External and Internal Asset Partitioning: Corporations and Their Subsidiaries

The Oxford Handbook of Corporate Law and Governance, Forthcoming

Yale Law & Economics Research Paper No. 535

27 Pages Posted: 20 Feb 2016 Last revised: 19 Mar 2016

Henry Hansmann

Yale Law School; European Corporate Governance Institute (ECGI)

Richard Squire

Fordham University School of Law

Date Written: February 18, 2016

Abstract

This chapter analyzes the economic consequences of external and internal asset partitioning, and it considers implications of this analysis for creditor remedies. External partitioning refers to the legal boundaries between business firms and their equity investors, while internal partitioning refers to the legal boundaries within corporate groups. The chapter begins by cataloguing the benefits and costs of corporate partitioning; it then employs this catalogue to analyze the relative economics of external and internal partitioning. Non-partitioning functions of subsidiaries also are identified. The chapter then considers whether cost-benefit analysis predicts how courts actually apply de-partitioning remedies, with particular emphasis on veil piercing and enterprise liability. The chapter concludes by arguing that courts should employ the distinction between external and internal partitioning when applying creditor remedies that disregard corporate partitions, and it identifies factors — in addition to whether a partition is internal or external — that courts should consider when deciding whether to de-partition.

Keywords: asset partitioning, corporations, subsidiaries, corporate groups, external partitioning, internal partitioning, creditor remedies, veil piercing, enterprise liability

JEL Classification: G33, G35, K22

Suggested Citation

Hansmann, Henry and Squire, Richard, External and Internal Asset Partitioning: Corporations and Their Subsidiaries (February 18, 2016). The Oxford Handbook of Corporate Law and Governance, Forthcoming; Yale Law & Economics Research Paper No. 535. Available at SSRN: https://ssrn.com/abstract=2733862

Henry Hansmann

Yale Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States
203-432-4966 (Phone)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Richard C. Squire (Contact Author)

Fordham University School of Law ( email )

150 West 62nd Street
New York, NY 10023
United States
212-964-1584 (Phone)

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