Business Organizations Law Commons^™

Finite Ventures, Andrew A. Schwartz

Publications

The law endows corporations and other business organizations with the awesome power of perpetual life—unless the charter expressly provides for a certain duration, such as ten years. But does anyone ever actually choose limited life? Why would they?

This article reveals that limited-life business entities—finite ventures—play a significant and underappreciated role in modern commerce. Private equity and venture capital funds, SPACs, and insurance syndicates are all organized with a limited lifespan.

Their motivation? This article claims that limited life is a valuable, but often overlooked, tool for ameliorating agency costs: the managers of a finite venture know they must produce …

The Spac Clock, Andrew A. Schwartz

Publications

Special purpose acquisition companies (SPACs) are public companies organized to die. Unlike ordinary corporations, which enjoy perpetual existence by default, SPACs are legally required to consummate a merger within a fixed period--usually two years, never more than three--or else liquidate and return investors' cash.

This Article takes that clock seriously and argues that limited life is foundational to the SPAC form: it disciplines sponsors by preventing indefinite warehousing of capital, reassures investors by guaranteeing liquidity, and makes the form marketable in the first place. A perpetual SPAC would be good for nobody.

At the same time, the SPAC clock distorts …

Corporate Climate Targets: Science, Discretion, And Climate-Washing, Nadav Orian Peer

Publications

The use of corporate climate targets has exploded in recent years and now encompasses many of the world's largest and most profitable companies. In a corporate climate target, a company voluntarily commits to reducing its emissions in line with climate science and the Paris Agreement. The broad adoption of these targets raises important questions: are these commitments truly aligned with science in the way they are advertised, or do they raise "climate-washing" concerns; i.e., do they exaggerate the benefits and significance of the climate targets? This Article investigates the role that science actually plays within targets and explores different types …

The Legitimation Of Shareholder Primacy, Ann Lipton

Publications

We are living in a polarized era, and corporate governance is no exception. With controversies raging over "environmental, social, governance," (ESG) investing, diversity, equity and inclusion initiatives, climate change as an investment concern, and even Elon Musk's pay package at Tesla, it seems as though corporate governance has never been so starkly divided along partisan lines.

The divisions have threatened to spill over to Delaware, the preferred jurisdiction for incorporation in the United States. Several high profile cases—including those involving Elon Musk—have called Delaware's neutrality into question. Commenters have argued that Delaware's newly politicized approach threatens to splinter the corporate …

When Business Is A Cult, Ann Lipton

Publications

No abstract provided.

Venture Capital And Financial Stability, Ann Lipton

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No abstract provided.

Of Chameleons And Esg, Ann Lipton

Publications

Ever since the rise of the great corporations in the late nineteenth and early twentieth centuries, commenters have debated whether firms should be run solely to benefit investors, or whether instead they should be run to benefit society as a whole. Both sides have claimed their preferred policies are necessary to maintain a capitalist system of private enterprise distinct from state institutions. What we can learn from the current iteration of the debate— now rebranded as "environmental, social, governance" or "ESG" investing— is that efforts to disentangle corporate governance from the regulatory state are futile; governmental regulation has an inevitable …

Will The Real Shareholder Primacy Please Stand Up?, Ann Lipton

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No abstract provided.

Every Billionaire Is A Policy Failure, Ann Lipton

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No abstract provided.

Inside Out (Or, One State To Rule Them All): New Challenges To The Internal Affairs Doctrine, Ann Lipton

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The internal affairs doctrine provides that the law of the organizing state will apply to matters pertaining to a business entity's internal governance, regardless of whether the entity has substantive ties to that jurisdiction. The internal affairs doctrine stands apart from other choice of law rules, which usually favor the jurisdiction with the greatest relationship to the dispute and limit parties' ability to select another jurisdiction's law. The doctrine is purportedly justified by business entities' unique need for a single set of rules to apply to governance matters, and by the efficiency gains that flow from allowing investors and managers …

Capital Discrimination, Ann Lipton

Publications

The law of business associations does not recognize gender. The rights and responsibilities imposed by states on business owners, directors, and officers do not vary based on whether the actors are male or female, and there is no explicit recognition of the influence of gender in the doctrine.

Sex and gender nonetheless may pervade business disputes. One co-owner may harass another co-owner; women equity holders may be forced out of the company; men may refuse to pay dividends to women shareholders.

In some contexts, courts do account for these dynamics, such as when married co-owners file for divorce. But business …

A Most Ingenious Paradox: Competition Vs. Coordination In Mutual Fund Policy, Ann Lipton

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No abstract provided.

