Business Law Prof Blog

Popular Sovereignty and the Unnatural Separation of Liability and Control

My colleague Wil Huhn has a post up over at the Akron Law Cafe summarizing one of his recent articles wherein he proposes "seven fundamental principles of Constitutional Law [that] are derived from the notion of 'popular sovereignty.'"  The post caught my attention because I think popular sovereignty may be a reasonable answer to the question of how we have managed to get so far down the road of separating control from liability in the context of business organizations, in the face of an at least colorable argument that separating control from liability violates some version of natural law.  Of course, much has been written on the justifications of limited liability in its various forms--but one could do worse than to simply reply: Because we want it that way.

SJP

Safety Not Nuclear Power's Only Hurdle

As the nuclear reactor in Japan continues to be unstable and unsafe, new nuclear power's future in the United States is becoming even more complicated.  Financing was always a concern, even with significant government support, and finding money will be an even bigger concern now, as the National Journal reports:

“There’s nobody on Wall Street who’s going to offer money,” said John Deutch, an expert on energy technologies and financing at the Massachusetts Institute of Technology.

Building a nuclear power plant is an expensive endeavor. It costs $5 billion to $20 billion and can take a decade to complete, compared with the $1 billion to $3 billion and one to three years it takes to build coal or natural-gas power plants.

That’s just one reason there hasn’t been a nuclear reactor built in the U.S. since the 1979 meltdown at Pennsylvania’s Three Mile Island.

Wall Street always has a major impact on huge financing projects, and it appears that Wall Street has an even more greater skepticism of new nuclear projects after the recent events in Japan.  On this one, at least, it seems Wall Street and Main Street are finally on the same page.  

On a separate (and more pressing) note, the Nation (here) provides ways to help following Japan's most powerful recorded earthquake. Please help if you can.  

--JPF

Applications Down: Law Students Do Understand Economics

Law students may not know economics, but they certainly act economically. The Wall Street Journal reports that law school applications are down 11.5% from last year. This should come as a surprise to no one, given the weak job market for lawyers and the long-term trends.

If this enrollment trend persists, how will it affect law schools? Harvard and Yale aren’t going anywhere, even though their high cost and the decline of big law make private Top Ten law schools a bad deal for many of their students. The cheaper state schools with good regional reputations are probably safe. But what happens to the bottom tier? (I mean the bottom tier in as measured by market demand, which may or may not be the same as the bottom tier in U.S. News.)

Some of those bottom-tier schools are expensive and fill at least part of their classes with students who can’t get into other schools. A persistent drop in enrollment is going to put a lot of pressure on them. If they’re state-supported, and particularly if they’re not the only public school in the state, will the state continue to subsidize them? If they’re private, will the tuition they bring in be sufficient?

Many schools will be forced to dip even lower into the applicant pool, which will result in lower bar passage rates and the attendant accreditation issues. If the market doesn’t kill them, the American Bar Association might.

-Steve Bradford

Three Quote Thursday

Michael Moore:

Contrary to what those in power would like you to believe, so that you’ll give up your pension, cut your wages, and settle for the life your great-grandparents had, America is not broke.  Not by a long shot.  The country is awash in wealth and cash.  It’s just that it’s not in your hands.  It has been transferred, in the greatest heist in history, from the workers and consumers to the banks and the portfolios of the uber-rich.

WSJ ("Michigan Boosts Power to Intervene in Cities"):

The law, which the Republican governor signed late Wednesday, beefs up the 1990 Emergency Financial Manager Act by giving a state-appointed manager the power to set aside labor contracts, fire local officials and even dissolve a community or school district.

Naomi Klein:

[T]his is an assault on democracy.  It’s a frontal assault on democracy.  It’s a kind of a corporate coup d’état . . . .

SJP

We're No. 1 (or about to be, anyway)

The Carpe Diem blog reports that the United States is about to be No. 1 in corporate tax rates among the OECD (Organization for Economic Cooperation and Development) countries. Unfortunately for corporations, that No. 1 ranking is from the highest down, not the lowest up. 

