Anyone who wants to be familiar with the cutting edge of the law on LLCs, LPs, GPs and related entities, referred to as “uncorporations” by Larry Ribstein (and often called Alternative Entity Law in Delaware), should read the latest book from nationally recognized expert Professor Larry Ribstein, titled: “The Rise of the Uncorporation” (Oxford University Press 2010). See links to prior references to this book on this blog here.
Professor Larry E. Ribstein is the Mildred Van Voorhis Jones Chair in Law at the University of Illinois College of Law. He is the author of leading treatises on limited liability companies (Ribstein & Keatinge on Limited Liability Companies), partnership law (Bromberg & Ribstein on Partnerships), as well as two case books on business associations, and several other books including The Law Market (2009 with Erin O’Hara), and The Sarbanes-Oxley Debacle (2007 with Henry Butler). Professor Ribstein is also the author of the popular blog called Ideoblog, where he provides scholarly insight and commentary on recent court decisions and other current legal developments. His scholarship has been cited in opinions from the Delaware Court of Chancery and the Delaware Supreme Court.
Ribstein clarifies that the focus of this work is the particular form of business and not about a particular type of business (i.e., big, small, closely-held, or public), or a particular industry. Ribstein explains that the uncorporation provides a fundamental alternative to the corporation in dealing with a central problem of business organizations; namely, agency costs or collective action issues arising from the delegation of power over investments to non-owner managers and controlling owners. The uncorporation provides a different approach to addressing the two main problems in which all business associations need to grapple: delegating discretion to agents and allocating decision-making power among the owners. What the book calls the “LLC Revolution” freed businesses from needing to incorporate in order to receive the benefit of limited liability and other corporate features.
The nine chapters of the book cover topics such as “Why Study Uncorporations,” to the early history of partnerships and the rise of the corporation. Professor Ribstein addresses the problems of the “close corporation” and the evolution of the modern uncorporation. He discusses current issues with uncorporations such as management, the financial rights of members, fiduciary duties and dissolution, as well as transferring of interests. He concludes the book with a discussion of the likely direction that the future holds for the uncorporation and the reason why the uncorporation matters.
This book fills a void due to the relative dearth of scholarship regarding LLCs and other “uncorporations” as compared to voluminous case law and commentary on corporations and corporate statutes.
This work provides the first general theoretical and practical overview of alternatives to incorporation. It covers the history, law and finance of unincorporated firms and ancillary concepts related to the evolution of those firms, as well as an analysis of likely future trends in the field of business organizations.
The author provides thoughtful suggestions to state legislatures regarding the lessons found in this book, such as the following:
“For example, states might enact Delaware-type LLC statutes for larger LLCs and partnership-type LLC statutes for smaller firms. Alternately, states might recognize that they cannot easily compete with Delaware’s sophisticated legal infrastructure for larger firms and focus on catering to the smaller firms that are likely to stay at home.”
He also explains why “society should care about the issues raised in this book – – that is, why this is not just for legal technicians immersed in the fine points of the business of law.”
In Chapter 8 entitled “Uncorporating the Large Firm,” Professor Ribstein provides a thoughtful discussion regarding the spectacular collapse of formerly “blue chip” firms such as Lehman Brothers. He quotes from an annual report of Lehman Brothers several months prior to its bankruptcy filing in 2008, as stating that Lehman Brothers was committed to “industry best practices with respect to corporate governance.” The books suggests that if Lehman was such a paragon of corporate governance, its flameout was as much a failure of the corporate model as it was of Lehman in particular. Of course, this observation supports consideration of the uncorporate form.
A recent interview of the good professor about this new book on Peter Mahler’s blog called New York Business Divorce is accessible here.
There is much more to commend this book for anyone interested in the latest word on the most recent developments in alternative entities, both theoretical and practical.