Qualified tax partnerships are arrangements that come within the definition of tax partnership but elect out of the subchapter K partnership tax rules. Tax entity classification discussions often overlook qualified tax partnerships. This Article, on the other hand, identifies them as a definite part of the tax entity classification spectrum (along with disregarded arrangements, tax partnerships, S corporations, and C corporations). The Article presents a theoretical model that describes the relationship qualified tax partnerships have with other tax arrangements. By illustrating that relationship, the Article dismisses misconceptions about qualified tax partnerships. The Article also demonstrates that tax policy does not support the current definitional construct of qualified tax partnerships. A better classification model would provide a narrower definition of tax partnership, which would eliminate qualified tax partnerships. Lawmakers, however, may never construct that better model. Therefore, qualified tax partnerships will most likely continue to play an important role in the U.S. tax system. That being the case, Treasury should clarify and expand the regulatory definition of qualified tax partnership. Additionally policy suggests that only select provisions of the Internal Revenue Code should apply to qualified tax partnerships. The Article provides direction for such changes and recommends that Congress replace the current elective system with compulsory qualified tax partnership classification.
{"title":"Policy and Theoretical Dimensions of Qualified Tax Partnerships","authors":"Bradley T. Borden","doi":"10.17161/1808.20022","DOIUrl":"https://doi.org/10.17161/1808.20022","url":null,"abstract":"Qualified tax partnerships are arrangements that come within the definition of tax partnership but elect out of the subchapter K partnership tax rules. Tax entity classification discussions often overlook qualified tax partnerships. This Article, on the other hand, identifies them as a definite part of the tax entity classification spectrum (along with disregarded arrangements, tax partnerships, S corporations, and C corporations). The Article presents a theoretical model that describes the relationship qualified tax partnerships have with other tax arrangements. By illustrating that relationship, the Article dismisses misconceptions about qualified tax partnerships. The Article also demonstrates that tax policy does not support the current definitional construct of qualified tax partnerships. A better classification model would provide a narrower definition of tax partnership, which would eliminate qualified tax partnerships. Lawmakers, however, may never construct that better model. Therefore, qualified tax partnerships will most likely continue to play an important role in the U.S. tax system. That being the case, Treasury should clarify and expand the regulatory definition of qualified tax partnership. Additionally policy suggests that only select provisions of the Internal Revenue Code should apply to qualified tax partnerships. The Article provides direction for such changes and recommends that Congress replace the current elective system with compulsory qualified tax partnership classification.","PeriodicalId":431428,"journal":{"name":"Corporate Law: LLCs","volume":"20 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-03-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131298951","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Compared to budget-balanced Sharing contracts, Anti-Sharing may improve the efficiency of teams. The Anti-Sharer collects a fixed payment from all team members; he receives the actual output and pays out its value to them. If a team members becomes Anti-Sharer, he will be unproductive in equilibrium. Hence, internal Anti-Sharing fails to yield the first-best outcome. Anti-Sharing is more likely to yield a higher team profit than Sharing, the larger the team, the curvature of the production function, or the marginal effort cost. Sharing is more likely to be better, the greater the marginal product, the cross-partials of the production function, or the curvature of the effort cost.
