Tuesday, February 19, 2019
Christopher G. Bradley at University of Kentucky College of Law has posted his paper, Business Entities as Skeleton Keys. The paper was also selected for the 2019 AALS Section on Agency, Partnership, LLCs and Unincorporated Associations program, Respecting the Entity: The LLC Grows Up.
Chris notes the use of business entities to accomplish goals not attainable previously and the use of entities "to accomplish customized transactions and evade legal restrictions that would otherwise prevent them." His observations and insights are good ones, and his paper is definitely worth the read. I can't help but think that some of this is occurring more because of an increasing comfort with entities and a willingness to engage in creative transactions. We're seeing in beyond the use of entities, too, with the rise of derivatives over the last 20 or so years, not to mention cryptocurrencies. Anyway, it's a good paper and I recommend it.
Here's the abstract:
This Article identifies the increasingly important phenomenon of what I term “skeleton key business entities” and discusses the ramifications of their rise. Modern business entities, such as LLCs, are increasingly created and deployed to accomplish customized transactions and evade legal restrictions that would otherwise prevent them. Rather than acting as traditional businesses, such entities are tools, or “skeleton keys,” used to open “locked doors” presented by existing bodies of law, including contract, property, bankruptcy, copyright, tax, national security, and even election law.
The Article centers on the example of the “Artist’s Contract,” a fascinating 1971 project, in which artists sought to retain rights in artworks they sold—to obtain a percentage of future appreciation in value, to exhibit the work upon request, and so on. As prior scholarship has noted, the transaction contemplated by the Artist’s Contract could not have been accomplished in regular contract form due to rules concerning privity, servitudes on chattels, and the first sale doctrine, among other things. But this no longer remains true. The emergence of modern business entity law provides the tools—i.e., skeleton key business entities—to “solve” all of these legal problems and allow for bespoke transactions such as those desired by the artists.
The rise of skeleton key business entities may unsettle numerous other bodies of law. They may bring efficiencies but may undermine important policies. After providing a range of examples, I suggest that scholars—including those outside the business and commercial law realm—should turn renewed attention to the remarkable capacities of these flexible, inexpensive, and surprisingly potent transactional tools. We should consider if it makes sense to force parties pursuing newly enabled forms of commerce to bear the costs of filtering transactions through business entities; or alternatively, which traditional doctrines should bind modern entities just as they bind parties outside of those forms.
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