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This article suggests a shift in how we think about agency. The essential function of agency law lies not in enabling the delegation of authority, as is widely suggested, but more significantly in its effect on creditors' rights through asset partitioning. Most of what agency law does in commerce could be accomplished through standard-form contracts, providing default terms for the relationships among firms, their managers, and third parties. Even agency's much-vaunted fiduciary duties are easily altered or waived by contract. This article identifies the role agency law plays that parties could not contractually replicate. This role is asset partitioning: Just as limited liability and organizational law partition off the assets of a firm's owners from the assets of the firm itself, agency law partitions off the assets and liabilities of a firm's managers from the firm's own assets. Asset partitioning shows that whether owners or managers should be liable for a firm's unpaid contracts is not a win-lose distributional question, but can be socially efficient. Through simplifying and specializing asset pools, asset partitioning lowers the cost of monitoring the firm's assets and thus the cost of credit. More generally, legal personality enables the parties that control a firm (its owners and managers) to contribute financial and human capital to the firm, while maintaining a separation between their assets and liabilities and the assets and liabilities of the firm itself.
Corporate law and governance are at the forefront of regulatory activities worldwide, and subject to increasing public attention in the wake of the Global Financial Crisis. Comprehensively referencing the key debates, the Handbook provides a much-needed framework for understanding the aims and methods of legal research in the field.
Jensen amp; Meckling's agency theory represented the predominant analytical tool in scrutinizing the institutions of corporate governance during the last decades. While most of the literature focused on the corporate form, far less attention has been paid to the agency conflicts predetermining the governance structure of partnerships. The typical unity of ownership and control draws attention to the cardinal conflict between partners and creditors (broadly understood as all agents engaging in deferred exchanges with the partnership).The law of partnership across jurisdictions facilitates the separation of asset pools and consequently allows for partner opportunism vis-agrave;-vis the firm's creditors. Joint and several liability which marks a common feature of the law of partnership in major legal systems constitutes a transaction cost reducing mechanism to contain partner opportunism. It internalizes the costs of asset diversion, claim dilution and risk enhancement. Its main function is to incentives equity holders accurately (not to insure creditors fully). Yet, under certain preconditions, the coarse tool of unattenuated personal liability renders the partnership form unattractive. This paper delineates the relative benefits and costs that figure in determining the efficiency of using either partnership or corporate law as standard contracts in firm organization. Historical and current data indicates that the divide does not necessarily equal the small firm/large firm distinction but flows from the firms' ownership structure and financing needs. It is also endogenously determined by the costs of incorporation that vary across jurisdictions.
Providing an economic account of why trusts exist and how trust law should be shaped, this book explains the economic benefits of trusts as an extension of the law of property, arguing against accounts of trusts law grounded in the law of personal obligations. The theoretical model is then used to criticise recent developments in the law.
This is the long-awaited third edition of this highly regarded comparative overview of corporate law. This edition has been comprehensively revised and updated to reflect the profound changes in corporate law and governance practices that have taken place since the previous edition. These include numerous regulatory changes following the financial crisis of 2007-09 and the changing landscape of governance, especially in the US, with the ever more central role of institutional investors as (active) owners of corporations. The geographic scope of the coverage has been broadened to include an important emerging economy, Brazil. In addition, the book now incorporates analysis of the burgeoning use of corporate law to protect the interests of "external constituencies" without any contractual relationship to a company, in an attempt to tackle broader social and economic problems. The authors start from the premise that corporations (or companies) in all jurisdictions share the same key legal attributes: legal personality, limited liability, delegated management, transferable shares, and investor ownership. Businesses using the corporate form give rise to three basic types of agency problems: those between managers and shareholders as a class; controlling shareholders and minority shareholders; and shareholders as a class and other corporate constituencies, such as corporate creditors and employees. After identifying the common set of legal strategies used to address these agency problems and discussing their interaction with enforcement institutions, The Anatomy of Corporate Law illustrates how a number of core jurisdictions around the world deploy such strategies. In so doing, the book highlights the many commonalities across jurisdictions and reflects on the reasons why they may differ on specific issues. The analysis covers the basic governance structure of the corporation, including the powers of the board of directors and the shareholder meeting, both when management and when a dominant shareholder is in control. It then analyses the role of corporate law in shaping labor relationships, protection of external stakeholders, relationships with creditors, related-party transactions, fundamental corporate actions such as mergers and charter amendments, takeovers, and the regulation of capital markets. The Anatomy of Corporate Law has established itself as the leading book in the field of comparative corporate law. Across the world, students and scholars at various stages in their careers, from undergraduate law students to well-established authorities in the field, routinely consult this book as a starting point for their inquiries.
Taking stock of the quiet revolution that has taken place in the field of organizational law over the last few decades, this erudite Research Agenda presents a critical overview of the current state of organizational law and explores the increasingly flexible structures and capabilities of modern organizations.
Professor Cheffins' lecture offers a path-breaking examination of potential trajectories for legal scholarship. Considerable attention is devoted to academic writing on law, but little has been said about the process by which the relevant literature evolves. This lecture focuses directly on the evolution of legal scholarship. It identifies five potential trajectories, revolving around concepts such as 'progress', 'paradigms', the marketplace for ideas, intellectual cycles, and fads and fashions. Professor Cheffins offers a summary of each trajectory and then tests the propositions he has advanced by means of a case study dealing with corporate law. He argues that scholarly trends in law develop in a manner that is at least partially consistent with each of the trajectories he identifies, but acknowledges that none captures fully the dynamics at work.