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Foundations of Corporate Law

39 Pages Posted: 26 Jan 2017 Last revised: 6 Jun 2017

John Armour

University of Oxford - Faculty of Law; University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Henry Hansmann

Yale Law School; European Corporate Governance Institute (ECGI)

Reinier Kraakman

Harvard Law School; European Corporate Governance Institute

Mariana Pargendler

Fundação Getulio Vargas Law School at São Paulo; New York University School of Law

Date Written: January 25, 2017

Abstract

This paper is the first chapter of the third edition of The Anatomy of Corporate Law: A Comparative and Functional Approach, by Reinier Kraakman, John Armour, Paul Davies, Luca Enriques, Henry Hansmann, Gerard Hertig, Klaus Hopt, Hideki Kanda Mariana Pargendler, Georg Ringe, and Edward Rock (Oxford University Press, 2017). The book as a whole provides a functional analysis of corporate (or company) law in Europe, the U.S., and Japan. Its organization reflects the structure of corporate law across all jurisdictions, while individual chapters explore the diversity of jurisdictional approaches to the common problems of corporate law. In its third edition, the book has been significantly revised and expanded.

As the introductory chapter to the book, this paper introduces the book’s analytic framework, which focuses on the common structure of corporate law across different jurisdictions as a response to fundamentally similar legal and economic problems. It first details the economic importance of the corporate form’s hallmark features: legal personality, limited liability, transferable shares, delegated management, and investor ownership. The major agency problems that attend the corporate form and that, therefore, must be addressed, are identified. The chapter next considers the role of law and contract in structuring corporate affairs, including the function of mandatory and default rules, standard forms, and choice of law, as well the debate about the proper role of corporate law in promoting overall social welfare. While almost all legal systems retain the core features of the corporate form, individual jurisdictions have made distinct choices regarding many other aspects of their corporate laws. The forces shaping the development of corporate law, including evolving patterns of share ownership, are examined.

Keywords: Legal Personality; Limited Liability; Transferable Shares; Delegated Management; Investor Ownership; Agency Problems; Default and Mandatory Rules; Choice of Law; Share Ownership

JEL Classification: D23, G32, G34, G38, K22, M14

Suggested Citation

Armour, John and Hansmann, Henry and Kraakman, Reinier and Pargendler, Mariana, Foundations of Corporate Law (January 25, 2017). FGV Direito SP Research Paper Series No. 147; European Corporate Governance Institute (ECGI) - Law Working Paper No. 336/2017. Available at SSRN: https://ssrn.com/abstract=2906054 or http://dx.doi.org/10.2139/ssrn.2906054

John Armour (Contact Author)

University of Oxford - Faculty of Law ( email )

Oriel College
Oxford, OX1 4EW
United Kingdom
+44 1865 286544 (Phone)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

European Corporate Governance Institute (ECGI) ( email )

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

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

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

Reinier Kraakman

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States
617-496-3586 (Phone)
617-496-6118 (Fax)

European Corporate Governance Institute ( email )

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

Mariana Pargendler

Fundação Getulio Vargas Law School at São Paulo ( email )

R. Rocha, 233, Bela Vista
São Paulo, 01330-000
Brazil

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

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