What is Corporate Law?
Yale Law School; European Corporate Governance Institute (ECGI)
Harvard Law School; European Corporate Governance Institute
THE ANATOMY OF CORPORATE LAW: A COMPARATIVE AND FUNCTIONAL APPROACH, R. Kraakman, P. Davies, H. Hansmann, G. Hertig, K. Hopt, H. Kanda, and E. Rock, Oxford University Press, pp. 1-19, 2004
This article is the first chapter of "The Anatomy of Corporate Law: A Comparative and Functional Approach." 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.
As the book's introductory chapter, this article describes the functions and boundaries of corporate law. We first detail the economic importance of the corporate form's hallmark features: legal personality, limited liability, transferable shares, delegated management, and investor ownership. We then identify the major agency problems that attend the corporate form, and that, therefore, corporate law must address: conflicts between managers and shareholders, between controlling and minority shareholders, and between shareholders as a class and non-shareholder constituencies of the firm such as creditors and employees. In our view, corporate law serves in part to accommodate contract and property law to the corporate form and, in substantial part, to address the agency problems that are associated with this form. Corporate law includes not only the law of public and private companies (such as the German GmbH and the French SARL) but also much of what is traditionally considered to be securities regulation. Each of these bodies of law safeguards the scope of business discretion for corporate controllers while also restricting this discretion where the risk of opportunism vis-a-vis shareholder and non-shareholder constituencies is particularly acute.
In addition to Chapter 1, Chapter 2 of the Anatomy of Corporate Law, "Strategies for Mitigating Agency Problems" will be available (full text) on the SSRN.
The abstracts for Chapter 3: The Basic Governance Structure; Chapter 4: Creditor Protection; Chapter 5: Related Party Transactions; Chapter 6: Significant Corporate Actions; Chapter 7: Control Transactions; Chapter 8: Issuers and Investor Protection; Chapter 9: Beyond the Anatomy will also be available on the SSRN.
Number of Pages in PDF File: 21
Keywords: Corporation, agency problem, corporate law, corporate regulation, corporate governance, securities law, limited liability
JEL Classification: D23, G32, G34, G38, K22, M14
Date posted: July 27, 2004