Business Organization and Corporate Issues Legal Resource Materials
Entrepreneurship Law Editorial Team
Frank H. Easterbrook & Daniel R. Fischel, THE ECONOMIC STRUCTURE OF CORPORATE LAW (1991).
Abstract (from Amazon Product Description):
The authors argue that the rules and practices of corporate law mimic contractual provisions that parties would reach if they bargained about every contingency at zero cost and flawlessly enforced their agreements. But bargaining and enforcement are costly, and corporate law provides the rules and an enforcement mechanism that govern relations among those who commit their capital to such ventures. The authors work out the reasons for supposing that this is the exclusive function of corporate law and the implications of this perspective.
Anthony Mancuso, THE CORPORATE RECORDS HANDBOOK: MEETINGS, MINUTES & RESOLUTIONS (2010).
Product Description (from Amazon): Provides forms you need to keep your corporation valid in the eyes of the IRS and courts. If you've taken the time to turn your business into a corporation, chances are you'd like to see it stay that way. Your business card may say "incorporated," but if the courts and the IRS think differently, its closing time. Because meeting minutes are the primary paper trail of a corporation's legal life, it's important to know when and how to prepare these minutes.
Joseph A. McCahery & Erik P.M. Vermeulen, CORPORATE GOVERNANCE OF NON-LISTED COMPANIES (2008).
Abstract (from product description at Amazon.com):
Studies of corporate governance traditionally focus on the governance problems of large publicly held firms, and policymakers' recommendations often focus on such firms. However most small firms, and in many countries, even many large companies, are closely held. This book provides a comprehensive account of closely held businesses and their particular governance problems. It explores current discussions and reforms in Europe, the United States, and Asia providing a state of the art account of the law and the economics. The governance of closely held companies has traditionally been concerned with protecting investors and creditors from managerial opportunism. However, the virtual elimination of the distinction between partnerships and corporations means that an effective legal governance framework must also offer mechanisms to protect shareholders from the misconduct of other shareholders. This volume examines policy and economic measurements to develop a framework for understanding what constitutes good governance in closely held companies. The authors examine how control is gained in the various types of closely held firms and explore the mechanisms that contribute to the development of a modern and efficient governance framework for these companies. The book concludes with an exploration of how the closely held firm is likely to stimulate growth and extend innovation and development.
Michael Spadaccini, Entrepreneur Magazine's Ultimate LLC Compliance Guide (2011).
Abstract (adapted from description on Amazon.com):
Mindful of the complications and numerous requirements that surround LLCs, Entrepreneur and Michael Spadaccini walk you through the details of what you need to know about your state's LLC act as well as the procedures for dealing with the extensive rules and regulations.
Turn to this go-to guide for complete definitions and explanations of all concepts surrounding LLCs and even a breakdown of the roles and responsibilities of owners and managers. You'll learn about LLC legal formalities, internal governance, record-keeping, vital LLC mechanics and more--all critical information that will allow you to spend less time researching procedures and more time running a successful business! Plus, use sample documents, checklists, resources, and forms to get a better grasp of the LLC process.
Cassady V. ("Cass") Brewer, A Novel Approach To Using LLCs For Quasi-charitable Endeavors (a/k/a "Social Enterprise"), 38 Wm. Mitchell L. Rev. 678 (2012).
(adapted from author):
This article sets forth a hypothetical social enterprise project in need of capital. It summarizes the principal advantages and disadvantages of using either a nonprofit entity or a for-profit entity to pursue the project. Finally, the article describes a new, proposed "contract hybrid" LLC structure that potentially reconciles the competing for-profit and nonprofit capital and other demands of the project.
Brian J. Broughman, The Role of Independent Directors in Startup Firms, 2010 Utah L. Rev. 461 (2010).
Abstract (from author):
This Article develops a new theory to explain the widespread use of independent directors in the governance of startup firms. Privately held startups often assign a tie-breaking board seat to a third-party independent director. This practice cannot be explained by the existing corporate governance literature, which relies on diffuse ownership and passive investment-features unique to the publicly traded firm. To develop an alternative theory, I model a financing contract between an entrepreneur and a venture capital investor. I show that allocating a tie- breaking vote to an unbiased third party can prevent opportunistic behavior that would occur if the firm were controlled by its entrepreneur or VC investor. Rather than monitoring management, independent directors in a startup firm "arbitrate" disputes between entrepreneurs and investors. Consistent with my theory, empirical data from Silicon Valley startups illustrate several mechanisms entrepreneurs and VCs use to select an unbiased independent director. My analysis has implications for corporate law, as it suggests that heightened fiduciary protections could undermine the role of the independent director in startup firms.
Claire Moore Dickerson, Informal-Sector Entrepreneurs, Development and Formal Law: A Functional Understanding of Business Law, 59 Am. J. Comp. L. 179 (2011).
This article argues that to truly support informal-sector entrepreneurs, a government must create and enforce laws that lead to predictable, stable business environment beyond laws that just regulate contract and business entities.Daniel S. Kleinberger, Sorting Through the Soup: How do LLCs, LLPs, and LLPs Fit Within the Regulations and Legal Doctrines?, Bus. L. Today 15, (Nov./Dec. 2003).
Ross B. Emmett, Frank H. Knight on the "Entrepreneur Function” in Modern Enterprise, 34 Seattle U. L. Rev. 1139 (2011).
