Law Commons^™

The Economics Of Limited Liability: An Empirical Study Of New York Law Firms, Scott Baker, Kimberly D. Krawiec

ExpressO

Since the rapid rise in organizational forms for business associations, academics and practitioners have sought to explain the choice of form rationale. Each form contains its own set of default rules that inevitably get factored into this decision, including the extent to which each individual firm owner will be held personally liable for the collective debts and obligations of the firm. The significance of the differences in these default rules continues to be debated. Many commentators have advanced theories, most notably those based on unlimited liability, profit-sharing, and illiquidity, asserting that the partnership form provides efficiency benefits that outweigh any …

A Culturally Correct Proposal To Privatize The British Columbia Salmon Fishery, D. Bruce Johnsen

George Mason University School of Law Working Papers Series

Canada now faces two looming policy crises that have come to a head in British Columbia. The first is long-term depletion of the Pacific salmon fishery by mobile commercial ocean fishermen racing to intercept salmon under the rule of capture. The second results from Canadian Supreme Court case law recognizing and affirming “the existing aboriginal and treaty rights of the aboriginal peoples of Canada” under Section 35(1) of the Constitution Act, 1982. This essay shows that the economics of property rights provides a joint solution to these crises that would promote the Canadian commonwealth by way of a privatization auction …

Bankruptcy Law And Inefficient Entitlements, Irit Haviv-Segal

ExpressO

The question as to the justification of bankruptcy law remains unanswered. The literature tends to emphasize the conflict and inability to compromise between the different normative outlooks of the insolvency law system. A deeper reflection on the existing theories of bankruptcy law reveals, however, that all theories share the same starting point: All theories share the understanding that efficiency considerations justify the enforcement of contractual bankruptcy arrangements. When the social theories call for increased levels of coercion and redistribution, these theories rely on normative considerations of distributive justice and rehabilitation values. They by no means rely on efficiency grounds. This …

Strict Liability For Gatekeepers: A Reply To Professor Coffee, Frank Partnoy

University of San Diego Law and Economics Research Paper Series

This article responds to a proposal by Professor John C. Coffee, Jr. for a modified form of strict liability for gatekeepers. Professor Coffee’s proposal would convert gatekeepers into insurers, but cap their insurance obligations based on a multiple of the highest annual revenues the gatekeepers recently had received from their wrongdoing clients. My proposal, advanced in 2001, would allow gatekeepers to contract for a percentage of issuer damages, after settlement or judgment, subject to a legislatively-imposed floor. This article compares the proposals and concludes that a contractual system based on a percentage of the issuer’s liability would be preferable to …

Encumbered Shares, Shaun Martin, Frank Partnoy

University of San Diego Law and Economics Research Paper Series

The fundamental assumptions in the law and economics literature about shareholder voting and the one-share/one-vote rule are flawed. The classic view is that share ownership is necessary and sufficient to create voting rights and that such rights should be directly proportional to share ownership. We demonstrate that this assumption is unfounded, both for shares that are “economically encumbered” (held by shareholders who are not pure residual claimants; e.g., a shareholder who owns one share and is also short one or more shares) as well as shares that are “legally encumbered” (held or associated with more than one shareholder; e.g., shares …

Does The Tax Law Discriminate Against The Majority Of American Children: The Downside Of Our Progressive Rate Structure And Unbalanced Incentives For Higher Education?, Lester B. Snyder

University of San Diego Law and Economics Research Paper Series

Our graduate income tax structure provides an incentive to shift income to lower-bracket family members. However, some parents have much more latitude to shift income to their children than do others. Income derived from services and private business-by far the majority of American income-is less favored than income derived from publicly traded securities. The rationale given for this discrimination is that parents in services or private business, as opposed to those in securities, do not actually part with control of their property. This article explores these tax broader (yet subtle) tax benefits and their impact on the majority of children …

Preemption Under The Securities Litigation Uniform Standards Act: If It Looks Like A Securities Fraud Claim And Acts Like A Securities Fraud Claim, Is It A Securities Fraud Claim?, Jennifer O'Hare

Working Paper Series

This Article addresses the removal and preemption provisions of the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”). In SLUSA, Congress preempted class actions alleging “an untrue statement or omission of a material fact in connection with the purchase or sale of a covered security.” SLUSA clearly applies to preempt the typical state securities fraud action, forcing plaintiffs into federal court where they will be subject to the rigorous procedural requirements of the Private Securities Litigation Reform Act of 1995. Preemption of false corporate publicity cases was expected and, in fact, intended by SLUSA. However, many courts have also extended …

Ancillary Joint Ventures And The Unanswered Questions After Revenue Ruling 2004-51, Gabriel O. Aitsebaomo

ExpressO

Ever since the Internal Revenue Service (the "Service") issued Revenue Ruling 98-15… in which it emphasized "control" as a critical factor in determining whether a tax-exempt hospital that enters into a whole-hospital joint venture with a for-profit entity would continue to maintain its tax-exemption, practitioners and scholars alike have sought guidance from the Service regarding whether such "control" would also be required of an exempt organization that enters into an "ancillary joint venture" with a for-profit entity. In response, the Service issued Revenue Ruling 2004-51 on May 6, 2004.

