Drawing from practitioner interviews and Gilson & Kraakman's "mechanisms" of market efficiency, I present the argument that the Delaware Supreme Court's decision in Revlon v. MacAndrews & Forbes, Inc. would reduce incentives to search and therefore would reduce overall efficiency in the market for corporate control. I compare this theoretical prediction to the evidence from the past seventeen years of takeover activity, and find no evidence that deal activity for Revlon transactions has been reduced. I argue that three drivers of market efficiency might explain this finding: small net first-bidder costs, preemptive bidding, and heterogeneous buyers. I present some evidence that the market for corporate control was primarily a private-value game in the 1990s, implying that buyer heterogeneity was an important driver of market efficiency. This paper is part of a Symposium commenting on Gilson & Kraakman, The Mechanisms of Market Efficiency, 70 Va. L. Rev. 549 (1984).
根据从业者访谈和Gilson & Kraakman的市场效率“机制”，我提出特拉华州最高法院在露华龙诉MacAndrews & Forbes, Inc.一案中的判决将降低搜索的动机，从而降低公司控制权市场的整体效率。我将这一理论预测与过去17年收购活动的证据进行了比较，没有发现露华浓交易活动减少的证据。我认为，市场效率的三个驱动因素可以解释这一发现:小的净首次投标人成本、先发制人的投标和异质买家。我提出的一些证据表明，在20世纪90年代，公司控制权市场主要是一场私人价值博弈，这意味着买方异质性是市场效率的重要驱动因素。本文是对Gilson & Kraakman的《市场效率机制》(The Mechanisms of Market Efficiency)发表评论的研讨会的一部分，70 Va. L. Rev. 549(1984)。
{"title":"The Drivers of Market Efficiency in Revlon Transactions","authors":"Guhan Subramanian","doi":"10.2139/SSRN.389600","DOIUrl":"https://doi.org/10.2139/SSRN.389600","url":null,"abstract":"Drawing from practitioner interviews and Gilson & Kraakman's \"mechanisms\" of market efficiency, I present the argument that the Delaware Supreme Court's decision in Revlon v. MacAndrews & Forbes, Inc. would reduce incentives to search and therefore would reduce overall efficiency in the market for corporate control. I compare this theoretical prediction to the evidence from the past seventeen years of takeover activity, and find no evidence that deal activity for Revlon transactions has been reduced. I argue that three drivers of market efficiency might explain this finding: small net first-bidder costs, preemptive bidding, and heterogeneous buyers. I present some evidence that the market for corporate control was primarily a private-value game in the 1990s, implying that buyer heterogeneity was an important driver of market efficiency. This paper is part of a Symposium commenting on Gilson & Kraakman, The Mechanisms of Market Efficiency, 70 Va. L. Rev. 549 (1984).","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"28 1","pages":"691"},"PeriodicalIF":0.0,"publicationDate":"2003-03-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68664105","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}
The crashes and frauds of Enron, WorldCom and other companies have reinvigorated the debate over regulating corporate governance. Many pundits have called for corporate regulation to restore confidence in the securities markets. These recommendations appear to be supported by the fact that neither the contracting devices that were supposed to control managers, nor efficient securities markets, worked to prevent or spot the problems. Congress responded with the Sarbanes-Oxley Act of 2002. But this article shows that, given the limited effectiveness of new regulation, its potential costs, and the power of markets to self-correct, new regulation of fraud in general, and Sarbanes-Oxley in particular, is unlikely to do a better job than markets.
