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Legal Form and Economic Substance of Enterprise Groups: Implications for Legal Policy

Author

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  • Strasser Kurt A.

    (University of Connecticut Law School)

  • Blumberg Phillip

    (University of Connecticut Law School)

Abstract

Although conducted world-wide through hundreds of subsidiaries and affiliates, modern large business is, in economic reality, typically a single economically integrated enterprise functioning with a common objective under the control of its parent company. Yet the prevailing legal models are, for the most part, oblivious to this. Mistakenly adopting outmoded concepts inherited from the misty past, these models focus on many separate subsidiary corporations that make up the business and necessarily overlook the larger whole. The result of this outdated view is a mismatch between business reality and legal form which has led so frequently to poor legal and regulatory decision-making and ineffectual public control. While there is change stirring today, overall the law's response to this mismatch has been piecemeal and unsystematic. After reviewing how we got to this unhappy point, this paper will sketch out a new legal theory of enterprise analysis as the basis of modern corporation law to serve the needs of the Twenty-First Century. In some areas it will replace and in other areas it will supplement existing legal models. Enterprise analysis focuses on the implementation of the underlying policies and rules of the specific body of law at issue, such as securities, tax, or bankruptcy, to determine whether the objectives of that body of law are better served in the specific matter by looking to the whole enterprise or, alternatively, to the particular corporate subsidiary entities involved. While overt recognition of this enterprise analysis has been limited, the American legal system today is in fact applying it in numerous areas.

Suggested Citation

  • Strasser Kurt A. & Blumberg Phillip, 2011. "Legal Form and Economic Substance of Enterprise Groups: Implications for Legal Policy," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 1(1), pages 1-30, January.
    • Handle: RePEc:bpj:aelcon:v:1:y:2011:i:1:n:4
    DOI: 10.2202/2152-2820.1000
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    References listed on IDEAS

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    1. Muchlinski, Peter T., 2007. "Multinational Enterprises & the Law," OUP Catalogue, Oxford University Press, edition 2, number 9780199227969, Decembrie.
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    Cited by:

    1. Büttner Tim & Thiemann Matthias, 2017. "Breaking Regime Stability? The Politicization of Expertise in the OECD/G20 Process on BEPS and the Potential Transformation of International Taxation," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 7(1), pages 1-16, April.
    2. Biondi Yuri, 2017. "The Firm as an Enterprise Entity and the Tax Avoidance Conundrum: Perspectives from Accounting Theory and Policy," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 7(1), pages 1-8, April.
    3. Weinstein Olivier, 2012. "Firm, Property and Governance: From Berle and Means to the Agency Theory, and Beyond," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 2(2), pages 1-57, June.
    4. Biondi Yuri, 2023. "Corporate Control and Exceptions to Minimum Corporate Taxation: A Step Toward Fairness or Financialisation?," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 13(4), pages 407-415, November.
    5. Thiemann Matthias, 2021. "The Political Economy of Private Law: Comment on ‘The code of capital – how the law creates wealth and inequality’," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 11(1), pages 37-51, March.
    6. Autenne Alexia & Biondi Yuri & Cavalier Georges & Cotiga-Raccah Andra & Doralt Peter & Haslam Colin & Horak Hana & Malberti Corrado & Philippe Denis & Sergakis Konstantinos & Schmidt Jessica, 2018. "The Current Challenges for EU Company and Financial Law and Regulation," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 8(3), pages 1-12, December.
    7. Thiemann Matthias, 2014. "The impact of meta-standardization upon standards convergence: the case of the international accounting standard for off-balance-sheet financing," Business and Politics, De Gruyter, vol. 16(1), pages 79-112, April.
    8. Biondi Yuri, 2011. "The Enterprise Entity and the Constitution of the American Economic Republic," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 1(3), pages 1-13, December.
    9. Kuźniacki Błażej, 2017. "Tax Avoidance through Controlled Foreign Companies under European Union Law with Specific Reference to Poland," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 7(1), pages 1-47, April.
    10. Simon Deakin, 2017. "Tony Lawson's Theory of the Corporation: Towards a Social Ontology of Law," Working Papers wp491, Centre for Business Research, University of Cambridge.
    11. Simon Deakin, 2017. "Tony Lawson’s Theory of the Corporation: Towards a Social Ontology of Law," Cambridge Journal of Economics, Oxford University Press, vol. 41(5), pages 1505-1523.
    12. Mocsary George A., 2014. "The Embedded Firm: Corporate Governance, Labor, and Finance Capitalism – Commentary," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 4(2), pages 1-14, July.
    13. Biondi Yuri, 2013. "Hyman Minsky’s Financial Instability Hypothesis and the Accounting Structure of Economy," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 3(3), pages 141-166, June.
    14. Weinstein Olivier, 2013. "The Shareholder Model of the Corporation, Between Mythology and Reality," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 3(1), pages 43-60, January.

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