Making Do with Imperfect Law: Small Firms in France and Germany 1890-1935

Abstract

In 1892 Germany introduced a new legal form for enterprise, the Gesellschaft mit beschränkter Haftung or GmbH. This form was aimed at small and medium-sized enterprises that did not want to be partnerships but did not want to incorporate, either. To understand the value of this innovation we examine the takeup the GmbH in Germany. We then look at how French entrepreneurs in like industries solved their organizational problems. In 1926 France created a new legal form quite similar to the GmbH - the SARL, or Societe Anonyme a Responsabilite Limitee. The French, however, explicitly refused to copy the GmbH but rather created their own statute that appealed to bulk of small multi-owner firms. We then look at how German firms (who did not have access to the SARL) in like industries drew up their articles of association. Our preliminary conclusion is that while both the GmbH and the SARL were remedies to the most severe problems of partnerships and corporations, they differed sufficiently that they had two different constituencies. It is likely that had both forms been available in both countries both would have been used.