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The requirement of consent for the transfer of shares and freedoms of movement : toward the liberalization of private limited liability companies : a comparative study of the laws of Portugal, France, Italy, Spain, the United Kingdom and the United States


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The Requirement of Consent for the

Transfer of Shares and Freedoms of

Movement: Toward the Liberalization of

Private Limited Liability Companies.

A comparative study of the laws of Portugal,

France, Italy, Spain, the United Kingdom and the

United States and its interplay with EU law.

Lécia Vicente

Thesis submitted for assessment with a view to obtaining

the degree of Doctor of Laws of the European University Institute Florence, 11 June 2014 (Defence)


European University Institute

Department of Law

The Requirement of Consent for the Transfer of Shares and

Freedoms of Movement: Toward the Liberalization of Private

Limited Liability Companies.

A comparative study of the laws of Portugal, France, Italy, Spain, the

United Kingdom and the United States and its interplay with EU law.

Lécia Vicente

Thesis submitted for assessment with a view to obtaining

the degree of Doctor of Laws of the European University Institute

Examining Board

Professor Hans-W. Micklitz (EUI/ Supervisor) Professor Stefan Grundmann (EUI)

Professor Martin Gelter (Fordham University Law School / External Supervisor) Professor Luca Enriques (LUISS/University of Oxford)

©Lécia Vicente, 2014

No part of this thesis may be copied, reproduced or transmitted without prior permission of the author



This thesis has benefited from language correction, generously sponsored by the European University Institute



To my Mom, Mãezinha




I would like to thank my supervisors, Hans-Wolfgang Micklitz and Martin Gelter, for their guidance and support. These chapters were initially drafted under the co-supervision of Larry E. Ribstein, at the time the Mildred van Voohis Jones Chair and Associate Dean for Research, at the University of Illinois College of Law. Many of his thoughts are presented herein. I cannot thank him enough for the privilege of working with him. I thank Roberta Romano, Henry Hansmann, Sean J. Griffith, Jennifer Robbennolt, Naomi Lamoreaux, Simon Deakin, Pierre-Henri Conac, Dhammika Dharmapala, and Stefan Grundmann for having discussed some of my ideas with me at different stages of my research.

I thank Pia Letto-Vanamo for having hosted me at the Institute of International Economic Law, University of Helsinki where I found a welcoming and invigorating environment to put some of my thoughts into words. Besides, my research was partly developed at Fordham University School of Law. I thank the Office of International and Non-JD Programs and the EUI Academic Services for having made my visit possible.

Additionally, I thank Sara Tropper, whose virtual acquaintance I was pleased to make, for her editing and helpful comments.

The empirical data for this dissertation could not have been collected, nor would the participation in conferences where they were presented have been feasible, without the research mission funds allocated by the Law Department. For this, I am grateful. Moreover, I could not have collected data and specific information I needed for the six countries I study herein without the collaboration of so many people who provided me with or helped me find what I was looking for. To all of them I express my appreciation.

This research was conducted over a long period. It was filled with solitary moments travelling or spent in archives where my thoughts were my only company. The kindness, understanding, warmth and help of dear friends who did not hesitate to host me and just be present for me turned this into an even more rewarding task. Last, but not least, I thank my family for their love and encouragement. I thank you, O, for the light and joy of being.



Translation Note

Extracts and legal provisions in Portuguese, Italian, Spanish, French, and German were freely translated to provide clear and idiomatic English. Except where referred to otherwise, their translation is the responsibility of the author. Very specific terminology and Latin expressions are left in the original.




In the ‘Requirement of Consent for the Transfer of Shares and Freedoms of Movement: Toward the Liberalization of Private Limited Companies – A comparative study of the laws of Portugal, France, Italy, Spain, the United Kingdom and the United States and its interplay with EU law’, I try to shed light on the dynamics of private limited liability companies (PLLCs), and how they can be legally designed to become efficient units of economic development in Europe and the United States. I take a social sciences approach to the legal question: How does the design of clauses establishing restrictions on transfer of shares of

private limited liability companies affect investment made in these companies and their consequent development? To answer this question, I develop two parallel lines of

investigation. First, I undertake an embedded historical study to trace the evolutionary patterns of PLLCs in six countries. Furthermore, I longitudinally track the standards of behavior of market agents in the selected jurisdictions. Second, I develop my legal research by looking at an anomaly regarding the transfer of shares and changes in the ownership structure of these business organizations. Transfer of shares in PLLCs is, for the most part, regulated by default rules which impose restrictions on transfers. Typically, the parties do not contract around these default rules. The anomaly lies in the fact that, even though shareholders of these companies do not opt out of these rules, shareholders often ignore them and/or breach them at a later stage. To understand this phenomenon, I collected data to learn how often these rules are included in the companies’ articles of association, their content and the allocation of decision-making power in the company. My empirical work was based on the analysis of more than 200 articles of association of companies in Portugal, France, Italy, Spain, and the United Kingdom and operating agreements of limited liability companies (LLCs) in the United States. I also analyzed almost 100 court decisions in the selected jurisdictions. My findings tend to confirm the hypothesis that shareholders of these companies normally do not contract around default rules, but they ignore them or breach them in order to maintain an engrained status quo in the company. My findings also show that there is a phenomenon of cross-over of the same contractual provisions to the articles of association of other companies in the same jurisdiction and to the ‘constitutional’ documents of companies in other jurisdictions. Sometimes, this happens over a time span of 100 years.

Theoretically, I try to bridge the gap between natural sciences and social sciences and frame my investigation by applying evolutionary theory to law. Methodologically, I use



comparative law, and law and economics. Given the context provided by the historical research, I compare market agents to selfish genes. I try to explain how PLLC’s law has been primarily designed at the market level through a process of coordination and competition between market agents favored by a principle of natural selection. PLLC law was created at the lowest level through experimentation and a network of lawyers, who acted like legal engineers, notaries and courts. Under these circumstances, only optimal legal solutions were preserved and reproduced. The legislation came after. Thus, I define law as a byproduct of private ordering manifestations. Richard Dawkins, for his part, might well define it as an 'extended phenotype’.