Abstract (from author):
Frank Knight’s theory of the entrepreneurial function in modern enterprise is explored in two contexts. The first is the dismissal of the neoclassical theory of business enterprise by Berle and Means in The Modern Corporation and Private Property, and their subsequent call for measures that would ensure corporations acted in the social interest. The second context used to explore Knight’s theory of entrepreneurship is his later arguments regarding the problem of intelligent control in a democratic society. Underlying all of Knight’s work are his concerns about freedom and moral judgment in the midst of uncertainty, with the attendant problems commonly referred to today as the principal-agent problem and moral hazard. Knight argues that the entrepreneur personally absorbs these problems through his responsible direction of the modern enterprise; seen this way, profit is not just the return for bearing the risks of unknown consequences, but specifically for the courage to take up the challenge of organizing productive resources in the face of principal-agent and moral hazard problems. In the latter part of Risk, Uncertainty, and Profit, Knight argues that social functionaries are not entrepreneurs, and hence that democratic action will be plagued by principal-agent and moral hazard problems; a conclusion that much vexed him in his later ruminations on the fate of liberal democratic society. Were the authors to apply Knight’s insights to Berle and Means’ call for social control of the modern corporation, one could turn their argument around and ask: control by whom, for whose interest?
Roger M. Groves, New Age Athletes as Social Entrepreneurs: Proposing a Philanthropic Paradigm Shift and Creative Use of Limited Liability Company Joint Ventures, 11 Wake Forest J. Bus. & Intell. Prop. L. 213 (2011).
This article examines how former professional basketball players have been able to fund philanthropic projects in their communities. Through the use of different business organizations and tax strategies, they have been able to maximize the return on their brand of social entrepreneurship.
Jeffrey M. Hirsch, Employee or Entrepreneur?, 68 Wash. & Lee L. Rev 353 (2011).
This comment on Micah Jost’s Note, Independent Contractors, Employees, and Entrepreneurialism Under the National Labor Relations Act: A Worker-by-Worker Approach, 66 Wash. & Lee L. Rev. 311 (2011) was part of the Washington and Lee Law Alumni Association Student Notes Colloquium. In his Note, Jost addresses an increasingly problematic aspect of NLRA law: The ability and willingness of employers to exclude workers from coverage under the statute by classifying them as independent contractors. This problem has existed since the early days of the NLRA, but is worsening as a result of changes in the modern workplace. Adding fuel to this fire, and creating the impetus for Jost’s Note, is the D.C. Circuit’s new test that makes mere entrepreneurial opportunity the cornerstone of the employee/independent contractor analysis. This test defies both well-established precedent and the policies of the NLRA. Moreover, as Jost demonstrates, the common-law analysis - although superior to the D.C. Circuit’s formulation - is in dire need of reform itself. Ideally, this reform would be substantial, either through legislation or a new willingness by the Supreme Court to abandon a strict compliance with the common-law analysis. The result would hopefully produce a more flexible, policy- oriented definition of employee that - especially in combination with increased audits and penalties for misclassification, as well as more attempts to provide workers with the information and tools needed to challenge misclassifications - would better capture the type of employees that the NLRA was intended to cover. Only through such a change will the NLRA maintain relevance for a growing number of workers who look like employees but are now treated as independent contractors by their employers.
J. Haskell Murra & Edward I. Hwang, Purpose with Profit: Governance, Enforcement, Capital-Raising and Capital-Locking in Low-Profit Limited Liability Companies, 66 U. Miami L. Rev. 1 (2011).
Abstract (adapted from authors):
This article begins by considering the growing social enterprise movement, the limitations of existing legal forms in accommodating social enterprise, and the potential benefits of new legal entities to carry out simultaneous for-profit and nonprofit missions. It also examines how the Low-profit Limited Liability Company (L3C) legal form is structurally designed to overcome existing legal deficiencies and work within the existing business and legal landscape. Moreover, it addresses the concerns of the most strident faultfinders of the L3C and the policy implications of the continued adoption of L3C legislation. The article next compares and contrasts the seemingly conflicting fiduciary duties in the for-profit and not-for-profit areas, before moving on to propose a blended fiduciary framework for hybrid business forms, such as L3Cs. It submits that a company can have multiple purposes, but can have only one primary master. While deviations from the path should be allowed under the business judgment rule, the authors submit that managers of L3Cs should focus primarily on the organization's “charitable purpose.” Similar to the rights of members of profit-focused LLCs, the authors believe that members of L3Cs should have standing to sue for a breach of fiduciary duty by the entities' managers. Finally, the article examines the capital-raising and profit-payout puzzles faced by L3Cs and largely unaddressed by early commentators on the L3C form. The article concludes that while traditional profit-focused investors may not be well suited for investment in L3Cs, the L3C form is still viable.
Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer & Robert W. Vishny, Law and Finance, 106 J. Political Economy 1113 (1998).
Larry E. Ribsein, The Emergence of the Limited Liability Company, 51 Bus. Law. 1 (1995).
Abstract: Three years ago, The Business Lawyer published the first comprehensive survey of the law relating to limited liability companies (LLCs), The Limited Liability Company: A Study of the Emerging Entity. When that article was written, only eight states had passed LLC statutes. There was no settled model for the LLC, no settled tax treatment beyond the rudimentary partnership tax classification of some Wyoming LLCs, and no clear recognition of LLCs outside of their formation states. "Emerging" aptly described the LLC form.
Bill Mann, Dual-Class Shares, Second Class Investors, Motley Fool (Apr. 14, 2004).