The Corporate-Entity Fiction and Accounting Theory.

Abstract While the corporation has contributed much to economic development, it is not fundamentally an economic entity, nor is the legal corporation fundamentally an accounting entity. For purposes of economics and accounting, the corporation might well be viewed as a group of individuals associated for the purpose of business enterprise, so organized that its affairs are conducted through representatives. Numerous illustrations may be cited of instances in which this latter, or representative, viewpoint has been taken even by the law and the courts and in its attempt to control the development of trusts, the law has frequently found it necessary to go behind the corporate fiction and prescribe penalties for corporate officers as well as for the corporation. The income-tax law and regulations dispense with the corporate entity in the principle of constructive ownership, in the imposition of a tax upon corporations for improperly accumulating surplus and of a surtax on personal holding companies.