The Oxford Handbook of Corporate Law and Governance, Forthcoming
27 Pages Posted: 20 Feb 2016 Last revised: 19 Mar 2016
Date Written: February 18, 2016
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: 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