Registration of transactions between ‘‘principals’’ (mainly shareholders)and ‘‘agents’’ (the corporation’s officials) allows judges to safely apply market-friendly rules when later adjudicating disputes over subsequent transactions between agents and third parties
is not merely that of providing ‘‘notice,’’ allowing parties to check company documents. It is mainly a judicial-support function, allowing courts to verify such documents and to apply contract rules without inflicting any unconsented harm on property rights
First, it identifies a mandatory core of corporate law that has often been overlooked: public registration of the key elements in originative corporate transactions. In so doing, the article contributes to the debate on the nature and role of corporate law and complements contractual theories of the firm by providing another rationale for public intervention in reducing transaction costs. Second, this rationale explains the slow emergence of the corporate form, furnishing an alternative explanation to theories developed by North, Wallis, and Weingast (2009) and Hansmann, Kraakman, and Squire (2006) for this late emergence. Lastly, and in addition to clarifying the key role of independence and publicity, this theory allows the setting of priorities and the structuring of business formalization reform in today’s economies.
Consequently, after incorporation was liberalized in the nineteenth century, analysts tend to see registration as a substitute for licensing and not as what it mainly was—a substitute for the publication of the chartering legislative acts which until then had been essential to allow judges to safely apply contract rules to subsequent corporate contracts.
company formalization appears not only or even mainly as an entry barrier, as seen by De Soto (1989), Djankov et al. (2002), and the Doing Business project (World Bank, 2003–2009), but as a necessary condition for the effective functioning of legality… they focus on reducing the costs initially incurred by entrepreneurs to formalize their firms while disregarding the benefits that effective formalization institutions bring about by reducing firms’ transaction costs with all their future contractual partners, neglecting essential organizational requirements and missing out the role played by judges as the key users of registries
Arruñada, Benito, (2010), “Fundamentos institucionales de la contratación empresarial: Una teoría del registro mercantil”, Revista de Derecho Mercantil, núm. 278, octubre-diciembre, 2010, 1291-369.