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The Anatomy of Corporate LawA Comparative and Functional Approach$
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Reinier Kraakman, John Armour, Paul Davies, Luca Enriques, Henry Hansmann, Gerard Hertig, Klaus Hopt, Hideki Kanda, Mariana Pargendler, Wolf-Georg Ringe, and Edward Rock

Print publication date: 2017

Print ISBN-13: 9780198739630

Published to Oxford Scholarship Online: March 2017

DOI: 10.1093/acprof:oso/9780198739630.001.0001

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Related-Party Transactions

Related-Party Transactions

(p.145) 6 Related-Party Transactions
The Anatomy of Corporate Law

Luca Enriques

Gerard Hertig

Hideki Kanda

Mariana Pargendler

Oxford University Press

This chapter centers on a technique that managers and controlling shareholders may use to divert value from the corporation: related-party transactions. These transactions range from traditional self-dealing to more subtle forms of potential misappropriation of company value, such as compensation agreements, intercompany guarantees, insider trading, and the usurpation of corporate opportunities. Despite the potential for abuse, related party-transactions provide countervailing economic benefits and are rarely outlawed. Instead, the representative “core jurisdictions” employ a variety of legal strategies to police them, including: applying affiliation strategies through disclosure requirements and dissolution rights; intervening on agent incentives by requiring disinterested board approval; granting decision rights to shareholders; and imposing legal constraints such as prohibitions, the duty of loyalty, and the special regime of group law. The chapter concludes by analyzing the effectiveness of the different approaches to related-party transactions in core jurisdictions in view of their enforcement, and their relationship to the underlying ownership structures.

Keywords:   related-party transactions, self-dealing, compensation agreements, insider trading, corporate opportunity, group law, duty of loyalty, enforcement, ownership structures

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