However, a delicate balance exists between cooperation and coordination among market agents at the lowest level in these business organizations. Evolution at the market level is limited particularly by the weak enforceability of the default rules that market agents do not contract around, and the bargaining failures these rules do not prevent. Hence, I normatively compare the role of lawyers, legislatures, regulators (or politicians) and courts to that of the scientist who uses biology as a cognitive tool to tame the silver fox through a process of artificial selection. By drawing this analogy, I dwell upon the concept of path-dependence in law and how it can be broken through legal engineering and experimentation. Most importantly, I make use of the biological notion of pleiotropy (the capacity of one gene to widely affect different phenotypic traits), which does not have a corresponding normative concept in law. Pleiotropy in this setting would refer to inheritance of legal solutions. Thus applied, fields of corporate law, contract law, and property law are shown to be related in unexpected ways. Further, the application of the notion highlights unintended consequences stemming not only from market dynamics, where lawyers arguably play an important role, but also from the way legislatures design law. The effects of restrictions on share transfer on the 'physiology' and 'morphology' of property rights in shares is illustrative, and a banner of this dissertation. In addition, because the concept of evolution has its own limitations, I suggest that law should be seen as a commodity that can be designed at the institutional level to overcome such limitations at the market level. In terms of my paradigm, this window of opportunity for new legal policies has much to do with the fact that the genetic traits of markets tend to be preserved, but the biological process does not. Accordingly, by playing the role of the scientist that tames the fox, legislatures are in a position to design the best default rules and lawyers are able to engineer the best legal solutions for these companies. They have the opportunity to promote ‘cross-fostering’ of PLLCs to advance their reproduction and longstanding development. This may lead to the hybridization of these business organizations



for specific rules of partnership law (e.g., dissolution at will) or corporation law (e.g., put rights) may be used to surpass bargaining failures and strengthen property rights of shareholders, especially minority shareholders in cases of deadlock or bilateral monopolies. At the policy level, this is undertaken through a model legal policy that interconnects society, legislatures, courts and regulators (politicians), and the market at a point where law is created from the bottom-up. At the economic level, I am calling for the liberalization of private limited liability companies which, I argue, may be potentiated by market integration and the promise of jurisdictional competition in Europe as a form to press for change in legal policy.



Table of Contents


PART I ... 35



(Description phase) ... 35

CHAPTER I ... 37



Introduction ... 37

1. The comparative framework ... 39

i. The object of the comparative research and illustration of the problems under investigation ... 39

a. The public / private companies divide: Where does the PLLC stand? ... 39

(i) The public company, PLC or corporation... 40

(ii) The private company or ‘uncorporation’ ... 42

(iii) Hybrid entities ... 44

b. Why are there restrictions on transfers? ... 45

c. Transfer of shares and agency problems in PLLCs ... 47

d. The research object ... 49

ii. Methodology for the comparison and comparative matrix for the laboratory ... 49

2. The empirical method ... 52

I. Data set... 52

II. Methodological challenges and the one view of the Cathedral ... 54

3. The theoretical framework: Darwin’s Principle of Natural Selection, the Law and Economics ... 59

4. Conclusions ... 61





Introduction ... 63

1. Restrictions on transfers of shares of private limited liability companies: An introductory historical account ... 65

1.1 PORTUGAL ... 67

I. State ... 67

i. Parliamentary debates, the reasons for the adoption of the ‘sociedade por quotas’ and the Law of 11 April 1901 ... 67

II. Actors ... 70

i. The role of lawyers and other technocratic elites in drafting and disseminating the new legal form ... 70

III. Market ... 72

i. Transfers of shares in the old and new regime and taxonomy of case law ... 72

1.2 FRANCE ... 77

I. State ... 77

i. The economic and social project of the société à responsabilité limitée and the creation of an experimental laboratory for the association of labor and capital... 77

ii. The legal framework of the société à responsabilité limitée: new rules out of old business forms and the transfer of shares (parts sociales) ... 85

iii. The legal framework of the société à responsabilité limitée: (cont.) ... 86

II. Actors ... 89

i. Applying the SARL’s law by drafting the company’s articles of association: ownership and corporate control ... 89

III. Market ... 92

i. Litigation over the requirement of consent (agrément): personal relationships of trust and conflicts cheek by jowl in the SARL ... 92

1.3 ITALY ... 95

I. State ... 95

i. The history of the Italian private company (società a responsabilità limitata): legislative projects, parliamentary debates and the allure of foreign investment ... 95

ii. The default principle of free transferability of quote and the openness of the legislation to private autonomy in Fascist Italy ... 99

II. Actors ... 101

i. The Italian SrL: how the ownership and governance structures fit a mold primarily based on private ordering ... 101



III. Market ... 105

i. Bargaining failures in the middle of a back-and-forth movement towards regeneration and preservation of the status quo in the company ... 105

1.4 SPAIN ... 108

I. State ... 108

i. The creation of the sociedad de responsabilidad limitada: from outlaw enterprise to legal business association boosted by jurisprudence, notarial practice, and the political values of franquismo ... 108

ii. The PLLC out of the dark: Flashbacks from the legal regime of transfer of shares and its reforms ... 113

II. Actors ... 116

i. Transfer clauses in the articles of association and the multiple designs of restrictions on transfers ... 116

III. Market ... 117

i. Zooming-in on the effects of the un-consented transfer of shares: disputes over transfers and changes in the ownership and governance structure of PLLCs ... 117

2. Conclusions ... 123




Introduction ... 127


I. State ... 129

i. Parliamentary debates, the constitucional documents of the company, private governance and the unleashing of the private limited company ... 129

II. Actors ... 134

i. The private limited company as a third way: some historical empirical evidence... 134

a. Hay’s Wharf Cartage Company Limited ... 136

(i) Assessment of the company’s constitutional documents ... 136

(ii) Distribution of dividends ... 136

(iii) Restrictions on transfer of shares and creditor protection ... 137

(iv) Membership and corporate governance ... 137



(vi) Taxation and new legislation ... 138

b. The use of the private limited company and the one-man company for tax avoidance: the case of super-tax and the Finance Act 1927, c. 10 ... 139

c. Irregular transfer of shares in the British Stone Marble Company, Limited ... 141

d. Directors’ Private Minute Book of the Forest Hill Brewery Company, Limited: What happens when a director is hired without the authority of shareholders? ... 142

ii. Restriction clauses on transfer of shares established in the articles of association of United Kingdom private limited companies ... 145

III. Market ... 151

i. Challenges to property rights of members and their transfer ... 151


I. State ... 157

i. The LLC breakthrough: state experimentation and legal engineering ... 157

II. Actors ... 165

i. The LLC is not just a matter of checking-the-box: Statutory provisions and regulation of the transfer of member interests in the companies’ operating agreements ... 165

(i) Types of transfer restrictions ... 165

(ii) The effects of un-consented transfers ... 175

(iii) The contractual governance of the companies ... 177

III. Market ... 180

i. The LLC at the crossroads: The case of contentious disputes over membership interests in the LLC ... 180

