Business Organizations Law Commons^™

Public, Private, Acquired, Alexander I. Platt, Matthew T. Wansley

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For the last quarter-century, IPOs have been declining. SEC officials usually attribute the decline to startups’ choices to stay private. But that explanation is incomplete. As startups grow, they face a three-way choice between going public, staying private, and being acquired, and they have increasingly chosen the third option. In this Essay, we show how securities regulation pushes startups towards acquisitions by increasing the cost of raising capital and accessing liquidity in both public and private markets. We consider how the trend towards acquisitions could reduce competition, innovation, opportunities for diversification, and transparency. And we offer suggestions for how the …

The Corporate Restructuring Machine: Introducing An Open Platform Approach To Workouts, Horst Eidenmüller, Jared Mayer

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Out-of-court corporate reorganizations, or “corporate workouts,” allow dispersed investors with differing interests to coalesce and strike deals to successfully reorganize distressed companies. Corporate workouts, however, suffer from a host of well-known problems, creating “process fragility.” Current bargaining dynamics limit the instances in which corporate workouts can be used, narrow the kinds of deals that can be made, and invite opportunistic and other socially costly behavior. Yet the Artificial Intelligence (AI) revolution is here; how can it help parties navigate corporate workouts?

In this Article, we argue that AI is well situated to help increase the efficiency of corporate workouts. Based …

Living To Die: Life Imprisonment Without Remission Or Parole In India, Preeti Pratishruti Dash, Rushil Batra

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This article critically examines the Supreme Court of India’s use of life imprisonment without the possibility of remission or parole (LWORP) as a sentencing alternative to the death penalty. While the Constitution Bench in V Sriharan vs Union of India (2015) upheld the constitutionality of such sentences, it did not articulate principled standards governing their imposition. This article argues that the absence of such standards has produced a vacuum in LWORP sentencing. To substantiate this claim, we analyse fifty-three Supreme Court judgments delivered between 2016 and 2024 in which death sentences were commuted to LWORP. The analysis reveals widespread inconsistency …

Trophy Assets, Aneil Kovvali

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Rich people like to own things that make them look cool. When the thing in question is a car, house, or boat, the implications are limited. But sometimes very rich people own assets that are more important. Within media, Elon Musk acquired Twitter, Jeff Bezos ac-quired the Washington Post, and Patrick Soon-Shiong acquired the Los Angeles Times. There has also been a craze for aerospace: Musk with Space X, Bezos with Blue Origin, Richard Branson with Virgin Galactic, and going back further, Howard Hughes with Hughes Aircraft Company. It is often difficult to understand the behavior in purely finan-cial terms, …

Swiping Rights: Hidden Costs Of Hidden Laws, Rachel Landy

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While many legal regimes have undergone fundamental shifts to account for the online economy, one lags behind: industry-specific mandatory contract rules. These rules, frequently buried in decades-old, nonintuitive statutes, are often overly prescriptive and come with draconian penalties, hampering the goals of entrepreneurship and impeding startup growth.

Much has been written about the intersection of regulation and entrepreneurship. But sparse attention has been paid to the unintended consequences on early-stage companies of more subtle regulatory interventions like contract rules — especially those with inconsistent or conflicting requirements among the states. This Article begins to fill that gap and uses as …

Innovation Interrupted: Legal And Institutional Risks Of Undermining Public-Private Partnerships, Jennifer S. Fan, Xuan-Thao Nguyen

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Part I traces the development of the Bayh–Dole Act and discusses public–private partnership collaboration. Part II focuses on intellectual property generation by universities, illustrating the benefits of public– private partnership. Then Part III highlights the Trump administration’s federal funding cuts to universities that jeopardize the established public–private partnerships. Finally, Part IV details the consequences of how federal funding cuts impact the venture capital sector and the legal architecture of innovation, eroding the United States’ standing in the innovation race.

The Safe Harbor For Leveraged Buyouts In Bankruptcy, David G. Carlson

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No abstract provided.

