INTRODUCTION TO THE LAW OF ENTERPRISE ORGANIZATION Intnge neat cil as concemed with fcaig olutay economic conomes bu tier bles of aw ae asa onan. An . uy intrest, noncy ad cree bakupty, ical propery, ae emeyponeenganinion The ok dese reusing the cents seul ens stad iit gen insets Than he ewan are teeminael at ay tne by eter the principal or the foc a ri my rie ost ie ene coy thera fr jaa oe Here delete [Sse tomeans Komal sina cela that hs a tmporal dimension, fbene iy conte, he corporis tom —our pana1. troduction 4 the Ln of nterpine Onion tnuoucryehapte to dese few very general points Throw these materain, we noe only describe the tes of emerprse tw But etacncy a wana Hen sper concep, owen, ad slscusingies dertore or ft pri ve bing coer ec, we dee tosip vce tency and “aes i the lof busines organzion Fimese irae opis academic discussion of corporation er bane isu hug be gute arate acy {he domirane nr she le rein for sea vation ej lim dines Vetus wich nthe ars ofl ae power erates ‘fica norm regents iaveke the concep of ene net opine Stal adres enya so any wore Ts ld Gs ‘on requires spe explanation, which we ale ia $12 Below TaN, we prove a bri! ouline of the medeen leaning on the economia fe hn thi ity caper Te ral uy ature, ue eens hae rvew say prow Nell othe aden ot [artoner who is unlamar wth the Inersure. We expec wa | Induce eatyon the mar conomic concep of ape oy age oa ce sey are signica theoreti erspeetines on mee AL Eemereycy ano rir Soca Stcaancance oF Exraxrmss Oncanizanion ‘Wealth is an inportnc ingredient of happines for mont of Money cant buy everthing a te sang goes, but ican sus fea human eas, feduce seni, abd ip people achieve their fll penta. Grestet ‘teal oe ays deployed to advance al aman welt oct re eater mes dow inact te mn a ‘hat facia ind viduals: firs vo create wealth wise public poiey As clizens af count we are concerned about fr tore tan The eaton of ttl metho even eu share in We ate soncesne! ith the sate ofthe word, the welae of ee a the saa pole at lec the dination of wea, though we might dase abo the eran By at ge, npr wn Bee oped win the bman experience Thus, pe pl is ms about, for ‘Sample, te wc debut of wealth fl ouside The competence corporate bw Tae aw of taxation, eatin, envionment td bor Daley, product salty, exer ieee of het, suey, and ware Aides he elsrbutton of sks and ewan aeceey Conporate e {ike the eon of econo wet thu the Tato ot ‘olan, ning colic schon, 1.1 Eisen and the Suc Sgncace of Enterprise Organization 3 1.1.1 Wealth Creation and the Corporate Form of Organization emporio rr des ith he etn a poner ofthe pete legal ents that are principal econic ars in te todesn mol tusk dea with the contol over Wega’ ‘Feu and power Ie adresse sich mptsn tates ax gw Corporate Eeepises fre created and cpt, how powe ower thie eral Sars urbured hw ther Sonor peromace mono sa ‘Stat eechansas ext to pre ther prtorance ‘etned ia ths may, ererprae law fpr subject. Whe deze sare no pecs measure of he elect hat rgunrtona lah on ‘omic produc, we do have certain india of tr sigance, The fhnkrupey ofthe nl Soverleplnnedsconony ex oe i Srument Sr the importance of sncemves a the law of ership, Src at fap of ie Nas fal Proce wel Anglostmescan cosporaion law on the orice had ‘cognid rom the begining the mate ighs 6 he ahold: ‘Shoconuuted uly eapeal in busines encrpse The alae of te Snr economy a it pt control sperm ac the ete 9 the ‘merc ose hp rion i a ere ia ‘haan organo ne governess pestorsne ‘ol dence of he sgucance fw of Serie on ‘zation the dominance te eprint agbonshe mon Tae ist icp form of luge selene temartabhy Star asa conoms. Arve wll Se, the shared characteris ae the enn ‘Sracerstis ofthe corpse frm. Naty. tore ae dren, un bhtthey are concezned pans wt the sources copa sel seep flue corte ener In iferen comers soe euch, ike the ited Sates and Great Hota, sseloped capa markets pre Imach ofthe ety fr eh) cap ha Hons oth new eae on SStablshed onc Inoue sich