3. Conclusions ... 183


PART II ... 199



(Diagnostic phase) ... 199

CHAPTER I ... 201





Introduction ... 201

1. The law and economics of restrictions on transfer of shares: uncertainty and legal policy ... 203

i. The articles of association as ‘contracts for the governance opportunity’ ... 210

ii. The many purposes of setting forth consent stricto sensu in the articles of association of the company ... 216

2. The domestication of property rights and the silver fox ... 220

3. The relational element in PLLCs and the concept of equilibrium: an enquiry about the normative justification of restrictions ... 223

i. The concept of equilibrium ... 226

ii. The relational element ... 227

4. Conclusions ... 230

CHAPTER II ... 233


Introduction ... 233

1. The dual complexity of consent and the validity of the share sale and purchase agreement ... 234

2. The physiology and morphology of property rights in shares ... 242

3. A new conceptualization of property rights: To what extent can the fox be tamed? ... 251

4. Conclusions ... 258



Introduction ... 261

1. Hybrid property rights and piercing of the ownership veil ... 264

i. Why is the Berle-Means corporation not true of the PLLC? ... 267

ii. The implications of the Berle-Means corporation not being true of the PLLC ... 271

2. Fiduciary duties in PLLCs, the business judgment rule, and piercing the ownership veil ... 276

i. Fiduciary duties ... 276

ii. The Business Judgment Rule ... 283

iii. Piercing the ownership veil ... 293



CHAPTER IV ... 297



Introduction ... 297

1. The market and the production of new forms through natural selection: A promising new theory of defaults based upon a framework of entitlements ... 301

2. Property and liability rules and inalienability: engineering the protection of entitlements in the PLLC ... 304

i. Calabresi and Melamed’s entitlements framework ... 304

ii. The entitlements framework applied to the transfer of shares and a two-layer theoretical model ... 309

A. Layer 1 ... 312

(i) Allocation of shares when there is bargaining under conditions of perfect information. 312 (ii) Allocation of shares when there is bargaining under conditions of unverifiable information and strategic behavior ... 314

(iii) Allocation of shares when there is bargaining under conditions of asymmetries of information ... 315

(iv) The case for inalienability protection: Is there really a case? ... 318

B. Layer 2 ... 320

a. The aggregate’s maximization of benefits with the least costs when there is bargaining under conditions of perfect information ... 322

b. The aggregate’s maximization of benefits with the least costs when there is bargaining under conditions of strategic behavior and asymmetries of information ... 322

c. The aggregate’s maximization of benefits with the least costs. The case of liability rules ... 324

d. The aggregate’s maximization of benefits with the least costs: The case of inalienability. ... 326

3. Conclusions ... 327


PART III ... 333





CHAPTER I ... 335


Introduction ... 335

1. The company’s contract: Why do members use it? ... 337

2. Giving strength and substance to property rights through contract: How to manage the governance opportunity ... 341

(i) Governance as reflective of reality and lawyers as ‘reflective intermediaries’ ... 342

(ii) A multi-stakeholder perspective of the company and a ‘chicken and egg’ question – what comes first: the market or the law? ... 343

3. Mechanisms to define property rights as a management strategy of the governance opportunity ... 345

(i) Dissolution at will as a remedy for the un-consented transfer of shares ... 346

(ii) Lock-in clauses ... 359

4. Conclusions ... 361

CHAPTER II ... 363



Introduction ... 363

1. The definition of market and EU Treaty freedoms ... 366

(i) The concept of market ... 366

(ii) The definition of market access and ECJ’s criteria for interpreting rules of the Treaty on freedoms of movement ... 370

(iii) The internal market and the supply and demand of efficient rules ... 372

2. Jurisdictional competition in Europe: more than a promise or just a fallacy? ... 376

3. Evolutionary dynamics and knowledge spillover as sources of regulatory competition in Europe and change in legal policy ... 380

(i) The evolutionary process of competition in the internal market ... 381

(ii) Are default rules establishing restrictions on transfer of shares beneficial for large PLLCs? ... 383

4. Conclusions ... 385




Introduction ... 387

1. Synthesis: Filling in the Comparative Matrix ... 388

2. Conclusions ... 395


PART IV ... 399





Law is ‘social engineering’ and legal science is a social science.1

“What is law?” (a question that has little practical significance if, indeed, it is a meaningful question at all).2

Corporate law is inherently a messy business.3

1 K. Zweigert & H. Kötz, An Introduction to Comparative Law, tr. Tony Weir, 3rd ed., NY, Clarendon Press,Oxford, 1998, p. 45.

2 Posner, Richard A. Posner, ‘The Decline of Law as an Autonomous Discipline: 1962-1987’, Harvard Law

Review, vol. 100, No. 4, 1987, p. 765.

3 Ribstein, Larry E., ‘The Uncorporation and Corporate Indeterminacy’, Illinois Law Review, vol. 2009, 1, 2009, pp. 131-166 (166).




This study has a fourfold purpose. First, it returns to basics and emphasizes contractual aspects of corporate law.4 In fact, this research puts small businesses in the spotlight: it looks at their history, at the essential elements of the market structure in which they operate, and at their governance and ownership structures in order to test the efficiency of and reasons for default rules on transfer of shares. Second, this research aims to show how the law fails to keep up with practice, and why it may be the case that we need more or less law.5 Third, it

proposes a theory of incentive default rules framed by an evolutionary approach (evolutionary theory of incentive corporate default rules) which conceptualizes default rules as commodities with a contractual purpose which is primarily created at a lower level than legislatures – the market. Fourth, as a comparative law study it tries to provide an answer to two sub-questions: Do the above-noted default rules vary across jurisdictions, and if the selected jurisdictions have similar problems of parties ignoring the default rules, what might explain the differences and/or similarities of the rules across jurisdictions?; and, Does the law lag behind or stay current with practice in the various jurisdictions, which might say something about the efficiency of lawmaking across countries?

Law, perceived more and more within the context of global phenomena,6 lacks a universally accepted definition. Thus, the question What is law today?’ awaits a comprehensive answer. Crucial to this inquiry is a thorough consideration of the normative foundations of law, or more technically speaking, of the sources of law. But it requires a great deal more: the main discourses fleshing out the law must be kept in mind (culture, economics, rational choice theory, evolutionary theory). Moreover, a choice must be made as to the nature of the arguments necessary to explain the meaning of law.7

4 The term ‘company law’ is mostly used in the United Kingdom, whilst ‘corporate law’ is widely used by American scholars and in American jurisprudence. I use it here interchangeably.

