Corporate & Securities Law

Delaware and the market for LLCs

Over at the Glom’s Junior Scholar Workshop Bob Lawless, Gordon Smith and I discuss Mahsen Manesh’s Delaware and the Market for LLC Law: A Theory of Contractibility and Legal Indeterminacy. This paper argues that Delaware’s lower, flatter charges for LLCs than for corporations indicate its lack of market power in the market for LLCs. Then he explains why Delaware has lower market power for LLCs: LLC law is more determinate than corporate law, so there’s less room for Delaware’s courts to work their distinctive magic for LLCs than for corporations.

As I discuss at the Glom, Manesh has it backward. Delaware does succeed in the market for LLCs (see my article with Kobayashi, Jurisdictional Competition for LLCs) because its law in the latter area is more determinate (see my Uncorporation and Corporate Indeterminacy), which fits the contractual nature of LLCs. LLCs flock to Delaware because of its unique contract-enforcement technology that other states cannot, or at least do not, replicate. My blog posts over the years (e.g.) illustrate this technology in action. Different competitive strategies can work for uncorporations than for corporations because the two types of business forms fundamentally differ regarding their reliance on contract (see my book, Rise of the Uncorporation).

So it’s great that Manesh sees the advantages of bringing LLCs into the previously corporate-dominated jurisdictional competition literature. I hope that he and others continue along this path. But as they embark on their journey they should bring some reading material along with them. Above are a few examples.

Full post as published by Truth on the Market on August 18, 2010 (boomark / email).