The Debate on Contractual Freedom in Corporate Law

25 Pages Posted: 1 Jun 2004 Last revised: 7 May 2009

See all articles by Lucian A. Bebchuk

Lucian A. Bebchuk

Harvard Law School; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Date Written: 1989


The subject of this symposium issue - based on a conference sponsored by the Columbia Law School Center for Law and Economic Studies - is contractual freedom in corporate law. The resulting debate can be usefully divided, in my view, into two debates: one concerning contractual freedom in the charter amendment stage, and one concerning contractual freedom at the initial charter. Accordingly, Part II discusses and evaluates the debate on opting out by charter amendment, and Part III does the same for the initial charter stage. In discussing contractual freedom in corporate law, both deregulators, and the first critics of their position, focused on opting out in the initial charter - the natural context for thinking about contractual freedom. THE DEBATE ON CONTRACTUAL FREEDOM AT THE INITIAL CHARTER STAGE Also, Kornhauser discusses the possibility that some shareholder-manager arrangements have externalities with respect to bondholders. If the chosen arrangement is going to be mandatory, then efficiency would be indeed served by the officials' choosing A. Because opting out of the chosen arrangement will not be possible, the officials must assume that this arrangement will govern even if the alternative arrangement is actually the efficient one. Clearly, when a corporate law issue is to be governed by a mandatory rule, the quality of that rule - and thus the selection of the institution making that rule - is of greater significance.

Keywords: Corporate charters, freedom of contract, corporate governance, corporate law, corporate voting, midstream opportunism, collective action

Suggested Citation

Bebchuk, Lucian A., The Debate on Contractual Freedom in Corporate Law (1989). Columbia Law Review, Vol. 89, pp. 1395-1415, 1989, Available at SSRN:

Lucian A. Bebchuk (Contact Author)

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