execution—to have liability in what you own for personal debt. (11) Immunity (i.e., no liability) from expropriation—the immunity from others taking ownership without consent (e.g., for debts). Based on Honoré (1961), Munzer (1990) e) Analysis The sole proprietor has every incident of ownership, while the firm-members (e.g., beneficiaries) of nonprofit corporation have none. A shareholder of a business corporation can be its sole shareholder, its controlling shareholder, or its non-controlling shareholder. The analysis focuses on non-controlling shareholders since they represent most shareholders . 15 This paper provides a legal analysis of ownership claims to firm-assets for accountants, who are not legal experts. The legal experts agree that, “[c] ontrary to widely held ‘common sense’, shareholders do not own corporations; nor do they own the assets of corporations. Shareholders only own shares…” 16 15 Hohfeld’s jural correlatives are rights and duties, powers and liabilities, privileges and no rights and immunities and disabilities. To simplify the discussion, I translated the latter two correlatives into of opposites of the former two. (Also see Stout 2012) While accountants as non-experts in law should accept the consensus of the legal experts, they should also understand the legal intuition as to why the legal experts conclude that shareholders do not own the firm- assets. That is, accounting standard setters should understand basic property law and corporation law if they require corporate balance sheets to show firm- members’ claims to firm-assets. The following sections explain the shareholders’ legal claims to net assets in terms of their legal rights, powers, duties, and liabilities of ownership. 16 For the quote and signatories, see https://themoderncorporation .wordpress.com/company-law-memo/ f) Right to possess Do shareholders have a right to possess corporate assets? As Professor Ian Lee states, “…shareholders have no property rights in the corporation’s assets: a shareholder of Wal-Mart Stores, Inc. can be prosecuted for shoplifting from Wal-Mart.” (Lee 2005 p. 11) Even “…a sole shareholder has no independent right which is violated by trespass upon or conversion of the corporation’s property.” 17 g) Right to Use Rather, a sole shareholder, like other outsiders, has a duty to exclude him or herself from the corporate assets. Shareholders have no right to possess corporate assets. Do shareholders have a right to use corporate assets? Although shareholders have no to right to possess , but do they still have the power to contract with corporate assets, which is a form of use ? The answer is, “no.” The Model Business Corporation Act (MBCA) states that, “All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed by or under the direction of, its board of directors…” (MBCA Ann. §8.01b 3d ed. Supp. 2000-2002) and Delaware General Corporation Law (DGCL) states that the corporation’s business and affairs “shall be managed by or under the direction of a board of directors.” [DGCL § 141 (a) (2001)] Stout (2002, 1191) states that, “…shareholders…enjoy neither direct control over the firm’s assets nor direct access to them…” and “…do 17 Per W. Clay Jackson Enterprises, Inc. v. Greyhound Leasing and Financial Corp., 463 F. Supp. 666, 670 (D. P.R. 1979) as quoted in Bainbridge (2002). The Effects of Entity Shielding on Claims to Assets: Implications for Financial Reporting 25 Global Journal of Management and Business Research Volume XXII Issue II Version I Year 2022 ( )D © 2022 Global Journals