… In Revenue Ruling 2004-51, the Service enunciated that a tax-exempt …

Corporate Defendants And The Protections Of Criminal Procedure: An Economic Analysis, Vikramaditya S. Khanna

Law & Economics Working Papers Archive: 2003-2009

Corporations are frequently treated as “persons” under the law. One of the fundamental questions associated with this treatment is whether corporations should receive the same Constitutional protections and guarantees as natural persons. In particular, should corporations receive the Constitutional protections of Criminal Procedure? After all, corporations cannot be sent to jail so the sanctions they face are essentially the same as in civil proceedings. If so, then why not have the same procedural protections for corporate defendants in civil and criminal cases? Little scholarly analysis has focused on this issue from an economic perspective and this article aims to fill …

The Silent Llc Revolution-- The Social Cost Of Academic Neglect, Howard M. Friedman

ExpressO

The law of Business Associations usually develops slowly. The business forms that were dominant until the end of the 20th century have been in existence for centuries. However, as the new data set examined in detail in this article demonstrates, in the last decade a revolution has taken place. Contrary to conclusions reached in leading articles published as recently as 2000, limited liability companies have now become the business form of choice for small firms in a majority of the states. This article details the ways in which teaching materials and legal scholarship have largely neglected the recent sea change …

Private Benefits Of Control, Antitakeover Defenses And The Perils Of Federal Intervention, Sharon Hannes

ExpressO

This paper develops a theory that sheds light on recent evidence according to which high quality issuers are the ones that adopt defenses in the IPO, and keys this behavior to the existing literature on private benefits of control. The paper analyzes the decision of the pre IPO owners concerning takeover defenses. This decision is shown to be influenced by the quality of the venture that goes public. High quality in firms that go public often means an abundance of growth and business opportunities, rather than sizeable existing assets. In such ventures managers are unlikely to consume much harmful control …

Good Faith In The Cisg: Interpretation Problems In Article 7, Benedict C. Sheehy

ExpressO

ABSTRACT: This article examines the dispute concerning the meaning of Good Faith in the CISG. Although there are good reasons for arguing a more limited interpretation or more limited application of Good Faith, there are also good reasons for a broader approach. Regardless of the correct interpretation, however, practitioners and academics need to have a sense of where the actual jurisprudence is going. This article reviews every published case on Article 7 since its inception and concludes that while there is little to suggest a strong pattern is developing, a guided pattern while incorrect doctrinally is preferable to the current …

The Historical And Political Origins Of The Corporate Board Of Directors, Franklin A. Gevurtz

ExpressO

Prompted by the litany of complaints about corporate boards – as once again highlighted by recent corporate scandals – this paper seeks to add to the literature on why corporation laws in the United States (and, indeed, around the world) generally call for corporate governance by or under a board of directors. Moreover, this paper takes a very different approach in searching for an answer. Instead of theorizing, this paper examines historical sources in order to look at how and why an elected board of directors came to be the accepted mode of corporate governance. This will entail a reverse …

Expensing Isn't The Only Option: Alternatives To The Fasb's Stock Option Expensing Proposal, Benjamin A. Templin

ExpressO

This paper reviews the arguments for and against the Financial Accounting Standard Board's (FASB) proposal to require that corporations expense options. It identifies two major goals of the proposed rule -- 1) clarity in financial statements and 2) a reduction of corporate fraud by removing the incentive of options. To address these two goals, I adopt a framework of Information Reforms v. Rules of the Game Reforms. The article starts with a history of FASB Statement No. 123 Accounting for Stock-based Compensation and also analyzes the Congressional legislation that attempts to block the measure, the Stock Option Accounting Reform Act. …

Evaluating Work: Enforcing Occupational Safety And Health Standards In The United States, Canada And Sweden, Daniel B. Klaff

ExpressO

The United States’ occupational safety and health enforcement system is breaking down. Klaff argues that much of this breakdown has to do with a fundamental lack of worker participation in the United States’ safety and health system. Klaff makes his case by comparing and contrasting the history and enforcement schemes of the United States, Canada, and Sweden. After arguing for economic rights as human rights, Klaff concludes by offering a set of recommendations for the United States’ occupational safety and health system based upon his value-centered analysis.

