Delaware for Small Fry: Jurisdictional Competition for Limited Liability Companies

54 Pages Posted: 10 Jul 2009 Last revised: 26 Jan 2011

Bruce H. Kobayashi

George Mason University - School of Law

Larry E. Ribstein

University of Illinois College of Law (deceased); PERC - Property and Environment Research Center

Date Written: July 9, 2009

Abstract

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.

JEL Classification: K12, O34, D72

Suggested Citation

Kobayashi, Bruce H. and Ribstein, Larry E., Delaware for Small Fry: Jurisdictional Competition for Limited Liability Companies (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. Available at SSRN: https://ssrn.com/abstract=1431989

Bruce H. Kobayashi

George Mason University - School of Law ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States
703-993-8034 (Phone)
703-993-8088 (Fax)

HOME PAGE: http://mason.gmu.edu/~bkobayas

Larry Edward Ribstein (Contact Author)

University of Illinois College of Law (deceased)

PERC - Property and Environment Research Center

2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States

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