Tomer Stein (The University of Alabama School of Law) has posted Rights Architecture For Legal Organizations on SSRN. Here is the abstract:
Corporate law cannot provide coherent answers to its most basic questions. Courts struggle to explain what rights shareholders possess, what duties directors owe, and whose authority controls when shareholders and management disagree. When directors routinely refuse shareholder demands in operational decisions or governance disputes, legal theory and doctrine offer confused metaphors about “ownership” and “control” rather than analytical precision about rights and duties.
This doctrinal crisis reflects a deeper theoretical failure. Legal relations involving multiple parties within organizational structures operate beyond the analytical boundaries that our existing individual-focused rights theory has established. From corporate governance disputes to partnership conflicts, from international organizations to trust administration, the law lacks the theoretical framework necessary to describe how rights function when groups act collectively.
This Article proposes a theoretical framework to fill this void by using corporate law as a case study. The central discovery is that aggregate legal relations require new conceptions of rights that defy traditional bilateral arrangements.
When directors manage corporate assets, they owe compound duties to the corporation that legally require consideration of shareholder interests without making shareholders the primary rightsholders. Shareholders correspondingly possess participatory rights—not rights that would enable outcome control, but legally protected interests in the decision-making process, which otherwise serves the corporation as the primary rightsholder. The shareholders enjoy participatory privileges to actively engage in the governance of the firm, while customers, employees, and other third parties have participatory no-rights to legally interfere with that freedom.
The policy implications of the participatory rights architecture are broad and impactful. Using corporate law as a test case for the proposed theory’s normative value, the Article demonstrates how one can resolve corporate law’s most persistent puzzles by applying this theory. The notorious direct-derivative lawsuit distinction becomes straightforward: derivative suits enforce corporate rights, and direct suits enforce shareholder traditional and participatory rights. The perplexing doctrines of controlling shareholder obligations become the systematic conversion of participatory privileges into compound duties. The boundaries of corporate limited liability are drawn by references to the rights structures that shareholders assume.
This Article thus provides both theoretical breakthrough and doctrinal transformation, offering the tools necessary to understand how rights operate in corporate law specifically, and laws of legal organizations more broadly.