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Depending on whom one asks, the last decades' proliferation of statutory business structures is a cause for either celebration or concern. Some laud this recent trend, arguing that a highly permutated menu of tax treatments, liability limitations, and governance hierarchies facilitates the alignment of legal status with organizational need. Others view statutory variety more skeptically, warning that it may simply portend greater cost externalization, strategic behavior, and distributional inequity. But one set of legal doctrines has persisted throughout: the concept of fiduciary duty. Indeed, fiduciary obligations remain fundamental to the legal governance structure of virtually every statutory business entity.

That said, the precise normative relationship between fiduciary standards and organizational form remains highly contested. A number of courts and commentators maintain that fiduciaries of "closely-held" firms (e.g., close corporations and partnerships) should be subject to substantially more onerous fiduciary obligations than their counterparts in public corporations. Lacking the convenient exit options and the external discipline provided by well-developed securities markets, the argument goes, owners of closely-held firms must rely exclusively (or nearly so) on fiduciary duties to check managerial opportunism. Critics have challenged this view, pointing out that the larger ownership stake typically possessed by fiduciaries of closely-held firms requires them to bear a substantial share of the costs from their own managerial decisions. Moreover, such firms frequently comprise participants with long-standing (and even familial) relationships-a source of repeat interaction that facilitates the formation of extra-legal behavioral norms to stem managerial misfeasance. Consequently, these critics contend, the categorical case for strict legal duties within closely-held structures is far from compelling.


Business Organizations Law | Law