Enterprise without Entities

56 Pages Posted: 27 Jul 2016 Last revised: 10 Nov 2017

See all articles by Andrew Verstein

Andrew Verstein

University of California, Los Angeles (UCLA) - School of Law

Date Written: February 20, 2017


Scholars and practicing lawyers alike consider legal entities to be essential. Who can imagine running a large business without using a business organization, such as a corporation or partnership? This Article challenges conventional wisdom by showing that vast enterprises – with millions of customers paying trillions of dollars – often operate without any meaningful use of an entity.

This Article introduces the reciprocal exchange, a type of insurance company that operates without any meaningful use of a legal entity. Instead of obtaining their insurance from a common nexus of contract, customers directly insure one another through a web of countless bilateral agreements. While often overlooked or conflated with mutual insurance companies, reciprocal exchanges include some of America’s largest and best known insurance enterprises.

This Article explores how it is possible to run an international conglomerate with essentially no recourse to organizational law as it is normally conceived, and then draws out the important implications of these findings. The viability of reciprocal exchanges stands as a powerful foil to the academic consensus that legal entities are somehow essential, while nevertheless validating the underlying logic that led scholars to elevate entities in the first place.

Keywords: Insurance, Entity Shielding, Limited Liability, Legal Entities, Reciprocal Exchange, Theory of the Firm, Agency, Authority, Concession Theory, Corporations, Partnerships, Companies, Inter-exchange, Islamic Finance, P2P, Disintermediation, Airbnb, Uber, Transaction Costs

JEL Classification: L22, K22, G33, G32, D23, O30, G22

Suggested Citation

Verstein, Andrew, Enterprise without Entities (February 20, 2017). Michigan Law Review, Vol. 116, No. 2, 2017, Available at SSRN: https://ssrn.com/abstract=2813777 or http://dx.doi.org/10.2139/ssrn.2813777

Andrew Verstein (Contact Author)

University of California, Los Angeles (UCLA) - School of Law ( email )

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