Putting the Corporation in its Place

This article challenges the idea that the corporation is a globallysuperior form of business organization and that the Anglo-Americancommon-law is more conducive to economic development than thecode-based legal systems characteristic of continental Europe.Although the corporation had important advantages over the mainalternative form of organization (partnerships), it also haddisadvantages that limited its appeal to small- and medium-sizedenterprises (SMEs). As a result, when businesses were providedwith an intermediate choice, the private limited liability company(PLLC) that combined the advantages of legal personhood andjoint stock with a flexible internal organizational structure,most chose not to organize as corporations. This article tracksthe changes that occurred in the menu of business organizationalforms in two common-law countries (the United Kingdom and theUnited States) and two countries governed by legal codes (Franceand Germany) and presents data showing the rapidity with whichfirms in each country responded to enabling legislation forPLLCs. We show that the PLLC was introduced first and most easilyin a code country (Germany) and last and with the most difficultyin a common-law country (the United States). Late introductionwas associated with prolonged use of the partnership form, suggestingthat the disadvantages of corporations did indeed weigh heavilyon SMEs.