In this essay, the authors first discuss the historical evolution of business entities, focusing on the primary role that creditor protection has played in that evolution. Next, the authors argue that, although legal scholars generally focus on limited liability when discussing creditor protection and the distinction between the corporation and the partnership, the principal feature distinguishing the corporation from the partnership is "entity shielding"-a term referring to the allocation of different rights to different groups of creditors in the assets of a firm. After discussing the importance of strong entity shielding a characteristic of the corporation but not the partnership -and how it complements limited liability, the authors conclude that the development of new business forms is the culmination of the process of extending strong entity shielding to unrestricted types of entities and, therefore, the new business forms should be viewed as generalizations of the business corporation rather than the partnership.
Date of Authorship for this Version
Hansmann, Henry; Kraakman, Reinier; and Squire, Richard, "The New Business Entities in Evolutionary Perspective" (2005). Faculty Scholarship Series. 5059.