5 See Kobayashi, Bruce H. And Ribstein, Larry E., ‘Law as a Byproduct’, Illinois Program in Law, Behavior and Social Science Paper No. LBSS11-27, 2011.

6 See Santos, Boaventura de Sousa, ‘Globalization, Nation-States and the Legal Field: From Legal Diaspora to Legal Ecumenism?’ in idem, Toward a New Legal Common Sense: Law, Globalization, and Emamcipation, 2nd. ed., London, Butterworths, LexisNexis, 2002, pp. 163-311.

7 See Case, Mary Anne, ‘Is There a Lingua Franca for the American Legal Academy?’, in Mertz, Elizabeth (ed.),

The New Legal Realism, Cambridge University Press, 2013. University of Chicago Coase-Sandor Institute for

Law & Economics Research Paper No. 647, Available at SSRN: http://ssrn.com/abstract=2296602 (accessed on 19 August 2013), p. 4 (arguing that ‘… whether or not there is a lingua franca in the legal academy, there is a vernacular, the language of doctrine’. Referring in particular to the American case she submits that ‘Doctrine is the vernacular of American law along a variety of dimensions: It is not imported from another discipline, but indigenous. While some of its characteristic words and phrases originated elsewhere and some have penetrated to broader American society, it is spoken fluently only by lawyers’. Focusing on the American example, this author resists accepting law and economics as the dominant language of legal academy.



This study takes an evolutionary approach to law and asks: How does the design of

clauses establishing restrictions on transfer of shares of private limited liability companies affect investment made in these companies and their consequent development?8 This is the

research question driving this comparative study.9 The underlying idea is that as long as these business associations have an adequate legal structure, they can become relevant players in the market, with the ability to attract investment, and lock in capital. In this way, such associations find themselves in the position of being able, if necessary, to draw the attention of legislatures and courts to the need for reform.10 Given the above, the following

sub-questions may be asked: Are PLLCs capable of overthrowing public limited companies? Are they able to overcome the policy trends that have been aligned for so long in favor of public limited companies? The answer, at least in the United States, seems to be ‘yes’.11 Moreover,

one can ask, would it be beneficial for firms to mix corporate and uncorporate features, thereby blurring the distinctions between the two categories of firms?12 For example, in Part

8 See Deakin, Simon, ‘Evolution for our Time: A Theory of Legal Memetics’, Current Legal Problems, vol. 55, No. 1, pp. 1-42; Hansmann, Henry et. al. ‘The New Business Entities in Evolutionary Perspective’, in MacCahery, Joseph A. et al (eds.), Private Company Law Reform: International and European Perspectives, 2010, The Hague, T.M.C. Asser Press, pp. 15-22; and Zumbansen, Peer, and Callies, Gralf-Peter (eds.), Law,

Economics and Evolutionary Theory, Cheltenham, United Kingdom; Northampton, MA, USA, 2011. In some

instances of this dissertation it will come clear to the reader that I am trying to understand the behaviour of corporate constituencies using what one would define in economic parlance ‘economic models of behaviour’. This might be true. I will not, however, use technical economic terminology.

9 See Davies, Paul L., Introduction to Company Law, Oxford, Oxford University Press, 2002, p. 283 (stating that ‘Providing a legal framework which facilitates the growth of small companies is particularly important in public policy terms’).

10 This idea calls to mind the literature on law and finance. This literature, which is best substantiated by the work of La Porta et al., seeks to empirically demonstrate the connection between the qualitative features of legal systems and the nature of capital markets and corporate governance structures in different countries. See, for instance, La Porta, Rafael et al., ‘Law and Finance’, Journal of Political Economy, vol 106, No 6, 1998, pp. 1113-1155. My work, as described in the text, focuses on private companies and on the type of market there is or can be for their shares. In order to understand the macroeconomic impact these companies can have through the design of efficient rules included in their articles of association, my work thinks small first. It tries to explain the micro-level dynamics of these business associations’ ownership structures. Additionally, it looks at relevant articles of association and operating agreements to clarify if and how these business associations and their constituencies can be at the top of their game when it comes to developing new and efficient governance structures. This common tendency to link law and development has a long history: it was pioneered by classical social theorists such as Marx, Durkheim and Weber. On one hand, the challenge now in the twenty-first century is offered by globalization of markets and legal institutions, and on the other hand by legal pluralism at the national and transnational levels.

11 See Ribstein, Larry E., ‘Uncorporating the Large Firm’ in idem, The Rise of the Uncorporation, New York, Oxford University Press, 2009, pp. 193-246.

12 See Ribstein, Larry E., ‘Limited Liability Unlimited’, 24 Delaware Journal of Corporate Law, 1999, pp. 407-450 (proposing an alternative to business association status – the ‘Contractual Entity’). Also see Ribstein, Larry E., ‘Uncorporating the Large Firm’, in idem, The Rise of the Uncorporation, cit., pp. 193-246; and Williamson. Oliver E., The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting, New York, The Free Press, 1985, p. 159 (in trying to provide an answer to the question ‘why can’t a large firm do everything that a collection of small firms can do and more?’ Ribstein states that ‘…at least for many projects that do not require an enormous research commitment, large companies are becoming increasingly aware that the bureaucratic apparatus they use to manage mature products is less well-suited to supporting early stage entrepreneurial activity. Hybrid forms of organization result’).



III, Chapter 1, I propose dissolution at will as a mechanism of governance of contractual relations between corporate constituencies. When would that be beneficial, especially bearing in mind that uncorporations (partnerships, limited partnerships and LLCs), allow shareholders to choose their level of autonomy? How much autonomy do shareholders really need?13

This study is inspired by a number of default rules regulating the transfer of shares in private limited liability companies (PLLCs) in Europe and the United States. These rules are Article 228(2) of the Portuguese Commercial Companies Code (Código das sociedades

Comerciais) referring to the Portuguese sociedade por quotas, Article 2469 of the Italian

Civil Code (Codice Civil) regarding the società a responsabilità limitata, s. 544 (1) of the United Kingdom Companies Act 2006 regulating the private limited company, § 18-702 of the Delaware Limited Liability Company Act and § 603 of the New York Limited Liability Company Law regulating the limited liability company (LLC) in Delaware and New York, respectively. Except s. 544 (1) of the Companies Act 2006 and Article 2469 of the Italian Civil Code, which establish a default principle of free transferability, all the other rules provide restrictions on transfer of shares. These are not restrictions on access to capital markets. These restrictions impose an obligation not to transfer the shares of PLLCs. In many circumstances, if transfers are not consented to under these rules, they have no effects vis-a-vis the company and other non-transferring shareholders. However, they still have effects between the parties to the share sale and purchase agreement. These restrictions, besides being provided by default rules, also are introduced by the parties into the companies’ articles of association. In the case of France, the respective rule is a default regarding the majority requirement to consent to a transfer, but the imposition of restrictions on transfers is mandatory.