Competing Visions Of The Corporation In Catholic Social Thought, Mark A. Sargent

Working Paper Series

Catholic Social Thought (CST) is coherent body of principles concerning the organization of social and economic life drawing on the inspiration of natural law, Thomism, the Gospel and the tradition of Christian personalism. While valuing the creative energy of capitalism and its contributions to the production of wealth, it is often highly critical of the inequalities generated by capitalism, its tendency to promote materialistic consumerism and capital's devaluation of the dignity of work. While not easily characterizable as "right" or "left", CST thinking about corporate social responsibility and corporate governance has become split between interpretations emphasizing the importance of economic …

Taxation Of Spin-Off – U.S. And German Corporate Tax Law, Stefan W. Suchan

Cornell Law School J.D. Student Research Papers

Corporate law provides for a transaction commonly referred to as “spin-off”. The corporate enterprise is divided in (at least) two corporations. The stock of a controlled subsidiary will be distributed pro rata by a parent corporation to its shareholders which end up owning a brother/sister pair of corporate enterprises.

The Internal Revenue Code (IRC) in § 355 provides special rules for the distribution of stock and securities of a controlled corporation. The transaction is known as a “D reorganization”, if such a distribution follows the transfer by a corporation of all or a part of its assets to another corporation, …

Post-Enron: U.S. And German Corporate Governance, Stefan W. Suchan

Cornell Law School J.D. Student Research Papers

Only five years after Henry Hansmann and Reinier Kraakmann announced "the End of History of Corporate Law" – borrowing the words of Francis Fukuyama–, this observation seems at least questionable. Following two major failures of the “American Model” with the bankruptcy of Enron and WorldCom, the question of the "right" Corporate Governance regime is again under discussion.

Legislators around the globe assume that further development of Corporate Governance is necessary. There is consent for the need of improvement, but no clear answer on how to improve. A first step to solving the arising problems might be to evaluate the reasons …

Reconsidering The Prohibition Against General Solicitation During Section 3(C)(7) Offerings, Daniel P. Taub

ExpressO

This paper examines the seventy year history of the general solicitation prohibition during private offerings and then analyzes its continuing relevance as applied to Section 3(c)(7) offerings. The S.E.C. Staff recently issued a report questioning the continuing value of prohibiting general solicitation during private offerings made pursuant to Section 3(c)(7) of the Investment Company Act. If the S.E.C. were to follow the recommendation in the S.E.C. Staff Report, this would have tremendous implications for a growing number of hedge funds, and other investment companies utilizing the Section 3(c)(7) exemption. By allowing general solicitation, the S.E.C. would be reversing a policy …

Untaxing Taxes: An Attempt To Compare Philippine And Us Laws On Tax-Free Corporate Reorganizations, Salvador B. Belaro Jr.

Cornell Law School J.D. Student Research Papers

In comparing tax-free corporate reorganizations between Philippine and US law, the author wishes to learn how the US legal system would approach similar tax situations in the Philippines so he could apply it in the practice of law. Labyrinthine as they may be, US tax rules are so well-developed that they are excellent subjects for a comparative study. This paper validates the fact that Philippine and US tax laws on tax-free corporate exchanges have a lot in common. It also shows that in a lot of areas where Philippine law is silent, US tax laws have already devoted extensive treatment …

Fishing For Rainbows, The Fsc Repeal And Extraterritorial Income Exclusion Act, Stuart Smith

San Diego International Law Journal

On August 30, 2002, the final decision was released in the case of United States-Tax Treatment for "Foreign Sales Corporations". The World Trade Organization arbitration panel report authorizes the European Communities to levy $4.043 billion in annual trade sanctions against imports from the United States because of a provision in the U.S. tax code. "The FSC Repeal and Extraterritorial Income Exclusion Act of 2000", the most recent of 40 years worth of half-hearted attempts by the United States to comply with world trading body regulations, is the current offender. According to the arbitration panel, the act subsidizes foreign sales by …

The Transnational Corporation In History: Lessons For Today?, Janet Mclean

Indiana Law Journal

This is the revised text of the George P. Smith, II Lecture delivered at Indiana University School of Law- Bloomington on April 4, 2003.

