Legal Capital

This chapter discusses the doctrine of legal capital. In the second half of the nineteenth century, legal systems developed the doctrine of ‘legal capital’ to ensure the corporate creditors’ preferential access to the corporation’s assets, and in order to prevent shirking and inter-shareholder wealth transfers. The core of the concept of ‘legal capital’ is that an amount of capital is fixed in the company’s articles of association. This amount can be changed only by formal reduction or increase in capital. The basic starting points for the development of the doctrine of legal capital were remarkably similar on both sides of the Atlantic. However, early in the twentieth century developments in the United States and Europe parted ways.