Contracting Over Private Benefits of Control

8 Pages Posted: 25 Sep 2012

See all articles by Andreas Engert

Andreas Engert

Freie Universität Berlin, Department of Law; European Corporate Governance Institute (ECGI)

Date Written: September 24, 2012


In this comment on Professors Gilson’s and Schwartz’ paper “Constraints on private benefits of control: Ex ante control mechanisms versus ex post transaction review,” I consider their proposal to permit contractual arrangements over private benefits of control (PBC) obtained by controlling shareholders. I argue that PBC can be efficient for two reasons: (1) as a reward for bearing idiosyncratic risk and acting as corporate monitor and (2) as a gain from synergetic, value-enhancing transactions with the corporation. Contracting over PBC can enhance the controlling shareholder’s incentive to pursue valuable projects. To preclude an adverse selection of high-PBC projects, contractual freedom should not extend to the price terms of self-dealing transactions.

Keywords: private benefits of control, shareholder fiduciary duties, corporate group

JEL Classification: K12, K22

Suggested Citation

Engert, Andreas, Contracting Over Private Benefits of Control (September 24, 2012). Available at SSRN: or

Andreas Engert (Contact Author)

Freie Universität Berlin, Department of Law ( email )

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Berlin, 14195

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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