Ownership and Control in Publicly Traded Corporations

• Author: Anita Indira Anand
• Pages: 131-140

131

 14

Ownership and Control in Publicly

Traded Corporations

In our examination of the Canadian investor, it is worthwhile to

take a closer look at the relationship between shareholder and cor-

poration. As with any investment, an investor purchases a share

because they hope that the value of the investment will increase as

a result of the corporation’s activity. From that moment forward,

the value of the investment is largely outside the investor’s control.

There are obvious benets to this arrangement, but, like any con-

tractual arrangement, it comes with risks as well.

People typically refer to shareholders as “owning” some part of

the corporation, although there has been much debate as to whether

this is an appropriate way to understand the relationship between

rm and shareholder. An investor becomes a shareholder by entering

into a contract with the corporation: they pay money in exchange for

1 See, for example, Stephen M Bainbridge, “Director Primacy: The Means and Ends

of Corporate Governance,” UCLA School of Law Research Paper No 02-06 (Los

Angeles: UCLA School of Law, 2002) at 23:

In contrast, contractarians reject the idea that the rm is a thing capable

of being owned. Recall that the rm is — or has — a nexus for the set of

contracts by which various factors of production are hired. Someone owns

each of those factors, but no one owns the nexus itself. To be sure, share-

holders own the residual claim on the corporation’s assets and earnings.

At bottom, the ownership of that claim is why the set of contracts making

up the corporation treats the shareholders as the beneciaries of direc-

tor accountability. Yet, ownership of the residual claim is not the same as

ownership of the rm itself.