Law and the Rise of the Firm
Posted: 9 Nov 2009
There are 3 versions of this paper
Law and the Rise of the Firm
Law and the Rise of the Firm
Date Written: 2006
Abstract
This study elucidates the origins of entityshielding, a term that refers to rules that protect a firm's assets from thepersonal creditors of its owners. Following a discussion of the economicbenefits and costs of entity shielding, a survey of four Western commercialsocieties (ancient Rome, medieval and Renaissance Italy, early modern England,and the contemporary United States) is conducted in order to trace theevolution of entity shielding. Although Roman law used entity shielding sparingly, medieval Italy embracedweak entity shielding while resisting strong shielding for general-purposecommercial firms due to cost factors. In seventeenth-century England, theexpanding jurisdiction of nationwide courts andthe development ofpartnership and trust law led to the rise of entity shielding under Englishlaw. In the United States today, a confluence of legal, accounting, and valuationdevelopments has made the costs of protecting creditors and owners manageablefor even the smallest limited liability companies and closely heldcorporations. Clearly, cost factors have played a prominent role in thedevelopment of entity shielding throughout Western history.(SAA)
Keywords: Legal protection, Limited liability companies (LLC), Asset management, Firm ownership, Legal systems
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