Taxing Litigation Finance, Young Ran (Christine) Kim

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The emerging litigation finance industry has the capacity to expand access to justice but also raises important legal and ethical questions. Although much has been said about the industry’s potential to increase frivolous lawsuits and permit improper control over a claim by the funders, scholarly discussion on the proper tax treatment of the parties involved has fallen by the wayside. The problem arises in classifying litigation finance contracts as either a nonrecourse loan, immediate sale, or variable prepaid forward contract, all of which discretely impact the timing and character of income. Unfortunately, courts have traditionally found it difficult to draw …

Novel Corporate Governance Structures, Jennifer S. Fan, Xuan-Thao Nguyen

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Artificial Intelligence (“AI”) startups have taken center stage, rapidly disrupting conventional industries at an unprecedented pace with their groundbreaking innovations. Hailed by many as the most significant technological advancement of our era, AI’s profound societal impact has garnered heightened public and governmental scrutiny. The spotlight has recently fallen on OpenAI, the creator of ChatGPT, which weathered a tumultuous period marked by the ouster and subsequent rehiring of CEO Sam Altman, a board reconfiguration, and Altman’s later return to the board. Concerns over AI safety were offered as the rationale for the tandem corporate governance structure of nonprofit and for-profit at …

The Problem Of Purpose In Corporate Law, Matthew T. Bodie, Grant M. Hayden

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For the last half century, shareholder primacy has reigned as the dominant definition of corporate purpose, as to both the purpose of individual companies and corporate law more generally. Recently, however, the Business Roundtable, the American Law Institute’s Restatement of the Law: Corporate Governance, and many business and legal academics have developed new answers to explain why we have corporations, and the ends to which their massive economic powers should be directed. This Essay endeavors to reframe the focus of the debate beyond purpose itself into the realm of actual governing power. In order to be meaningful, purpose needs governance. …

Labor Law, Ownership, And The Firm, Sanjukta Paul

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In shaping economic coordination within and across both firms and markets, one significant action of law is to allocate privileges or rights between people or groups of people. These include the right to coordinate with other people or groups of people in particular ways regarding core economic decisions-a type of activity that is not always or in all circumstances legally permissible. An area that makes this more general action of law especially concrete is antitrust or competition law, with its collection of "exemptions." Antitrust's formal and informal exemptions quite directly allocate economic coordination rights, for particular kinds of activity, and …

The Fox Effect? Implications Of Recruiting Corporate Law To Combat Misinformation, Lili Levi

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In 2023, Fox Corporation settled U.S. Dominion’s defamation action over Fox News’ broadcast of false election fraud claims after the 2020 presidential election for the staggering sum of $787.5 million. Now, a shareholder derivative action is pending in Delaware against the company’s board of directors for breach of state corporate law fiduciary oversight duties for their failure to prevent such defamatory programming. Beyond the specifics of the case, this development portends the emergence of a new politico-legal strategy—using corporate governance requirements as a weapon to promote press accountability and combat misinformation in public discourse. The question addressed in this Essay …

Should Large Corporate Mergers Be Subsidized?, Reuven S. Avi-Yonah

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On March 21 Sens. Sheldon Whitehouse, DR. I., and J.D. Vance, R-Ohio, introduced the Stop Subsidizing Giant Mergers Act. They explained that large mergers have been increasing in recent years and that since 2007, up to 40 percent by value of all mergers have been structured as tax free. They argue that the tax breaks to mergers are a “wasteful subsidy.”

Bounded Entities And (Some Of) Their Discontents, Saurabh Vishnubhakat

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In his new article An Organizational Theory of International Technology Transfer, Professor Peter Lee offers two richly detailed accounts at once. One is a novel theoretical framework of "bounded entities" that generalizes both from the classic theory of the firm and, of more recent vintage, from the knowledge-based theory of the firm to specify a broader notion of organizations that are bounded in the sense of robust internal integration through corporate or contractual means. In short, such entities are not firms but resemble them in consequential ways. The other account is a practical elaboration of bounded entities that are multinational …

Downstreaming, Rachel Landy

Articles

Spotify and its competitors all offer the same product at the same price. Why? Scholars have argued that relationships can be designed in a way that naturally promotes innovation. By “braiding” certain formal contracting practices with informal enforcement norms, parties develop a frame-work that supports trust and positive, long-term collaboration. This Article takes on this consensus and shows that not all braiding is good. Using the multibillion-dollar subscription music streaming business as an illustration, it demonstrates just how industry forces can, and do, overcome braiding’s positive slant. In that industry, the major record labels (Universal, Warner, and Sony) weaponize braiding …