Shareholder Primacy And The Moral Obligation Of Directors, Mark J. Loewenstein, Jay Geyer

Publications

One of the most written-about and important topics in corporate law is the fiduciary obligations of corporate directors. Increasingly, critics of American capitalism have urged that corporations, and implicitly, corporate directors, act in a more socially responsible fashion and thus eschew the notion that shareholder primacy is the exclusive guide to a director’s fiduciary duty. Under this view, directors must consider the effect of their actions on “stakeholders” other than shareholders and be guided by morality—doing the right thing—when making business judgments.

When directors move away from shareholder primacy, however, decision-making becomes more difficult and problematic. This article analyzes the …

Beyond Internal And External: A Taxonomy Of Mechanisms For Regulating Corporate Conduct, Ann Lipton

Publications

Corporate discourse often distinguishes between internal and external regulation of corporate behavior. The former refers to internal decisionmaking processes within corporations and the relationships between investors and corporate managers, and the latter refers to the substantive mandates and prohibitions that dictate how corporations must behave with respect to the rest of society. At the same time, most commenters would likely agree that these categories are too simplistic; relationships between investors and managers are often regulated with a view toward benefitting other stakeholders.

As a result, this Article will seek to develop a taxonomy of tactics available to, and used by, …

Not Everything Is About Investors: The Case For Mandatory Stakeholder Disclosure, Ann Lipton

Publications

Corporations are required to disclose specific types of information to the public, but only the federal securities laws impose generalized disclosure obligations that produce a holistic overview of corporate operations. While these disclosures are intended to benefit investors, they are accessible to anyone, and thus have long been relied upon by regulators, competitors, employees, and local communities to provide a working portrait of the country’s economic life.

Today, that system is breaking down. Congress and the SEC have made it easier for companies to raise capital without triggering securities reporting obligations, allowing modern businesses to grow to enormous proportions while …

Crowdfunding Issuers In The United States, Andrew A. Schwartz

Publications

Startup companies can now legally sell shares of stock, bonds, or other securities to the broad public using equity crowdfunding, a new type of online capital market modeled on Kickstarter and other reward crowdfunding websites. Through equity crowdfunding, entrepreneurs can go directly to the broad public (the “crowd”) for investment, without having to go through the usual (and costly) process of an initial public offering (IPO). Equity crowdfunding thus offers a chance for all entrepreneurs, regardless of their physical location, gender, or anything else, to solicit investors and raise capital.

In 2012, new federal legislation—the Jumpstart Our Business Startups (JOBS) …

Remutualization, Erik F. Gerding

Publications

Policymakers need to rediscover the organizational form of business entity as a tool of financial regulation. Recent and classic scholarship has produced evidence that financial institutions organized as alternative entity forms – including investment bank partnerships and banks and insurance companies organized as mutual or cooperatives – tend to take less risk, exploit customers/consumer less, or commit less misconduct compared to counterparts organized as investor-owned corporations. This article builds off the work of Hill and Painter on investment banks organized as partnerships, Hansmann on the history and economics of banks and insurance companies organized as mutuals and cooperatives, and other …

Pushing The Envelope: Salzberg V. Sciabacucchi And Delaware's Evolving View Of The Internal Affairs Doctrine, Mark J. Loewenstein

Publications

In January, 2020, the Delaware Supreme Court handed down its decision in Salzberg v. Sciabacucchi, upholding a provision in a certificate of incorporation that designated the federal courts as the exclusive jurisdiction for the litigation of claims under the federal Securities Act of 1933. The inclusion of these provisions in Delaware charters and bylaws – often referred to as “Federal Forum Provisions” or FFPs – raised important questions as to the reach of the internal affairs doctrine. This doctrine provides that the jurisdiction of incorporation regulates the internal affairs of its corporations: the relationship among and between the corporate …

After Corwin: Down The Controlling Shareholder Rabbit Hole, Ann Lipton

Publications

As Delaware has developed its doctrine with respect to controlling shareholders, its view of their relationship to directors has evolved. This evolution has produced some pronounced inconsistencies with respect to the weight placed on director approval of controlling shareholder action. The recent Delaware Supreme Court decisions in Corwin v. KKR Financial Holdings LLC, Kahn v. M & F Worldwide Corp., and C & J Energy Services, Inc. v. City of Miami General Employees’ and Sanitation Employees’ Retirement Trust introduced further uncertainty into the mix by making the determination as to whether a transaction involves a controlling shareholder practically outcome-determinative of …

What We Talk About When We Talk About Shareholder Primacy, Ann Lipton

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No abstract provided.

