Business Organizations Law Commons^™

The One-Stop-Shop For Vat And Rst: Common Approaches To Eu-U.S. Consumption Tax Issues, Richard Thompson Ainsworth

Faculty Scholarship

In March 2004 the European Commission solicited comments on a proposal to simplify value added tax (VAT) obligations through a one-stop scheme. The proposal was modest in scope. It was designed to build upon the success of a similar scheme that dealt with non-EU established persons supplying digital products to non-taxable EU persons. That scheme is found in Article 26c of the Sixth VAT Directive.

In its March Consultation Paper the Commission proposed that businesses established within the EU be allowed to participate in a one-stop scheme that would be similar to the Article 26c scheme. Limited to B2C transactions, …

Organizational Form As Status And Signal, Kimberly D. Krawiec

Faculty Scholarship

In this Article, the author analyzes the reactions of 147 New York City law firms to the 1994 enactment of the New York Limited Liability Partnership statute, which provided New York law firm partners with the first convenient mechanism to limit their personal liability for partnership debts. Using both quantitative and qualitative evidence, she evaluates whether the behavior of New York law firms supports the signaling theory of organizational form - that is, the theory that firms use the partnership form to signal to the marketplace that they provide high quality legal services, due to either superior monitoring or to …

Can Lawyers Wear Blinders? Gatekeepers And Third-Party Opinions, John C. Coffee Jr.

Faculty Scholarship

The question in the title may seem to answer itself. But it does not; indeed, the question has been framed to explain my difficulty with Professor Schwarcz's position on third-party opinions. Frankly, Steven Schwarcz has taken a bold, tough position. Addressing what he sees as issues of "first impression," he asks "what it means for lawyers to issue legal opinions that create negative externalities," and "[i]f lawyers issuing legal opinions owe a duty to the public as well as to the opinion recipient." These are large, possibly even imponderable questions, but he answers them crisply and succinctly in the manner …

Serial Entrepreneurs And Small Business Bankruptcies, Douglas G. Baird, Edward R. Morrison

Faculty Scholarship

Chapter 11 is thought to preserve the going-concern surplus of a financially distressed business – the extra value that its assets possess in their current configuration. Financial distress leads to conflicts among creditors that can lead to inefficient liquidation of a business with going-concern surplus. Chapter 11 avoids this by providing the business with a way of fashioning a new capital structure. This account of Chapter 11 fails to capture what is happening in the typical case. The typical Chapter 11 debtor is a small corporation whose assets are not specialized and rarely worth enough to pay tax claims. There …

Contextual Analysis Of Tax Ownership, Alex Raskolnikov

Faculty Scholarship

Ownership is one of the most fundamental concepts in tax law, yet it remains remarkably confused. The uncertainty inhibits tax planning, leads to inconsistent responses from the government, and produces unexpected outcomes in the courts. There has been no shortage of scholarly attention to the issue, but most of the commentary has been either exceedingly narrow or focused on far-reaching reforms. As a result, the law of tax ownership lacks conceptual foundation. This article attempts to remedy the deficiency by proposing a comprehensive approach to tax ownership and demonstrating that the doctrine may (and should) be significantly clarified without a …

Patents, Venture Capital, And Software Start-Ups, Ronald J. Mann, Thomas W. Sager

Faculty Scholarship

This paper analyzes the relation between the patenting behavior of startup firms and the progress of those firms through the venture capital cycle. Linking data relating to venture capital financing of software startup firms with data concerning the patents obtained by those firms, we find significant and robust positive correlations between patenting and several variables measuring the firm's performance (including number of rounds, total investment, exit status, receipt of late stage financing, and longevity). The data also show that (1) only about one in four venture-backed software firms acquired even one patent during the period of the study; (2) patenting …

Risk Management In Long-Term Contracts, Victor P. Goldberg

Faculty Scholarship

Long-term contracts are designed to manage risk. After a brief discussion of why it is unhelpful to invoke risk aversion for analyzing serious commercial transactions between sophisticated entities, this paper focuses on adaptation to changed circumstances. In particular, it considers the options to abandon and the discretion to change quantity. It then analyzes a poorly designed contract between Alcoa and Essex showing how the parties misframed their problem and designed a long-term contract that was doomed to fail.