as Germany and apa nancial te Ines supply mach ott eupa tn these eta, Pal, ss evn sce cai ae opera oa mae the dominant providers of ct ins he uses amy eps tay be the mayor source of equity cael Ts, white the teostons Aifeences ae nicest the stares are mre skin The core firm dominates na ltancen hese Techn cestes econo sate 1.12 What Do We Mean by Fificieney? ve accept he classical eral perspective that compotion as ‘scecede to the exe that enables inal ore thee Se spicy agree hat une efiieny ee pial Saar By ‘Sich twshould be evaiated Muoughout thi cee ens wi4 chapter, troduction othe aw of terse Ongatzton ‘nc sequen gale with the question of whether gen ule ofa (or Epnntipe or petce) = ely oe een Ths the vey begin ‘Surintive nnn of efisency probably somthing argely nex mine ba ty something inthe manner the miumipaon of ‘Nate or the provocnon of maenn outlets: Ear ests have developed conceps tat are more specie but tl consistent 1421 Pareto bfieiensy ‘The most base fnon of economic efficiency that of the te reacensenter Ilan economet and socks Vibes arto ucts feasoned tla gen dination of oourtes i licen shen, find oaly when, resins are debuted in such 8 wayne [roup orient ar na relies of rewones can make a east one for beer of wilout akog slr one ser pons VOR Oh Fesmomace desc ah a dsb ws “eacioroppal” Tie des Iotimenn, however that any ordinary person wl desde te sates inal of even rae Like mos: ose Enlightenment kes, Pareto ‘elie hay subjective state of welt that cane De ae. ‘ely smesed by our observers The ony perm capable determi Ingen change ol decimarancs makes an indl ete for worse ‘isha dual beset Tasso hog luni exchange to ‘whieh indvdaal reveal shale gw pretence foe one outcome over ey sain tori sides othe eeacion, And ool whe a putes Alec «ware expences net only gain (on a¢ mimi. One ‘eigia dar mote enc uly ain ory she anata Geel Such = Sfusucton isd wbe "arena Teal obese To bon with agasic abou the Iegeanacy othe aga abuton of sete win 3 shy. Pate (Geet wares ae ie ta are corn to incense soil weleresaring irom aiaed stating poit-—an anal stutonofresoures Buin ea Ietpate tonnatin legates cons (rimlegl otc holes ‘Secon the leptin the extn no oe coe Bren eve porate sual possible foe courts or lek tures mae impasane decison ha do or make someone worse of Indeed, eves voluaty sareemend among pate pares soepeimes ft {he aren eiceny tt becuse wough they ake lf tel sign fresnel vampire snnycptd cso i pues tes i Pareto efreney foe the seemingly ecacal eeioa that Iomerer muck gon! ey don lance, they makes least one person ‘sore das sounds, lar empl, ee aw panting ad ead 1.2 Law from inside and Out Shared Meanings and Skepta § not be Prenfilene c made the psp of fails wore off fellows hat Part eticenc por sled taevlinnar erase thw of enerpte cancion 1422 Kaldorticks Eifcleney abe dean of ie ht mes pogo more sn develope igish economists, Nichole Rao and Jain Hs Tht thr ana nn he poiem ot eateratca hat uncompensated ests amposel on parks thou i conse Unlet thn mim ee oa re Impronemen in scat ele aba este par wed nom aera thse who sllered slur a es ofthe Fasano pos ‘Seely compensate. Nowe tat Pua pani of amy compen ‘erica tdci. The tes rst aeration SSimperec an eansrtons ye cath genery posse wo com fenste al persons who are nepatey afer by an acon Profesor ‘iis sc hs cote pa the Paani ing—or"eficien—itdhey ead opera imponemen he ates sflency Sense because the ane rom these acs cult they, ‘make the losers whole the happy ese talc al te pa ae ne raluated muta ters, Gs eguslen tpg that asacion i elfen i he aagrepie muieary gins the winner ‘eed ie great money fest he lace ie the oul teh ic atesenuts arenes Fortin be ake een “abe sur, aldor ks lien) ao hs partitions, tke te rire eiieacycrterton, it hashes ay a the ey ‘etal ath fal tana ea bert enig hail diuibuonal eonsoquecer of polis ay he sie oe Bence a eae orien nas sficenty has tbe deckine tOCANage o Ferinting empcee an sey Saker tconipare