Close Corporation Remedies and the Evolution of the Closely Held Firm

28 Pages Posted: 16 Nov 2010 Last revised: 13 Mar 2011

Larry E. Ribstein

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

Date Written: November 16, 2010

Abstract

This paper examines the law of closely held firms from an evolutionary perspective. The corporate tax and constraints on the availability of limited liability forced closely held firms to compromise their planning objectives and choose standard forms that did not fully reflect their needs. This forced courts to construct duties and remedies that did not relate to the parties' contracts. The famous close corporation case of Wilkes v. Springside Nursing Home, Inc. classically illustrates this problem. The advent and spread of the limited liability company significantly increased the availability of suitable standard forms for closely held firms. As a result, courts now can focus on fully effectuating the parties’ contracts rather than creating remedies the parties may not have wanted. This analysis has implications for potential improvements in contracting for closely held firms.

JEL Classification: K22

Suggested Citation

Ribstein, Larry E., Close Corporation Remedies and the Evolution of the Closely Held Firm (November 16, 2010). Western New England Law Review, Forthcoming; Illinois Program in Law, Behavior and Social Science Paper No. LBSS10-03 ; Illinois Public Law Research Paper No. 10-21. Available at SSRN: https://ssrn.com/abstract=1710006

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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