Shareholder Primacy Versus Shareholder Accountability, William Wilson Bratton

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When corporations inflict injuries in the course of business, shareholders wielding environmental, social, and governance ("ESG") principles can, and now sometimes do, intervene to correct the matter. In the emerging fact pattern, corporate social accountability expands out of its historic collectivized frame to become an internal subject matter-a corporate governance topic. As a result, shareholder accountability surfaces as a policy question for the first time. The Big Three index fund managers, BlackRock, Vanguard, and State Street, responded to the accountability question with ESG activism. In so doing, they defected against corporate legal theory's central tenet, shareholder primacy. Shareholder primacy builds …

Founder Worship, Effective Altruism, And Corporate Governance, Jennifer S. Fan, Xuan-Thao Nguyen

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Founders are the heart of any startup. Oftentimes, they are given considerable latitude in managing a company, particularly if they are hailed as a visionary founder in a pathbreaking new industry. Additionally, it is assumed that underpinning their actions is the desire to do good. Unfortunately, sometimes this leads to what we term founder worship where the promise of the founder and the innovation may lead to perverse outcomes because too much control is ceded to the founder and there is a lack (or sometimes complete absence of) corporate governance. When unlimited control is coupled with "do gooderism," which in …

The Submerged Administrative State, Gabriel Scheffler, Daniel E. Walters

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The United States government is experiencing a reputation crisis: after decades of declining public trust, many Americans have lost confidence in the government's capacity to perform its basic functions. While various explanations have been offered for this worrying trend, these existing accounts overlook a key factor: people are unfamiliar with the institutions that actually do most of the governing-administrative agencies-and they devalue what they cannot easily observe. The "submerged" nature of the administrative state is, we argue, a central reason for declining trust in government.

This Article shows that the administrative state is systematically submerged in two ways. First, administrative …

Reflections On Corporate Governance At Work, Margaret Blair, Matthew Bodie, June Carbone, Scott Dewey, George S. Georgiev, Grant Hayden, Claire Hill, Brett Mcdonnell, Sanjukta Paul, Silvie Rohr, Natalya Shnitser, Aaron Sojourner, Alvin Velazquez

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No abstract provided.

Amazon's Pricing Paradox, Rory Van Loo, Nikita Aggarwal

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Antitrust scholars have widely debated the paradox of Amazon seemingly wielding monopoly power while charging low prices to consumers. A single company's behavior thereby helped spark a vibrant intellectual conversation as scholars debated why Amazon's prices were so low, whether enforcers should intervene, and, eventually, how the field of antitrust should be reformed. One of the main sources of agreement in these and other scholarly conversations has long been that Amazon charges low prices. This Article challenges that assumption by demonstrating that Amazon customers may pay significantly higher prices than is commonly understood due to strategies that do not necessarily …

Venture Predation, Matthew T. Wansley, Samuel N. Weinstein

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Predatory pricing is a strategy firms use to suppress competition. The predator prices below its own costs to force its rivals out of the market. After they exit, the predator raises its prices to supracompetitive levels and recoups the cost of predation. The Supreme Court has described predatory pricing as “rarely tried” and “rarely successful” and has established a liability standard that is nearly impossible for plaintiffs to satisfy. We argue that one kind of company thinks predatory pricing is worth trying and at least potentially successful—venturebacked startups.

A venture predator is a startup that uses venture finance to price …

Startup Biases, Jennifer S. Fan

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This Article provides an original descriptive account of bias in the startup context and explains why litigation is eschewed and what happens when it is used as a mechanism to combat bias in the venture capital ecosystem. Further, this Article identifies two particular phenomena in the startup context that exacerbate gender and racial bias. First, homophily—the idea that like attracts like—abounds and has been part of the DNA of venture capital since its inception. The thick networks that developed as venture capital made its way from the East Coast to the West Coast were limited to an elite group that …

