A Primer on the Uncorporation

More and more companies appear with strange abbreviations behind their business name. Consider Chrysler Group LLC (instead of Inc.) or LVMH Montres & Joaillerie France SAS. Some even speak about the “endangered corporate form” and point to the rise of the uncorporation. In the paper, “A Primer on the Uncorporation, ” Erik Vermeulen, Priyanka Priydershini and I examine how the uncorporation has evolved in the United States and, more recently, in other economies around the world. The growth in non-listed business forms in Europe, Latin America and Asia has been shaped by a mixture of learning and professional advice arising from the company law review process, as well as the indirect influence of overseas business forms. We argue that legal innovators, who were previously blocked in their efforts to simplify and modernize company law, have found ways to successfully promote the contractual nature of their company law business forms.

The paper also considers the main components of uncorporate business forms that are responsible for limiting transaction costs, curbing opportunism and creating organizational structures that are compatible with entrepreneurial expectations. The development of uncorporations internationally is not so different from the US situation. Most of the time, the combination of limited liability protection and a preferential – pass-through – tax treatment ensures that the uncorporation will be considered a success. We then show the main differences between the partnership-type and corporate-type uncorporations, particularly the LLC in the United States (US-LLC), the SAS in France and Colombia, the LLP in United Kingdom (UK-LLP), Singapore (S-LLP), India (I-LLP) and Japan (Yugen Sekinin Jigyou Kumiai, J-LLP).

Finally, we suggest that, given the pitfalls in the evolution of uncorporation laws, an international Model Act could promote the adoption of alternative, uncorporate business forms in jurisdictions that still have a gap in the menu of business forms. A Model Act, if widely adopted, is likely to reduce transaction and information costs. As well, it has the advantages of both simplicity and lower administrative costs. It is also more appealing to the extent that the benefits of regulation are the same for all firms across jurisdictions. As a result, model laws help to encourage cooperation between firms situated in different jurisdictions. In addition to the immediate benefits for firm participants, model laws are typically drafted with great care by panels of lawmakers and experts, whose main concerns are reputational benefits and updating their legal expertise.

The full text of the current draft of the paper can be found here.