'Business Organization in the Long Run: Private Limited Companies Rule!'

72 Pages Posted: 23 Nov 2016

See all articles by Timothy W. Guinnane

Timothy W. Guinnane

Yale University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Ron Harris

Tel Aviv University - Buchmann Faculty of Law

Naomi R. Lamoreaux

National Bureau of Economic Research (NBER); Yale University

Jean-Laurent Rosenthal

Caltech; California Institute of Technology (Caltech) - Division of the Humanities and Social Sciences

Date Written: June 27, 2006

Abstract

A long tradition in the economics, corporate law, and corporate finance literatures presumes the general superiority of the corporation as a form of business organization. A more recent tradition claims that countries with Anglo-American legal systems afford investors greater protection than countries with civil-law systems. This article challenges both claims. We focus on the introduction of the private limited-liability company (the PLLC) in France, Germany, the United Kingdom, and the United States in the late nineteenth and twentieth centuries. The PLLC combined the advantages of legal personhood and joint stock with flexible internal governance rules. It allowed business people to avoid the threat of untimely dissolution inherent in partnerships without taking on the full danger of minority oppression that came with the corporation. The PLLC was successfully introduced first in Germany, a code country, and last in the US, a common-law country whose courts had effectively killed earlier attempts to enact the form. Using data on the number of firms organized under various enterprise forms, we show that the PLLC became the form of choice for small- and medium-size enterprises wherever it was introduced, even in countries where incorporation was cheap and easy and the regulatory burden on corporations was light.

Suggested Citation

Guinnane, Timothy W. and Harris, Ron and Lamoreaux, Naomi R. and Lamoreaux, Naomi R. and Rosenthal, Jean-Laurent and Rosenthal, Jean-Laurent, 'Business Organization in the Long Run: Private Limited Companies Rule!' (June 27, 2006). Available at SSRN: https://ssrn.com/abstract=2874783 or http://dx.doi.org/10.2139/ssrn.2874783

Timothy W. Guinnane

Yale University - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States
(203) 432-3616 (Phone)
(203) 432-3898 (Fax)

HOME PAGE: http://sites.google.com/site/timothywguinnanec/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Ron Harris (Contact Author)

Tel Aviv University - Buchmann Faculty of Law ( email )

Ramat Aviv
Tel Aviv, 69978
Israel
972 3 6408798 (Phone)
972 3 6407260 (Fax)

HOME PAGE: http://www2.tau.ac.il/Person/law/researcher.asp?id=agihecicf

Naomi R. Lamoreaux

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yale University ( email )

27 Hillhouse
New Haven, CT 06520
United States
2034323625 (Phone)

HOME PAGE: http://www.econ.yale.edu/faculty1/lamoreaux.htm

Jean-Laurent Rosenthal

California Institute of Technology (Caltech) - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
Pasadena, CA 91125
United States

Caltech ( email )

Pasadena, CA 91125
United States
626-395-4058 (Phone)

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