Article

Partnership Governance of Large Firms

Larry E. Ribstein

Mildred van Voorhis Jones Chair, University of Illinois College of Law

Thanks for comments on previous versions to Amitai Aviram, Steve Bainbridge, Vic Fleischer, Ron Gilson, Richard Squire, Michael Weisbach, and Charles Whitehead, and participants at workshops at the Association of American Law Schools, University of Connecticut, Fordham, UCLA School of Law, George Washington University, and the Symposium, The Going-private Phenomenon: Causes and Implications at The University of Chicago Law School. For a longer version of this Article, see Larry E. Ribstein, Uncorporating the Large Firm (University of Illinois Law & Economics Research Paper No LE08-016, May 27, 2008), online at http://ssrn.com/ abstract=1138092 (visited Jan 11, 2009).

This Article examines private-equity firms as an example of “uncorporate” structures in the governance of large firms. Other examples include master limited partnerships, real estate investment trusts, hedge funds, and venture capital funds. These firms can be seen as an alternative to the corporate form in dealing with the central problem of aligning managers’ and owners’ interests. In the standard corporate form, shareholders monitor powerful managers by voting on directors and corporate transactions, suing for breach of fiduciary duty, and selling control. These mechanisms deal with managerial agency costs by relying on other agents, including auditors, class action lawyers, judges, independent directors, and shareholder intermediaries such as mutual and pension funds. Uncorporations substitute other devices for corporate-type monitoring, including more closely tying managers’ economic wellbeing to the firm’s fortunes and greater assurance of distributions to owners. This Article also explores the implications of this analysis for the corporate tax, the enforcement of firms’ contractual arrangements, and the future of publicly held firms.

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