Mutumwa Mawere

Often in the quietness of our time it is not unusual to assume that our universe represents the entire body of knowledge that exists and is relevant on any subject matter.

Many of us interact with companies without pausing to appreciate the instrumentality of such entities in the enterprise of human development and civilization.

When I observed that: "The real owners of a business, therefore, is the customer and yet many look at shareholders as the true owners. If a company, earns for instance, US$1 million profit the profit does not belong to the shareholders but to the company....Shareholders are only entitled to income that the company does not need to grow." in my first article in this series http://www.mmawere.com/article/286 I was acutely conscious that this statement would attract attention and reaction.

I was not surprised that in response to my article published on www.mmawere.com the Oracle from Utopia found the general thrust of my article interesting but disagreed with the above proposition.

He rightly observed that the whole idea behind any business run on anything other than humanitarian and socialist lines is to make a profit that belongs ultimately to shareholders who are the owners of a business on account of the fact that that it is their capital that brings the business into existence.

What is a company? A company is a juristic person or a legal fiction. It cannot act but it is individuals who act on its behalf.

It expresses itself through the actions of the people who are responsible for its affairs and it is the officers who are then accountable for the policies they decide on or omit to decide on, for the decisions they take or omit to take, for what they do or omit to do, and for the resulting consequences.

In law, a company can be sued in a court, sue others, for matters such as money owed or breach of contract.
Although a company has no voice of its own, it serves as a cover for those who take decisions.

Shareholders as owners appoint directors to take decisions on behalf of the company.

Shareholders are no different from natural parents who give birth to another human being.

Once born the offspring takes on his or her own personality that is separate and distinct from the parents.

Although the relationship between child and parent is obvious, we rarely describe the relationship between the two as an ownership one yet in respect of juristic persons we regard shareholders as owners of a business.

The concept of ownership is a critical one in appreciating the relationship between the parents of artificial persons and their creation i.e. companies.

Ownership is defined as the ultimate and exclusive rights and control over property, which may be an object, land/real estate or intellectual property. Such a right is conferred by a lawful claim or title.

The concept of ownership in not new it has existed for thousand of years and in all cultures.

It is the basis for many other concepts that form the fundamentals and foundations of ancient and contemporary modern societies such as money, debt, trade, insolvency, the criminality of theft and private and public property.

It is a key foundational principle of a capitalist system.

It is self-propagating in that the titleholder to any property will also own the economic benefits from the property.

Being a shareholder, company owner, or partner brings with it a range of challenges no different from the challenges faced by any parent.

A parent has obligations with no defined rights over his/her children.

If one's children do exceptionally well, then a parent will naturally be proud but cannot assume the rights of the successful child, for example, going to a bank to unilaterally withdraw funds from the account of the child.

If parents have no rights over their children, then what rights do shareholders have over the companies they form?

The only real power that shareholders have is the right to exclude people they do not want to serve as directors.

The right to remove directors is vested in shareholders. If they do not want the direction the company is taking they can invoke the Companies Act and remove directors and replace them with new ones.

The relationship between shareholders and a company they hold shares in is non-contractual meaning that the income earned by the company belongs to the company in the first instance.

The first line on any income statement is the revenue generated from sales of goods and services. If a business has no customers it ceases to have the right to exist.

If for example, you invest in a hotel that fails to attract guests the value of ownership will be closer to zero.

Being a shareholder of a shelf company will not confer any income rights to the holder of the share certificate.

There is no purpose of a company other than to serve its customers.

Shareholders are important in putting in place an institutional structure that delivers value to a willing customer.

Such institutional arrangement will entail appointing directors who when so appointed cease to represent the interests of shareholders only but the bundle of interests of all the stakeholders who have an interest in the enterprise.

Ownership imposes obligations on the title-holder. If the entity's legal liabilities do not get redistributed among its owners or members then a legal shield is said to exist.

The liability of the member or owner is limited to the amount paid for the shares.

Human beings are perishable assets and yet the enterprises they may establish when they are alive can exist in perpetuity.

Ownership implies a permanent relationship between the holder and the property. If human beings cannot last forever how can we then locate the concept of ownership in human civilization.

We have heard of concepts such as black economic ownership or indigenization. To the extent that a company is a legal construction and yet a human being is real, how can a human being be permanently attached to a company?
In life, one may only temporarily be attached to property implying that ownership can be transferrable without affecting the underlying entity.

For listed company, the trading of shares takes place outside the company. Shareholders can change without the quality of service delivered by a company changing.

If we understand the true meaning of parenthood then it must be easy to understand the concept of shareholding and the challenges it imposes on the holder of such rights.

In trying to appreciate what Africa needs to do to advance its cause the analogy with a company is not far fetched.

Africa's shareholders are its citizens. A nation state is equally a legal construction. It requires taxpayers to make it a viable entity.

A state cannot exist in a vacuum. Citizens have obligations to make the state work.

Do we want an Africa that confers rights to citizens only on the basis of birth? We often equate indigenousness to a birthright.

Is it sufficient for a person to be entitled to shareholding merely because one happens to be alive and relevant at a particular time when such right are being distributed?

How can indigenization programs deal with successor rights?

Where ownership is restricted to a certain class of people, how can one discriminate between competing groups? Who should get access and who should not? When one wants to sell, how can one maximize value when the market is artificially determined?

Many of us do not trust the market as a rational instrument to allocate resources and yet human civilization has failed to provide any better system.

What have we learned from the recorded human experiences in terms of what kind of ownership patterns are best suited to human beings?