Woke Capital Revisited, Jennifer S. Fan

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Inclusive corporate leadership is now at the forefront of discussions related to corporate governance. Two corporate theories help to explain the rise in prominence of diversity, equity, and inclusion (“DEI”) efforts in corporate leadership. First, an expanded definition of corporate purpose which elevated the idea of the importance of stakeholders, contributed to the momentum from business and legal quarters for broader corporate inclusion. Second, the increasing publicness of corporations—the social expectation of how large, typically public corporations should act given their position of power—also led to corporations becoming more active in the DEI space. It is against this backdrop that …

Fair Value As Process: A Retrospective Reconsideration Of Delaware Appraisal, William Wilson Bratton

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This Article reconsiders the jurisprudence of fair value under Delaware's appraisal remedy, placing recent cases in historical perspective and offering a novel account. Its central observation is that appraisal has developed into a process jurisprudence rather than jurisprudence devoted to the articulation of an entitlement. As such it defies expectations and excites the wrath of academic commentators looking for a more conventional, rights-based evolution. There is a nominal entitlement: the cases at all times announce that shareholder dissenters may pursue going concern value (as opposed to third party sale value) as the measure of fair value. But the Delaware courts …

Blockchain Games And A Disruptive Corporate Business Model, Xuan-Thao Nguyen

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This Article is the first to identify and theorize on a new disruptive corporate business model unfolding in the gaming industry that is larger than both the movie and music sectors combined. Corporations in blockchain gaming reject the old paradigm of amassing profits by turning the public into spenders for and consumers of corporate products. The new corporate business model transforms members of the public into producers and true owners of new corporate property while earning income and garnering governance voting rights. Through a case study of Axie Infinity, a blockchain game launched in 2021, this Article explores how the …

Taming Unicorns, Matthew Wansley

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Until recently, most startups that grew to become valuable businesses chose to become public companies. In the last decade, the number of unicorns—private, venture-backed startups valued over one billion dollars—has increased more than tenfold. Some of these unicorns committed misconduct that they successfully concealed for years. The difficulty of trading private company securities facilitates the concealment of misconduct. The opportunity to profit from trading a company’s securities gives short sellers, analysts, and financial journalists incentives to uncover and reveal information about misconduct the company commits. Securities regulation and standard contract provisions restrict the trading of private company securities, which undermines …

Highly Automated Vehicles & Discrimination Against Low-Income Persons, William H. Widen

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Law reform in the United States often reflects a structural bias that advances narrow business interests without addressing broader public interest concerns.' This bias may appear by omitting protective language in laws or regulations which address a subject matter area, such as permitting the testing of highly automated vehicles ("HA Vs") on public roads, while omitting a requirement for a reasonable level of insurance as a condition to obtain a testing permit.2 This Article explores certain social and economic justice implications of laws and regulations governing the design, testing, manufacture, and deployment of HA Vs which might advance a business …

The Landscape Of Startup Corporate Governance In The Founder-Friendly Era, Jennifer S. Fan

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In corporate governance scholarship, there is an important debate about the nature and roles of the members of the board of directors in venture capital-backed private companies. The impact of a newly emerged, founder-centric model has been underappreciated, while the role of the independent director as tiebreaker or swing vote is vastly overstated. The reality is that corporate governance in these companies is a norm-driven, consensus-building process that rarely spills out into open conflict.

This is the first empirical study of startup corporate governance post-Great Recession and during the pandemic. Using survey and interview methodologies, this Article makes four primary …

Moonshots, Matthew Wansley

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In the last half-century, technological progress has stagnated. Rapid advances in information technology disguise the slow pace of productivity growth in other fields. Reigniting technological progress may require firms to invest in moonshots—long-term projects to commercialize innovations. Yet all but a few giant tech firms shy away from moonshots, even when the expected returns would justify the investment. The root of the problem is corporate structure. The process of developing a novel technology does not generate the kind of interim feedback that shareholders need to monitor managers and managers need to motivate employees. Managers who anticipate these agency problems invest …

Beyond The Public Square: Imagining Digital Democracy, Mary Anne Franks

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To create online spaces that do not merely replicate existing hierarchies and reinforce unequal distributions of social, economic, cultural, and political power, we must move beyond the simplistic clich6 of the unregulated public square and commit to the hard work of designing for democracy.

When we say 'public square,' ... we need to ask- who or what is this public? Who owns this space, what makes it public? . . . This is the essence of democracy: the ability to question power, and the power to do so. - Tom Wilkinson