{"title":"Sharing and Anti-Sharing in Teams","authors":"Roland Kirstein, R. Cooter","doi":"10.2139/ssrn.812106","DOIUrl":"https://doi.org/10.2139/ssrn.812106","url":null,"abstract":"Compared to budget-balanced Sharing contracts, Anti-Sharing may improve the efficiency of teams. The Anti-Sharer collects a fixed payment from all team members; he receives the actual output and pays out its value to them. If a team members becomes Anti-Sharer, he will be unproductive in equilibrium. Hence, internal Anti-Sharing fails to yield the first-best outcome. Anti-Sharing is more likely to yield a higher team profit than Sharing, the larger the team, the curvature of the production function, or the marginal effort cost. Sharing is more likely to be better, the greater the marginal product, the cross-partials of the production function, or the curvature of the effort cost.","PeriodicalId":431428,"journal":{"name":"Corporate Law: LLCs","volume":"4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-12-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133115804","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
After investigating the nature, under the Italian Constitution, of the Italian Freeze-Out Rule ("IFOR") for listed corporations (controlling shareholder's right to compulsorily acquire minority shares), the work develops an analysis - under an Italian existing-law and law-making perspective, as well as comparative and law-and-economics perspective - on the interests directly served and on the broader economic rationale indirectly satisfied by IFOR. Under a property, contract and corporate law perspective, IFOR, although not advantaging directly and equally all shareholders of listed corporations, is consistent with Italian Constitution. As to its rationale, IFOR cannot best serve a general interest in optimization of ownership structures in listed corporations or a general interest in good functioning of the official stock-exchanges, nor the particular interest of controlling shareholders in being afforded a voluntary exit from listing. Rather, IFOR is the sole means under Italian law (where freezeout mergers, reverse-stock-split freezeouts or freezeouts by corporate capital reduction are not admissible) to afford controlling shareholders a chance to eliminate operating costs due to conflicts of interests with minority shareholders. By directly serving specific interests of a new controlling shareholder after a take-over bid through public tender offer for all voting shares, freeze-out might indirectly result in making the above kind of bid more frequently adopted for the transfer of control of certain targets and in encouraging potentially efficient raiders to offer higher prices in such bids. Current IFOR, however, cannot serve efficiently the above purposes due to the very high threshold (98%) currently triggering it and to the price conditions set forth by law. The work finally stresses the differences, in terms of interests involved, between freeze-out in going-private and in take-over contexts, warning on the higher risks minority shareholders face in the former and underlying the weakness of European regulatory solutions under Directive 2004/25/Ce, Article 15.
{"title":"Nature and Rationale of Freeze-Out Under Italian Law on Listed Corporations","authors":"G. Perrone","doi":"10.2139/SSRN.958753","DOIUrl":"https://doi.org/10.2139/SSRN.958753","url":null,"abstract":"After investigating the nature, under the Italian Constitution, of the Italian Freeze-Out Rule (\"IFOR\") for listed corporations (controlling shareholder's right to compulsorily acquire minority shares), the work develops an analysis - under an Italian existing-law and law-making perspective, as well as comparative and law-and-economics perspective - on the interests directly served and on the broader economic rationale indirectly satisfied by IFOR. Under a property, contract and corporate law perspective, IFOR, although not advantaging directly and equally all shareholders of listed corporations, is consistent with Italian Constitution. As to its rationale, IFOR cannot best serve a general interest in optimization of ownership structures in listed corporations or a general interest in good functioning of the official stock-exchanges, nor the particular interest of controlling shareholders in being afforded a voluntary exit from listing. Rather, IFOR is the sole means under Italian law (where freezeout mergers, reverse-stock-split freezeouts or freezeouts by corporate capital reduction are not admissible) to afford controlling shareholders a chance to eliminate operating costs due to conflicts of interests with minority shareholders. By directly serving specific interests of a new controlling shareholder after a take-over bid through public tender offer for all voting shares, freeze-out might indirectly result in making the above kind of bid more frequently adopted for the transfer of control of certain targets and in encouraging potentially efficient raiders to offer higher prices in such bids. Current IFOR, however, cannot serve efficiently the above purposes due to the very high threshold (98%) currently triggering it and to the price conditions set forth by law. The work finally stresses the differences, in terms of interests involved, between freeze-out in going-private and in take-over contexts, warning on the higher risks minority shareholders face in the former and underlying the weakness of European regulatory solutions under Directive 2004/25/Ce, Article 15.","PeriodicalId":431428,"journal":{"name":"Corporate Law: LLCs","volume":"17 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133852642","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper considers two firms that engage in joint production. The prospect of repeated interaction introduces dynamics in that actions that firms take today influence the costliness and effectiveness of actions in the future. Repeated interaction also facilitates the use of informal agreements (relational contracts) that are sustained not by the court system, but by the ongoing value of the relationship. We characterize the optimal relational contract in this dynamic system with double moral hazard. We show that an optimal relational contract has a simple form that does not depend on the past history. The optimal relational contract may require that the firms terminate their relationship with positive probability following poor performance. This may occur even when the firms observe an independent signal for the action of each firm that allows them to assign blame. If, however, the buyer's action does not influence the dynamics, the need for termination is eliminated. The paper applies the method to the issue of sequential versus parallel collaborative product development.
