The effect of formation rules on the functioning of capital markets: lessons from history

Carsten Gerner-Beuerle (LSE) on link between formation rules and the development of capital markets

An earlier post  (in Dutch) discussed the risk of moral hazard when limited liability allows company owners to take excessive risks without needing to fear personal losses. This goes to the expense of company creditors. Minimum capital requirements were suggested as a remedy since this raises the stakes for company owners and thus discourages excessive behavior.

A recent analysis of corporate and financial regulation in Britain and Germany in the 19th century argues, however, that stringent formation rules, such as minimum capital requirements, could possibly hamper the development of financial markets (see: C. Gerner-Beuerle, ‘Law and Finance in Emerging Economies: Germany and Britain 1800-1900, The Modern Law Review, Vol. 80 Iss. 2, March 2017, 263-298).

Continue reading “The effect of formation rules on the functioning of capital markets: lessons from history”

Our own private Delaware: the ‘partnership en commandite’

Lessons from an ancient experiment with light vehicles: on moral hazard, agency problems, publicity systems and the unsavoury regions of Flanders

The limited partnership or “partnership en commandite” (commenda, société en commandite, Kommanditgesellschaft) has been a fixture of continental business law since the 12th century. It is an entity with one or more unlimited partners and one or more limited partners. For a long time, the limited partnership was the only form offering limited liability off-the-shelf, without the need for a specific governmental authorization. In many jurisdictions the “partnership en commandite” still enjoys a quiet popularity. Continue reading “Our own private Delaware: the ‘partnership en commandite’”