The 527 Problem ... And The Buckley Problem, Richard Briffault

Faculty Scholarship

In the world of campaign finance, 2004 was without a doubt the year of the 527 organization. No other aspect of campaign financing received as much press coverage or public attention as the rise of the 527s. Expenditures by 527s – named after the section of the Internal Revenue Code under which they are organized – active in federal elections amounted to at least $405 million, accounting for more than one-tenth of total federal election spending and perhaps twenty to twenty-five percent of spending in the presidential campaign. Federal Election Commission ("FEC") Chairman Scott E. Thomas recently observed that "[there …

Going-Private Decisions And The Sarbanes-Oxley Act Of 2002: A Cross-Country Analysis, Ehud Kamar, Pinar Karaca-Mandic, Eric L. Talley

Faculty Scholarship

This article investigates whether the passage and the implementation of the Sarbanes-Oxley Act of 2002 (SOX) drove firms out of the public capital market. To control for other factors affecting exit decisions, we examine the post-SOX change in the propensity of public American targets to be bought by private acquirers rather than public ones with the corresponding change for foreign targets, which were outside the purview of SOX. Our findings are consistent with the hypothesis that SOX induced small firms to exit the public capital market during the year following its enactment. In contrast, SOX appears to have had little …

Conflicts Of Interest In Publicly-Traded And Closely-Held Corporations: A Comparative And Economic Analysis, Zohar Goshen

Faculty Scholarship

Conflicts of interest in corporate law can be addressed by two main alternatives: a requirement of a majority of the minority vote or the imposition of duties of loyalty and fairness. A comparison of Delaware, the UK, Canada, and Israel reveals that while the conflicts of interest problem within publicly-traded corporations receives different treatment in the different jurisdictions — either a fairness rule or a majority of the minority rule — closely-held corporations receive the same treatment of an imposition of duties of loyalty and fairness. This article explains this finding, demonstrating that determining which of these rules is adopted …

Executive Compensation: If There's A Problem, What's The Remedy? The Case For "Compensation Discussion And Analysis", Jeffrey N. Gordon

Faculty Scholarship

High levels of executive compensation have triggered an intense debate over whether compensation results primarily from competitive pressures in the market for managerial services or from managerial overreaching. Professors Lucian Bebchuk and Jesse Fried have advanced the debate with their recent book, Pay Without Performance: The Unfulfilled Promise of Executive Compensation, which forcefully argues that current compensation levels are best explained by managerial rent-seeking, not by arm's-length bargaining designed to create the optimum pay and performance nexus. This paper expresses three sorts of reservations with their analysis and advances its own proposals. First, enhancing shareholder welfare is not, as a …

Takeovers In The Boardroom: Burke Versus Schumpeter, Ronald J. Gilson, Reinier Kraakman

Faculty Scholarship

We are delighted to participate in a 25th anniversary assessment of Martin Lipton's 1979 article, Takeover Bids in the Target's Boardroom. This is a remarkably prescient article that demonstrates an uncanny ear for an emerging issue. From his vantage point inside targets' boardrooms – and, we assume, also from inside the nearby offices of investment bankers – Lipton spotted a gathering storm on the horizon and sought to channel the emerging issue of takeover policy in a direction that accorded with his own fundamental convictions as well as the interests of his clients. As every academic knows, early intervention …

Seven Points To Explain Why The Law Ought Not Allow The Elimination Of Fiduciary Duty Within Closely Held Businesses: Cardozo Is Dead; We Have Killed Him., Daniel S. Kleinberger

Faculty Scholarship

Prepared as part of the author's work as co-reporter for the Revised Uniform Limited Liability Company Act, this essay argues against legislation that empowers private agreements to eliminate fiduciary duty within a business organization. The essay considers: (i) the venerable role of fiduciary duty within business organizations and the limited predictive powers of those urging radical reform; (ii) the absence of prescience in contract drafters; (iii) the strict construction function of fiduciary law; (iv) the inevitable and inappropriate pressure that elimination would put on the obligation of good faith and fair dealing; (v) the differences in remedy available for fiduciary …

The Closely Held Business Through The Entity-Aggregate Prism, Daniel S. Kleinberger

Faculty Scholarship

When the law conceptualizes the legal form that houses a closely held business, does it matter whether the law envisages that form as an entity separate from, rather than an aggregate of, the several owners of the business? At one time, this question was at the conceptual core of the law of general partnerships, but the Revised Uniform Partnership Act supposedly put the issue to rest. Moreover, the closely held corporation is emphatically an entity, as is the predominant form of unincorporated organization - the limited liability company. Today, the entity-aggregate question might seem a mere relic of a discarded …