{"title":"Market vs. Regulatory Responses to Corporate Fraud: A Critique of the Sarbanes-Oxley Act of 2002","authors":"Larry E. Ribstein","doi":"10.2139/SSRN.332681","DOIUrl":"https://doi.org/10.2139/SSRN.332681","url":null,"abstract":"The crashes and frauds of Enron, WorldCom and other companies have reinvigorated the debate over regulating corporate governance. Many pundits have called for corporate regulation to restore confidence in the securities markets. These recommendations appear to be supported by the fact that neither the contracting devices that were supposed to control managers, nor efficient securities markets, worked to prevent or spot the problems. Congress responded with the Sarbanes-Oxley Act of 2002. But this article shows that, given the limited effectiveness of new regulation, its potential costs, and the power of markets to self-correct, new regulation of fraud in general, and Sarbanes-Oxley in particular, is unlikely to do a better job than markets.","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"28 1","pages":"1"},"PeriodicalIF":0.0,"publicationDate":"2002-10-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.2139/SSRN.332681","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68585405","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}
Partnership law in the United States and England has long differed on a basic question that has pervasive significance: if a partner wishes to terminate membership in a general partnership, is the partner bound by a prior agreement to remain a member of the partnership? English partnership has long made such agreements enforceable. In contrast, under U.S. partnership law, a partner who exits from a general partnership prior to an agreed-upon term or otherwise in contravention of the partnership agreement is subject to liability for breach of contract but has power to exit prematurely by dissolving the partnership or by dissociating from it. Partnership legislation has embodied this divergence since the English Partnership Act (1890) and the Uniform Partnership Act (1914). Subsequent changes in general partnership legislation - the Revised Uniform Partnership Act in the United States and recent reform proposals for England - continue to reflect the divergence. My thesis is that general partnership law in each country strikes a different balance between stability for the partnership association and risk over time as perceived by each individual partner. As a consequence general partnerships in the United States are less stable as business associations but the risks borne by individual partners are reduced. In contrast, joining a general partnership in England reflects more of a pre-commitment strategy to staying the course of membership, despite subsequent changes in the risks of continued association as perceived by partners over time. An additional consequence is that partnership law in each country contains doctrines that mitigate the potentially harsh consequences of permitting or forbidding a partner to exit from the partnership in contravention of the original partnership agreement. This contrast is relevant to evaluating the content of general partnership law in the United States, in which a rich menu of organizational choices is now available to organizers of business firms, because alternate organizational choices promise greater stability than does a general partnership. Moreover, the characteristics of firms that are organized or otherwise characterized as general partnerships is relevant to assessing the relative merits of the U.S. and U.K. approaches.
{"title":"Transatlantic Perspectives on Partnership Law: Risk and Instability","authors":"Deborah A. DeMott","doi":"10.2139/SSRN.293860","DOIUrl":"https://doi.org/10.2139/SSRN.293860","url":null,"abstract":"Partnership law in the United States and England has long differed on a basic question that has pervasive significance: if a partner wishes to terminate membership in a general partnership, is the partner bound by a prior agreement to remain a member of the partnership? English partnership has long made such agreements enforceable. In contrast, under U.S. partnership law, a partner who exits from a general partnership prior to an agreed-upon term or otherwise in contravention of the partnership agreement is subject to liability for breach of contract but has power to exit prematurely by dissolving the partnership or by dissociating from it. Partnership legislation has embodied this divergence since the English Partnership Act (1890) and the Uniform Partnership Act (1914). Subsequent changes in general partnership legislation - the Revised Uniform Partnership Act in the United States and recent reform proposals for England - continue to reflect the divergence. My thesis is that general partnership law in each country strikes a different balance between stability for the partnership association and risk over time as perceived by each individual partner. As a consequence general partnerships in the United States are less stable as business associations but the risks borne by individual partners are reduced. In contrast, joining a general partnership in England reflects more of a pre-commitment strategy to staying the course of membership, despite subsequent changes in the risks of continued association as perceived by partners over time. An additional consequence is that partnership law in each country contains doctrines that mitigate the potentially harsh consequences of permitting or forbidding a partner to exit from the partnership in contravention of the original partnership agreement. This contrast is relevant to evaluating the content of general partnership law in the United States, in which a rich menu of organizational choices is now available to organizers of business firms, because alternate organizational choices promise greater stability than does a general partnership. Moreover, the characteristics of firms that are organized or otherwise characterized as general partnerships is relevant to assessing the relative merits of the U.S. and U.K. approaches.","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"26 1","pages":"879"},"PeriodicalIF":0.0,"publicationDate":"2001-12-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.2139/SSRN.293860","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68438186","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 takes the postion that, based on the United States experience with the Revised Uniform Partnership Act, the two major pitfalls in partnership law reform are a failure to learn from history and a failure to state clear, concise and coherent principles. Among other examples of a failure to learn from history, the paper discusses the continued use of the word dissolution and belated provision for limited liability. Among other examples of a failure to state clear, concise and coherent principles, the paper discusses fiduciary duty and related rules and provisions on joint and several liability. The current mixed grill of statutory forms is itself too complex and insufficiently coherent, and can be made better only by harnessing a proper blend of expertise.
