Close Corporation Remedies and the Evolution of the Closely Held Firm
This paper examines the law of closely held firms from an evolutionary perspective. The corporate tax and constraints on the availability of limited liability forced closely held firms to compromise their planning objectives and choose standard forms that did not fully reflect their needs. This forced courts to construct duties and remedies that did not relate to the parties’ contracts. The famous close corporation case of Wilkes v. Springside Nursing Home, Inc. classically illustrates this problem. The advent and spread of the limited liability company significantly increased the availability of suitable standard forms for closely held firms. As a result, courts now can focus on fully effectuating the parties’ contracts rather than creating remedies the parties may not have wanted. This analysis has implications for potential improvements in contracting for closely held firms.