Strengthening Investment in Public Corporations Through the Uncorporation

We cannot completely overcome the difficulties caused by the separation of ownership and control. In The Modern Corporation and Private Property, Adolf A. Berle and Gardiner Means focused our attention on what was then a relatively new phenomenon: widely dispersed public shareholding.1 They marveled at how, for the first time in the history of the American economy, the owners of assets had so little to do with the management of those assets, and managers had so much power over so much health that did not belong to them.2 Berle and Means described what we now call the Berle−Means corporation, the publicly traded corporation with widely dispersed share ownership. The agency costs occasioned by the combined power of managers and indifference of shareholders have preoccupied legislators, judges, investors, and scholars. Still, we have no answer. In this Article, I argue that by encouraging and enhancing the interaction between corporations and uncorporations, rather than making them more alike, we can realize the best outcomes for investors. If corporations and uncorporations are pushed to adapt the best parts of the other’s governance structure, they may begin to share the same problems. Instead of sharing governance forms, it makes more sense to allow the forms to interact, using uncorporate governance to more effectively perform the shareholder role in corporate governance. Then, we broaden access to investment in uncorporations so that it is easier for all kinds of investors to diversify across business forms—to invest, in different ways, both in closely held uncorporations and publicly held corporations. This would involve tweaking access to different investment vehicles rather than tweaking the law of firm governance itself. In this Article, I argue that by encouraging and enhancing the interaction between corporations and uncorporations, rather than making them more alike, we can realize the best outcomes for investors. If corporations and uncorporations are pushed to adapt the best parts of the other’s governance structure, they may begin to share the same problems. Instead of sharing governance forms, it makes more sense to allow the forms to interact, using uncorporate governance to more effectively perform the shareholder role in corporate governance. Then, we broaden access to investment in uncorporations so that it is easier for all kinds of investors to diversify across business forms—to invest, in different ways, both in closely held uncorporations and publicly held corporations. This would involve tweaking access to different investment vehicles rather than tweaking the law of firm governance itself