Where are Limited Liability Companies Formed? An Empirical Analysis

37 Pages Posted: 30 Apr 2008 Last revised: 5 May 2008

See all articles by Jens Dammann

Jens Dammann

University of Texas at Austin - School of Law; European Corporate Governance Institute (ECGI)

Matthias Schundeln

Goethe University Frankfurt

Multiple version iconThere are 2 versions of this paper

Date Written: April 28, 2008


We empirically study the incorporation choices or, more accurately: formation choice, of limited liability companies. Most of the firms in our large sample of more than 64,000 limited liability companies are formed in the state where their principal place of business is located (the PPB state). As their size increases, however, firms become more likely to be formed outside that state, with Delaware emerging as the primary destination for those that are not formed in the PPB state. In particular, of those firms that have 1,000 or more employees, roughly half are formed outside their home state, and of the latter, more than 80% are formed in Delaware.

We show that substantive law matters to the formation choices of closely held limited liability companies. More specifically, limited liability companies appear to be migrating away from those states that offer lower levels of protection for minority investors: We find statistically significant evidence that firms are less likely to be formed in their PPB state if the latter offers relatively lenient rules on managerial liability or if it allows companies to be dissolved via a less than unanimous resolution of the members.

Keywords: incorporation, market for corporate law, limited liability company, LLC, regulatory competition, Centros, formation, race to the bottom, race to the top, Cary, fiduciary duties, oppression, dissolution, veil-piercing, veil, courts

JEL Classification: G30, G38, H70, K22

Suggested Citation

Dammann, Jens and Schundeln, Matthias, Where are Limited Liability Companies Formed? An Empirical Analysis (April 28, 2008). U of Texas Law, Law and Econ Research Paper No. 126, 3rd Annual Conference on Empirical Legal Studies Papers, Available at SSRN: https://ssrn.com/abstract=1126257 or http://dx.doi.org/10.2139/ssrn.1126257

Jens Dammann (Contact Author)

University of Texas at Austin - School of Law ( email )

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Austin, TX 78705
United States

European Corporate Governance Institute (ECGI) ( email )

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1000 Brussels

HOME PAGE: http://https://ecgi.global/users/jens-dammann

Matthias Schundeln

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323

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