{"title":"Partnership in a Dynamic Production System","authors":"E. Plambeck, T. Taylor","doi":"10.2139/ssrn.729254","DOIUrl":"https://doi.org/10.2139/ssrn.729254","url":null,"abstract":"This paper considers two firms that engage in joint production. The prospect of repeated interaction introduces dynamics in that actions that firms take today influence the costliness and effectiveness of actions in the future. Repeated interaction also facilitates the use of informal agreements (relational contracts) that are sustained not by the court system, but by the ongoing value of the relationship. We characterize the optimal relational contract in this dynamic system with double moral hazard. We show that an optimal relational contract has a simple form that does not depend on the past history. The optimal relational contract may require that the firms terminate their relationship with positive probability following poor performance. This may occur even when the firms observe an independent signal for the action of each firm that allows them to assign blame. If, however, the buyer's action does not influence the dynamics, the need for termination is eliminated. The paper applies the method to the issue of sequential versus parallel collaborative product development.","PeriodicalId":431428,"journal":{"name":"Corporate Law: LLCs","volume":"80 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2004-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134228049","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Many types of economic relationships, including joint ventures, franchises and joint operating agreements, resemble economic firms but differ from them in critical respects. Because of these non-firm attributes, the parties to these relationships may not want the owner vicarious liability that comes by default with the legal characterization of a relationship as a partnership or agency. In order to clarify that the relationship does not trigger vicarious liability, the parties can form a corporation or other limited liability business association. However, the statutory default rules of these business associations do not fit many borderline firms. This Article proposes a way out of this dilemma -- statutes authorizing "Contractual Entities" whose owner liability and other terms would be governed solely by their filed operating agreements. The Article analyzes potential arguments against the proposal, including those relating to the appropriate scope of limited liability and the functions of statutory forms. It also discusses the political aspects of adopting Contractual Entity statutes and some implications of the proposal for the future of limited liability and of contractual choice of law.
{"title":"Limited Liability Unlimited","authors":"Larry E. Ribstein","doi":"10.2139/SSRN.92188","DOIUrl":"https://doi.org/10.2139/SSRN.92188","url":null,"abstract":"Many types of economic relationships, including joint ventures, franchises and joint operating agreements, resemble economic firms but differ from them in critical respects. Because of these non-firm attributes, the parties to these relationships may not want the owner vicarious liability that comes by default with the legal characterization of a relationship as a partnership or agency. In order to clarify that the relationship does not trigger vicarious liability, the parties can form a corporation or other limited liability business association. However, the statutory default rules of these business associations do not fit many borderline firms. This Article proposes a way out of this dilemma -- statutes authorizing \"Contractual Entities\" whose owner liability and other terms would be governed solely by their filed operating agreements. The Article analyzes potential arguments against the proposal, including those relating to the appropriate scope of limited liability and the functions of statutory forms. It also discusses the political aspects of adopting Contractual Entity statutes and some implications of the proposal for the future of limited liability and of contractual choice of law.","PeriodicalId":431428,"journal":{"name":"Corporate Law: LLCs","volume":"45 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132015942","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Three scandals have reshaped business regulation over the past thirty years: the securities fraud prosecution of Michael Milken in 1988, the Enron implosion of 2001, and the Goldman Sachs “ABACUS” enforcement action of 2010. The scandals have always been seen as unrelated. This Article highlights a previously unnoticed transactional affinity tying these scandals together — a deal structure known as the synthetic collateralized debt obligation involving the use of a special purpose entity (“SPE”). The SPE is a new and widely used form of corporate alter ego designed to undertake transactions for its creator’s accounting and regulatory benefit. The SPE remains mysterious and poorly