A single theory of limited liability companies: an evolutionary analysis.

• Author: Geu, Thomas Earl

"Evolution on a large scale unfolds, like much of human history, as a succession of dynasties. Organisms possessing common ancestry rise to dominance, expand their geographic ranges, and split into multiple species.... The groups they replace retreat to relic status, being diminished in scattershot fashion by competition, disease, shifts in climate, or any other environmental change that serves to clear the way for the newcomers.... Once in a while, in a minority of groups, a lucky species hits upon a new biological trait that allows it to expand and radiate again, reanimating the cycle of dominance on behalf of its ... kin." (2)

TABLE OF CONTENTS I. INTRODUCTION A. Purpose B. The "Selfish" Perspective II. CONTEXT, BACKGROUND & EXTENDING THE ANALOGY A. Taxonomy: The Analytical Baseline B. Selecting the Selector and the Composition of the "Stuff" Selected III. EVOLUTIONARY FRAMING OF THE LLC: OBSERVATION AND ANALYSIS A. The LLC Phenotype & Selection B. Of Entities, Individuals, Groups, and Genes: "Groups All the Way Down" and Back Up Again IV. A SINGLE THEORY OF LLCS V. CONCLUSION I. INTRODUCTION

1. Purpose

   The purpose of this essay is to analyze the question of whether there is, or should be, a single theory for interpreting and understanding the limited liability company (LLC). Should is the epitome of a normative question and could quickly devolve into an ideological morass without hope of resolution. Fortuitously, the recent thirtieth anniversary of Richard Dawkins's The Selfish Gene (3) suggests an analytical perspective on the question that may offer observational insight beyond ideological argument.

   The perspective suggested by Dawkins's landmark book is at two levels: (1) the entity level and (2) the law codification level. It is an evolutionary view that the LLC "seeks" success by the proliferation (reproduction and use) of the LLC form by individual firms--that is, from the perspective of the LLC as an artificial organism. This metaphoric perspective is certainly fanciful but is illuminating. First, the change in perspective is consistent with Dawkins's hope for The Selfish Gene. The preface to the book's second edition (of three) states:

   Rather than propose a new theory or unearth a new fact, often the most important contribution a scientist can make is to discover a new way of seeing old theories or facts.... [A] change of vision can, at its best, achieve something loftier than a theory. It can usher in a whole climate of thinking, in which many exciting and testable theories are born, and unimaginable facts laid bare. (4) Second, metaphors are the language of "scientific" explanation because science (like law) "is an attempt to explain phenomena that cannot be experienced directly by human beings, by reference to forces and processes that we cannot perceive directly." (5)

   In deference to Dawkins, this essay analyzes the question of whether there is and should be a single theory of the LLC through an evolutionary lens from the genetic perspective of individual statutory provisions that manifest as specific traits of a firm organized as an LLC. The essay provides necessary evolutionary and genetic background and context before tentatively matching concepts from biology to law. (6) The balance of the first part of the essay describes the idea of the selfish gene in order to use it as an analytical aid to determine if there is or should be a single theory of the LLC and, if so, identify that theory. Part II defends the choice of biological evolution as an analytical metaphor and provides an introduction to other fundamental concepts and ideas in biological evolution. Part III frames and focuses the metaphor to specific features of the limited liability company and its "genetic code," exploits selected metaphors from biological evolution as applied to LLC law, and mines the metaphor for suggestions and observations about alternative futures for the LLC. (7) Finally, but before concluding, Part IV posits there both is and should be a single theory of LLCs.

