Publication Date
2021
Abstract
Delaware dominates the market for business formations.
Two main theoretical explanations have been offered to justify
Delaware’s continued success. One focuses on the state’s
credible commitment to producing responsive organizational
law in the future. The other looks to the network effects that
continue to encourage new formations once Delaware already
dominates. Yet, other than continued observation of Delaware’s
dominance, little empirical support exists for either theory.
This Article empirically tests entrepreneurs’, investors’, and
lawyers’ appetite for Delaware’s credible commitment. I use the
recent Delaware Supreme Court decision of Gatz Properties v.
Auriga Capital Corp., which was a negative shock to
Delaware’s credible commitment to responsive LLC
organizational law, to analyze the demand for Delaware’s
credible commitment to responsive organizational law. I find
two major shifts following Gatz: (1) a significant and persistent
decrease in the value of publicly traded Delaware LLCs and
(2) a lower rate of private LLC formation in Delaware relative
to other states. Notably, these decreases do not reverse despite
prompt reparative action from the Delaware legislature. In
addition to providing empirical support for the credible
commitment theory, these results offer important policy
implications for the present condition of organizational law
and the future of state competition for business formations.
Recommended Citation
Molk, Peter
(2021)
"Delaware’s Dominance and the Future of Organizational Law,"
Georgia Law Review: Vol. 55:
No.
3, Article 4.
Available at:
https://digitalcommons.law.uga.edu/glr/vol55/iss3/4