Nonmarket Values in Family Businesses

By Means, Benjamin | William and Mary Law Review, March 2013 | Go to article overview

Nonmarket Values in Family Businesses


Means, Benjamin, William and Mary Law Review


Even if doubts remain concerning the introduction of contractual principles into supposedly nonmarket family institutions, expanding the range of available choices in the domestic sphere is not the same thing as treating family relationships as fungible, market commodities. For instance, family law scholars have explored contract as a potential mechanism for enhancing individual autonomy and for counteracting issues of gender or other social inequality. (152) Depending on their situation, individuals might "use private agreements to reinforce their marital commitment" (153) or to create structures for intimate relationships that fall outside of existing recognized categories. (154)

In some respects, the gradual recognition of contractual bargaining within domestic relationships resembles the process by which courts became willing to enforce shareholder agreements in close corporations, even when those agreements altered central features of corporate law such as the authority of the board of directors. (155) For example, in McQuade v. Stoneham, the New York Court of Appeals refused to enforce an intrashareholder contract that infringed upon the board of directors' ability to manage the corporation according to its sole judgment. (156) Yet, in Clark v. Dodge, decided only two years later, the same court concluded that a shareholder arrangement that protected the investment interest of the minority shareholder only "impinge[d] slightly" upon the board's statutory authority and would be upheld. (157) State corporate law statutes now generally recognize the value of tailored investment agreements and permit shareholders in close corporations to contract with each other, even if those contracts remove certain decisions from the board. (158)

Families, like businesses, are entities composed of individuals who seek to achieve joint purposes, and it seems logical to look to business law to find helpful models for contractual ordering in the family context. (159) As one family law scholar has observed:

   The law governing intimate relationships would benefit from
   exploring the metaphorical and doctrinal analogies between
   business and intimate affiliations. These analogies bridge the...
   distinction by drawing connections between private business law
   and private family law. They also improve upon conventional
   family law's understanding of family. The exploration remedies
   long-standing inequities within current family law discourse
   that are fossilized artifacts of the naturalized construction of
   intimate relationships. (160)

There are a number of specific, structural similarities between close corporations and marriages. First, "close corporations and marriages are intended to be 'long-term, ongoing entities' that require 'stability and predictability to function properly."' (161) Second, each form of social organization requires formal state recognition. (162)

Third, the dissolution of a business "parallels divorce." (163) Moreover, "a close corporation often is a hybrid of family and business that bridges the ... divide by its very existence." (164) Thus, families and businesses can be described as long-term, relational contracts; an analogy that extends to matters of formation, governance, distribution, and dissolution. (165)

B. From Contract to Context

According to current orthodoxy in corporate law, cogently summarized by the Chief Justice of the Delaware Supreme Court, "[C]ourts need to be mindful of the distinction between status relationships and contractual relationships."166 In the event of a dispute, "the contractual relationship between parties ... should be the analytical focus[,] ... not the status relationship of the parties." (167) Chief Justice Steele's recommended approach assumes that status and contract are defined in opposition to one another and lack legally relevant intersections. (168) The premise of his argument is flawed, at least when applied to family businesses, because it fails to appreciate the extent to which stable status relationships provide the context for a relational business contract. …

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