USE OF THE ECONOMIC ANALYSIS OF LAW METHOD IN UNDERSTANDING THE ESSENCE OF A LEGAL ENTITY

##plugins.themes.bootstrap3.article.main##

##plugins.themes.bootstrap3.article.sidebar##

Published: May 30, 2025

  Yurii Zhornokui

  Valentyna Zhornokui

  Iryna Vahanova

Abstract

This article explores how the economic analysis of law method can improve the understanding of the structure of legal entities. While economic analysis cannot address all legal issues, it can serve as a supplementary tool for evaluating the effectiveness and necessity of legal norms and their implementation. As a methodological foundation, economic analysis can be useful in examining societal phenomena. The study emphasises that the tools of modern economic theory are employed in both economic and legal studies of legal entities to provide economic substantiation and explanation of their nature. It is therefore evident that the fundamental nature of a legal entity is economically substantiated not solely by cost-effectiveness (where revenues equal or exceed expenditures) but also by productive appropriation or the sphere of dominance by legally capable organisations. The conclusion drawn from the economic analysis of law is that a legal entity can be understood as follows: firstly, a system of contracts based on relationships between founders (participants), managers, and the legal entity itself, which has advantages and disadvantages in various economic contexts; secondly, a tool for separating property to limit risks for the real (physical) persons behind it. Consequently, the concept of a legal entity as an extension of its founders' individualism (egoism) remains pertinent, as recent events have vividly demonstrated. The present analysis explores the question of whether a legal entity is solely a means of property separation to limit the risks of property loss by real individuals. From an economic perspective, this assertion is valid, as the risk undertaken by the founders is confined to the assets transferred to the entity. The economic risk is realised indirectly through potential inefficiencies (losses) in the organisation's operations. The subject of the research is the application of economic analysis of law to the understanding and conceptualisation of legal entities. The purpose of the research is to examine how economic analysis of law contributes to the interpretation of legal entities, particularly in justifying their structure, function, and essence in terms of economic rationality and risk limitation. The research methodology is based on a combination of analytical approaches tailored to examine the economic and legal dimensions of the subject. The economic analysis of law serves as the principal methodological framework, allowing for the evaluation of economic efficiency, clarification of the nature and function of legal entities, and informed managerial decision-making. The logical method is applied through analysis and synthesis of global academic theories, contributing to an understanding of the limitations and supplementary role of economic analysis within legal research. The systemic-structural method ensures a holistic and consistent examination of legal categories, enabling the identification of defining characteristics of legal entities from an economic standpoint. Quantitative and qualitative analysis techniques are employed to track changes in economic activity, evaluate the influence of various factors, and observe development trends across economic structures, thereby supporting the investigation of both internal and external drivers of business and legal processes. Finally, comparative analysis is used to contrast national and international perspectives in the field of legal and economic thought, through integration of diverse scholarly approaches.

How to Cite

Zhornokui, Y., Zhornokui, V., & Vahanova, I. (2025). USE OF THE ECONOMIC ANALYSIS OF LAW METHOD IN UNDERSTANDING THE ESSENCE OF A LEGAL ENTITY. Baltic Journal of Economic Studies, 11(2), 227-233. https://doi.org/10.30525/2256-0742/2025-11-2-227-233
Article views: 181 | PDF Downloads: 95

##plugins.themes.bootstrap3.article.details##

Keywords

legal entity, corporation, economic analysis of law, ownership, property, civil turnover, rights and obligations, responsibility

References

Artemenko, R. M. (2022). The place and role of property separation in theories about the essence of a legal entity. Bulletin of Kharkiv National University of Internal Affairs, (2), 94–105.

Chesterman, S. (2020). Artificial intelligence and the limits of legal personality. International & Comporative Law Quarterly. Vol. 69. Issue 4. Р. 819–844.

Cheung, S. N. S. (1983). The Contractual Nature of the Firm. The Journal of Law & Economics. Vol. 26. № 1. Р. 1–21.

Easterbrook, F. H., &Fischel, D. R. (1991). The Economic Structure of Corporate Law. Harvard University Press, 370 р.

Fama, E. F. (1980). Agency Problems and the Theory of the Firm. The Journal of Political Economy. Vol. 88. № 2. Р. 288–307.

Friedman, D. D. (2000). Law's order: What economics has to do with law and why it matters. Princeton University Press.

Gindis, D. & Petrin, M. (2020). Economic Analysis of Corporate Law (April 10, 2020). Prepared for Encyclopedia of Law and Economics (Alain Marciano and Giovanni B. Ramello, Eds, Springer), 2020. Available at: https://ssrn.com/abstract=3576513

Immenga, U. (1998). Company Systems and Affiliation. International Encyclopedia of Comparative Law. Business and Organizations. sous la direction: Conar A., Vagt D. Tubingen: Mohr Siebeck. Vol. XIII. P. 7–14.

Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics. Vol. 3. P. 305–360.

Landers, J. M. (1975). A Unified Approach to Parent, Subsidiary, and Affiliate Questions in Bankruptcy. University of Chicago Law Review. Vol. 42. Is. 4. Article 10. Р. 589–652.

Machen, A. W. (1911). Corporate personality (continued). Harv Law Rev. 24(5). Р. 347–365.

Miceli, T. J. (1997). Economics of the law: Torts, Contracts, Property, Litigation. Oxfod – New York : Oxford University Press, 236 р.

Posner, R. A. (1975). The Economic Approach to Law. Texas Law Review. Issue 757. Р. 757–782.

Solaiman, S. M. (2017). Legal personality of robots, corporations, idols and chimpanzees: a quest for legitimacy. Artificial Intelligence and Law. Issue 25 (2). Р. Р. 155–179.

Spasybo-Fateeva, I. V. (1998). Joint-stock companies: Corporate legal relations. Kharkiv: Pravo.

Volovyk, O. (2012). Economic analysis of law: Potential and issues of application in legal studies. Juridical Ukraine, (10), 56–59.

Zhornokui, Y. M., Zhornokui, V. G., & Syadrysta, I. I. (2018). Economic component of a legal entity: Current state and specifics. Financial and Credit Activity: Problems of Theory and Practice, (3), 394–401.

Posner, R. A. (2003). Economic analysis of law (S. Savchenko, Trans.). Kharkiv: Akta.