Corporate transparency

Jeff Bone jbone@jump.net
Tue, 08 Jan 2002 19:48:14 -0600


Owen Byrne wrote:

> Isn't this Ronald Coase territory? Doesn't his "Nature of the Firm" basically
> say that the firm (not the corporation) exists because of transaction costs due
> to imperfect information?

Yeah, but I've always thought he was full of shit. ;-)


> And since the corporation is a designed legal entity, who is to say that
> there isn't some other legal entity that couldn't work better.

You'll notice that I haven't made that claim.  I'm pragmatic.  I don't really care whether there's one that works better
if the cost of finding it isn't outweighed by its benefit.  I'm unconvinced that this is likely, and fairly convinced
that some of the modifications / alternatives that have been proposed ("transparency" in its stronger formulations) are
completely unworkable.

> Also aren't you sort of assuming some information-hiding in your argument about
> risk? Someone is bearing the risk - the creation of a legal entity called a
> corporation does not make the risk disappear - it just shifts it to others,
> namely everyone not in the specific corporation.

I don't think we're talking about the same risk.


> In fact, this is already happening - Once upon a time corporations did work as
> limited liability companies. Now if you start one and try to get financing,
> you're almost guaranteed to have to put up personal guarantees.

I've never had to through numerous (and sometimes complicated) incorporations, nor would I accept that as a condition of
funding.  Nor am I personally aware of any other (technology, anyway) venture or angel backed early-stage companies that
have had to do so.

jb