Corporate Responsibility: Ensuring Independent Judgment Of The General Counsel - A Look At Stock Options, Z. Jill Barclift

Faculty Scholarship

Recent corporate scandals and allegations of corporate fraud in public companies have most people asking how things went so wrong. When looking to assess blame for corporate malfeasance, many ask, “Where were the lawyers?” In several high-profile corporate fraud investigations, outside and in-house lawyers were criticized for not doing more to prevent corporate executives from violating the law, and several general counsels were charged with criminal misconduct by state and federal authorities. Why would the general counsel of a public corporation risk his or her career, reputation, and criminal prosecution to assist executives in perpetuating corporate fraud? The answer may …

Changing Paradigms: The Liability Of Corporate Groups In Germany, René Reich-Graefe

Faculty Scholarship

The German law on affiliated companies and groups of companies ("Konzernrecht"), as embodied in the German Stock Corporation Act of 1965, as amended ("Aktiengesetz"), has often been credited for its innovative approach to the dichotomy of liability strategies relevant to corporate groups-viz., the traditional concept of entity liability based on the fundamental doctrine of the legal separateness of the corporate entity and, accordingly, resulting in a limitation of investor liability as the rule, and discrete and rare occurrences of what is almost poetically designated the "piercing of the corporate veil" ("DurchgriffshaJtung") as narrow and reluctantly crafted exceptions, and the more …

Same Sex Marriage And Its Implications For Employee Benefits: Proceedings Of The 2005 Meeting Of The Association Of American Law Schools Sections On Employee Benefits, And Sexual Orientation And Gender Identity Issues, Maria O'Brien, Constance Hiatt, Shannon Minter, Teresa S. Collett

Faculty Scholarship

Professor Maria O'Brien Hylton*: Welcome to this session on "Same Sex Marriage and its Implications for Employee Benefits." I'm Maria Hylton and I will introduce our speakers and moderate the program.

Our first speaker is Constance Hiatt, who is a partner with the Hanson Bridgett law firm here in San Francisco. She represents mostly large employers and large employee benefit plans, including the State of California's 401(k) and 457 plans as well as the University of California's benefits office. So, she has extensive experience in the employee benefits area and she came to us, to me really, through several …

In The Shadow Of Delaware - The Rise Of Hostile Takeovers In Japan, Curtis J. Milhaupt

Faculty Scholarship

Despite longstanding predictions to the contrary, hostile takeovers have arrived in Japan. This Essay explains why and explores the implications of this phenomenon, not only for Japanese corporate governance, but also for our understanding of corporate law development around the world today. Delaware law figures prominently in the recent Japanese events. A highprofile battle for corporate control has just generated a judicial standard for takeover defenses that might be called a Unocal rule with Japanese characteristics. Meanwhile, ministy-endorsed takeover guidelines have been formulated that are heavily influenced by the familiar "threat" and "proportionality" tests under Delaware law, along with many …

Some Reflections On Two-Sided Markets And Pricing, Victor P. Goldberg

Faculty Scholarship

We want to join Bob Pitofsky in thanking the participants in this symposium for their thoughtful contributions. The literature on two-sided markets, both analytical and policy oriented, has mushroomed and this timely set of essays represents a significant contribution. The first generation of this literature grew up around the credit card industry, largely as a result of the antitrust litigation that challenged a wide range of standard practices in that industry. However, the theoretical problems that were first uncovered in this context extend to many other activities as well. The full range of papers found in this symposium, which have …

The Post-Enron Identity Crisis Of The Business Lawyer, William H. Simon

Faculty Scholarship

The practices and institutions of business lawyering are undergoing a reassessment and revision as radical as anything that has occurred since the late nineteenth century, when the modern professional association and the modern corporate law firm were born. The pace of change has intensified,but its directions remain contested. The articles in this colloquium depict a corporate bar torn between competing role conceptions along a variety of dimensions.

Corporate Misbehavior By Elite Decision-Makers Symposium - Perspectives From Law And Social Psychology: Introduction, James A. Fanto

Faculty Scholarship

No abstract provided.