{"title":"Pitfalls in Partnership Law Reform: Some United States Experience","authors":"D. Weidner","doi":"10.2139/SSRN.281203","DOIUrl":"https://doi.org/10.2139/SSRN.281203","url":null,"abstract":"This paper takes the postion that, based on the United States experience with the Revised Uniform Partnership Act, the two major pitfalls in partnership law reform are a failure to learn from history and a failure to state clear, concise and coherent principles. Among other examples of a failure to learn from history, the paper discusses the continued use of the word dissolution and belated provision for limited liability. Among other examples of a failure to state clear, concise and coherent principles, the paper discusses fiduciary duty and related rules and provisions on joint and several liability. The current mixed grill of statutory forms is itself too complex and insufficiently coherent, and can be made better only by harnessing a proper blend of expertise.","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"26 1","pages":"1031"},"PeriodicalIF":0.0,"publicationDate":"2001-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.2139/SSRN.281203","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68343716","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}
Pub Date : 2001-07-01DOI: 10.1093/acprof:oso/9780199264353.003.0008
J. W. Callison
I. INTRODUCTION Choice of business entity decisions historically have involved considering and balancing three factors: (1) the extent to which owners and managers are personally liable to business creditors and tort victims under the applicable commercial law; (2) the tax and regulatory treatment of the business entity, including whether the entity and its owners will be subject to single or double taxation; and (3) the owners' current investment preferences and need to attract additional capital to the entity.1 Focusing on these factors, United States business organization law has undergone fundamental change since 1988. The limited liability company (LLC) emerged as a significant new organizational form,2 and the traditional general partnership and limited partnership forms mutated to permit limited liability protection for owners that historically had unlimited personal liability.3 As a result, business owners are not forced to suffer the tax disadvantages resulting from state law incorporation in order to obtain corporation-like limited liability protection. This change resulted from an elaborate interplay between two separate spheres that influence the selection of U.S. business entities-federal income taxation and state business organization law. The momentum for this change rapidly accelerated when the Internal Revenue Service (IRS) pronounced that Wyoming LLCs, which provide limited liability protection to all owners and managers, would receive favorable partnership taxation.4 By 1996, all fifty states and the District of Columbia had enacted LLC statutes. Following on the heels of the LLC revolution, Texas created the limited liability partnership (LLP) in 1991,5 and thereby permitted general partners in professional partnerships to avoid joint and several malpractice liability by filing a registration statement and using the "LLP" appellation in the partnership name.6 The remaining 49 states and the District of Columbia quickly enacted LLP legislation, and several states extended the LLP concept to limited partnerships (LLLPs), in which general (but not limited) partners historically have joint and several liability for entity debts and obligations.7 Although the de-coupling of partnership tax classification from personal liability finally occurred in 1988, it had its antecedents in the IRS's relaxation of tax classification rules with respect to limited partnerships. After steady growth in the early 1990s, it climaxed in 1996 when the IRS issued regulations providing that most multiple member unincorporated business organizations are taxed as partnerships, unless the organization makes an affirmative election to be taxed as a corporation.8 When the regulations were issued, any requirement that unincorporated business organizations retain partnership-like business characteristics to obtain partnership federal income tax treatment disappeared. The recent history of this U.S. business organization law revolution started with Wyoming's en
{"title":"Federalism, Regulatory Competition, and the Limited Liability Movement: The Coyote Howled and the Herd Stampeded","authors":"J. W. Callison","doi":"10.1093/acprof:oso/9780199264353.003.0008","DOIUrl":"https://doi.org/10.1093/acprof:oso/9780199264353.003.0008","url":null,"abstract":"I. INTRODUCTION Choice of business entity decisions historically have involved considering and balancing three factors: (1) the extent to which owners and managers are personally liable to business creditors and tort victims under the applicable commercial law; (2) the tax and regulatory treatment of the business entity, including whether the entity and its owners will be subject to single or double taxation; and (3) the owners' current investment preferences and need to attract additional capital to the entity.1 