Legal Issues of Virtual Organizations

Legal Issues of Virtual Organizations

Claudia Cevenini (University of Bologna, Italy)
DOI: 10.4018/978-1-60566-026-4.ch383
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In the present economic context, organizations, especially of small and medium dimensions, can draw a substantial advantage by collaborating and setting up flexible, temporary ICT-enabled networks. Identifying the legal issues relevant for virtual organizations can provide a knowledge basis to regulate their activities, thus providing support for their creation and management.
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Hereinafter, a synthesis of the most relevant issues is presented.

Identity and Nationality of the Virtual Organization

The VO does not embody a formal institution separate from its partners, although it may appear as a separate, autonomous entity.

National legal orders will tend to consider the VO as a structure without legal personality and, consequently, also without nationality, provided that the partners do not opt to formally adhere to a company type as foreseen by the national law of one of them.

Role of the Virtual Organization Broker

A VO can be set up and managed without the intervention of a VO broker. This, however, would imply higher coordination costs, more complex negotiations, and a slower speed of action.

The legal status of the VO broker depends upon its actual role and activities in the VO. The broker will be subject to and have to comply with the applicable legal framework set for the legal structure it has opted for in the state in which its head office is located, as well as with the state- and contract-based rules applicable to the same VO.

Virtual Organization Framework Agreement

The VO framework agreement is a set of rules aimed at governing the internal relationships between the partners of a VO.

It has to be signed before the beginning of any activity and is generally drafted with the support of the broker, who may propose business templates on the basis of which the detailed final provisions can be negotiated with the partners.

The absence of a clear agreement would possibly lead to difficulties in the management of the operation stage and, later, to possible disputes between the partners.

Contracting with Third Parties

Having no legal personality, the VO cannot directly close contracts with third parties. Therefore, if its members are to enter into contractual relationships, this will not be feasible for the VO as a separate subject; agreements can only be closed between third parties and some or all the individual members.

Once a partner—or a group of partners—has been selected, the other members can grant to it the power to act in their name and on their behalf to the purpose of closing contracts binding for all of them, or to take care of other jural acts, as it happens with mandates.

Key Terms in this Chapter

Mediation: An alternative dispute resolution method. The litigating parties may voluntarily submit a dispute to a neutral, independent mediator. This latter does not issue a decision but supports the parties in finding a mutually agreed upon solution.

Intellectual Property Rights: Copyright and connected rights that include, inter alia , the right of copying, modifying, and distributing the protected work.

Legal Personality: The capacity of a legal person (e.g., a corporation) to be holder of rights and duties.

Legal Order: The set of legal norms that make up the legal system of a particular country.

Virtual Organization: An ICT-enabled collaboration between legally independent subjects aimed at the joint provision of goods or services, where each partner contributes to specific activities. It does not aim at achieving an autonomous legal status but appears as one organization toward third parties.

Personal Data: Any information concerning a natural or legal person that can identify it.

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