The Contractual Foundation to Family-Business Law

Professor Benjamin Means of the University of South Carolina School of Law has written an article on the relationship between contract law and family businesses.  The paper, "The Contractual Foundation to Family-Business Law," is forthcoming in the Ohio State Law Journal, (vol. 75, 2014).

From the abstract:

Most U.S. businesses are family owned, and yet the law governing business organizations does not account adequately for family relationships. Nor have legal scholars paid sufficient attention to family businesses. Instead, legal scholars operate within a contractarian model of business organization law, which holds that a firm is comprised of a nexus of contracts among economically rational actors. Intimate relationships appear irrelevant except insofar as they affect contractual choices. Indeed, strictly speaking, there is no such thing as family-business law.

This Article lays the foundation for a law of family business by turning the contractarian model on its head: a firm includes not just business contracts, but all bargains among participants that affect the business enterprise. The payoff for including family considerations is two-fold. First, when family obligations introduce uncertainty, as when co-owners of a business divorce, contract offers an explanatory resource for resolving disputes consistent with the parties’ expectations. Second, a contractual conception of the firm can guide the establishment of appropriate default rules for the interpretation and enforcement of family-business bargains.

The article can be downloaded here.

I addressed some of the unique issues involved in organizing and governing family businesses in my interview last January with Family BusinessCast.

Hat tip: Peter Mahler, New York Business Divorce