Notes

What is Corporate Law?
HENRY HANSMANN and REINIER KRAAKMAN
1.1 Introduction
What is the common structure of the law of business corporations—or, as it
would be put in the UK, company law—across different national jurisdictions?
Although this question is rarely asked by corporate law scholars, it is critically
important for the comparative investigation of corporate law. Recent scholarship
emphasizes the divergence among European, American, and Japanese corporations
in corporate governance, share ownership, capital markets, and
business culture.
1
But, notwithstanding the very real differences across jurisdictions
along these dimensions, the underlying uniformity of the corporate form is
at least as impressive. Business corporations have a fundamentally similar set of
legal characteristics—and face a fundamentally similar set of legal problems—in
all jurisdictions.
Consider, in this regard, the basic legal characteristics of the business corporation.
To anticipate our discussion below, there are five of these characteristics,
most of which will be easily recognizable to anyone familiar with business
affairs. They are: legal personality, limited liability, transferable shares, delegated
management under a board structure, and investor ownership. These
characteristics are—for reasons we will explore—induced by the economic
exigencies of the large modern business enterprise. Thus, corporate law everywhere
must, of necessity, provide for them. To be sure, there are other forms of
business enterprise that lack one or more of these characteristics. But the
remarkable fact—and the fact that we wish to stress—is that, in market economies,
almost all large-scale business firms adopt a legal form that possesses all
five of the basic characteristics of the business corporation. Indeed, most small
jointly-owned firms adopt this corporate form as well, although sometimes with
deviations from one or more of the five basic characteristics to fit the special
needs of closely held firms. (Throughout this book, we will follow the usual
1
See, e.g., Ronald J. Gilson and Mark J. Roe, Understanding the Japanese Keiretsu: Overlaps
Between Corporation Governance and Industrial Organization, 102 Yale Law Journal 871 (1993);
Mark J. Roe, Some Differences in Corporation Structure in Germany, Japan, and the United States,
102 Yale Law Journal 1927 (1993); Bernard S. Black and John C. Coffee, Hail Britannia? Institutional
Investor Behavior Under Limited Regulation, 92 Michigan Law Review 1997 (1994);
Klaus J. Hopt and Eddy Wymeersch (eds.), Comparative Corporate Governance: Essays and
Materials (1997); and Mark J. Roe, Political Determinants of Corporate Governance
(2003).