Monday, September 23, 2013

Are We Teaching Business Associations Backwards?

Should we flip the way we teach Business Associations?

Last week I asked whether law schools are teaching the law of securities regulation, particularly Securities Act exemptions, backwards. I proposed that the current rule-by-rule approach be flipped to a more topical approach. This week, I'm asking the same question about Business Associations, but I'm much less sure of the correct answer.

The basic Business Associations course at most law schools today includes much more than the law of corporations. Most Business Associations courses cover partnerships and limited liability companies, and often limited partnerships and agency law as well. 

The leading publishers offer a number of business associations casebooks, but their basic organizational structure is the same: each entity is covered separately. A typical casebook might, for example, begin with partnership law, then cover the law of corporations, then limited liability companies. The topics covered for each entity are similar: formation, management, fiduciary duty, the liability of investors, exit rights, and so on. 

Why not flip this organizational structure and organize business associations courses by substantive topic rather than by entity? We could begin with a chapter on formation that discusses how all of the entities are created. A chapter on management would discuss how all of the entities are managed. A chapter on fiduciary duties would discuss the fiduciary duties of agents, partners, limited partners, corporate officers and directors, and the members and managers of LLCs. And so on, topic by topic.

This alternative approach would eliminate a lot of repetition, and foster discussion of the policies underlying the rules: Why are the fiduciary duties of partners different from the fiduciary duties of shareholders? Why do partners have the right to participate in the management of the business, but not shareholders? Much that can be said about, for example, corporate opportunity would also apply to business opportunities in the partnership and the LLC. The law may differ from entity, and often for good reason, but wouldn’t the policy reasons for those differences become more apparent if we discussed all the entities at the same time?

This approach would also make choice-of-entity concerns more apparent. Students would see how choice of entity does or does not matter with respect to each topic.

There would, however, be drawbacks, which is why I’m not sure of the correct answer. For one thing, it’s much easier pedagogically to deal with one entity at a time than to bounce around from statute to statute. And an entity-by-entity organization allows instructors to focus more on the relationships among the rules affecting a particular entity—for example, the relationship between the limited liability of shareholders and their limited participation in control.

In short, I’m not surprised that some authors choose to organize by entity. What surprises me is that all of the leading authors choose to organize by entity. Even if many professors prefer the entity-by-entity approach, surely there’s a market for at least one book that takes the alternative approach. But perhaps not. If my memory serves me, the late Larry Ribstein’s business associations book was at one time organized along topical lines, but he eventually changed to an entity-by-entity organization.

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I agree, and in fact am teaching a 4-credit Business Organizations course this semester using materials organized by substantive topic. In part as a response, and in part as a shameless plug, I provide the following excerpt from the preface for the forthcoming Unincorporated Business (Ribstein, Lipshaw, Miller, and Fershee, 5th ed., LexisNexis):

Shortly before he passed away all too early, Larry Ribstein and Jeff Lipshaw had an e-mail exchange about this Fifth Edition of Unincorporated Business Entities. The previous editions, particularly the most recent, addressed the need to stop thinking of unincorporated business associations, and particularly the limited liability company, merely as a quickie add-on to what is essentially a “corporations” course.

. . . .
Larry and Jeff came to agree that there were enough casebooks taking that approach. Even if in substance it was still to be about the doctrine of the various forms, the book should be organized, we thought, on a comparative basis. That is how practitioners confront it from a business planning and transactional standpoint. One of the benefits of this approach would be to remedy a long-standing problem in teaching about LLCs. The law surrounding this relatively new form of organization is still developing rapidly, particularly regarding the fiduciary duties of members and managers. The form-centered approach tended to mean that LLCs, despite now being the predominant form of business organization in the United States, were the last subject covered in the typical semester-long course, and got short shrift as teachers and students scrambled to cover the remaining materials in the last few sessions.

Larry passed away suddenly and tragically, and never had a chance to execute the shared vision. Thankfully, Beth Miller and Josh Fershee were willing to sign on to the vision, and this Fifth Edition is the product. We cover largely the same materials as before, but now organized topically over the life (and death) of the enterprise. Hence, we get to the law of LLCs early and often, with a chance for teachers and students to compare the form to partnerships and limited partnerships along the way.
. . . .

I am teaching corporations along side unincorporated entities using my own outside corporations law materials, and it’s going reasonably well. After several years teaching from the more traditional model, this change has required me to rethink how I cover various issues, but I see that as a good thing. Though the book doesn’t cover corporations specifically, there are several comparison and contrasts with the corporate model mentioned throughout, making integrating my own corporations materials reasonably manageable. At least, I think so.

Posted by: Joshua Fershee | Sep 23, 2013 1:21:53 PM


I'm glad to see that someone's taking this organizational approach and I guess it's fitting that it's Ribstein's book. As I mention above, Larry's book first took that approach many years ago, but only ancients like me would remember that.

Posted by: Steve Bradford | Sep 23, 2013 1:33:32 PM

As Josh's co-author, let me pile on. In my first iteration of teaching BA (at Tulane in the fall of 2006), I took the view as a long time practitioner that the only way it made sense to teach the doctrine was as though one were in a business planning course. My lesson learned was that students really don't like it when you create your own outline for the course and then skip all around the book. So as long as a topical book didn't exist, I taught in the "entity-by-entity" approach.

Also, I pushed Larry to do it topically and he resisted it until just before he passed away - his view was "been there, done that" and that it didn't work.

Like Josh, I am finding that the topical approach works, and that the students respond to it.

Posted by: Jeff Lipshaw | Sep 24, 2013 5:16:14 AM

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