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Where Are Limited Liability Companies Formed? An Empirical Analysis

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  • Jens Dammann
  • Matthias Schündeln

Abstract

We empirically study formation-state choices of limited liability companies (LLCs). Most firms in our large sample of almost 20,000 LLCs are formed in the state where their principal place of business is located. As their size increases, firms become more likely to be formed outside that state, with Delaware emerging as the primary destination for LLCs that are not formed in the state of the principal place of business. We demonstrate that substantive law matters when LLCs choose their formation state. Limited liability companies are less likely to incorporate locally if their home state offers lax norms for minority-investor protection or creditor-friendly rules for veil piercing. In addition to contributing to the debate on regulatory competition in the law, this paper has implications for theoretical debates pertaining to choice of law in veil-piercing cases, the role of default rules, and the relationship between corporations and LLCs.

Suggested Citation

  • Jens Dammann & Matthias Schündeln, 2012. "Where Are Limited Liability Companies Formed? An Empirical Analysis," Journal of Law and Economics, University of Chicago Press, vol. 55(4), pages 741-791.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/666724
    DOI: 10.1086/666724
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    References listed on IDEAS

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    2. Bebchuk, Lucian Arye & Cohen, Alma, 2003. "Firms' Decisions Where to Incorporate," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 383-425, October.
    3. Henry Hansmann, 2006. "Corporation and Contract," American Law and Economics Review, American Law and Economics Association, vol. 8(1), pages 1-19.
    4. Lucian Bebchuk & Alma Cohen & Allen Ferrell, 2002. "Does the Evidence Favor State Competition in Corporate Law?," NBER Working Papers 9380, National Bureau of Economic Research, Inc.
    5. Romano, Roberta, 1985. "Law as a Product: Some Pieces of the Incorporation Puzzle," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 1(2), pages 225-283, Fall.
    6. Jens Dammann & Matthias Schündeln, 2011. "The Incorporation Choices of Privately Held Corporations," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 27(1), pages 79-112.
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    Cited by:

    1. Jiaqi Qin & Yan Sun, 2023. "Unveil the veil of limited liability: Evidence from firm investment," The Financial Review, Eastern Finance Association, vol. 58(3), pages 485-511, August.

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