Agency Law and Asset Partitioning

Abstract

The law's recognition of a corporation as an entity separate from its shareholders permits corporate planners to partition assets in a way that often contributes to economic efficiency. That first-mover advantage, however, is not unlimited and the law regularly limits the abuse of such planning, as in non-consensual settings where the entity named as the actor lacks sufficient assets to pay harms arising out of the business. Agency law has been a traditional means by which liability has been extended beyond the corporate entity in particular circumstances. This paper explores how this traditional use of agency law has dissipated and the growing use of agency law to reinforce separateness and asset partitioning, even in non-consensual settings. The central point of discussion is the Supreme Court's decision in U.S. v. Bestfoods, an environmental case in which the Court contained liability within a corporate subsidiary. The article suggests this use goes beyond traditional agency principles, such that a deeper analysis of this context would be warranted.

Keywords: agency, asset partitioning, corporation, piercing the veil

JEL Classification: K22, K2, K0, G32