Focusing on these factors, United States business organization law has undergone fundamental change since 1988. The limited liability company (LLC) emerged as a significant new organizational form,2 and the traditional general partnership and limited partnership forms mutated to permit limited liability protection for owners that historically had unlimited personal liability.3 As a result, business owners are not forced to suffer the tax disadvantages resulting from state law incorporation in order to obtain corporation-like limited liability protection. This change resulted from an elaborate interplay between two separate spheres that influence the selection of U.S. business entities-federal income taxation and state business organization law. The momentum for this change rapidly accelerated when the Internal Revenue Service (IRS) pronounced that Wyoming LLCs, which provide limited liability protection to all owners and managers, would receive favorable partnership taxation.4 By 1996, all fifty states and the District of Columbia had enacted LLC statutes. Following on the heels of the LLC revolution, Texas created the limited liability partnership (LLP) in 1991,5 and thereby permitted general partners in professional partnerships to avoid joint and several malpractice liability by filing a registration statement and using the \"LLP\" appellation in the partnership name.6 The remaining 49 states and the District of Columbia quickly enacted LLP legislation, and several states extended the LLP concept to limited partnerships (LLLPs), in which general (but not limited) partners historically have joint and several liability for entity debts and obligations.7 Although the de-coupling of partnership tax classification from personal liability finally occurred in 1988, it had its antecedents in the IRS's relaxation of tax classification rules with respect to limited partnerships. After steady growth in the early 1990s, it climaxed in 1996 when the IRS issued regulations providing that most multiple member unincorporated business organizations are taxed as partnerships, unless the organization makes an affirmative election to be taxed as a corporation.8 When the regulations were issued, any requirement that unincorporated business organizations retain partnership-like business characteristics to obtain partnership federal income tax treatment disappeared. The recent history of this U.S. business organization law revolution started with Wyoming's en","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"26 1","pages":"951"},"PeriodicalIF":0.0,"publicationDate":"2001-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"60649341","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}
Pub Date : 2001-07-01DOI: 10.1093/acprof:oso/9780199264353.003.0003
J. Armour, M. Whincop
I. INTRODUCTION The small firm has engaged the attention of law reformers in the United States for the last decade. Close corporation reform continues in many states, and the revisions to uniform partnership law, resulting in the Revised Uniform Partnership Act (RUPA),1 have been well publicized. In addition to reform of "traditional" business forms, recent years have seen the emergence of new business forms in U.S. jurisdictions, such as the Limited Liability Company (LLC)2 and the Limited Liability Partnership (LLP).3 Similar reform efforts are now under way in Europe. In the United Kingdom, the recent Review of Company Law has made the needs of small companies one of its "core concerns."4 Partnership law is currently under review in the United Kingdom for the first time in over a hundred years5 and reforms are also imminent in other European jurisdictions such as the Netherlands.6 Furthermore, the proliferation of new statutory forms appears to be spreading to Europe with the introduction of the U.K. Limited Liability Partnerships Act.7 The task of the law reformer working in this area is a complex one. Small firms are very different from widely-held, exchange-traded firms, where wealth-maximizing governance institutions are obstructed by endemic collective action problems and high agency costs. The small firm differs radically in the capability of investors to be actively involved in the design of governance processes that lower agency costs.8 The lawmaker must focus on what role the law can uniquely serve in small firms without duplicating what parties can do for themselves. Economic analysis of law has conventionally approached this question by explaining how the relations between investors, creditors, and managers are contractual and illustrating the governance problems arising from these incomplete contracts.9 Its exponents often conclude that the functional role the law can serve in small firms is limited to the lower-order function of decreasing transaction costs by plugging gaps in contracts with suitable default rules.10 Yet this leaves a nagging question unanswered: Why does the state have a comparative advantage in the supply and enforcement of these terms over private interest groups and arbitrators, who respectively supply standard terms for, and adjudicate disputes arising under, other varieties of relational contract?11 When "rule competition"--both between jurisdictions and between public and private suppliers of terms-is included in the equation, the role of the statutory law reformer seems increasingly marginal. 12 Our answer to this problem rests in an appreciation of the law's role in giving proprietary effect to the entitlements that the participants share. With a few exceptions, law and economics scholarship has failed to consider the proprietary foundations of intrafirm governance. This neglect is surprising. These proprietary foundations are the most important instance where law performs a unique function, a function ne
