SPACs are public companies designed to die. Ordinary corporations, like Coca-Cola, enjoy perpetual existence under the law. Special-purpose acquisition companies, by contrast, are organized with a termination date from the outset—usually two years, and never more than three under stock exchange rules.

A SPAC exists for one purpose: to consummate a business combination with a private company, thereby bringing that company public without running a traditional IPO. SPAC managers, called sponsors, receive founder shares amounting to roughly 20% of the SPAC’s post-IPO equity. The combination must be negotiated by the sponsors and approved by shareholders before the deadline, or the SPAC liquidates and the money goes back to investors. Common sense suggests that as the deadline approaches, sponsors want to complete a deal—any deal—before time runs out. Delaware case law has recognized this sponsor-shareholder conflict in cases like MultiPlan, Delman, and Solak.

So why do we put the SPAC on the clock, especially when it exacerbates the classic conflict between shareholders and management? At first blush, the clock looks like a defect.

In a new article, however, I begin from the opposite premise. The SPAC’s finite lifespan is a feature, not a bug. It is the foundation of the entire SPAC governance apparatus—a deliberate act of “temporal governance” that uses time to control agency costs.

The clock creates accountability. The sponsors must either consummate a merger within the SPAC’s designated window, or liquidate and return the proceeds to investors. That liquidation backstop is the feature that makes the product marketable. The shareholder vote and the redemption right—often described as the linchpins of SPAC governance—derive much of their importance from the fact that the clock is ticking.

A durational limit is fundamental to the form, as was shown in March 2024, when the New York Stock Exchange proposed extending the maximum lifespan of a SPAC by six months—to three-and-a-half years from three. As required, NYSE put the proposal out for public comment, and just one letter came back—an objection, from the Council of Institutional Investors. Nobody wrote in support, and the exchange withdrew the proposal that September.

Yet the clock also distorts incentives. As expiration nears, the sponsor’s payoff becomes binary: Secure a deal, however poor, or lose everything. This is the classic final-period problem, and empirical evidence supports it: SPACs that merge just before their contractual deadline perform worse than those that merge earlier.

But consider the alternative. A perpetual SPAC would be a shell company with no operations and no track record, just a pile of U.S. Treasuries managed by a sponsor with a 20 percent equity stake and no deadline to act—a Hotel California where investors check in but can never leave.

Worse, the governance tools meant to protect them would be entirely disabled. The vote and the redemption right are triggered only when the sponsor proposes a business combination. No deal, no vote. No vote, no redemption.

Nor would the mischief stop at inertia. With investors trapped and no redemption in sight, the sponsor could buy shares on the secondary market from those desperate enough to sell at 85 cents on the dollar, then propose a transaction at a moment of its choosing—or otherwise exploit its captive shareholders.

SPACs are not alone in running on a clock. Other such finite ventures include private equity and venture capital funds, generally organized as limited partnerships that terminate after 10 years. Similarly, a growing number of charitable foundations, including Gates, have pledged to spend down and close by a date certain, and sunset laws in many states terminate government agencies absent legislation renewing them. Across these settings, duration operates as a tool of governance: an underappreciated way to address agency costs at organizations of many types.

In the end, a SPAC without a deadline is unthinkable—a SPAC with one is at least governable. Time makes enforceable a bargain that otherwise could not be struck. Perpetuity, though the statutory default, is not destiny.

Andrew A. Schwartz is the Laurence W. DeMuth Chair of Business Law at the University of Colorado Law School. This post is based on his recent article, “The SPAC Clock,” available here.