These rules and the procedures that they invoke yield different approaches to transfer of shares in PLLCs.14 I am interested in the exogenous effects of these rules: I wish to determine

how they affect PLLCs’ development.15 By inquiring about the sources of development of

PLLCs, I am not necessarily advocating access to capital markets for these companies. Indeed, the companies may wish to grow without becoming public. In addition to the analysis

13 The terms shareholder and member are used interchangeably in this dissertation.

14 For a different, but also interesting approach see Möslein, Florian, Dispositives Recht: Zwecke, Strukturen und

Methoden, Tübingen, Mohr Siebeck, 2011.

15 An investigation of their endogenous effects alone would be very difficult to assess by means of a cross-country observation whether they matter and have a causal effect on these business associations.



of default rules, I pay close attention to selected case law regarding disputes over the transfer of shares of PLLCs.16

Despite the research question upon which this study is based, I do not assume the utility function of law for the development of PLLCs. I am instead interested in understanding why it is that their members would care about the effect of ‘jural principles’ on their company’s development. (A crucial point that I will develop is exactly which members would care.) I want to discover how their interests and goals are shaped by their membership. Therefore, to show the importance of the legal framework of PLLCs in each jurisdiction and why it is worth studying how their shares are transferred as well as the complexity of their ownership structures, Part 1 presents an introductory historical account of their legal regime and the above-mentioned rules. This task is undertaken by analysing the minutes of parliamentary debates, operating agreements of LLCs17 and articles of association published in the country’s

Official Gazette, the Companies House, UK18 or treated in WestlawNext and Bureau van Dijks

databases such as Amadeus, Astree, in France, Aida in Italy, Orbis, in the United States, and

Fame in the United Kingdom. With this introductory account of the history of PLLCs, Part 1

explains why these business associations exist. I also hope to shed light on the rationale behind the creation of restrictions on transfer of shares, and to explain why these governance techniques are designed as they presently are. Ultimately, this embedded historical analysis seeks to show what the existence of default rules implies about the historical development of business association law in the selected jurisdictions.19

An in-depth analysis of samples of case law in the selected jurisdictions disclosed four pivotal elements: shareholders’ opportunistic behavior; bargaining failures; difficulties in combining action among shareholders, and among shareholders and other non-shareholder constituencies such as creditors; shareholders holding-up others; and, finally, situations of

16 See Poteete, Amy R. et al., Working Together: Collective Action, the Commons, and Multiple Methods in

Practice, Princeton and Oxford, Princeton University Press, 2010, p. 46 (‘The more lawlike and specific a

theory, the more readily it can be tested through carefully selected case studies...’).

17 These agreements contain specific requirements regarding the transfer of shares or sale of membership interests. In this context, see Romano, Roberta, ‘Corporate Governance in the Aftermath of the Insurance Crisis’,

Emory Law Journal, vol. 39, 1990, pp. 1155-1189 (1160-1161) (stating she collected a random sample of 180

Delaware publicly held companies which adopted in their charters a limited liability provision following the enactment in this state of a statute limiting directors’ liability).

18 The Companies House is an Executive Agency of the Department for Business, Innovation and Skills (BIS), where all limited companies in England, Wales, Northern Ireland and Scotland are registered.

19 See Martino, Paolo Di, ‘Lobbying, Institutional Inertia, and the Efficiency Issue in State Regulation: Evidence from the Evolution of Bankruptcy Laws and Procedures in Italy, England, and the United States (c. 1870-1939)’ in Batilossi, Stefano; and Reis, Jaime (eds.), State and Financial Systems in Europe and the USA: Historical

Perspectives on Regulation and Supervision in the Nineteenth and Twentieth Centuries, Farnham, Surrey;

Burlington, Ashgate, 2010, pp. 41-54 (51) (asserting that ‘…the past is important in shaping the availability of present options.’ This is how he defines path-dependency).



deadlock which resemble bilateral monopolies within the company,20 and for which articles of

association do not provide efficient exit mechanisms or other relevant provisions.21 These

problems tend to overlap and are likely to be mentioned in the literature in respect to the publicly held company. Interestingly, however, they also appear in the PLLC. For instance, cases adjudicated by courts in Portugal suggest that there is a downside to the freedom of contract enjoyed by shareholders in these companies. Shareholders introduce restrictions on the transfer of shares to protect their status quo (or to maintain the status quo provided by the law), ownership structure and control of the company.22 At a certain point, however, they face

difficulties in acting together in their common interest and in the interest of the company.23

Furthermore, conflicts between these companies’ constituencies are normally and more easily internalized by contract. Therefore, Part II, Chapter 1 examines potential agency problems and problems of private governance as they appear in the context of the environment framing the relationships among shareholders and between them and directors / managers in these business associations.24 In particular, it provides an account of the purpose of establishing

20 See Easterbrook, Frank H. and Fischel, Daniel R., ‘Close Corporations and Agency Costs, Stanford Law

Review, vol. 38, N.º 2, 1986, pp. 271-301 (279) (arguing that ‘The more power minority shareholders have, the

more likely is deadlock. The possibility of deadlock also exists where the number of shareholders is small and shares are distributed so that votes can be evenly split’. These two authors link deadlocks to opportunistic behavior and rent seeking). Also see Posner, Richard, Economic Analysis of the Law, 3rd. ed., 1985 (dwelling on the problems of bilateral monopolies in closely held corporations).

21 My initial intuition was confirmed by the literature after a thorough analysis of case law. See Whincop, Michael J., ‘Painting the Corporate Cathedral: The Protection of Entitlements in Corporate Law’, Oxford Journal

of Legal Studies, vol. 19, 1999, p. 30 (claiming that ‘A great deal of work remains to be done in analysing how

the protection of entitlements in corporate law doctrine affects this process of coalitional bargaining’). Also see Miller, Sandra K., ‘Fiduciary Duties in the LLC: Mandatory Core Duties to Protect the Interests of Others Beyond the Contracting Parties’, American Business Law Journal, vol. 46, 2, pp 243-278 (259) (apropos the lack of considered negotiation in LLCs noting that her ‘…preliminary findings point to the possibility of significant differences in legal representation between controlling and noncontrolling investors. The evidence also points to the fact that LLC investors may well enter into LLC agreements without having carefully reviewed and/or negotiated terms. Under such circumstances, it is unlikely that such investors would end up being well protected under a statutory regime that permitted the elimination of fiduciary duties or which required the express adoption of duties’).

