Law and the Rise of the Firm

Posted: 9 Nov 2009

See all articles by Henry Hansmann

Henry Hansmann

Yale University - Law School; European Corporate Governance Institute (ECGI)

Reinier Kraakman

Harvard Law School; European Corporate Governance Institute

Richard Squire

Fordham University School of Law; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 3 versions of this paper

Date Written: 2006

Abstract

This study elucidates the origins of entityshielding, a term that refers to rules that protect a firm's assets from thepersonal creditors of its owners. Following a discussion of the economicbenefits and costs of entity shielding, a survey of four Western commercialsocieties (ancient Rome, medieval and Renaissance Italy, early modern England,and the contemporary United States) is conducted in order to trace theevolution of entity shielding. Although Roman law used entity shielding sparingly, medieval Italy embracedweak entity shielding while resisting strong shielding for general-purposecommercial firms due to cost factors. In seventeenth-century England, theexpanding jurisdiction of nationwide courts andthe development ofpartnership and trust law led to the rise of entity shielding under Englishlaw. In the United States today, a confluence of legal, accounting, and valuationdevelopments has made the costs of protecting creditors and owners manageablefor even the smallest limited liability companies and closely heldcorporations. Clearly, cost factors have played a prominent role in thedevelopment of entity shielding throughout Western history.(SAA)

Keywords: Legal protection, Limited liability companies (LLC), Asset management, Firm ownership, Legal systems

Suggested Citation

Hansmann, Henry and Kraakman, Reinier H. and Squire, Richard C., Law and the Rise of the Firm (2006). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1502488

Henry Hansmann (Contact Author)

Yale University - Law School ( email )

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European Corporate Governance Institute (ECGI)

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Reinier H. Kraakman

Harvard Law School ( email )

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European Corporate Governance Institute ( email )

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Richard C. Squire

Fordham University School of Law ( email )

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New York, NY 10023
United States
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European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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