Ernst Freund as Precursor of the Rational Study of Corporate Law

It is now widely recognized that legal entity status fulfills important economic functions by separating a firm’s business assets and the personal assets of its founders, directors, or shareholders, and that this separation is stronger in corporations than in partnerships (Hansmann et al. 2006). Corporate assets are controlled by an independent board and are literally locked in, in the sense that neither firm founders nor subsequent shareholders can withdraw all or part of their equity shares or force a partial liquidation to satisfy the claims of their personal creditors. This institutional arrangement, which cannot be achieved by contract alone, mitigates … Read more