Citations (4)



Why Corporations?

Larry E. Ribstein

University of Illinois College of Law (deceased); PERC - Property and Environment Research Center

Berkeley Business Law Journal, Vol. 1, p. 183, 2004

This article suggests that reform of the governance of publicly held firms might appropriately include a move from the corporate to the partnership form. The corporate form is susceptible to regulation, rigidly centralized and not readily adaptable to firms' varying circumstances. These features are unsuitable for new economy firms that rely on markets and networks rather than integration. Partnership's greater flexibility and freedom from government interference arguably make it a better choice than corporation for many publicly held firms. Thus, the persistence of incorporation may owe more to politics and regulation than to efficiency. The rigidity of the corporate form makes it easier to regulate and therefore provides more rent-seeking opportunities for politicians and interest groups than if parties could freely choose their business form. Taxation of corporate distributions reduces owners' incentives to take control of corporate earnings through partnership-type firms. Also, by protecting managers' power, preserving the corporate form co-opts the interest group that is best able to lobby for change. However, new corporate tax rules, increased federal regulation of corporate governance and the changing nature of U.S. business may give firms new incentives to use the partnership form. Lawyers may be the agents of change, as they have been in promoting partnership-based business forms for closely held firms.

Number of Pages in PDF File: 51

Keywords: corporations, partnerships, corporate governance, lawyers, public choice, tax, economic history

JEL Classification: K0, K2, L2, N0

Open PDF in Browser Download This Paper

Date posted: April 21, 2005  

Suggested Citation

Ribstein, Larry E., Why Corporations?. Berkeley Business Law Journal, Vol. 1, p. 183, 2004. Available at SSRN: https://ssrn.com/abstract=451060

Contact Information

Larry Edward Ribstein (Contact Author)
University of Illinois College of Law (deceased)

PERC - Property and Environment Research Center
2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States

Feedback to SSRN

Paper statistics
Abstract Views: 7,497
Downloads: 975
Download Rank: 16,869
Citations:  4