CLOSE CORPORATION REMEDIES AND THE EVOLUTION OF THE CLOSELY HELD FIRM

This Article discusses the coming of age of small firms in three distinct stages marked by important legal developments which reduced small firms’ contracting costs and increased their opportunity to adopt suitable agreements. In the first stage, most closely held firms were general partnerships, a form that is designed for the smallest firms. In the second stage, the growing importance of limited liability caused many small firms to incorporate while keeping their partnership characteristics. Wilkes v. Springside Nursing Home, Inc., shows that this was an unhappy compromise that necessitated judicial intervention into the parties’ contracts. While courts and legislatures loosened the constraints on the close corporation form, this loosening did little to help firms like the nursing home in Wilkes because it required small firms to do costly planning in order to remodel the corporate form to suit their needs. The application of the corporate tax to corporate-like firms deterred firms and legislatures from taking the logical step of adopting limited liability business forms designed for partnership-type firms. The third stage was heralded by the adoption of “check-thebox” taxation, which finally eliminated the tax constraints on small firms’ choice of business form. This change opened the floodgates for the limited liability company (LLC), which proved to be the flexible limited liability form small firms were looking for. Small firms could have the contracts they wanted without tax concerns. This reduced the need for judicial interference in the governance of closely held firms and led to the application of more contract-based judicial remedies. The next step is up to lawyers, courts, and legislatures. Lawyers need to help their clients take advantage of the planning flexibility the law now gives them. Courts should more explicitly recognize the contractual nature of remedies for oppression and deadlock. Public and private lawmakers need to provide business people with a more complete set of standard forms. This Article begins by discussing the small firm’s infancy as a general partnership, whose default rules suited only the very smallest firms. Part II discusses the small firm’s adolescence in the era of the close corporation, when firms had to choose between limited liability and the contractual freedom available to general partnerships. Part III discusses the small firm’s adulthood as limited liability companies, with the ability to choose from a range of standard forms and state laws. The Article then shows how this evolution of business forms has affected judicial dissolution remedies in recent LLC cases. Part V discusses the implications of potential future evolution in small firms’ contracting technology

Statutory Forms for Closely Held Firms: Theories and Evidence from LLCs

Part II discusses a tax/regulation hypothesis under which tax and regulatory statutes shape business association statutes. Part III discusses an inefficiency hypothesis under which the public choice dynamics of legislatures, imperfect jurisdictional competition, and inherent constraints on the development of new standard forms prevent the development of efficient statutory standard forms. Part IV then analyzes these theories of LLCs in light of the actual development of LLCs. Part V concludes and discusses some public policy implications of the theories and evidence set forth in this Article

Linking Statutory Forms

Business association statutes may be linked in that rules from one statute are applied to a business form created under another statute; for example, the Uniform Partnership Act, the Uniform Limited Partnership Act and the Revised Uniform Limited Partnership Act provide that general partnership provisions apply to limited partnerships. An evaluation of this linkage is presented

How do Securities Laws Influence Affect, Happiness, & Trust?

This Article advocates that securities regulators promulgate rules based upon taking into consideration their impacts upon investors\u27 and others\u27 affect, happiness, and trust. Examples of these impacts are consumer optimism, financial stress, anxiety over how thoroughly securities regulators deliberate over proposed rules, investor confidence in securities disclosures, market exuberance, social moods, and subjective well-being. These variables affect and are affected by traditional financial variables, such as consumer debt, expenditures, and wealth; corporate investment; initial public offerings; and securities market demand, liquidity, prices, supply, and volume. This Article proposes that securities regulators can and should evaluate rules based upon measures of affect, happiness, and trust in addition to standard observable financial variables. This Article concludes that the organic statutes of the United States Securities and Exchange Commission are indeterminate despite mandating that federal securities laws consider efficiency among other goals. This Article illustrates analysis of affective impacts of these financial regulatory policies: mandatory securities disclosures; gun-jumping rules for publicly registered offerings; financial education or literacy campaigns; statutory or judicial default rules and menus; and continual reassessment and revision of rules. These regulatory policies impact and are impacted by investors\u27 and other people\u27s affect, happiness, and trust. Thus, securities regulators can and should evaluate such affective impacts to design effective legal policy

Lawyers as Lawmakers: A Theory of Lawyer Licensing

Existing explanation of lawyer licensing focusing on the need to ensure lawyer quality are unconvincing. A license to a practice is a dubious signal of quality, the licensing requirement restricts the availability of legal services, and state licensing is subject to political capture by lawyers. There criticisms of lawyer licensing laws are increasingly important as the current system is threatened by changes in the legal services market and increased federal regulation of the legal profession. It is, therefore, time to reexamine the theory underlying the state licensing system. This Article provides an alternative rational for state licensing requirements. Lawyer licensing encourages lawyers to participate in lawmaking by capitalizing the benefits of their law-improvement effort in the value of the law license. In other words, the license gives lawyers a kind of property right in state law. State competition gives lawyers an incentive to favor welfare-maximizing state laws that make the state attractive as a location for businesses and a forum for litigation. This theory has important implication for both federalism and the scope and nature of lawyer licensing requirements

Incorporating the Hendricksons

In this Essay, the author presents the differences between domestic and business partnerships and the potential problems that may arise in combining the two. It states that in both domestic and business association, standard forms are beneficial in the clarification of the relationships of the parties and in increasing opportunities. The author discusses the differences between the said partnerships, which include the manner which they are formed, management, and the fiduciary duties of their respective members