Uncorporate Kodak!

Larry Ribstein —  11 August 2011

There are reports in the press that corporations are sitting on a huge cash pile — $1.2 trillion.  Apple has over 70 billion.  Today’s WSJ discusses Kodak (remember film?) which is burning through money it’s collected in patent litigation in a so far futile effort to compete in selling computer printers.

Since the government can’t throw around much more cash, maybe part of the solution to our economic woes is to encourage firms like Apple and Kodak to become uncorporations — i.e., limited partnerships or LLCs — whose dividends are not subject to the corporate “double” tax.  They can’t do this now because they aren’t in the small category of firms (e.g., pipelines) that can be publicly held and taxed like partnerships.  A simple change in the tax laws would solve this.  For more on all this, see my Rise of the Uncorporation.

If these firms were uncorporations they would be subject to agreements that require cash distributions and liquidation at some point.  The owners would not tolerate being taxed on earnings that’s not either working for them or being distributed to them. When the firms’ rate of return on retained earnings fell enough (consider the negative interest rate being paid on corporate cash sitting around in bank accounts) they would have to distribute it.

Consider what would happen if mature firms like Kodak (and, yes, maybe even Apple) could uncorporate.  Retained earnings would go back to the shareholders who would either invest it in or spend it on young and adolescent growth companies — the Apples and Kodaks of the future.  The government might lose some tax revenues, but there also would be a way to construct this system so that it’s revenue neutral.  In any event, the decisions would be made by the owners of the cash, not by politicians and bureaucrats who haven’t been doing such a good job lately.

Think about it.

Larry Ribstein

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Professor of Law, University of Illinois College of Law

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