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[Vol. 30:53

Until fairly recently, the options available in the business organi- zations market were somewhat limited. Sole proprietorships existed as a default choice, but—at least for form merchants—such busi- nesses were simply targets of opportunity; sole proprietorships were corporations-in-waiting.2 Limited partnerships were primarily used for tax shelters (remember tax shelters?) and continued to be sold to that segment of the market involved with real estate. For most other businesses, however, the forms market consisted of partnership or incorporation, although the availability of out-of-state incorporation did at least offer variations on the latter theme.

Those forms had both advantages and disadvantages. The part- nership form offered flexibility, informality, and pass-through taxa- tion, but exposed the partners’ personal assets to the risks of the business3 and could not be used by sole proprietors.4 The limited partnership conferred its liability shield at the price of active partici- pation in management.5 The corporation required adherence to statu- tory norms; a casual approach to corporate formalities could result in the loss of limited liability6 or the inability to enforce a shareholder agreement.7 In any event, incorporation introduced tax complica- tions. In short, there was no such thing as the perfect transactional vehicle.

Of course, business lawyers and accountants were fully aware of these imperfections and put their considerable talents to work in try- ing to cure them. Some of those efforts resulted in a major overhaul of an “old” form, the partnership.8 However, that overhaul did not

For purposes of this Article, whether the law “ought” to be a product which trades in a market is not at issue. Both the critics and the defenders agree that, as things stand, it is a product and that form consumers have opportunities for form shopping.

2. Incorporated sole proprietors who wanted to avoid double taxation at the federal level could do so with planning. State tax avoidance sometimes required more complex strategies, but this just increased the need for the planners’ services. I am indebted to my colleague Steve Bank for sharing with me his experiences in such planning and his wry ob- servation that clients were at times amazingly willing to spend large amounts of money on legal fees to avoid small amounts of taxes or filing fees. Behavioral economists studying bounded rationality might usefully consider adding a “government aversion effect” to their list of cognitive biases.

3. U.P.A. §§ 13-15 (1914) (making partners jointly and severally liable for a partner’s tort or breach of trust and jointly liable on partnership contracts).

  • 4.

    Id. § 6 (defining partnership as an “association of two or more persons”).

  • 5.

    U.L.P.A. § 7 (1916); R.U.L.P.A. (1976) (amended 1985). RULPA permits limited

partners to do quite a lot without losing their liability shield, but they still may not par- ticipate in control. A proposed revision to RULPA would eliminate that restriction.

  • R.

    U.L.P.A. § 303 (Tentative Draft, 2001).

    • 6.

      Failure to observe corporate formalities frequently appears on the list of reasons

to pierce the corporate veil, although it is difficult to tell whether that—or any other stated reason—actually produces the result. See, e.g., Robert B. Thompson, Piercing the Corporate Veil: An Empirical Study, 76 CORNELL L. REV. 1036 (1991).

  • 7.

    See, e.g., McQuade v. Stoneham, 189 N.E. 234 (N.Y. 1934) and its progeny.

  • 8.

    R.U.P.A. (1996) (amended 1997). Although the formal title of the statute does not

include the word “revised,” the new model statute is universally referred to and usually

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