{"title":"An Economic Analysis of Shared Property in Partnership and Close Corporations Law","authors":"J. Armour, M. Whincop","doi":"10.1093/acprof:oso/9780199264353.003.0003","DOIUrl":"https://doi.org/10.1093/acprof:oso/9780199264353.003.0003","url":null,"abstract":"I. INTRODUCTION The small firm has engaged the attention of law reformers in the United States for the last decade. Close corporation reform continues in many states, and the revisions to uniform partnership law, resulting in the Revised Uniform Partnership Act (RUPA),1 have been well publicized. In addition to reform of \"traditional\" business forms, recent years have seen the emergence of new business forms in U.S. jurisdictions, such as the Limited Liability Company (LLC)2 and the Limited Liability Partnership (LLP).3 Similar reform efforts are now under way in Europe. In the United Kingdom, the recent Review of Company Law has made the needs of small companies one of its \"core concerns.\"4 Partnership law is currently under review in the United Kingdom for the first time in over a hundred years5 and reforms are also imminent in other European jurisdictions such as the Netherlands.6 Furthermore, the proliferation of new statutory forms appears to be spreading to Europe with the introduction of the U.K. Limited Liability Partnerships Act.7 The task of the law reformer working in this area is a complex one. Small firms are very different from widely-held, exchange-traded firms, where wealth-maximizing governance institutions are obstructed by endemic collective action problems and high agency costs. The small firm differs radically in the capability of investors to be actively involved in the design of governance processes that lower agency costs.8 The lawmaker must focus on what role the law can uniquely serve in small firms without duplicating what parties can do for themselves. Economic analysis of law has conventionally approached this question by explaining how the relations between investors, creditors, and managers are contractual and illustrating the governance problems arising from these incomplete contracts.9 Its exponents often conclude that the functional role the law can serve in small firms is limited to the lower-order function of decreasing transaction costs by plugging gaps in contracts with suitable default rules.10 Yet this leaves a nagging question unanswered: Why does the state have a comparative advantage in the supply and enforcement of these terms over private interest groups and arbitrators, who respectively supply standard terms for, and adjudicate disputes arising under, other varieties of relational contract?11 When \"rule competition\"--both between jurisdictions and between public and private suppliers of terms-is included in the equation, the role of the statutory law reformer seems increasingly marginal. 12 Our answer to this problem rests in an appreciation of the law's role in giving proprietary effect to the entitlements that the participants share. With a few exceptions, law and economics scholarship has failed to consider the proprietary foundations of intrafirm governance. This neglect is surprising. These proprietary foundations are the most important instance where law performs a unique function, a function ne","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"26 1","pages":"983"},"PeriodicalIF":0.0,"publicationDate":"2001-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"60648885","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}
Pub Date : 2001-07-01DOI: 10.1093/acprof:oso/9780199264353.003.0007
J. McCahery, E. Vermeulen
I. INTRODUCTION This Article grows out of the ongoing debate among European academics on the need to expand the menu of available business organization forms to meet the needs of firms at all levels. Advocates of such reforms claim that company law structures in Europe, which provide a highly developed legal framework and limited liability, are cumbersome and costly for closely held firms to apply. Commentators who favor reform suggest that lawmakers address these problems by devising new business organization statutes that are more varied, less complex, and can potentially enhance efficient outcomes. Traditionally, the business organization law available to small businesses has been structured around the needs of larger, publicly owned firms. In most jurisdictions, closely held business forms are burdened by a number of regulatory requirements which cause firms to incur substantial costs in carrying out their normal