Where are Limited Liability Companies Formed? An Empirical Analysis

Univ. of Texas School of Law, Law and Economics Research Paper No. 126

5th Annual Conference on Empirical Legal Studies Paper

56 Pages Posted: 4 Jul 2010

See all articles by Jens Dammann

Jens Dammann

University of Texas at Austin - School of Law

Matthias Schundeln

Goethe University Frankfurt

Multiple version iconThere are 2 versions of this paper

Date Written: June 28, 2010

Abstract

We empirically study the formation state choices of limited liability companies. Most of the firms in our large sample of almost 20,000 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.

We also demonstrate that substantive law matters to the formation state choices of closely held limited liability companies. To some extent, limited liability companies appear to be migrating away from states that offer lax norms on minority investor protection: We find statistically significant evidence that firms are less likely to be formed in their PPB if that state has failed to adopt a so-called oppression statute. The law on veil piercing also seems to play a role. Limited liability companies are more likely to be formed locally, if the law of their PPB provides that the failure to follow formalities shall not be a ground for piercing the veil.

In addition to contributing to the debate on regulatory competition in the law of limited liability companies, this paper also has implications for a number of other theoretical debates pertaining to choice of law in veil piercing cases, the role of default rules, and the relationship between corporations and limited liability companies.

Keywords: limited liability company, LLC, regulatory competition, Delaware

JEL Classification: G30, G38, H70, K22

Suggested Citation

Dammann, Jens and Schundeln, Matthias, Where are Limited Liability Companies Formed? An Empirical Analysis (June 28, 2010). Univ. of Texas School of Law, Law and Economics Research Paper No. 126; 5th Annual Conference on Empirical Legal Studies Paper. Available at SSRN: https://ssrn.com/abstract=1633472 or http://dx.doi.org/10.2139/ssrn.1633472

Jens Dammann (Contact Author)

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

727 East Dean Keeton Street
Austin, TX 78705
United States

Matthias Schundeln

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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