The Myth of Shareholder Ownership and Its Implications for Accounting

31 Pages Posted: 30 Aug 2009 Last revised: 12 Jan 2020

See all articles by Todd L. Sayre

Todd L. Sayre

University of San Francisco - School of Business and Management

Date Written: August 29, 2009

Abstract

This paper demonstrates that shareholder ownership, a sacred cow of business, is a myth. According to our legal system, shareholders do not own the Modern Corporation itself, nor do they own the corporate assets or profits. While this finding raises many important questions, the focus of this paper is on the accounting profession. By equating shareholders’ equity to net assets and having it encompass profit, the accounting equation implies that shareholders own the corporate net assets and profit. Insinuating that shareholders have stronger claims to corporate resources than they actually do runs counter to accounting profession’s prime directive to provide useful information. A solution would be to replace shareholders’ equity with its components, such that Assets = Liabilities Capital Retained Earnings. This would better reflect the reality that corporation’s have no legal obligation to give shareholders any of the net assets or profit.

Keywords: shareholder ownership, corporate governance, accounting equation

JEL Classification: G30, L2, M41

Suggested Citation

Sayre, Todd L., The Myth of Shareholder Ownership and Its Implications for Accounting (August 29, 2009). Available at SSRN: https://ssrn.com/abstract=1464148 or http://dx.doi.org/10.2139/ssrn.1464148

Todd L. Sayre (Contact Author)

University of San Francisco - School of Business and Management ( email )

San Francisco, CA 94117
United States

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