business activities. Moreover, the imposition of many of the European Community's harmonized company law provisions on small firms is viewed as disproportionate and over-regulatory, and tends to impede the development of an efficient supply of legal rules. The current debate on the regulation of closely held firms can be explained in terms of a tradeoff between the need for creditor protection in case of firm failure and the commitment to supply legal rules which enable owners to maximize wealth.1 European scholars who express concern about the importance of mandatory requirements as a mechanism to protect creditors and other interests in the firm have justified harmonized rules as a means to avoid a race to the bottom.2 According to this view the mandatory rules, such as minimum capital requirements, disclosure rules, and accounting rules, play a fundamental role in the development of corporate law.3 This position is rhetorically forceful because it relies on the idea of uniformity to provide a basis for creditor protection, but it is conceptually limited by the bargaining problems that creditors inevitably face. The law and economics perspective stands in contrast to the European Community's uniform approach. A large body of work has focused on the costs and benefits of uniformity. On the one hand, uniform rules have the advantage of simplicity and lower administrative costs. Moreover, uniform rules are more appealing to the extent that the benefits of regulation are the same for all firms. On the other hand, uniform rules lead to higher costs for different types of firms. If firms are heterogeneous, efficient regulation calls for the provision of diverse menus of rules in order to reduce the risk of suboptimal uniformity. In the E.C. context, the common thread in this body of work has been the effort to demonstrate that harmonized rules are cumbersome and costly measures which are not sufficient to regulate externality problems. For instance, minimum capital requirements aimed at protecting the welfare of creditors are costly and
{"title":"The evolution of closely held business forms in Europe","authors":"J. McCahery, E. Vermeulen","doi":"10.1093/acprof:oso/9780199264353.003.0007","DOIUrl":"https://doi.org/10.1093/acprof:oso/9780199264353.003.0007","url":null,"abstract":"I. INTRODUCTION This Article grows out of the ongoing debate among European academics on the need to expand the menu of available business organization forms to meet the needs of firms at all levels. Advocates of such reforms claim that company law structures in Europe, which provide a highly developed legal framework and limited liability, are cumbersome and costly for closely held firms to apply. Commentators who favor reform suggest that lawmakers address these problems by devising new business organization statutes that are more varied, less complex, and can potentially enhance efficient outcomes. Traditionally, the business organization law available to small businesses has been structured around the needs of larger, publicly owned firms. In most jurisdictions, closely held business forms are burdened by a number of regulatory requirements which cause firms to incur substantial costs in carrying out their normal business activities. Moreover, the imposition of many of the European Community's harmonized company law provisions on small firms is viewed as disproportionate and over-regulatory, and tends to impede the development of an efficient supply of legal rules. The current debate on the regulation of closely held firms can be explained in terms of a tradeoff between the need for creditor protection in case of firm failure and the commitment to supply legal rules which enable owners to maximize wealth.1 European scholars who express concern about the importance of mandatory requirements as a mechanism to protect creditors and other interests in the firm have justified harmonized rules as a means to avoid a race to the bottom.2 According to this view the mandatory rules, such as minimum capital requirements, disclosure rules, and accounting rules, play a fundamental role in the development of corporate law.3 This position is rhetorically forceful because it relies on the idea of uniformity to provide a basis for creditor protection, but it is conceptually limited by the bargaining problems that creditors inevitably face. The law and economics perspective stands in contrast to the European Community's uniform approach. A large body of work has focused on the costs and benefits of uniformity. On the one hand, uniform rules have the advantage of simplicity and lower administrative costs. Moreover, uniform rules are more appealing to the extent that the benefits of regulation are the same for all firms. On the other hand, uniform rules lead to higher costs for different types of firms. If firms are heterogeneous, efficient regulation calls for the provision of diverse menus of rules in order to reduce the risk of suboptimal uniformity. In the E.C. context, the common thread in this body of work has been the effort to demonstrate that harmonized rules are cumbersome and costly measures which are not sufficient to regulate externality problems. For instance, minimum capital requirements aimed at protecting the welfare of creditors are costly and ","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"2003 1","pages":"191-239"},"PeriodicalIF":0.0,"publicationDate":"2001-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"60649182","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}
