European Business Organization Law Review

, Volume 19, Issue 2, pp 439–463 | Cite as

Asset Partitioning, Limited Liability and Veil Piercing: Review Essay on Bainbridge/Henderson, Limited Liability

  • Thilo KuntzEmail author
Review Essay


One of the core features of modern corporate law is affirmative and defensive partitioning of the corporation’s assets and the shareholders’ (private) assets. Defensive asset partitioning contains the rule of limited liability. What makes it special is that it may not be created by contract—or only under severe restrictions. Courts in many jurisdictions curtail this rule by doctrines such as ‘piercing the corporate veil’, exposing shareholders to a creditor’s claim and therefore to personal liability for the corporation’s debts. The circumstances giving cause to such measures are not clear, however. Additionally, in historical perspective, combining business entities with defensive asset partitioning is not a self-evident maneuver; even modern scholars challenge the idea of limiting liability in general, at least vis-à-vis tort creditors. Stephen Bainbridge and M. Todd Henderson thus take up an important and timely topic with their book on limited liability and veil piercing. Considering the wide variety of aspects they discuss, their book provides a welcome chance not just to write a short review, but to take up some general issues of asset partitioning and veil piercing. After providing a historical perspective on limited liability the review essay turns to its relationship with incorporation. It then deals with the question why limited liability should be accepted at all, thus preparing the stage for a look at alternative approaches.


Limited liability Veil piercing Asset partitioning German law Existenzvernichtung Piercing the veil Peculium Societas Legal history 



For many valuable comments and suggestions, the author is indebted to Andreas Engert, Andreas M. Fleckner, Wibke Heinecke, Alexander Hellgardt, Marie Kuntz, Alma Pekmezovic, Jens Richter and Lars Stegemann. The usual disclaimers apply.


