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Putting the Corporation in its Place

Listed author(s):
  • Guinnane, Timothy
  • Harris, Ron
  • Lamoreaux, Naomi R.
  • Rosenthal, Jean-Laurent

This article challenges the idea that the corporation is a globally superior form of business organization and that the Anglo-American common-law is more conducive to economic development than the code-based legal systems characteristic of continental Europe. Although the corporation had important advantages over the main alternative form of organization (partnerships), it also had disadvantages that limited its appeal to small- and medium-sized enterprises (SMEs). As a result, when businesses were provided with an intermediate choice, the private limited liability company (PLLC) that combined the advantages of legal personhood and joint stock with a flexible internal organizational structure, most chose not to organize as corporations. This article tracks the changes that occurred in the menu of business organizational forms in two common-law countries (the UK and the US) and two countries governed by legal codes (France and Germany) and presents data showing the rapidity with which firms in each country responded to enabling legislation for PLLCs. We show that the PLLC was introduced first and most easily in a code country (Germany) and last and with the most difficulty in a common-law country (the US). Late introduction was associated with prolonged use of the partnership form, suggesting that the disadvantages of corporations did indeed weigh heavily on SMEs.

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Article provided by Cambridge University Press in its journal Enterprise & Society.

Volume (Year): 8 (2007)
Issue (Month): 03 (September)
Pages: 687-729

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Handle: RePEc:cup:entsoc:v:8:y:2007:i:03:p:687-729_00
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References listed on IDEAS
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  1. Naomi R. Lamoreaux & Jean-Laurent Rosenthal, 2006. "Corporate Governance and the Plight of Minority Shareholders in the United States before the Great Depression," NBER Chapters,in: Corruption and Reform: Lessons from America's Economic History, pages 125-152 National Bureau of Economic Research, Inc.
  2. repec:hrv:faseco:30728041 is not listed on IDEAS
  3. Patrick Bolton & Ernst-Ludwig von Thadden, 1998. "Blocks, Liquidity, and Corporate Control," Journal of Finance, American Finance Association, vol. 53(1), pages 1-25, 02.
  4. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. " Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
  5. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-1177, December.
  6. Jeffrey Zwiebel, 1995. "Block Investment and Partial Benefits of Corporate Control," Review of Economic Studies, Oxford University Press, vol. 62(2), pages 161-185.
  7. Cull, Robert & Davis, Lance E. & Lamoreaux, Naomi R. & Rosenthal, Jean-Laurent, 2006. "Historical financing of small- and medium-size enterprises," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 3017-3042, November.
  8. Stanley E. Howard, 1934. "The Limited Partnership in New Jersey," The Journal of Business, University of Chicago Press, vol. 7, pages 296-296.
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