Why Delaware LLCs?
For years, scholars have debated why parties choose to incorporate under Delaware law companies that operate businesses in other states — since different answers to this question lead to different normative assessments of the practice. Traditionally, this debate focused on public corporations and ignored private firms and non-corporate forms of business. The exploding use of limited liability companies (LLCs) instead of corporations, and the formation of LLCs under Delaware law to operate businesses outside Delaware, call for expanding this discourse to ask “Why Delaware LLCs?”. This article adds to the recent literature seeking to answer this question empirically. It critiques recent studies that looked for statistically significant correlations between state of formation choices for LLCs and differences in state LLC statutes and legal infrastructure. Finding this methodology suffers from inherent limitations, this article presents results from a different approach. I interviewed business attorneys whose clients have formed LLCs and asked them a battery of questions designed to ascertain why their clients formed LLCs in Delaware. The results of this survey provide important insights into the aspects of Delaware’s substantive LLC law and its legal infrastructure that motivate formation of Delaware LLCs, and thereby serve as an important complement to the existing statistical studies.
Developing Two‐Tiered Regulatory Competition in EU Corporate Law: Assessing the Impact of the Societas Privata Europaea
Since the Centros ruling in 1999, Europe has evolved a two‐tiered system of corporate laws. This opens up the possibility of some horizontal regulatory competition between the corporate laws of the member states. Following a draft regulation on the European Private Company (SPE), an additional legal form tailored to the needs of small and medium‐sized enterprises (SMEs) is being proposed. We analyse whether such a supranational European legal form can be recommended from the perspective of the economic theory of legal federalism. We present a general theoretical framework for studying centralization/harmonization versus the decentralization of legal rules and regulations in regard to corporate law in the EU. Our analysis of the empirical evidence on horizontal regulatory competition and the advantages or disadvantages of such an additional legal form for SMEs shows clearly that it might render many benefits, compared with the existing situation of only (partial) horizontal competition.
Resolving Transnational Insolvencies Through Private Ordering
This essay argues that transactional insolvencies should not be governed by a rigid commitment to either a universalist or territorial approach. Rather, firms should be allowed, before the onset of financial distress, to select which country's or countries' bankruptcy law would apply should the firm become insolvent. Firms would sort themselves depending on whether it would be more efficient to handle financial distress in one proceeding or in several proceedings. This approach has the additional benefit that it would create a regulatory competition among nations to provide more efficient bankruptcy laws. Bankruptcy attorneys would have the incentive to lobby their country to enact laws that more efficiently handled the financial distress of transnational firms. Contrary to some critics, this proposal would not induce debtors to select jurisdictions simply for the purpose of depriving involuntary creditors protection that they would otherwise receive.