The proliferation of partnership-based business organizations raises questions concerning the law’s role in shaping firms. Although many scholars have focused on business organization statutes, at least in the U.S. this law may be trivial in the sense that it simply reflects underlying business concerns. That is because firms easily can choose the applicable governance law, and therefore can avoid bad or unsuitable laws. I show that non-organization law may have a greater effect than organization law on the structure of firms because firms cannot easily avoid this law. Federal and state non-organization laws might significantly reduce the usefulness of business organization standard forms where transaction cost and legal considerations conflict. The efficiency of non-organization laws therefore depends on whether their interference with organization law can be reduced without unduly compromising their policy goals.


Law and Economics

Date of this Version

May 2005