The Anatomy Of Corporate Law: A Comparative And Functional Approach

by Reinier H. Kraakman (Editor)

This book is a concise analytical overview of the field of corporate law. The authors start from the premise that corporate (or company) law across jurisdictions addresses the same three basic agency problems:

(1) the opportunism of managers vis-�-vis shareholders;
(2) the opportunism of controlling shareholders vis-�-vis minority shareholders; and
(3) the opportunism of shareholders as a class vis-�-vis other corporate constituencies, such as corporate creditors and employees.

Every jurisdiction must address these problems in a variety of contexts framed by the corporation's internal dynamics and its interactions with the product, labor, capital, and takeover markets. The authors' central claim, however, is that corporate (or company) forms are fundamentally similar and
that, to a surprising degree, jurisdictions pick from among the same handful of legal strategies--although not always the same strategy--to address the three basic agency issues.

This book explains in detail how (and why) the principal European jurisdictions, Japan, and the United States sometimes select identical legal strategies to address a given corporate law problem, and sometimes make divergent choices. After an introductory discussion of agency issues and legal
strategies, the book addresses the basic governance structure of the corporation, including the powers of the board of directors and the shareholders meeting. It proceeds to creditor protection measures, related-party transactions, and fundamental corporate actions such as mergers and charter
amendments. Finally, it concludes with an examination of friendly acquisitions, hostile takeovers, and the regulation of the capital markets. This book should be of great interest to scholars and students of corporate and comparative law and to persons interested in business, finance, and economics
who wish to deepen their understanding of corporate law.

Genres: Law

Paperback

First published May 20, 2004

About the author

Reinier H. Kraakman is Ezra Ripley Thayer Professor of Law at Harvard University; he was previously Professor of Law at Yale Law School from 1981 to 1986.

After receiving a Fulbright Fellowship in Sociology he completed his B.A. in History and Science at Harvard College in 1971, a Sociology Ph.D. from Harvard University in 1973 and his J.D. from Yale Law School in 1979. He was elected a European Corporate Governance IInstitute (EGCI) Research Associate in 2006.

Reviews

[Yifan (Evan) Xu (Hsu) · Rating 4 out of 5]

To dispel the haunting question "What is the nature and rationale of corporate law?", one should read this book. For corporate laws arround the world (six developed countries: France, Germany, Italy, Japan, the UK, and the US), this book reveals their natures, justifies their existence and identifies contemporary thinkings surrounding them. Although not a legal guy, i found this book quite easy to read, probably because of its close tie to corporate finance.
　　　　
　　Viewing from a larger picture, corporate law is one conponent under the nexus of law and finance. Finance laws are sometimes viewed as governmental constraints on the purely voluntary economic activies in a laissez faire market; In other circumstances, they also enble activities never practiced by the market. In both cases, they govern the basic economic and business activities arround companies and have different roles associated with differing activities.
　　　　
　　Based on their roles, lines can be drawn to assort finance laws to three levels. The level 1 contains basic laws: property, contract and tort. They serve the public by empowering the recognition of property rights and enforcement of contracts. The level 3 laws are security laws, mostly SEC regulations, regulating transactions of ownership, assets and liabilities.
　　　　
　　Level 2 law is the underlying topic in this book: corporate law. Comparing to basic laws, it presents a more complicated case; comparing to security laws, it is often less controvesial. I think the reason is that corporate law is contractarian in nature; the agency relationship resembles a contract between citizens and governments. Clearly my view is only partially right. The book offers a much better description of the essence of corporate law as the limited liability and rules of corporate governance. In order to receive the benefits of limited liability for shareholders, corporations must abide by the rules of corporate governance law. The later mainly concerns the allocation of power among the common shareholders, the board of directors, and corporate managment. The most fundamental power stays with common shareholders who can vote directors and make several fundamental decisions for the company; the directors supervise the management and company's business, but not on a daily basis; management hired by directors is in charge of daily operations.
　　　　
　　The essense of corporate can also be seen in its five identified characteristics stated in chapter 1: 1) legal personality, 2) limited liability, 3) transferable shares, 4) delegated management under a board structure, and 5) investor ownership. Corporate law also effectively deals with conflicts among stakeholders, the "agency problems", of three types: 1) conflicts between managers and shareholders, 2) conflicts among shareholders, and 3) conflicts between shareholders and the corporation’s other constituencies, including creditors and employees. Chapter 2 dicusses these three agency problems with pratical preventive and corrective legal strategies.
　　　　
　　Chapter 3 - 9 deal with common transactions and decisions in corporation covering almost all important problems in corporate law. The orginal corporate activities are first presented, derived agency problems are then dicussed, the range of alternative legal responses are recommended, and lastly patterns of problems and resolutions are compared accross different jurisdictions. These insights are written in such a plain language and seem so fundamental that they should serve as introductory material for any law students and business profesionals.
　　　　
　　In regard to the diferences in corporate law between the six countries, the book considers different patterns of ownership as the culprit. The US and UK public firms tend to have widely distributed onwerships possessed ny numerious small investors; Japanese firms tend to favor share coalitions; European firms are often owned by institutional or family controlling shareholders. The variation of ownership styles contributes to the difference in corporate laws of these jurisdictions.
　　　　
　　Overall, the book explicates the most fundamental rationale of corporate law and offers full review of agency problems and legal solutions. Anyone in legal or business professions should not miss it.

[Penn Carey Law]

Edited by Penn Law Professor Edward B. Rock