Ayotte and Hansmann, ‘Legal Entities as Transferable Bundles of Contracts’

The large, modern business corporation is frequently organized as a complex cluster of hundreds of corporate subsidiaries under the common control of a single corporate parent. Our Article provides new theory and supportive evidence to help explain this structure. We focus, in particular, on the advantages of subsidiary entities in providing the option to transfer some or all of the firm’s contractual rights and obligations in the future. The theory not only sheds light on corporate subsidiaries but also illuminates a basic function of all types of legal entities, from partnerships to nonprofit corporations. We show that when, as is common, some of a firm’s key assets are contractual, both the firm’s owner(s) and its contractual counterparties are exposed to the risk of opportunism relating to the assignment of the contracts …” (more)

Kenneth Ayotte and Henry Hansmann, LEGAL ENTITIES AS TRANSFERABLE BUNDLES OF CONTRACTS. Michigan Law Review, Vol. 111, 715 (2013).

First posted 2013-04-19 07:53:08

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