2. The "Selfish" Perspective

   The heart of understanding the "selfish gene" is to recognize the difference between genes and individual organisms and the definition of success:

   If selection tried to choose DNA molecules directly it would hardly find any criterion by which to do so. All genes look alike, just as all recording tapes look alike. The important difference between genes emerges only in their effects. This usually means effects on the processes of embryonic development and hence on bodily form and behavior. Successful genes are genes that, in the environment influenced by all the other genes in a shared embryo, have beneficial effects on that embryo. Beneficial means that they make the embryo likely to develop into a successful adult, an adult likely to reproduce and pass those very same genes on to future generations. (8) The technical term for the manifestation of the gene as a body is phenotype. (9) Thus, "the phenotypic effects of a gene are the tools by which [the gene] levers itself into the next generation." (10)

   Whether a gene is "beneficial" is seen marginally at the level of the individual organism as an expression of its genotype (gene recipe).11 The whole body of the organism can be seen as a resultant manifestation of the sum of its gene expression, and generally what is good for the organism is good for the gene. (12) There are exceptions to the general rule. "[G]enes that beat the system" exist. (13) These genes exert an effect that is detrimental or neutral at the phenotypic level, but "good" for the replication of the gene itself. They "cheat" the "other genes with which they share the same body." (14) Their mutation, which results in their adaptation to the genetic environment in which they are embedded, is beneficial to the replication of the genes, but bad for the organism:

   Every time genes replicate within cells and cells divide within a multicellular organism, there is potential for some to gain at the expense of others and the welfare of the group as a whole. When this happens, the whole becomes less of an organism and more like a mere group. The subelements become less like organs and more like quarreling organisms with their own separate agendas. The harmony of an organism cannot be taken for granted. It requires the evolution of mechanisms that prevent subversion from within. (15) II. CONTEXT, BACKGROUND & EXTENDING THE ANALOGY

1. Taxonomy: The Analytical Baseline

   Taxonomy is the science of classification. (16) The late evolutionary biologist Stephen Jay Gould observed that it

   is often undervalued as a glorified form of filing--with each species in its folder, like a stamp in its prescribed place in an album; but taxonomy is a fundamental and dynamic science, dedicated to exploring the cause of relationships and similarities among organisms. Classifications are theories about the basis of natural order, not dull catalogues compiled only to avoid chaos. (17) One feature of taxonomy for purposes of this essay is that it, in one sense, is a record of lineage. That is, the "pattern of descent with modification defines our family lineage." (18) Taxonomy, therefore, is a guide that "test[s] the accuracy of our hypothesized family tree." (19) In other words, "Knowing how descent with modification works is key to unlocking biological history, because descent with modification can leave a signature, which we can detect." (20) One non-gene based way to ascertain descent and lineage, and thereby inform taxonomy, is comparative anatomy. Comparative anatomy leaves signatures of origins and lineage. Illustratively,

   Our middle ear contains a record of two of the great transformations in the history of life. The origin of our stapes, and its transformation from a jaw support bone [to part of the inner ear], began when fish started to walk on land. The other big event took place during the origin of mammals, when bones at the back of a reptile jaw became our malleus and incus [other small bones in the middle ear]. (21) Law also relies on taxonomy to classify cases and statutes based on selected features. The resulting structural pattern discloses the doctrinal relatedness and lineage of the law. A recent article suggested alternative taxonomic criteria and described legal taxonomies: "Lawyers inevitably classify cases according to specified factual attributes. Did someone make a promise? Did one person touch another person? Whether in Roman law, in the English common law, or in the modern American legal system, legal taxonomies are structured around the underlying factual attributes of transactions." (22)

   The quoted article follows in the long tradition of questioning the salience of the selected characteristics used to create a legal taxonomy and the manner of classifying cases into underlying doctrine. Grant Gilmore, too, questioned contract taxonomy. For example in The Death of Contract:

   The first point to be made is that the general theory of contract was never as neat and tidy and all-of-a-piece in the real world as it was made to appear in casebook and treatise and Restatement.... The apparent unity of doctrine was achieved through what might be called an extremely selective handling of the case material. (23) Gilmore's observation echoes criticism of biological taxonomies based on species categories. Dawkins observed that species and speciation are definitional in biological taxonomy and account for the absence of some (but not all) missing link species. There is no room for ambiguity: "[Z]oologists always insist on classifying a specimen as in one species or another. If a specimen is intermediate in actual form (as many are) zoologists' legalistic conventions still force them to jump one way or the other when naming it." (24)

2. Selecting the Selector and the Composition of the "Stuff" Selected

   Creating a legal taxonomy is a human endeavor based on judgment rather than natural selection by survival in the...