Our current combined federal and state corporate tax rate is 39.2 percent. Japan is currently at the top of the list with a 39.54% rate, but its rate is scheduled to drop below ours on April 1.

Of course, these numbers don't tell the whole story. These are statutory rates, and they don’t take into account exemptions, credits, and different definitions of income that affect the percentage of income corporations actually pay in each country. But these numbers certainly raise issues for anyone concerned about the United States’ international competitiveness.

-Steve Bradford

Everyone Loves Apps

At least, that's what Bloomberg says -- even Wall Street loves them.  This from an article yesterday:

“The industry right now is app-crazy,” says James McGovern, vice-president for consulting services at Corporate Insight, which monitors how banks communicate with customers.

That said, 

While many of those consumers are comfortable using mobile apps to check their balances, companies need to work themselves more deeply into a mobile customer’s financial life or the work that goes into developing all of these mobile apps may wind up being “another cost center,” says Gartner Inc. (IT) analyst Stessa Cohen.

For my part, I am fond of Apps, I suppose, but I actually use very few.  I have too much other stuff to do. If these companies actually provide a useful and faster experience, it may be worth it. But the truth is, I don't tend to fire off trades like text messages.  Then again, there's a good chance I'm not the target market. 

--JPF

Don't Forget About China (and Their Energy Needs)

China is in full-scale dealmaking in the energy sector around the world, among other things,  buying a 50% stake in a Canadian gas project.  China is a huge consumer (and polluter), and with its huge growing population, that will continue, as the New York Times Dealbook notes: 

[I]ts energy demands are quickly outstripping its supplies, leaving the economy vulnerable to disruptions like the current Middle East turmoil. China, once Asia’s most important oil exporter, started importing in 1993. With domestic production stagnating, the country generated 3.99 million barrels a day — less than half the annual consumption. The International Energy Agency estimates China will have to rely on imports for 79 percent of its oil needs by 2030.

Yet another reason I think oil will not be dropping below $70 a barrel.  That is, unless we find vast amounts of oil on Mars.

--JPF

Anyone Can Teach Business Associations

Anyone can teach business associations. That’s the message I have heard from several faculty members, including members of our appointments committee, over the years.

In a literal sense, I suppose the statement’s true. It wouldn’t be good for the students or the school, but anyone can teach anything. I could teach nuclear physics. But, in a more realistic sense, it’s nonsense.

Business Associations involves at least four different business entities—the general partnership, the corporation, the limited partnership, and the limited liability company—and that’s not counting sole proprietorships, limited liability partnerships, and limited liability limited partnerships. My course covers some or all of eight different state statutes or uniform acts, plus agency law and the federal Securities Act and Exchange Act. And the law affecting every one of these business entities involves a complicated mix of common law and statutory law, mandatory and default rules, regulation and contract.

In addition, anyone teaching Business Associations must understand, and be able to teach, selected principles from finance and accounting—not to mention some of the basic economic concepts that form the backdrop for the study of business associations.

Sure, Business Associations may not be as deeply complicated as Securities Regulation or Corporate Taxation, but those subjects at least have the advantage of a single focus with, for the most part, a single statute.

In short, contrary to the opinion of some, Business Associations is not a course that anyone can step in and teach successfully. But enough on this subject; I’m off to teach my nuclear physics class.

-Steve Bradford

How You Can Help the Japanese Tsunami Victims

CNN has some useful links here.

SJP

Effross on Assets, Activities, and Approaches for Students of Business Law

Professor Walter Effross from American University Washington College of Law has posted 101 Assets, Activities, and Approaches for Students in Business Associations/Corporations Courses.  He explains that the document contains "suggested methods and considerations that students in Business Associations/Corporations courses or seminars, or related courses, might find useful in identifying practical and theoretical themes; developing and refining paper topics; reviewing for for exams; and preparing for job applications, interviews, and internships."

-ECC