22 I am here referring to economic control.

23 Regarding the case of the United Kingdom under a historical perspective, see Harris, Ron, Industrializing

English Law: Entrepreneurship and Business Organization 1720-1844, Cambridge, Cambridge University Press,

p. 92 (mentioning that within the taking by individuals instead of municipal corporations of river navigation projects in England in the early eighteenth century, there was growing need to share the burden of financing such projects. Harris, although referring to the corporate form, explains that ‘...a standard act named undertakers and, in so doing, in fact prohibited transferability of their interests to individuals not named in the act. A problem occurred when the financial resources of the undertakers ran out before construction was completed. Original undertakers may then have wanted to desert, to be replaced by new undertakers, or to add more undertakers to share the financial burden with them. A formal solution could be to amend each act when new individuals joined, but this solution was not very practical. A more practical solution was to ignore the authorizing status on this point and to transfer shares by agreement between the outgoing and incoming undertakers’. Further historical examples of this kind are presented by Harris in his book.

24 Agency problems between shareholders and managers / directors of the companies are more frequently referred to in the United Kingdom and United States literatures. These countries, at least regarding the public company, are characterized by dispersed ownership and very strong securities markets. The situation is different



restrictions on transfers, considering that often these restrictions are ignored and shares are transferred in breach of the company’s articles.25

My hypothesis is that when legislators select default rules the substantive preferences of parties may change, but they do not necessarily do so, even when, for the sake of competition in the market and according to an evolutionary pattern, that change would be desirable. Parties prefer to preserve the status quo in their contractual arrangements. They seem to want to keep this status quo regardless of the purpose of the default rule. Why does this status quo exist? To what extent does it affect the development of business associations? Is there a relationship between the development of PLLCs and the type of defaults selected by legislators and courts? These are the questions I am trying to answer.

Notwithstanding the hypothesis I have ventured above, I view defaults as neither useless nor redundant.26 On the contrary, I want to ‘test’ whether and to what extent their nudging

effect can be used to induce the development of these business associations.27 From an

for Continental Europe where public companies display more concentrated ownership, and agency problems are held in check by majority shareholders and other non-shareholder constituencies such as creditors.

On the other hand, one can also assume that where the protection of property rights is weak, shareholders will feel the need to take a more hands-on approach with their business and, as consequence, handle the management of the company themselves, or keep a close eye on the management undertaken by the manager to whom they delegated these tasks. This, one can assume, would be the best way shareholders have to keep their influence in the company. However, if the protection of their property rights is stronger, shareholders will have problems with sharing their personal gains with outsiders. They may even tend to rely more on the managers they appoint. If this is true of some situations, it is not necessarily true of all situations, especially regarding the PLLC, where the separation between ownership and control is frequently unclear. I am not attempting to establish a causal effect between the strength of property rights and agency costs. This is explored further on in the dissertation. Also see Burkart, Mike et al., ‘Family Firms’, The Journal of Finance, vol. 58, No. 5, 2003, pp. 2167 – 2201 (claiming that the separation of ownership and management suggests there is a superior corporate governance environment. They also call attention to the fact this separation is less likely to exist in family firms, even if publicly held. This, as such, they say, indicates poorly developed financial markets).

25 See Ribstein, Larry E., and Lipshaw, Jeffrey M., Unincorporated Business Entities, 4th ed. Newark, 2009, p. 447 (claiming that ‘…transfer restrictions – particularly the unanimity requirement for transfer of management rights – impose costs that may exceed their benefits. Given the limited liability of LLC members and the centralization of management in many LLCs, the transfer of management rights in an LLC is not the sort of momentous event that it may be in a general partnership. The “majority in interest” may create confusion, particularly under statutes that provide generally for voting based on member contributions or on some other basis’). Also see Ribstein, Larry E., ‘Statutory Forms for Closely Held Firms’, 73, Washington University Law

Quartely, 1995, pp. 369-432 (418) (clarifying that limitations on the transferability of shares are incompatible

with the efficiency hypothesis he presents in the paper. As he puts it ‘Restrictions on transferability necessitate costly negotiations for consent and the potential members may opportunistically withhold their consent. Moreover the costs of restricting exit may be particularly high if members have given up voice by opting for centralized management’).

26 See Black, Bernard S., ‘Is Corporate Law Trivial?: A Political and Economic Analysis’, Northwestern

University Law Review, vol. 84, 2, 1990, pp 542-597 (555) (stating that ‘The quintessential avoidable corporate

rule is the default rule that begins “unless otherwise provided in the charter (or bylaws)”. This means that, according to the triviality theory ventured by him in his paper, defult rules are necessarily trivial. However, counter to Black, I think there still is much left in the corporate glass).

27 See Ayres, Ian and Gertner, Robert, ‘Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules’, The Yale Law Journal, vol. 99, No. 1, 1989, pp. 87-130 (in the context of strategic behaviour of the parties, Ayres and Gertner (proposing ‘penalty default rules’ which incite the disclosure of information by one of the parties to a contract).



evolutionary point of view, I endorse the understanding that law, including common law, is not a spontaneous order. I call it a 'byproduct of informal manifestations of private ordering'.28

Richard Dawkins would probably call it an 'extended phenotype'. A short biographical note is in order. A recent visit to the American Museum of Natural History called my attention to experiments regarding the domesticated silver fox. The experiments undertaken in the former Soviet Union and later in Russia showed that as a consequence of a selective breeding process, foxes bred in a peculiar environment of domestication developed dog-like morphological and behavioral traits including color of fur, size of ears and skull, barking and submission. These experiments suggest two things. First, there is a natural response and evolutionary process of adaptation of living beings to purposeful actions of tameability. The analogy with law boils down to the idea that the 'morphology' of law is likely to be conditional upon the context and environment in which it is applied and on the stimulus to which it is subjected. Second, sometimes things are linked in a way we do not expect, and this linkage is likely to change the environs as a result of new traits they develop. Thus, there are unintended consequences in this process of path-dependence or pleiotropy in law.29 I derive

from this idea in Part II, Chapter 1 a new conceptualization of property rights. Restrictions on transfer of shares are likely to change the 'morphology' and 'physiognomy' of property rights in shares. Their absolute nature is modified. Like the silver fox, they are ‘tamed’. This notion of pleiotropy in corporate law based upon the drawing of contractual clauses restricting transfers of shares of PLLCs is further extended in Part II, Chapter 2. Here, I try to understand how restrictions on transfers affect the share sale and purchase agreement and the implications of these restrictions for the definition of shares. The pleiotropy idea is also extended in Part II,