Bank Mergers In North America: Comparing The Approaches In The United States And Canada, Eric J. Gouvin

Faculty Scholarship

This Article provides a summary comparison of the processes in the United States and Canada for governmental approval of bank mergers. The topic came to prominence in 1998 when four of Canada's five largest banks unveiled plans that would have resulted in the Royal Bank of Canada merging with the Bank of Montreal and the Toronto Dominion Bank combining with the Canadian Imperial Bank of Commerce ("CIBC"). These proposed mergers were rejected by the then Finance Minister, Paul Martin. The reasons given included: (1) the resulting banking industry structure would have concentrated too much economic power in the hands of …

Separation And The Function Of Corporation Law, Ronald J. Gilson

Faculty Scholarship

I am delighted to participate in taking up Professor William Klein's suggestion that we could learn something by attempting a functional typology of corporation law. As a starting point, any typology must be animated by an underlying theory whose terms dictate the lines the typology draws. I want to focus my contribution at the level of the theory that might animate the architecture of this grid. To see what I mean by this, think of the Sesame Street version of Edward Levi's classic, An Introduction to Legal Reasoning. The character points at a board on which there are pictures …

A Theory Of Corporate Scandals: Why The U.S. And Europe Differ, John C. Coffee Jr.

Faculty Scholarship

A wave of financial irregularity broke out in the United States in 2001-2002, culminating in the Sarbanes-Oxley Act of 2002. A worldwide stock market bubble burst over this same period, with the actual market decline on a percentage basis being somewhat more severe in Europe. Yet, no corresponding wave of financial scandals involving a similar level of companies broke out in Europe. Indeed, those scandals that did arise in Europe often had American roots (e.g., Vivendi, Ahold, Adecco, etc.). Given the higher level of public and private enforcement in the United States for securities fraud, this contrast seems perplexing.

What …

Structure Of Regulatory Competition In European Corporate Law, The , Martin Gelter

Faculty Scholarship

In its opinions in the cases Centros, Uberseering and Inspire Art, the ECJ has begun to open European corporate law for regulaton of competition, as it has been discussed in the US for several ldecades. This article analyses the stuictual conditions of competition on the supply and demand sides of the market for corporate law, and the impact of supranational influence. In doing so, it identifies several factors that have received little attention in the incipient European debate. The supply-side analysis shows that a European Delaware is implausible because of the interdependence of competitive advantages and the incentives to compete. …

New Business Entities In Evolutionary Perspective, Henry Hansmann, Reiner Kraakman, Richard Squire

Faculty Scholarship

The new types of business forms that have developed over the past thirty years all combine the freedom of contracting that is traditional to the partnership with the pattern of creditors' rights that is traditional to the business corporation. Legal scholars differ on the issue of whether these new business forms are more partnership-like or corporation-like. Those taking the partnership-like view argue that the degree of freedom of contract is the essential difference between the traditional corporation and partnership forms, while those adhering to the corporation-like view argue that the pattern of creditors' rights is the essential difference. The authors …

Law And The Rise Of The Firm , Henry Hansmann, Reiner Kraakman, Richard Squire

Faculty Scholarship

Organizational law empowers firms to hold assets and enter contracts as entities that are legally distinct from their owners and managers. Legal scholars and economists have commented extensively on one form of this partitioning between firms and owners: namely, the rule of limited liability that insulates firm owners from business debts. But a less-noticed form of legal partitioning, which we call "entity shielding," is both economically and historically more significant than limited liability. While limited liability shields owners' personal assets from a firm's creditors, entity shielding protects firm assets from the owners' personal creditors (and from creditors of other business …

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

Faculty Scholarship

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 …

Good Faith Business Judgment: A Theory Of Rhetoric In Corporate Law Jurisprudence, Sean J. Griffith

Faculty Scholarship

This Article develops a theory of rhetoric in corporate law jurisprudence. It begins by examining a recent innovation in Delaware case law: the emerging principle of “good faith.” Good faith is an old notion in law generally, but it offers to bring significant change to corporate law, including realignment of the business judgment rule and a shift in the traditional balance between the authority of boards and the accountability of boards to courts. This Article argues, however, that good faith functions as a rhetorical device rather than a substantive standard. That is, it operates as a speech act, a performance, …

Daedalean Tinkering, Sean J. Griffith

Faculty Scholarship

This Review describes David Skeel's account of corporate scandal and evaluates his policy recommendations in his recent book, Icarus in the Boardroom. It argues that although the book provides a compelling history of corporate scandal, its focus on federal responses to scandal--from the enactment of the Interstate Commerce Act to the Sarbanes-Oxley Act--misses an important part of the story. As corporate law scholars have long pointed out, corporations exist within a network of constraints, based in part on law and in part on markets, norms, and other non-legal sanctions. Because it omits any sustained discussion of the reaction of these …