the css and fetish ane sei Teach satalcsanemcr ochre, sn one woe an icieney ata yards for policymakers Un area, hs Beco ‘iat wo! fc eating emer ua hehe pest fe ‘ec In hese match, we have Klik elie in 1.2. Law mow lear ann Our: Same Meawics ann Skrmnos Anwar base pain we want 9 address before embarking om out ‘rocw othe ln concerns heat oon been ei ae6 Chapter. tatroduction othe Law of Eterprise Orpaeton from the interior perpectine ofa egal actor ad vewing i om the 421 The Outuide and the tase Conde rt how one ak 3 aad egal aston om the perspective ofa soll sentoe Asta chao an ttereting cho now ie, one thar sce curious that doce net fr satin the exe Shure other eles), postulates a hyoshess ron some theory {orexpuin the pater of occurrences the phenomenon, and devise & fmeansto esther hypothen I hee hypeshess cannot be shown toe ake $name patie "alauton te pominenon andpas ‘Socal scene especialy etc Because examines phenomena tha re party smewnngs da ator a 0 he thacare ot dvecty bse, ate deeply contextual and are oly poe Femail inred Despite thi profound siferenceheswecn oi ‘hce and phyal scone, bath Spe of Anowtedge emp fo sand ‘utd the phenomena that they re inc eapah Tus, tothe eaten "mpi naam they do o om an external vantage. Such eres ‘eofiily ago shoal nome ee par oo the hed acai. Te pricing hee ded the ler weve ok operating oe thesstem™a ones tn espect ote arcuate samen ates, the jg andthe fer mete nderstod tobe lew ined, they ‘tere the high pest andthe priest the ah For them, the arent Fesson fr some judi act was not snp acancurence ft ace In Fas, adminstatve peoedure pada pec a the ih by of Drotaanal Learning that alow experive Lz pesto ther fnesna proceses tray pelt reve, and even mich soe rsp ate abou can lea meaings ay well deter their provenance "autora the came oe erie ody fe fg hiss the “ltesoe” perspective on ‘Ones, schoo were largely concemes with his interior perp pais legal change nor provides bas (ocular tha Oy Spring. that in tine so Sonat by anges teshacogy, ts, ‘nd demonsapis lel ehange has come to donate legal eeaion cording Toa, legal education an scolusip combine the scesior and terns SINGS Tre aso few cman Se beer, 1.2 aw rom Inside nd Out Shared Meanings and Skepim 7 legal down nth onto easing legal dotine Bur few ea scfoturip would deny the moran sf usientnting the cra irindpis in xin ha concn che near pestcee ee facet tundra opin th salen oe asc toh perspec om atc whch oct nhs auton, {nd consiteny, an he exec, which noted ste race needs ose per soley ina changing mel This kes uso the use of these ance of eicieney n czar wean nese a sere rece {et shoul bea the coe of ogptzutonal aw. We hve argu et Ides and laser a well a academic commentons saps 0 tse ‘iii the peskaan fea pncpl stand a Ingearent Ba our arly sete trey cone oN the Stare How da we recone our ew witha “ "We oer the followigeqplanason es generally sid chat cours “athe than exeste™ law Bur sopsied bere Know at ‘scans pu covet. Crane ec bound by pepe app fxtstng Taw atconding to stems A judge doesnot poses 4 cong fcmmission @ make socal policy under the hare of elceny ra sg apie otic nn i ai alone ofen ries esto make cose. Du su ss sans a they ae Foc he aw of ence sguaton oie, cee if thea concepis are cena eveating the wisdom of the cutoome reached. This may change ove the sens more anes soon Tesi Ris coat cours hae isch a Tati ucitabe rence” "lyaiy” "anor." “exploration,” an (Eton Th ta dined ope i sine ton. They bel not tothe techn knowledge econ ot te ‘caning-+ language «0 which only smal pore othe poly he1. troduction to the Law of fnterprne Onion cess utc the every nions of ght conduc that cous AE ‘mos ofthe poly shares "Buf cours fave an eaporcant role in creating the law of cere ante and yt no acvelyempleythecanceproteticerey ee ‘ev how can we expect the legal stn ove appease eto aldor Hic ciency all anaes st fest our cicunon ol ‘rpm andes seg sari Theshoraner {amants tothe corporation’ Income and ast, proecion of cr MCE {St through 2 timers norm gery comical ine oh porate wedth an wth movi tomar aldo Hck len se 1.3 Deveronwenr ov mu Moen Turony oF 1H Fn Sophisicted business lawyer understind that they ein the sins of Strung rancons teal wih versa are Ln economie ot Banal ature In anne ly te per i al owes the combs of 1 problem usally fale 0 Bes satactoy soon othe Froblem Th inthe, weadrethe economic pete oni Sogn cumu wen ay asa a cighrcenth centsy Adam Seah ne that fon cae sptacton, Sttowing nant ahiee ote pu. But Sm ao aed {tara stock companies oder sn nora dnadeanage rele to le [roptcionhip nd snail punncnhpn. They ree hesoanaetes wh, Eepested would works get san wou te owners desmelres Soren a nes ge nw ane ean ‘monitoring and coneling the behanor of managers terete, that the corporate form (ore wn ack smnpany a was he ced) ‘eoulé remain ile wed Ax we cn sce th pedicaon wa the mask ‘evertheles, smiths focus onthe rooms ar are ot gen a Inga his nets was presocae "ronomste wert slom t ake up Sih’ impli ivttion to aay the inceme eects of ewmers net manapey of fre Fo tat Of he ‘enieth contin, economit facts nas happened betwee mr pestive hms ater than’ on whar happen sh he Pu aie, ‘faba dled matets in doing, they toned wo sun the exe {ene ofa competent of martin whi any nem ers ad sellers sought to masimze tee ty The pees i these aes Comtined ll the nkrnation tat ay teers ace an bn ad Selig general ended wo move pices tomar seen exit, economic activ, were, ony somerinessescible aig ‘nypotcucsl marci Moa Sbvaish, much economic aes {cmpnned within Bene an chun ote: eos ma ane Hog at all For example shccmaker do not han th ace mars on the ctry oor, mupervin sects teow of es shoes yi. ‘Maton, ouch ot what happens in mares accom fat By intial ecing simpe bal asco thy fms entering into ‘comptes contacts Ould or ao semen eos, eae ‘tioene tad dear, whit the source otha een tconomias tet general une int tecy of ms, Scholy amet olla ee occa the wa hey ae fnatenessedpomer one martes ‘Ths see -ourkt power in nut ringtone ‘therein opel the aso of may conn reg mc lth went cna bl de 170 the cra omen al ane ning ms wer ce 1.3.4. Ronald Coase’ 1957 Insight uta ho te tas pape, Ca cnet he ‘Sinsational cumin ited macaconi es tcgntrpenaniacen ancien pesca ne prions coma ars unre Cae eso at (aly toeracced oil ramasine bomen ‘tho! Wengen tet fe Sae Renae is fons oe ten cs fh soncines mre es once ees fers sects tbanonimer Cpanel ee Scomishe n marek oes ashe’ bso don Hr the yee eae Ce mene eater trnsiiag wid fc wu aise ty mie tone ee gun ornate ce to neers Oak wes Tee ns ‘Shidhcuesrineoeion ape sesame sethantes a : Ths ght gee 0 2 eof farther ques; mest nab can i repens a el see ne ake ‘faseny compan im maria stch nt Whe es Seine cine Dunes of ee ae koe ne eae ak 1.32. Transactions Cost Theory emaslably, ther eonomins i ot ae wp thes neresting que {ons nl hi ear ses Come sa 1957 si Tey, ee ‘he "thenry a the fn” i ced, Se hurgconing eld wn ‘ono While we cannot strsey al the iyprtane desloymats30 Chapter. tnradntion othe aw of terse Organization (in mth oe at Pos ieee aera enna amin foe Seem cence ome 133. Agency Cost Theory yen more sigan! for sadens of corporation la, However, the weak ofa second Sain of man conan ta dee thes ume ‘sof Adam Sma otmeraons on the acevo pons a Sige This the work of he agency theses orp gene itor Rather han nc om ur and ees i neat dct on 1 dg ior hae he sn ome ios ara ‘ied thrbugh springen en ulng onthe work of Profaary Armen Ahlan and Haro Den sen! 41976 ace y Professors Nicael Jensen and Willam Meckling pride lea sateen ofthe ature ofthe runes perspec Fete and Mecing asere tat the Rem coals ew e nets {Siplexof"conac” Between owner ofthe varow tos of prin {tanh nn In ths view: manage sen ering eso Stare the uty tha x are om envaang tfoation and exper the ina singe enterprise sncenes of he agent (ete persone int nt posers sre thonary power aver sme spec the pipers