Why the New Tax Law Offers a Questionable Incentive to Incorporate

This spring, both Apollo and Blackstone announced that they would be converting from publicly traded partnerships to subchapter C corporations.   In changing their legal forms of organization, they will join two other prominent private equity firms, Ares and KKR, which had earlier announced their intentions to convert from partnerships to corporations.   The conversion of leading private equity firms to corporations has been seen as the vanguard of a mass conversion of businesses from pass-through entities and partnerships to corporations in response to tax rate changes that took effect in 2018.

The late-2017 tax reform, commonly knowns at the Tax Cuts … Read more

The Modigliani-Miller Theorem at 60: The Long-Overlooked Legal Applications of Finance’s Foundational Theorem

June 2018 will mark the 60th anniversary of the publication of Franco Modigliani and Merton Miller’s classic article, The Cost of Capital, Corporation Finance, and the Theory of Investment.  Widely hailed as the foundation of modern finance, their article, which purports to demonstrate that a firm’s value is independent of its capital structure, is little known by lawyers, including legal academics.  That is unfortunate, because the Modigliani-Miller capital structure irrelevancy proposition (when inverted) provides a simple, but powerful framework that can be extremely useful to legal academics, practicing attorneys, and judges.

Sixty years ago, the field of finance … Read more

U.S. Tax Reform Requires an Understanding of Why Corporations Invert

For more than a century, the United States has had a worldwide tax system whereby U.S. taxpayers were subject to federal taxation on all of their income “from whatever source derived.”  In what would be a sharp break from longstanding practice, The Tax Cuts and Jobs Act, H.R. 1, would shift the United States from a worldwide to a largely territorial tax system by exempting the foreign source income of U.S. corporations from federal taxation.  That change, which has been estimated to reduce U.S. tax revenues by more than $200 billion over 10 years,[1] would more closely align the … Read more