Posted: October 19th, 2016 | By: Emily Eisert
Professor Andrew Verstein was featured in a ProfessorBrainbridge.com blog post on his paper, “Enterprise without Entities.” Professor Verstein’s summary of the article, which was also published on Oxford Business Law Blog, follows.
The viability of reciprocal insurance problematizes the entity-essentialism now dominant in the corporate law community and elsewhere. Without any entity, reciprocals were somehow able to secure or foreswear the supposedly essential functions that entities provide. It turns out that creative applications of contract law, agency law, and insurance law sometimes suffice to support broad coordination. How? An enterprise’s many patrons can appoint a common person (the ‘attorney-in-fact’) to act as their agent – authorizing the agent to quickly sign multifarious contracts in their names. Liability can be limited and prioritized within those contracts. These limitations are binding on third parties because insurance regulation puts potential creditors on constructive notice of these agreements. Entity-like functions follow, but sans entity.
My article ‘Enterprise Without Entities’ therefore questions the unique importance of entities, but it does not necessarily undermine all arguments of entity theorists. To the contrary, the fact that reciprocals seek and find many of the core functions provided by entities underscores the importance of those functions. Reciprocals have used agency law to overcome transaction costs, and they have alloyed contract law and insurance regulation to structure a pattern of creditors’ rights. Entity essentialism is therefore honored in the breach.
Professor Verstein teaches Business Associations, Contracts, Corporate Finance, and Securities Litigation. Professor Verstein’s recent research, forthcoming in the Virginia Law Review, focuses on insider trading in commodities markets. He has also written and spoken widely on crowd funding and person to person lending, market manipulation, and nature of financial benchmarks and indices such as Libor. Professor Verstein frequently discusses financial law topics in the media, such as on CNBC’s Squawk Box and Worldwide Exchange, and BBC’s World Report, and in Bloomberg and the Wall Street Journal. Before joining the Wake Forest faculty, Professor Verstein taught at the Yale Law School, where he was John R. Raben/Sullivan & Cromwell Executive Director of the Center for the Study of Corporate Law. He has also taught at Fudan University and East China University of Political Science & Law in Shanghai. He graduated summa cum laude from Dartmouth College and received his law degree from Yale Law School, where he was a Coker Fellow. His scholarship is available at: http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=1652150.