Pub Date : 2001-07-01DOI: 10.1093/acprof:oso/9780199264353.003.0010
J. Freedman
I. INTRODUCTION The emergence of a new legal form, the limited liability partnership (LLP), in the United Kingdom, in 2001, may be depicted by some as part of a general, evolutionary movement towards new limited liability vehicles, influenced by such moves in the United States.1 Some are also suggesting that this new legal form, the first such innovation in the United Kingdom for over a century, will provide a more suitable vehicle for small, owner-managed firms than the ordinary limited company.2 This view of the LLP's development and potential will be questioned here. It will be shown that the U.K. LLP resulted entirely from political pressure from professional firms for limited liability in respect to their activities and from their unwillingness to incorporate. Although this new legal form has now been made available to all firms, not just the professions, it has not been designed with small trading businesses in mind, nor in response to small business concerns. The LLP legislation is complex and leaves much uncertainty, for example on the question of liability. It offers possibilities for tax reduction, but as such may distort commercial decisions due to this lack of tax neutrality between different legal forms. It will be argued that the LLP is an unsuitable vehicle for most small, owner managed, non-professional firms, at least in its present form and state of development. It will be some time, if ever, before it is of value to this type of small firm. Its importance should not be exaggerated. Prior to work on the LLP commencing, the Law Commission and Department of Trade and Industry (DTI) had both concluded, after consultation, that no new small business vehicle with limited liability was needed,3 The U.K. limited company (the usual form of incorporation in the United Kingdom, used by small and large, private and public firms alike) is already flexible. The tax pressures that resulted in the growth of the LLP and the LLC in the United States, for example, do not apply in the United Kingdom. The Law Commission was reviewing general partnership law during the time the LLP was under consideration. In addition, a major review of company law was under way (the Company Law Review), which included amongst its tasks a review of the appropriateness and need for simplification of company law for small, private firms. Regrettably, the LLP proposals, consultation, and implementation were conducted by the Department of Trade and Industry on a "fast track" outside either of these other law reform exercises. This fragmented approach to business law reform is not ideal. In order to provide a framework and reference point for the discussion that follows, Part II of this article briefly examines the needs of small businesses in relation to legal structure and outlines the arguments against the notion that the LLP will be an important new vehicle for ordinary small businesses. Part III then examines the pressures that led to the introduction of the LLP in
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Pub Date : 2001-07-01DOI: 10.1093/acprof:oso/9780199264353.003.0005
C. Dickerson
I. INTRODUCTION Standards of performance such as good faith and fiduciary duty make bargaining possible. Because standards of performance level the playing field, they enable the more vulnerable party to express its preferences and thus to bargain. The standards have this effect because they are both flexible and precise. Unfortunately, the standards of performance are under siege in the United States and in Europe. While some of the strongest criticism of the standards concerns their vagueness, their flexibility allows parties to negotiate meaningfully and thus to express their preferences. Consequently, far from being sources of distortion, the standards give a voice to those who otherwise would not be heard. To use a political analogy, the standards enable, in the commercial realm, the democratic voice championed by Amartya Sen. 1 This is an affirmative reason to have standards of performance. Although there is general agreement that the standards are flexible, the claim that they are precise is counterintuitive. While there is general acceptance of a floor-that is, of a minimum standard-the common complaint about the standards' vagueness presupposes the lack of a clear ceiling. In fact, actual behavior supported by law reveals that the standards of performance have an identifiable floor and a self-executing ceiling. By continuing the existence of a floor and a ceiling, I show that the standards are precise within a prescribed range; indeed, further specification would merely destroy the flexibility. The flexibility of the standards provides the