That’s my topic at 8:30 on Thursday at the Agency, Partnership, LLCs and Unincorporated Associations Section of the AALS (Wilson A, Mezzanine, Wardman Park). The general topic for the morning is “What Can Theoretical Perspectives Add to our Understanding of Unincorporated Business Associations?” and will also feature Rob Sitkoff, Vic Fleischer and Brett Freudenberg from Australia’s Griffith University (visiting Illinois this semester on a Fulbright).
My general hope for this session, and for the new AALS section generally, is that it can start to carve out a space for the unincorporated firm that distinguishes it from the corporation, which has so far dominated the discussion in business law. After all, unincorporated business associations are a huge chunk of the capitalist landscape. Don’t they deserve a place at the academic table?
My contribution for today has evolved a little from my original proposal (working title “Why Partnership?”) to map out the basic functions of partnership law. I’m going to do that, but within the context of showing the extent to which partnerships, or what I prefer to call “uncorporations,” are staging a quiet revolution and taking over the corporation's domain.
Of course most scholars now recognize the extent to which this has occurred for closely held firms in the wake of check-the-box. And we understand that uncorporations are at least niche players in the publicly held realm, e.g., through MLPs and REITs.
But what about the trillion-dollar private equity industry, plus hedge funds – all those limited partnerships that now control large chunks of corporate ownership? The portfolio firms may still be “corporations,” but it is the uncorporations that provide the critical discipline. In other words, the private equity boom is not just about leverage – it’s about a reshaping of corporate governance through the buyout firms themselves.
(This article in today’s WSJ says that firms are fighting back against private equity by leveraging themselves. My theory suggests that this will not produce the same gains. However, the leveraging accompanied by costly regulation of private equity could suck some of the life out of the private equity industry.)
I will discuss how the uncorporation fills gaps in corporate governance. Combined with other developments, including outsourcing, derivatives and regulation, the standard public corporation form is increasingly on the margin.
The corporation retains its dominance at least in part because of the strong political support for preserving corporate managers as quasi-bureaucrats who are susceptible to the demands of activists (e.g., unions) and legislators. The rise of the uncorporation threatens uncomfortably to put too much of the corporation’s wealth in the capitalists’ pockets.
Much of this will sound familiar from previous articles such as Why Corporations?, Accountability and Responsibility in Corporate Governance and The Evolving Partnership. But I will have some new twists on Thursday.
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