Putting the Corporation in its Place

Posted: 30 Jun 2008

See all articles by Timothy W. Guinnane

Timothy W. Guinnane

Yale University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Ron Harris

Tel Aviv University - Buchmann Faculty of Law

Naomi R. Lamoreaux

Yale University; National Bureau of Economic Research (NBER)

Jean-Laurent Rosenthal

University of California, Los Angeles (UCLA) - Department of Economics

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Abstract

This article challenges the idea that the corporation is a globally superior form of business organization and that the Anglo-American common-law is more conducive to economic development than the code-based legal systems characteristic of continental Europe. Although the corporation had important advantages over the main alternative form of organization (partnerships), it also had disadvantages that limited its appeal to small- and medium-sized enterprises (SMEs). As a result, when businesses were provided with an intermediate choice, the private limited liability company (PLLC) that combined the advantages of legal personhood and joint stock with a flexible internal organizational structure, most chose not to organize as corporations. This article tracks the changes that occurred in the menu of business organizational forms in two common-law countries (the United Kingdom and the United States) and two countries governed by legal codes (France and Germany) and presents data showing the rapidity with which firms in each country responded to enabling legislation for PLLCs. We show that the PLLC was introduced first and most easily in a code country (Germany) and last and with the most difficulty in a common-law country (the United States). Late introduction was associated with prolonged use of the partnership form, suggesting that the disadvantages of corporations did indeed weigh heavily on SMEs.

Suggested Citation

Guinnane, Timothy W. and Harris, Ron and Lamoreaux, Naomi R. and Rosenthal, Jean-Laurent, Putting the Corporation in its Place. Enterprise and Society, Vol. 8, No. 3, pp. 687-729, 2007. Available at SSRN: https://ssrn.com/abstract=1152576 or http://dx.doi.org/10.1093/es/khm067

Timothy W. Guinnane (Contact Author)

Yale University - Department of Economics ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Germany

Ron Harris

Tel Aviv University - Buchmann Faculty of Law ( email )

Ramat Aviv
Tel Aviv 69978, IL
Israel
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972 3 6407260 (Fax)

HOME PAGE: http://www2.tau.ac.il/Person/law/researcher.asp?id=agihecicf

Naomi R. Lamoreaux

Yale University ( email )

27 Hillhouse
New Haven, CT 06520
United States
2034323625 (Phone)

HOME PAGE: http://www.econ.yale.edu/faculty1/lamoreaux.htm

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Jean-Laurent Rosenthal

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
Los Angeles, CA 90095-1477
United States

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