During my daily four mile walk this morning [which turns out to do wonders for keeping my weight down, by the way], I found myself puzzling over a very curious question. I shall not reveal the rather megalomaniac daydream I was having in which the question was embedded. Certain things are probably better left off the world wide web. Let me explain the question, and then perhaps someone who reads this blog will be able to suggest an answer [even though I would imagine that not many experts on corporation law are among the regular visitors to this site.]
When a company is launched, typically it is owned by the people who start it. At some point, if it is successful, they may "take it public," which is to say they may invite members of the general public to purchase shares of stock in the company. This is, as I understand it, what happens when a company has an IPO, or Initial Public Offering. If all goes well, the company will then be listed on one of the major stock exchanges, and over time, shares may be very widely held by large numbers of investors.
Now, the directors of a company can choose at some point to buy back some of the shares that have been sold to the public, using funds that the company has accumulated in the course of doing business profitably. It cannot compel investors to sell back their shares, I believe [I may be wrong about that -- please advise, if you know], but by offering to buy the shares at a price above the current market price, the company may well be successful in finding willing sellers.
So far as I know, there is no limit on the numbers of shares that a company is permitted to buy back -- 5%, or 20%, or 51%, say. Let us suppose that the company manages to buy back all of the outstanding shares, even including those owned by the corporate managers [who may or may not be the people who started the company, of course].
My question is this: When the total buy back is completed, who owns the corporation?
There is, by hypothesis, no human persons left who own any shares in the corporation, which is to say, no persons who own a share of the corporation. So who owns the corporation? So far as I can see, the only plausible answer is that the corporation owns itself. I suppose some folks might think that is an acceptable answer, since both the United States Supreme Court and Mitt Romney say that corporations are people, but if that is the correct answer, it seems to generate some very odd subordinate questions. For example:
To whom, if anyone, does the corporation have a fiduciary obligation to earn a profit if it can?
Is there any reason why the corporation should not pay its employees as much as it possibly can without going broke?
Indeed, if the company does go broke, is there anyone who can be said to have suffered a financial loss thereby?
Can there really be a functioning corporation that owns itself? Shades of I, Robot!
I am genuinely puzzled by this, and would welcome enlightenment, particularly from experts in the theory of corporations, if there are any out there.
