Corporation Law and Economics
Essay：（no longer than 5000 words. Word limits exclude footnotes）
Critically evaluate the extent to which shareholders in all or any companies should enjoy limited liability.
Suggested steps in the critical review process:
▪identify the core ideas and arguments of the paper under review
▪disclose your main approach towards these propositions (agree, disagree)
▪justify your approach by analysing critically the main arguments used by the author in support
of their views; in doing so, use supporting arguments drawn from the other relevant readings
covered in the course up to this point, as well as from sources identified in your individual
research
▪identify potential weaknesses of your own approach and address them
▪conclude by reflecting on the importance of the topic and the strengths of your approach
Participating in the formative assessment is optional. This exercise will allow you to test your critical
thinking and writing skills and understand the expectations for the summative assessment.
Your essays should follow the School’s normal format requirements , which are as follows:
Paper: A4 Size, Portrait Form
Font: Arial
Font Size: 12
Margins: All 1 Inch (2.54 cm)
Line Spacing: 1.5
Footnotes Font Size: 10
Page Numbering:
All pages should be numbered in the following style; “Page x
of x” where the first x represents the current page number,
and the second x the total number of pages. Such
numbering should appear either at the very top or very
bottom of each page.
Referencing
When submitting assessed work for your courses you need to make absolutely clear where each idea or piece of information comes from by referencing it (giving your sources) in your own work.
Preferred Citation Style
The preferred citation style is the Oxford Standard for the Citation of Legal Authorities (OSCOLA).
OSCOLA a footnote citation style, so no in-text referencing or endnotes should be used.
Citations for any source, whether direct (a quotation) or indirect (paraphrased or relating an idea), should appear as footnotes in the OSCOLA style.
For longer essays, you should also include tables of legislation and cases, as well as a full bibliography.
You can find details of how to cite accurately in this style using the following
resources:
•Citing the law: referencing using OSCOLA tutorial (Cardiff University)
•OSCOLA Quick Reference Guide (Oxford University)
•OSCOLA, 4th Edition (Oxford University)
•OSCOLA 2006: citing international law section(Oxford University) (OSCOLA
(4th edn) does not cover International Law)
•OSCOLA styles for EndNote, LaTeX, Refworks and Zotero (Oxford University)
•Frequently asked questions about using OSCOLA style (updated 17
September 2014) (Oxford University)
Related Course Materials:
Shareholders’ Limited Liability and Voting Right
Seminar overview and objectives
In this seminar we will study the economic rationale for shareholder limited liability and shareholder voting, from the perspective of the contractarian view of the firm. We will discuss the economic benefits that the limited liability rule creates for shareholders (such as decrease of monitoring costs, free transferability of shares or increased managerial efficiency) and the potential costs that it imposes on creditors. We will also discuss the economic justifications for shareholder voting rights and practical aspects related to the exercise of these rights (rational apathy and shareholder activism).
LEARNING outcomes
By the end of this session, and having completed the prescribed reading, you should be able to:
1) understand the economic functions of limited liability.
2) critically analyse the legal rules designed to reduce the social cost of limited liability.
3) explain why is it argued that shareholder voting reduces agency costs? Do you agree?
4) discuss the effects of the collective action problem on the exercise of shareholders’ voting.
Discussion questions and activities
1) How does the limited liability of shareholders reallocate risk of business failure among corporate constituencies?
2) Do voluntary creditors benefit from shareholders’ limited liability?
3) Why do only shareholders have voting rights?
4) Discuss the main impediments to the exercise of voting sights by dispersed shareholders.
essential reading
1) Frank H. Easterbrook and Daniel R. Fischel, “Limited Liability and the Corporation” (1985) 52 University of Chicago Law Review 89-117
***ignore pp 109-114 on piercing the corporate veil***
2) Paul Halpern et al., “An Economic Analysis of Limited Liability in Corporation Law” (1980) 30 University of Toronto Law Journal 117-150
3) Frank H. Easterbrook and Daniel R. Fischel, “Voting in Corporate Law” (1983) 26 Journal of Law and Economics 395, pages 395-408
***read only parts I and II (395-408)***
4) Stephen M. Bainbridge, “The Case for Limited Shareholder Voting Rights” (2006) 53 UCLA Law Review 601-628
***skip pages 628-636***
further reading
Economic aspects of shareholders’ limited liability
5) William J. Carney, “Limited Liability” in Boudewijn Bouckaert, and Gerrit De Geest, (eds.), Encyclopedia of Law and Economics (Cheltenham: Edward Elgar, 2000) 659-691, available online at https://reference.findlaw.com/lawandeconomics/literature-reviews/5620-limited-liability.html.
6) Henry G. Manne, “Some Theoretical Aspects of Share Voting” (1964) 64 Columbia Law Review 1427-1445
7) Susan E. Woodwards, “Limited Liability in the Theory of the Firm” (1985) 141 Journal of Institutional and Theoretical Economics 601-6011
8) Henry Hansmann and Reinier Kraakman, “Toward Unlimited Shareholder Liability for Corporate Torts” (1991) 100 Yale Law Journal 1879-1934
9) Richard A. Booth, “Limited Liability and the Efficient Allocation of Resources” (1994) 89 Northwestern University Law Review 140-165
10) Charles AE Goodhart and Rosa M Lastra, ‘Equity Finance: Matching Liability to Power” (2020) 6 Journal of Financial Regulation 1-40
Shareholders’ voting rights
11) Robert Charles Clark, “Vote Buying and Corporate Law” (1979) 29 Case Western Reserve Law Review 776-807
12) Bernard S. Black, “Shareholder Passivity Reexamined” (1990) 89 Michigan Law Review 520-608
13) Milton Harris and Artur Raviv, “Corporate Governance: Voting Rights and Majority Rules” (1988) 20 Journal of Financial Economics 203–235
14) Michael C. Jensen and Jerold B. Warner, “The Distribution of Power Among Corporate Managers, Shareholders, and Directors” (1988) 20 Journal of Financial Economics 3-24
15) Dorothy S. Lund, “Nonvoting Shares and Efficient Corporate Governance” (2019) 71 Stanford Law Review 687-745
16) J Hardman, “Succession’s Lessons for the UK’s Dual Class Shares Debate: Beyond the Founder as the Benign Genius” (2022) Law, Culture and the Humanities https://doi.org/10.1177/17438721221080784
Other useful readings
17) William W. Bratton and Michael L. Wachter, “Shareholder Primacy’s Corporatist Origins: Adolf Berle and The Modern Corporation” (2009) 34 Journal of Corporate Law 99-152
18) Stephen M. Bainbridge, “In Defense of the Shareholder Wealth Maximization Norm: A Reply to Professor Green” (1993) 50 Washington and Lee Law Review 1423-1447
19) Jill E. Fisch, “Measuring Efficiency in Corporate Law: The Role of Shareholder Primacy” (2006) 31 Journal of Corporate Law 637-674
20) Ronald J. Gilson and Charles K. Whitehead, “Deconstructing Equity: Public Ownership, Agency Costs and Complete Capital Markets” (2008) 108 Columbia Law Review 231- 264
21) Brian Cheffins, “Creditors: The law’s treatment of their relations with shareholders and managers” in Brian Cheffins Company Law: Theory, Structure, and Operation (Oxford : Oxford University Press, 1997) 496-508
• note that this text was written before the Companies Act 2006 came into force, so beware of the legal references that are outdated; focus on the economic concepts and explanations