fade ee ‘sator Aare) Cot an erp Scare Pa Ea 09 1.8, evlopment ofthe Modern Theory af he Fim ioaship) dliter rom he ings nes of the rnc wl ae that tered Sap o Tae evs cons such 2 ain obec ‘heya nl cost that ae eso cident For example ine managers ‘2c ot owner, cy cane ep to meena ofthe ns wm Ine ent decsos the mae on bhal te conpocen, br they era bear some a the costs i they mae poor nsesnent cokes fr cra leche fm ges rok aves they lets Merlo the [sks ad emacs ofmanagersmay be olsen wh eer of Shareholder Arche marin, manages wil esl 9 opine ee ‘ae Cossder se following earl Propues Propet Jon 2 ronal uty maximize, om hing sins hat ‘sures hin aod Some on emponees os fn New Yor for dys time. Las year Jae stayed in New Yr Ci fr 46 nigh fot he {tof $100, otter mye Or toa Tesh ors ttl 88.00 Jonas smn has dely geting so de hoe fh che ee al things conse, oul peer stay na comfoabe apacment on ih ‘vee, which hs company could eure ss ne como aun $40. Yar Wha wil jas chown 0 do? Now stat Jonas Sel pene ibe th cn tl webcomic Profesor emsen and Mecling sogg tree ener suc of sere «cous: monsoring cont, or cot that owes Capen to ese seen lsat Bonding cos o toss thar agents expen wo ease owns Of thei feat art Fenda os, tnt a ane om ilrence of imerest that remain ater moatctng in bonding cosy are neue ‘Igane an Meck’ ml ssumes thar he pep ear al of hese fons nthe cae of corporations for expt, the pial the ches prenear who angnaty ne share spe that selec, the nares Srna the dese of opm Ga mange ar curling shareholders ae ely to emgage ta (Uh can asus a ‘sent primary marke ia shares of couse) "gency theory can also be cmploned o understand spe of ean ships Bejad the the onc ites tbe manages Foe pespertne of agency theo the ceeporton (an eed all fy ed sien eganoations rs mao ny problems Te Het ‘he conic beoneen manager nd iavestor Nene whch we ae ‘he discussion above Tasco apeny clam artes ron he ay ‘taraonty wer a contol recor sat tat dates aan ‘aigont owns. The tard agency poble stat whch exists bese ‘estan ad aller pares wat tom risa sicher he rt acl pariee wo trinact with he fe a tt woe,Iodacton 6 dhe Law of bterrse Organon JONAS IN Ty REAL WORD? ‘Schon Whar tena cues mip seb Wal Sree Jour (November 265003) 15000 umbrellas, were peony bose ih Too aes Bas inc nas [8 stones chants ceo wes tahing se, he) esa on sae tr ea me SECIS ers a nm Oho es Genin Lor Hack OY Holes Tab ‘Wat Sve ound (November 26 2005) UR Hon of tay seed lle Incarnate {Bde tsar eet The plane used yy by Lo Back as Sint Wc taeda cot mn, cage ‘Spe peson wh soured the plane. eas prepared inthe pe’ aly ce ‘Sout wih Cite sient’ Ne Dense apse ors ‘Su yee renown 8 ada or copa aca sccrdg belonged to President Rooscach the subj ofa feat book by Lond Back Ti company hawt pblcyepuaned the fen foe eh $8 lon Deed byt Har fest sumer bye lt te apr him, Ld ck ep “Pon went sting at Pepe gc elke co cntrone imperfection in contracting ha expose thems 0 the ‘respect ofa ons behaving opportunstiay mand them Loess the {FSeate aries era poten om theses cooracng partes { piss of enuny capa ce labor, or oko nj) wl demand ie | etme contrat th he lo (hi respect the ageny ple ced LE naa ace Cheer) aig the mean of at mes, the corporation she mos portant egal ro snes agineaton: Awe describe in pee ths orm safc beease reduces the tana ss ot comples econo ‘onan But the corporate form doer 0 te Mak of esting ape) 13 Development of the Mera Theory ofthe Fim 6 problems hac must be constaineifit ist succeed Ths. principal an ‘feomporato lw efecto of ape) cons So ‘etre turing he coporte form, however mk to on sider the fle he lain reducing trasacuns cove in to ses omer lence, Chapter? tint othe aw of pec, oon ih the econcenc concep of agemey cmt dere name ae tt the Icgl concept of agent srt oth eeonemie concep: Dut atone smnscope) Chap induce the prtncnaip fos wich, spa om fatal peso, = the ample torn. legal iy for comeing ise an may be understood as 1 precuoe sed aerate othe