28 By considering that law is not a spontaneous order I am referring to legislation and legal solutions adopted by legislatures. The idea is that legislation and legal solutions always come afterwards. See Ratnapala, Suri, ‘The Trident Case and the Evolutionary Theory of F.A. Hayek’, Oxford Journal of Legal Studies, vol. 13, 2, 1993, pp. 201-226 (referring to ‘deliberate law making’ as a relatively recent human activity). Also see Ratnapala, Suri, ‘The Trident Case and the Evolutionary Theory of F.A. Hayek’, cit. p. 211 (claiming that Hayek does not deny the need for legislation. Legislation is sometimes required in relation to tasks for which the rules of a spontaneous order are inappropriate. Legislation is also required to correct the sometimes unsatisfactorily directions in which the common law develops. But Hayek insists that if liberty is to be preserved, legislation which affects rules of just conduct should themselves imitate nomos. That is to say, they should be general, end-independent and applicable to an indefinite number of unknown future situations. They should not be calculated to achieve particular material results). Additionally, see Benson, Bruce L., ‘The Spontaneous Evolution of Commercial Law’, Southern Economic Journal, vol. 55, 3, 1989, pp. 644-661 (644-45) (arguing that ‘…rules of property and contract necessary for a market economy, which most economists and legal scholars feel must be “imposed”, have evolved without the design of any absolute authority’).

29 See Whitman, Douglas Glen, ‘Hayek contra Pangloss on Evolutionary Systems’, Constitutional Political

Economy, vol. 9, 1, 1998, pp. 45-66 (50) (arguing that ‘If changes in the traits of an organism can shape the

environment as well as be shaped by it, the very idea of optimal adaptation gets murky because it is unclear that a steady-state relationship between organism and environment will always occur’). See Whitman, Douglas, ‘Hayek contra Pangloss on Evolutionary Systems, cit. pp. 52-53 (referring to pleiotropism in the context of cultural evolution).



Chapter 3 where I try to demonstrate that restrictions not only affect property rights in shares, but also are likely to affect the governance of the company to the point that it is necessary to pierce the ownership veil of the company to understand who really is in control of the decision-making. This knowledge is important because it sheds light on how consent to transfer is executed, and how that can affect the exercising by shareholders of property rights in their shares. Moreover, the act of piercing would serve to unveil agency problems and conflicts between majority and minority shareholders in the PLLC. The blurred lines separating ownership from control in the PLLC make frequency of occurrence of these problems and/or conflicts difficult to determine. A third extension of the pleiotropy notion is undertaken in Part III, Chapter 1 where, after I demonstrate the superiority of property rules to liability rules and inalienability in Part II, Chapter 4, I suggest forms to contractually design the company’s articles of association to strengthen property rights in shares and prevent bargaining failures.

In my view, the problem of path-dependence in biology and, to a certain extent pleiotropy in law, echoes political economy dependence and doctrinal path-dependence.30 On one hand, there may be interest groups that lobby for a prevailing status

quo.31 On the other hand, there may be an entrenched legal system which is not able to

regenerate itself completely. Nothing new develops. Rather, there is an adaptation of existing legal solutions, which are in fact changed with the least possible effort. New legal solutions are often constructed upon the bits and bytes of the existing law. Some concepts and legal institutions tend to be coupled even when they generate suboptimal results. The question is: Can they ever be separated, and, if so, how? I suggest that path-dependence patterns and pleiotropy in law and legal doctrine can be broken by experimentation undertaken at a structurally lower level where lawyers, notaries, bar associations, non-governmental organizations, and law consumers in general are able to network and set rules before the legislator does.32 For instance, an attempt at strengthening property rights by drafting the

30 See Dawkins, Richard, The Selfish Gene, Oxford, Oxford University Press, 1976 p. 12 (arguing that ‘…the best way to look at evolution is in terms of selection occurring at the lowest level of all’. And he goes on saying that ‘…the fundamental unit of selection, and therefore, of self-interest, is not the species, nor the group, nor even strictly, the individual. It is the gene, the unit of heredity’.).

31 See Ratnapala, Suri, cit, pp. 225-226 (advocating that nowadays judges are not immune to political lobbying. Unlike in former times, they are no longer insulated in their task of adjudicating. So, she submits that if common law is to be maintained, judges should justify the continuing relevance and value of the tradition of judicial restraint. This justification should be drawn upon a general political theory able to claim its autonomy in face of the pressure of political groups).

32 The French case, for instance, is illustrative. The legislator, whilst reforming the legal regime of the SARL, has been inspired by and has drawn upon some of the solutions for professional organizations. The hope of some scholars is that if changes to the SARL follow the recommendations of representatives of these professional



company’s contract fosters this kind of experimentation. Following this point of view, I look at law and legal solutions from a bottom-up perspective to see which legal solutions work best.3334 I illustrate this with a three-level model of legal policy in Part II, Chapter 1. The first level is the level of the society. Level 2 is the level of legislatures, regulators (politicians) and courts. The third level is the level of the market where we can find 'genetic traits' of corporate default rules. This model highlights, for the most part, how the second and third levels are interwoven. It suggests that this interconnection is likely to affect the first level. The way it affects the level of the society (i.e., the aggregate), especially when it comes to define the use of resources to maximize benefits with the least cost, may imply that a decision must be taken as to whether one places greater value on the market or the society. It is a knotty issue. This model delineates my idea of a bottom-up approach to law and is meant to be a point of departure for legal policy.

However, historical records I collected during this study show that in many instances law is contingent upon the influence of interest groups and unexpected circumstances that render it incapable of reflecting about the conditions of its own application and evolution.35

Hence, this study rebuts assumptions of the type labeled by Korobkin as a ‘preference exogeneity assumption’ as well as theoretical models based on pronouncements of rational choice theory.36 This particular assumption is criticized by Korobkin, who considers it organizations, they should find a favorable echo in practice and thus enhance the use of SARL. See Saintourens, Bernard, ‘L'attractivité renforcée de la SARL après l'ordonnance n° 2004-274 du 25 mars 2004’, Revue des

sociétés, 2004 p. 207- (…). In the case of the United States, see Ribstein, Larry E., ‘The Evolution of the Modern

Uncorporation’, in idem, The Rise of the Uncorporation, New York, Oxford University Press, 2010, pp. 131 (affirming that ‘…the main force driving the evolution of the LLC statutes appears to be lawyers who have an interest in promoting their individual reputation as experts in the area and in ensuring that the law of their home state was attractive to business formation’). Also see Ribstein, Larry E., ‘Statutory forms for Closely Held Firms’, 73Wash. U. L. Q., pp. 369-432 (400) (stressing the central role of the practicing bar in both demanding and supplying legislation); and Ribstein, Larry E, ‘The Emergence of the Limited Liability Company’, The

Business Lawyer, vol. 51, 1, 1995-1996, pp. 1-49 (4) (arguing that ‘The growth of the LLC has been spurred

largely by state bar committees rather than by independent legislative initiaves’).