Gentleman's Agreement: The Antisemitic Origins Of Restrictions On Stockholder Litigation, Lawrence E. Mitchell

ExpressO

A deeply ingrained, seemingly ineradicable, hostility to plaintiffs’ lawyers and especially to plaintiffs’ lawyers in stockholder suits seems to have existed for most of the past century. This hostility is manifest not only in the tone of judicial opinions but in law review articles, the popular press, and, often, in legislation. This article analyzes the circumstances under which the first security-for-expense statute was adopted in New York in 1944, including the contemporaneous justification for the statute, focusing on the demographics of the New York bar at the time and the ethnic sociology of New York. In so doing, it concludes …

Corporations, Society And The State: A Defense Of The Corporate Tax, Reuven S. Avi-Yonah

Law & Economics Working Papers Archive: 2003-2009

This article attempts to provide the first comprehensive rationale for defending the current corporate income tax. It argues that the usual reasons given for the tax (primarily as an indirect way of taxing shareholders, or alternatively as a form of benefit tax) are inadequate. It then explains what the original rationale to adopt this tax was in 1909, namely to regulate managerial power, and that this rationale stems from the real view of the corporation, which was the dominant view throughout the many transformations underwent by the corporate form from Roman times to the present. Turning to normative argument, the …

The Importance Of Corporate Models, Benedict C. Sheehy

ExpressO

This article argues that the debate concerning the nature of the corporation is not finished and nor a mere intellectual exercise for interested legal academics. The current model of the corporation as an economic entity—the firm—has a number of imbedded value assumptions. Given the common territory between corporate law and economics, some scholars have come to identify the two as equal partners striving for the same ends. This is a serious error which has had and continues to have significant negative consequences for both the economic situation of the majority and justice in society. These value assumptions are being seriously …

A New Product For The Corporation Law Market: Audit Committee Certifications, Lawrence A. Cunningham

ExpressO

In the swirling corporate governance reforms led by SOX, the SEC, SROs and PCAOB, Delaware and other states are playing minor roles at best. State absence creates a missing arc in the evolving US corporate governance circle. The circle is drawn as follows: state corporation law charges boards of directors with managing corporations and authorizes board committees; SOX charges audit committees with tasks, including supervising external auditors; SROs require audit committee characteristics like independence and compel disclosure; PCAOB requires external auditors to evaluate audit committee effectiveness. This last step could close the circle except that auditors performing this evaluation generate …

Tax, Corporate Governance, And Norms, Steven Bank

ExpressO

This paper examines the use of federal tax provisions to effect changes in state law corporate governance. There is a growing academic controversy over these provisions, fueled in part by their popularity among legislators as a method of addressing the recent spate of corporate scandals. In order to better understand and distinguish between the possible uses of tax as a tool of corporate governance, this paper takes a historical approach by focusing on two measures enacted during the New Deal – the undistributed profits tax in 1936 and the overhaul of the tax-free reorganization provisions in 1934 – and considers …

Lawyers In The Moral Maze , Mark A. Sargent

Working Paper Series

This article overviews the various forms of lawyer complicity in illegal or immoral behavior by corporate managers in the corporate scandals of the last three years, but focuses primarily on the question of why lawyers so often seemed willing to engage in or ignore behavior that presumably violated their own personal moral codes (whether religious or secular) as well as their professional role morality. The article draws on Robert Jackall's Moral Mazes (1988) for an answer derived from the sociology of corporate bureaucracies. Jackall's case studies of corporate managers found that managers adhered to the moral "rules-in-use" developed in their …

The Dividend Divide In Anglo-American Corporate Taxation, Steven Bank

ExpressO

Why did the U.S. and U.K. -- two countries with similarly developed economies and corporate cultures -- originally diverge in their approaches to corporate income taxation and why have they continued to vacillate on this issue over time? This Article concludes that it is a result of a divergence in firm dividend policies in the two countries. While firms in both countries maintained liberal dividend policies during the nineteenth century, U.S. firms began to retain more earnings after the turn-of-the-century and this necessitated a change in the method of taxing corporate income. In subsequent years, both countries have undergone major …

The Maximands Of Corporate Governance: A Theory Of Values And Cognitive Style, Amir N. Licht

ExpressO

This paper considers the raison d’être of corporations as it is reflected in the maximands of corporate governance. The debate over stockholders’ versus stakeholders’ interests as such maximands has been raging for decades. Advances in economic theory have not only failed to resolve this debate but have established that the problem is graver than what many may have estimated. This paper turns this debate on its head: Instead of asking What or Whose interests should corporations maximize, the real question is Why is this debate taking place at all? Aiming to extend current economic analyses of the maximands issue, this …