Delaware’s success in attracting corporate formations is well known, but explanations for it vary. In a recent paper, I test these explanations as well as the reasons for Delaware’s success in attracting other types of business formation I find evidence consistent with Delaware’s making a credible commitment to creating quality corporate law, particularly through its judiciary, and this commitment extends to LLCs and other organizational forms. These results provide insight into why Delaware leads corporate formations, how that lead expands to related organizational forms, and how the future of state competition for organizational formations might unfold.
The Delaware saga of … Read more
Limited liability companies, or LLCs, have emerged as the entity of choice for new businesses. The form attracts many everyday owners and entrepreneurs as an easy way to combine corporation-style limited liability protection with partnership-style tax treatment. LLCs also offer an appealing means for sophisticated players to craft more flexible internal governance arrangements without fiduciary duties and other governance terms required of other organizational forms. LLCs thus cater to two very different groups: average investors, and very sophisticated parties. Unfortunately, as LLCs have grown in popularity, so too have the stress fractures that result from satisfying these two divergent groups. … Read more
Limited liability companies, or LLCs, have quickly become the form of choice for new businesses. Companies ranging from the well known, like Chrysler, to the more experimental, such as French fry vending machine makers, to local flooring installers all organize as LLCs. One attraction is LLCs’ ability to replicate S-corporations’ robust limited liability protection and potential for single taxation of company profits. Another attraction is the wide contractual freedom permitted among owners and managers to divide up ownership and management rights and responsibilities. Most states impose few mandatory rules on this relationship. For instance, Delaware, the leader in out of … Read more