The Uncorporation and Corporate Indeterminacy

Abstract

William Carney and George Shepherd argue that Delaware's success in corporate law is a "mystery" when one considers the high transaction costs engendered by the indeterminacy and instability of Delaware law. This paper shows that the mystery is clarified by analyzing Delaware law on "uncorporate" cases - that is, limited partnerships and limited liability companies. In this setting, parties can rely on specific contractual incentive and disciplinary devices rather than on open-ended fiduciary duties. Delaware lawmakers provide substantial coherence by focusing on the parties' contracts. It follows that the problems of Delaware law seem to be mainly a function of the corporation rather than of Delaware lawmakers.

JEL Classification: H77, K10, K20, K22, K41