
Contents
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1 Introduction 1 Introduction
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2 The Benefits and Costs of Corporate Partitioning 2 The Benefits and Costs of Corporate Partitioning
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2.1 Reduced Need for Equityholders to Monitor Each Other 2.1 Reduced Need for Equityholders to Monitor Each Other
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2.2 Facilitating Control Transfers 2.2 Facilitating Control Transfers
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2.3 Liquid Shares 2.3 Liquid Shares
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2.4 Equityholder Diversification 2.4 Equityholder Diversification
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2.5 Reduced Information Costs for Personal Creditors 2.5 Reduced Information Costs for Personal Creditors
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2.6 Bankruptcy Simplification 2.6 Bankruptcy Simplification
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2.7 Protection of Going-Concern Value 2.7 Protection of Going-Concern Value
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2.8 Correcting Debt Overhang 2.8 Correcting Debt Overhang
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2.9 Higher Agency Costs of Debt 2.9 Higher Agency Costs of Debt
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2.10 Accounting Costs 2.10 Accounting Costs
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3 Internal Partitioning: Legal Boundaries within the Firm 3 Internal Partitioning: Legal Boundaries within the Firm
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4 Non-Partitioning Functions of Subsidiaries 4 Non-Partitioning Functions of Subsidiaries
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5 Legal Implications: Patterns and Presumptions 5 Legal Implications: Patterns and Presumptions
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5.1 Piercing the Corporate Veil 5.1 Piercing the Corporate Veil
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5.2 Enterprise Liability 5.2 Enterprise Liability
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6 Conclusion 6 Conclusion
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Notes Notes
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External and Internal Asset Partitioning: Corporations and Their Subsidiaries
Get accessHenry Hansmann is the Oscar M. Ruebhausen Professor of Law at Yale Law School.
Richard Squire is the Alpin J. Cameron Chair in Law at Fordham Law School.
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Published:22 April 2025
Cite
Abstract
This article examines corporate asset partitioning, focusing on its two key mechanisms: owner shielding, which protects equityholders’ personal assets from business creditors, and entity shielding, which protects business assets from equityholders’ personal creditors. It explores the economic benefits and costs of external and internal partitioning, arguing that external partitions offer greater economic advantages while internal partitions often yield higher costs and fewer benefits. The article highlights how intra-group guarantees and insufficient subsidiary-level financial records undermine the benefits of internal partitions, complicating bankruptcy and increasing the agency costs of debt. It also critiques prior scholarship for neglecting entity shielding and emphasizes the need for courts to consider these factors when applying de-partitioning remedies. Finally, the article advocates aligning legal doctrines with the economic realities of asset partitioning, urging courts to consider partition types and associated trade-offs when deciding remedies.
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