33 I am not endorsing a self-regenerating evolutionary legal system precisely because I believe the situations of path-dependence I refer to in the text lead to suboptimal results. I am arguing that law can have a corrective effect when legislatures are able to stay connected with this network of stakeholders (lawyers, notaries and corporate law consumers) and the market, and draw the legislative process accordingly. For instance, there are historical and anthropological data revealing how far law can go in developing family enterprise. See Yanagisako, Sylvia Junko, Producing Culture and Capital: Family Firms in Italy, Princeton and Oxford, Princeton University Press, 2002, pp. 170-173 (referring to the reform of the Italian Civil Code in 1975 and to the introduction of changes to inheritance law. These changes enabled women – mothers, daughters and sisters - to champion a new position in the company’s ownership structure).

34 I thank Roberta Romano for her comments and for having discussed some of these ideas with me. Naturally, all mistakes and omissions are mine.

35 This view differs from those suggested by proponents of ‘reflexive law’.

36 See Korobkin, Russell ‘The Status Quo Bias and Contract Default Rules’, Cornell Law Review, vol. 83, 3, 1997-1998, pp. 608-687 (The assumption referred to by Korobkin is based on the idea that ‘...contracting parties’ preferences for the substantive terms of their contracts remain the same regardless of the choice of default rules’. For law and economics advocates parties’ preferences for substantive contract terms change most likely as a



dubious. His thesis is that ‘...contract default rules affect preferences, not because the law places its imprimatur on certain contract terms, but because people prefer the status quo to alternative states, all other things being equal’.37 He maintains that in order to overcome contractual inefficiencies lawmakers should create majoritarian rather than penalty default rules and tailored or nonenforcement default rules instead of untailored defaults in general. I disagree, however, with this normative conclusion. In my view, a status quo bias would not be neutralized simply by the introduction of majoritarian, tailored or nonenforcement defaults. If that were the case, courts, legislatures and lawmakers in general are not themselves affected by any status quo bias. My research thus far demonstrates they are. I think that the effects of jurisdictional competition on the development of systems of contract law, corporate law and property law in Europe is promising in this regard.

This research is mainly supported by doctrinal sources, case law and empirical data collected through archival work.38 The purpose of using this sort of method in a legal

investigation is to rethink companies’ evolution from a legal standpoint. Additionally, it inspires refinements of fundamental concepts such as property rights, ownership, and contract, as well as methods for comparison. In addition, sources accessed at multiple archives and libraries described in Part 1, Chapter 1 shed light on the relationship between corporate constituencies and the governance structures in these business associations. We shall see that shareholders do not perform in one-man shows, and that their relationships with one another and with other constituencies shape their behavior. The intricacies of the private sphere (e.g., asymmetries of information, trust, reputation, and expectations and how they are fulfilled by the law) will be illustrated by the case studies I have selected.

This background work is germane to the kind of bargaining I am describing with reference to these companies. It is also relevant to clarifying the problems I am trying to ‘diagnose’ in Part II. It may help explain how different bargaining processes inhere to these companies and are different from other types of institutional bargaining. Moreover, considering that disputes between members of these companies typically do not even reach the courts, case studies and archival material help to expose different microsituational result of transaction costs and strategies to withhold private information and not so much because of a particular default term).

37See Korobkin, Russell, cit., p. 623.

38 Recognizing that law is increasingly an interdisciplinary field, see Posner, Richard A., ‘The Decline of Law as an Autonomous Discipline: 1962-1987’, Harvard Law Review, vol. 100, No. 4, 1987, pp. 761-780. Also see Ulen, Thomas S., ‘A Nobel Prize in Legal Science: Theory, Empirical Work, and the Scientific Method in the Study of Law’, U. Ill. L. Rev. 875, 2002, pp. 875-920; and Lawless, Robert M. et al. Empirical Methods in Law, New York, Aspen Publishers, 2010.



contexts.39 Matters are dealt with privately, and alternative dispute resolutions are found.

Using rational choice theories is good for some groups. There may indeed be cases where people really behave strategically. This, however, is not always the case.40 It can be difficult to predict where and when we should expect certain types of behavior.

I started my empirical research in September 2010 by collecting information on companies with registered offices in Portugal. In the second stage of my research – as of September 2011 to February 2012 –I went to historical archives in Italy and the United Kingdom. In the third stage of my research – as of May to July 2012 - I refined the data I had already collected and turned to companies located in France and Spain. Finally, as of September to December 2012, I concentrated on LLCs in the United States. In the cases of Spain and the United States it was very difficult to obtain the originals of articles of association and operating agreements of Srls and LLCs, respectively. In the US, for example, certificates of formation are public documents,41 but the relevant information may be lodged

in non-filed operating agreements. Also, a voluminous number of operating agreements are not collected in any organized way. Moreover, these companies, unlike publicly held companies, do not benefit from a market for their shares, and their members often enter into other sort of agreements which are not public. Corporate behavior in the PLLC is not constrained by arranged markets such as financial and employment markets, at least to the same extent it is in public companies. Therefore, their profile has been established with the help of the data that have been possible to collect.

While collecting material provided by historical and legal sources, and consulting newspapers of massive circulation such as the New York Times and the Wall Street Journal, I came to realize that this study boils down to a discussion (perhaps today a bit less mainstream than before) about sources of law. Sources of law are and always have been influenced by political choices in the implementation of law, by moments of war and peace in the history of nations, by economic trends, and moral values, even when these values were not so evident when normative claims were made. Today, the old discussion must be held with new arguments made in the context of a global market and legal pluralism. The normative conceptualization of a global market and legal pluralism as well as the normative understanding of their effects at the national and transnational levels cannot be undertaken

39 See Poteete, Amy R. et al., ‘Small-N Case Studies: Putting the Commons under a Magnifying Glass’, in idem, cit., pp. 31- 63 (making an account of case study contributions for theory developing and testing).

40 See Poteete, Amy R. et al., cit. pp. 220-221 (arguing that ‘It is particularly upsetting to have one theory – rational choice theory – that explains how individuals achieve close–to–optimal outcomes in competitive market settings, but fails to explain how individuals will or will not cope with social dilemmas’).


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