ALLOCATING THE ROLES FOR CONTRACTS AND JUDGES IN THE CLOSELY HELD FIRM

This Article uses those two benchmarks to analyze Wilkes v. Springside Nursing Home, Inc. and its immediate precedent from the prior year, Donahue v. Rodd Electrotype Co. Part I of this Article looks at these cases in the context of the changes to the law at the time they were decided (the focus of Part I below), their most lasting impact was not on the equal opportunity principle, or de facto dividend regulation, or even partnership fiduciary duty rules, but on how they changed the dominant legal framework for viewing the closely held firm. Part II of this Article explores the extent to which investors in limited liability companies (LLCs), a new form of organizing a closely held firm that was not available at the time of Donahue and Wilkes, face a parallel dilemma. The intimacy of the relationship in most LLCs and the multiple connections of the participants to the business are often as true in the LLC as they are in the close corporation. LLC rules have replicated the illiquidity and permanence of the corporation in a closely held setting. The menu of possible responses is the same, including contracting or judicial relief. LLC proponents see contracting as something fundamentally different in the LLC as opposed to the close corporation, but this is a path the law of the closely held firm has been down before. In fact, the LLC contracting debate looks a lot like the close corporations law reform discussions of the 1950s and 1960s, before Donahue, when contracting was seen as the preferred solution for the worries of a minority investor in the closely held firm. Thus, the guidance of Donahue and Wilkes will be relevant as legislatures and courts again have to address whether contracting is now better equipped to address the limits of bounded rationality and other aspects of the human condition such that the judicial involvement provided in the five strands of close corporation law reform are no longer necessary in the twenty-first century