  1. Bainbridge SM, Henderson MT (2016) Limited liability: a legal and economic analysis. Edward Elgar, Cheltenham (UK)/Northampton (US)CrossRefGoogle Scholar
  2. Blackstone W (1765) Commentaries on the laws of England, Book I, 1st edn. Oxford (As printed in: Prest W (ed) The Oxford edition of Blackstone, vol 1. Oxford University Press, Oxford 2016)Google Scholar
  3. Blair M (2013) The four functions of corporate personhood. In: Grandori A (ed) Handbook of economic organization. Elgar, Cheltenham, pp 440–461Google Scholar
  4. Blumberg P (1986) Limited liability and corporate groups. J Corp Law 11:573–631Google Scholar
  5. Bustos A (2007) Litigation and the optimal combination of vague and precise clauses in contracts. Northwestern Law & Econ Research Paper no 08-11. Accessed 5 April 2018
  6. Cahn A (2016) Capital maintenance. In: Fleischer H, Kanda H, Kim K, Mülbert P (eds) German and Asian perspectives on company law. Mohr Siebeck, Tübingen, pp 159–179. Accessed 5 April 2018 (pre-publication version: ILF Working Paper no 146, Frankfurt 2015)
  7. Chrisman R (2010) LLCs are the new king of the hill: an empirical study of the number of new LLCS, corporations and LPS formed in the United States between 2004-2007 and how LLCS were taxed for tax years 2002-2006. Fordham J Corp Finan Law 15:459–489Google Scholar
  8. DuBois A (1938) The English business company after the Bubble Act 1720–1800. The Commonwealth Fund, New York (reprint 1971, Octagon Books, New York)Google Scholar
  9. Easterbrook F, Fischel D (1985) Limited liability and the corporation. Univ Chic Law Rev 52:89–117CrossRefGoogle Scholar
  10. Fleckner A (2010) Antike Kapitalvereinigungen. Böhlau, CologneCrossRefGoogle Scholar
  11. Fleckner A (2014) The peculium. In: Carlà F, Gori M (eds) Gift giving and the ‘embedded’ economy in the Ancient World. Universitätsverlag Winter, Heidelberg, pp 213–239Google Scholar
  12. Fleckner A (2016) Adam Smith on the joint-stock company. Max Planck Institute for Tax Law and Public Finance Working Paper 2016-01, January 2016. Accessed 5 April 2018
  13. Fleckner A (2017) Roman business associations. In: Dari-Mattiacci G (ed) Roman law and economics. Oxford University Press, Oxford. Accessed 5 April 2018 (forthcoming)
  14. Guinnane T (2017) German company law 1794-1897. In: Wells H (ed) Research handbook on the history of corporate and company law. Edward Elgar, CheltenhamGoogle Scholar
  15. Halpern P, Trebilcock M, Turnbull S (1980) An economic analysis of limited liability in corporation law. Univ Tor Law J 30:117–150CrossRefGoogle Scholar
  16. Handlin O, Handlin M (1945) Origins of the American business corporation. J Econ Hist 5:1–24CrossRefGoogle Scholar
  17. Hanks J Jr (2011) Legal capital and the Model Business Corporation Act. Law Contemp Probl 74:211–230Google Scholar
  18. Hansmann H, Kraakman R (1991) Toward unlimited shareholder liability for corporate torts. Yale Law J 100:1879–1934CrossRefGoogle Scholar
  19. Hansmann H, Kraakman R (2000) The essential role of organizational law. Yale Law J 110:387–440CrossRefGoogle Scholar
  20. Hayden G, Bodie M (2011) The uncorporation and the unraveling of ‘nexus of contracts’ theory. Mich Law Rev 109:1127–1144Google Scholar
  21. Holderness C (2009) The myth of diffuse ownership in the United States. Rev Finan Stud 22:1377–1408CrossRefGoogle Scholar
  22. Kraakman R, Armour J, Davies P, Enriques L, Hansmann H, Hertig G, Hopt K, Kanda H, Pargendler M, Ringe W-G, Rock E (2017) The anatomy of corporate law, 3rd edn. Oxford University Press, OxfordCrossRefGoogle Scholar
  23. Kuntz T (2016) Gestaltung von Kapitalgesellschaften zwischen Freiheit und Zwang. Mohr Siebeck, TübingenGoogle Scholar
  24. Kuntz M (2017a) Conceptualising transnational corporate groups for international criminal law. Nomos, Baden-BadenCrossRefGoogle Scholar
  25. Kuntz T (2017b) German Corporate Law in the 20th Century. In: Wells H (ed) Research handbook on the history of corporate and company law. Edward Elgar, Chelthenham. Pre-publication version available under Accessed 5 April 2018
  26. Markesinis B, Unberath H (2002) The German Law of Torts, 4th edn. Hart, OxfordGoogle Scholar
  27. Merkt H, Spindler G (2006) Direct liability of controlling parties (piercing the corporate veil) and related legal constellations. In: Lutter M (ed) Legal capital in Europe. De Gruyter Recht, Berlin, pp 166–231Google Scholar
  28. Ribstein L (2009) The rise of the uncorporation. Oxford University Press, OxfordGoogle Scholar
  29. Röhricht V (2000) Die GmbH im Spannungsfeld zwischen wirtschaftlicher Dispositionsfreiheit ihrer Gesellschafter und Gläubigerschutz. In: Geiß K, Nehm K, Brandner H, Hagen H (eds) Festschrift aus Anlaß des fünfzigjährigen Bestehens von Bundesgerichtshof, Bundesanwaltschaft und Rechtsanwaltschaft beim Bundesgerichtshof. Carl Heymanns, Cologne, pp 83–122Google Scholar
  30. Schubert W (1977) Französisches Recht in Deutschland zu Beginn des 19. Jahrhunderts. Böhlau, CologneGoogle Scholar
  31. Smith A (1784) An inquiry into the nature and causes of the wealth of nations, 3rd edn, vol III. Methuen & Co Ltd, London (As printed in the version edited by Cannan E (1904), vol 2. reprint, The University of Chicago Press, Chicago 1976)Google Scholar
  32. Smith G (2016) Firms and fiduciaries. In: Miller PB, Gold AS (eds) Contract, status, and fiduciary law. Oxford University Press, Oxford, pp 293–311CrossRefGoogle Scholar
  33. Stearn R (2007) Proving solvency: defending preference and fraudulent transfer litigation. Bus Lawyer 62:359–395Google Scholar
  34. Stearn R, Kandestin C (2011) Delaware’s solvency test: what is it and does it make sense? Del J Corp Law 36:165–187Google Scholar
  35. Tröger T (2008) Kollektive Einheit, Haftungsverfassung und ökonomische Theorie des Unternehmens. In: Aderhold L, Grunewald B, Klingberg D, Paefgen WG (eds) Festschrift für Harm Peter Westermann zum 70. Geburtstag. Otto Schmidt, Cologne, pp 1533–1566Google Scholar
  36. Veil R (2006) Capital maintenance—the regime of the Capital Directive versus alternative systems. In: Lutter M (ed) Legal capital in Europe. De Gruyter Recht, Berlin, pp 75–93Google Scholar

Copyright information

© T.M.C. Asser Press 2018

Authors and Affiliations

  1. 1.Chair for Private Law, German and International Company and Capital Markets LawBucerius Law SchoolHamburgGermany

Personalised recommendations