Delaware for Small Fry: Jurisdictional Competition for Limited Liability Companies
Bruce H. Kobayashi
George Mason University - School of Law
Larry E. Ribstein (Deceased)
University of Illinois College of Law; PERC - Property and Environment Research Center
July 9, 2009
University of Illinois Law Review, Vol. 2011, No. 1, 2011
CELS 2009 4th Annual Conference on Empirical Legal Studies Paper
U Illinois Law & Economics Research Paper No. LE09-017
Most of the work on jurisdictional competition for business associations has focused on publicly held corporations and the factors that have led to Delaware’s dominant position in attracting out of state firms. Is there an analogous jurisdictional competition to attract formations by closely held firms? Limited liability companies (LLCs) offer a good opportunity to examine this question. Most LLC statutes have been adopted and changed rapidly during the past 20 years. Unlike general and limited partnerships, which have been shaped by uniform laws, LLC statutes vary significantly, and states have devoted a lot of effort to drafting their individual statues. This variation provides an opportunity to test the statutory provisions and other factors that influence LLC’s choice of where to organize. We find little evidence that firms choose to form outside their home state in order to take advantage of variations in statutory provisions. Instead, we find evidence that large LLCs, like large corporations, tend to form in Delaware, and that they do so for the many of the same reasons – that is, for the quality of Delaware’s legal system.
Number of Pages in PDF File: 54
JEL Classification: K12, O34, D72
Date posted: July 10, 2009 ; Last revised: January 26, 2011
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