The Essential Role of Organizational Law
AbstractIn every developed market economy, the law provides for a set of standard form legal entities. In the United States, these entities include, among others, the business corporation, the cooperative corporation, the nonprofit corporation, the municipal corporation, the limited liability company, the general partnership, the limited partnership, the private trust, the charitable trust, and marriage. To an important degree, these legal entities are simply standard form contracts that provide convenient default terms for contractual relationships among the owners, managers, and creditors who participate in an enterprise. In this essay we ask whether organizational law serves, in addition, some more essential role, permitting the creation of relationships that could not practicably be formed just by contract. The answer we offer is that organizational law goes beyond contract law in one critical respect, permitting the creation of patterns of creditors' rights that otherwise could not practicably be established. In part, these patterns involve limits on the extent to which creditors of an organization can have recourse to the personal assets of the organization's owners or other beneficiaries ? a function we term "defensive asset partitioning." But this aspect of organizational law, which includes the limited liability that is a familiar characteristic of most corporate entities, is of distinctly secondary importance. The truly essential function of organizational law is, rather, "affirmative asset partitioning." In effect, this is the reverse of limited liability: it involves shielding the assets of the entity from the creditors of the entity's owners or managers. Affirmative asset partitioning offers efficiencies in bondi
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm147.
Date of creation: 01 Jun 2000
Date of revision: 01 Nov 2001
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Benito Arruñada, 2010.
"Institutional Support of the Firm: A Theory of Business Registries,"
508, Barcelona Graduate School of Economics.
- Benito Arruñada, 2010. "Institutional support of the firm: A theory of business registries," Economics Working Papers 1195, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2010.
- Gillian Hadfield, . "Contract Law is Not Enough: The Many Legal Institutions That Support Contractual Commitments," University of Southern California Legal Working Paper Series usclwps-1003, University of Southern California Law School.
- Benito Arruñada, 2010.
"The Law of Impersonal Transactions,"
500, Barcelona Graduate School of Economics.
- Naomi R. Lamoreaux & Jean-Laurent Rosenthal, 2006. "Contractual Tradeoffs and SMEs Choice of Organizational Form, A View from U.S. and French History, 1830-2000," NBER Working Papers 12455, National Bureau of Economic Research, Inc.
- Stefano Lombardo & Nils Wunderlich, . "Über den ökonomischen Sinn und Unsinn eines Haftungsdurchgriffs im Recht der Kapitalgesellschaften," German Working Papers in Law and Economics 2004-1-1107, Berkeley Electronic Press.
- Virgile Chassagnon, 2008. "Qu'est-ce qu'une firme (-réseau) ?," Post-Print halshs-00374758, HAL.
- John Armour & Michael J Whincop, 2005. "The Proprietary Foundations of Corporate Law," ESRC Centre for Business Research - Working Papers wp299, ESRC Centre for Business Research.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.