understood despite its use in framing transactions involving trillions of dollars and its prominence in foundational scandals. The traditional corporate alter ego was a subsidiary or affiliate with equity control. The SPE eschews equity control in favor of control through preset instructions emanating from transactional documents. In theory, these instructions are complete or very close thereto, making SPEs a real-world manifestation of the “nexus of contracts” firm of economic and legal theory. In practice, however, formal designations of separateness do not always stand up under the strain of economic reality. When coupled with financial disaster, the use of an SPE alter ego can turn even a minor compliance problem into a scandal because of the mismatch between the traditional legal model of the firm and the SPE’s economic reality. The standard legal model looks to equity ownership to determine the boundaries of the firm: equity is inside the firm, while contract is outside. Regulatory regimes make inter-firm connections by tracking equity ownership. SPEs escape regulation by funneling inter-firm connections through contracts, rather than equity ownership. The integration of SPEs into regulatory systems requires a ground-up rethinking of traditional legal models of the firm. A theory is emerging, not from corporate law or financial economics, but from accounting principles. Accounting has responded to these scandals by abandoning the equity touchstone in favor of an analysis in which contractual allocations of risk, reward, and control operate as functional equivalents of equity ownership — an approach that redraws the boundaries of the firm. Unfortunately, corporate and securities law hold out no prospects for similar responsiveness. Accordingly, we await the next alter-ego-based innovation from Wall Street’s transaction engineers with an incomplete menu of defensive responses.
{"title":"A Transactional Genealogy of Scandal: From Michael Milken to Enron to Goldman Sachs","authors":"W. Bratton, Adam J. Levitin","doi":"10.2139/SSRN.2126778","DOIUrl":"https://doi.org/10.2139/SSRN.2126778","url":null,"abstract":"Three scandals have reshaped business regulation over the past thirty years: the securities fraud prosecution of Michael Milken in 1988, the Enron implosion of 2001, and the Goldman Sachs “ABACUS” enforcement action of 2010. The scandals have always been seen as unrelated. This Article highlights a previously unnoticed transactional affinity tying these scandals together — a deal structure known as the synthetic collateralized debt obligation involving the use of a special purpose entity (“SPE”). The SPE is a new and widely used form of corporate alter ego designed to undertake transactions for its creator’s accounting and regulatory benefit. The SPE remains mysterious and poorly understood despite its use in framing transactions involving trillions of dollars and its prominence in foundational scandals. The traditional corporate alter ego was a subsidiary or affiliate with equity control. The SPE eschews equity control in favor of control through preset instructions emanating from transactional documents. In theory, these instructions are complete or very close thereto, making SPEs a real-world manifestation of the “nexus of contracts” firm of economic and legal theory. In practice, however, formal designations of separateness do not always stand up under the strain of economic reality. When coupled with financial disaster, the use of an SPE alter ego can turn even a minor compliance problem into a scandal because of the mismatch between the traditional legal model of the firm and the SPE’s economic reality. The standard legal model looks to equity ownership to determine the boundaries of the firm: equity is inside the firm, while contract is outside. Regulatory regimes make inter-firm connections by tracking equity ownership. SPEs escape regulation by funneling inter-firm connections through contracts, rather than equity ownership. The integration of SPEs into regulatory systems requires a ground-up rethinking of traditional legal models of the firm. A theory is emerging, not from corporate law or financial economics, but from accounting principles. Accounting has responded to these scandals by abandoning the equity touchstone in favor of an analysis in which contractual allocations of risk, reward, and control operate as functional equivalents of equity ownership — an approach that redraws the boundaries of the firm. Unfortunately, corporate and securities law hold out no prospects for similar responsiveness. Accordingly, we await the next alter-ego-based innovation from Wall Street’s transaction engineers with an incomplete menu of defensive responses.","PeriodicalId":431428,"journal":{"name":"Corporate Law: LLCs","volume":"75 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117151044","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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