Company Law Rules: An Assessment from the Perspective of Incomplete Contract Theory

Iain MacNeil

The Law School, University of Aberdeen.

jcls Vol 1 Issue 1 (August 2001)

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Abstract

This article examines company law from the perspective of the structure of its rules rather than their content. It uses incomplete contract theory as the basis of an investigation into the role of freedom of contract in writing a company’s constitution, and the relative merits of using mandatory and default rules to govern the organisation and actions of a company. The case for freedom of contract is considered from both a theoretical and an empirical perspective. Using the development of pre-emption rights in the United Kingdom and United States, it is shown that categorisation of rules into the mandatory and default categories is problematic. It is also argued that, despite the considerable academic effort which has been devoted to demonstrating the efficiency of default rules, there remain significant problems in formulating such rules.

Keywords

company law, default rules, economic analysis, freedom of contract, incomplete contract, mandatory rules, nexus of contracts, pre-emption rights