Negotiating The Lender Of Last Resort: The 1913 Federal Reserve Act As A Debate Over Credit Distribution, Nadav Orian Peer

Publications

“Lending of last resort” is one of the key powers of central banks. As a lender of last resort, the Federal Reserve (the “Fed”) famously supports commercial banks facing distressed liquidity conditions, thereby mitigating destabilizing bank runs. Less famously, lender-of-last-resort powers also influence the distribution of credit among different groups in society and therefore have high stakes for economic inequality. The Fed’s role as a lender of last resort witnessed an unprecedented expansion during the 2007–2009 Crisis when the Fed invoked emergency powers to lend to a new set of borrowers known as “shadow banks”. The decision proved controversial and …

Mens Rea Reform And Its Discontents, Benjamin Levin

Publications

This Article examines the debates over recent proposals for “mens rea reform.” The substantive criminal law has expanded dramatically, and legislators have criminalized a great deal of common conduct. Often, new criminal laws do not require that defendants know they are acting unlawfully. Mens rea reform proposals seek to address the problems of overcriminalization and unintentional offending by increasing the burden on prosecutors to prove a defendant’s culpable mental state. These proposals have been a staple of conservative-backed bills on criminal justice reform. Many on the left remain skeptical of mens rea reform and view it as a deregulatory vehicle …

The Evolution Of Entrepreneurial Finance: A New Typology, J. Brad Bernthal

Publications

There has been an explosion in new types of startup finance instruments. Whereas twenty years ago preferred stock dominated the field, startup companies and investors now use at least eight different instruments—six of which have only become widely used in the last decade. Legal scholars have yet to reflect upon the proliferation of instrument types in the aggregate. Notably missing is a way to organize instruments into a common framework that highlights their similarities and differences.

This Article makes four contributions. First, it catalogues the variety of startup investment forms. I describe novel instruments, such as revenue-based financing, which remain …

Shareholder Divorce Court, Ann Lipton

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No abstract provided.

(At Least) Thirteen Ways Of Looking At Election Lies, Helen Norton

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Lies take many forms. Because lies vary so greatly in their motivations and consequences (among many other qualities), philosophers have long sought to catalog them to help make sense of their diversity and complexity. Legal scholars too have classified lies in various ways to explain why we punish some and protect others. This symposium essay offers yet another taxonomy of lies, focusing specifically on election lies — that is, lies told during or about elections. We can divide and describe election lies in a wide variety of ways: by speaker, by motive, by subject matter, by audience, by means of …

Corporations As Conduits: A Cautionary Note About Regulating Hypotheticals, Douglas M. Spencer

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No abstract provided.

Reviving Reliance, Ann Lipton

Publications

This Article explores the misalignment between the disclosure requirements of the federal securities laws and the private causes of action available to investors to enforce those requirements.

Historically, federally mandated disclosures were designed to allow investors to set an appropriate price for publicly traded securities. Today's disclosures, however, also enable stockholders to participate in corporate governance and act as a check on managerial misbehavior. To enforce these requirements, investors' chief option is a claim under the general antifraud statute, section 10(b) of the Securities Exchange Act of 1934. But courts are deeply suspicious of investors' attempts to use the Act …

Family Loyalty: Mutual Fund Voting And Fiduciary Obligation, Ann Lipton

Publications

In recent years, institutional investors have increasingly come to dominate the market for publicly-traded stock. Mutual funds have become especially important, controlling trillions of dollars of corporate equity.

The United States Securities and Exchange Commission ("SEC") has made it clear that it is the fiduciary responsibility of fund administrators to vote their shares in a manner that benefits investors in the fund. Sponsoring companies have responded by creating centralized research offices that determine the voting policies across all the funds they administer. Though there may be some variation at the individual fund level, most fund families vote as a block. …

Responsible Resource Development And Prevention Of Sex Trafficking: Safeguarding Native Women And Children On The Fort Berthold Reservation, Kathleen Finn, Erica Gajda, Thomas Perin, Carla Fredericks

Publications

In 2010, large deposits of oil and natural gas were found in the Bakken shale formation, much of which is encompassed by the Fort Berthold Indian reservation, home to the Mandan, Hidatsa, and Arikara Nation (“MHA Nation” or “Three Affiliated Tribes” or “the Tribe”). However, rapid oil and gas development has brought an unprecedented rise of violent crime on and near the Fort Berthold reservation. Specifically, the influx of well-paid male oil and gas workers, living in temporary housing often referred to as “man camps,” has coincided with a disturbing increase in sex trafficking of Native women. The social risks …

Who Needs Contracts? Generalized Exchange Within Investment Accelerators, Brad Bernthal

Publications

This Article investigates why an expert volunteers on behalf of startups that participate in a novel type of small venture capital (“VC”) fund known as a mentor-driven investment accelerator (“MDIA”). A MDIA organizes a pool of seasoned individuals – called “mentors” – to help new companies. An obvi- ous organizational strategy would be to contract with mentors. Mentors in- stead voluntarily assist. Legal studies of norm-based exchanges do not explain what this Article calls the “mentorship conundrum”—i.e., the puzzling moti- vation of a mentor to volunteer within otherwise for-profit environments. This Article is the first to bridge the insights of …