subtlety; their precision provides the predictability. Despite the current challenge to the standards, United States law still supports them, and because the standards' flexibility and precision make bargaining possible, business law should continue that support. II. STANDARDS OF PERFORMANCE ARE FLEXIBLE AND DESIGNED To LEVEL THE PLAYING FIELD Standards of performance are flexible and designed to level the playing field. They play a larger, more important role than merely to reduce agency costs, the role often used to justify good faith or fiduciary duty.2 Standards of performance often make the bargain possible. A. Leveling the Playing Field Starting with an analogy to pollution, assume a downstream landowner who values clean water more than the upstream polluter values the right to pollute. Assume further that the downstream owner does not have the money to pay the upstream polluter to clean its effluents. In this context, the downstream owner is powerless. Regulation can level the playing field so that the downstream owner-before regulation, the weaker party-has the power to negotiate meaningfully. The downstream owner then can obtain the clean water that this owner values more than the polluter values the permission to pollute.3 Standards of performance similarly operate to level the playing field in the context of contracts and of business organizations. They do so by correcting for unequal power
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This paper reconsiders Berle and Means' The Modern Corporation and Private Property in the context of contemporary corporate legal theory. Although the book lost its paradigmatic status in the field two decades ago, it retains an enviable place at the forefront of policy discussions. The paper seeks to explain this unusual longevity, in a three-part discussion. The first part places the book in the context of the legal theory of its day by comparing work of John Dewey on the theory of the firm and William O. Douglas on corporate reorganization. This discussion highlights two progressive assumptions Berle and Means shared with these business law contemporaries?a confidence in the efficacy of judicial intervention to vindicate distributive policies and a distrust of the institution of contract. The second part takes up Berle and Means' description of the separation of ownership and control. It is here that Berle and Means still speak in an active voice. The split in the classical entrepreneurial function has come to be seen as a problem by observers on all points of twentieth century America's ideological spectrum, even as few have denied the large corporation's success as a producer. The problem has never been solved, despite strenuous efforts to assert the contrary in first-generation law and economics. Instead of clear cut solution of the problem, we instead have seen a process of accommodation and adjustment between the management-controlled corporation and the wider economy and society. The process, which began before the turn of the twentieth century, continues into the twenty first. More particularly, Berle and Means' description of the problem synchronizes neatly with contemporary views on corporate governance. It turns out that even the latest microeconomic theory of the firm in the incomplete contracts framework coexists in consonance with the book. The third part reconsiders the solution Berle and Means recommended for the problem of separated ownership and control, a judicially-enforced norm of trust. This has been eclipsed in business law. Even so, The Modern Corporation and Private Property hedges its prescriptive presentation carefully enough to retain a measure of plausibility in a contemporary reader's eyes. More importantly, the book's prescriptive miss follows less from the its analysis of corporate problems than from now-discarded progressive assumptions about regulation and contract. Finally, the book's failure accurately to predict the future course of corporate fiduciary law stems in part from a development Berle could not reasonably have been expected to anticipate--the rise of the Delaware courts to a dominant place in the making of corporate case law due to the ancillary disappearance of federal common law after Erie Railroad Co. v. Tompkins.
本文在当代公司法理论的背景下重新审视伯利和米恩斯的《现代公司与私有财产》。尽管这本书在20年前就失去了它在该领域的典范地位，但它在政策讨论的前沿仍保持着令人羡慕的地位。这篇论文试图用三部分的讨论来解释这种不同寻常的长寿。第一部分通过比较约翰·杜威关于公司理论的著作和威廉·道格拉斯关于公司重组的著作，将本书置于当时法律理论的背景中。这一讨论突出了Berle和Means与这些商法同时代人共享的两个进步假设。对司法干预为分配政策辩护的有效性的信心和对契约制度的不信任。第二部分回顾了Berle和Means对所有权和控制权分离的描述。正是在这里，伯利和米恩斯仍然用积极的声音说话。尽管很少有人否认大公司作为生产者的成功，但20世纪美国各个意识形态领域的观察家都认为，传统企业职能的分裂是一个问题。尽管在第一代法律和经济学中极力主张相反的观点，但这个问题从未得到解决。我们看到的不是问题的明确解决，而是管理层控制的公司与更广泛的经济和社会之间的适应和调整过程。这一进程始于20世纪初，一直持续到21世纪。更具体地说，Berle和Means对这个问题的描述与当代对公司治理的看法完全一致。事实证明，在不完全契约框架下，即使是最新的企业微观经济理论也与这本书一致。第三部分重新考虑Berle和Means对所有权和控制权分离问题的解决方案，这是一种司法强制执行的信任规范。这一点在商法中已经黯然失色。即便如此，《现代公司与私有财产》对其规定性的表述进行了足够仔细的对冲，在当代读者的眼中保留了一定程度的合理性。更重要的是，这本书的规范性缺失与其说来自对公司问题的分析，不如说是来自现已被抛弃的关于监管和契约的渐进假设。最后，本书未能准确预测公司信托法的未来走向，部分原因在于伯利无法合理地预料到的一种发展——在伊利铁路公司诉汤普金斯案(Erie Railroad Co. v. Tompkins)之后，由于联邦普通法的从属地位消失，特拉华州法院在制定公司判例法方面崛起为主导地位。
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