Prof. Larry Ribstein, one of the nation’s leading authorities on LLCs and other alternative entities, writes here on The Harvard Law School Corporate Governance Blog. His introductory paragraphs include the following excerpt:
By uncorporate I mean partnership-type business associations (i.e., general partnerships, limited liability companies and limited partnerships) and the default rules and norms that are associated with these business forms.
One might say that looking at uncorporations moves away from this blog’s focus on publicly held firms. But as I show in my Uncorporating the Large Firm, uncorporations are increasingly important in governing large, publicly held firms. Examples include not only publicly traded partnerships, limited liability companies and real estate investment trusts, but also private equity, venture capital and hedge funds that exercise critical control powers in firms that are large, publicly traded, or both.
All of these firms are characterized by their substitution of discipline and incentives for corporate-type monitoring as ways to control managerial agency costs. Specifically, uncorporations (1) loosen managers’ grip on the firm’s cash through distributions and liquidation rights; and (2) give managers high-powered owner-like incentives. The trade-off is that uncorporations rely much less on high-cost but often ineffective monitoring devices such as fiduciary duties, owner voting and the market for control.
Parenthetically, the good professor links in his foregoing post to one of my recent summaries on the Harvard Corporate Governance Blog about a recent Chancery Court decision involving LLCs, here.