William & Mary Business Law Review
Abstract
This Article makes three contributions to the scholarship on the development and adoption of legal forms of business organization (LFBO). First, this Article examines how Charles Darwin’s theory of natural selection (i.e., variation, selection, and inheritance) can provide an overarching framework that can integrate previous theories of LFBO evolution propounded by Hurst, Blair, Hansmann, Kraakman, and Squire.
Second, Hurst, Blair, Hansmann, Kraakman, and Squire focused primarily on the evolution of joint stock companies and corporations during the American Industrial Revolution. This Article uses the lens of natural selection to explain the development and adoption of more recent forms of business organization, such as the limited liability company and the benefit corporation.
Third, by looking through the lens of natural selection, we can critically examine the profit maximization norm by focusing on selective agents and the traits that they select for. If—as is the conventional wisdom—the purpose of the corporation is to maximize profits to shareholders, then we would expect the dominant selective agent to be the shareholder, and the traits selected for to be those that maximize profit. However, that is not the case.
Based on the foregoing, I conclude that the purpose of the corporation is not primarily to maximize profits to shareholders. Instead, the primary purpose of the corporation is to serve as a stable entity that can gather capital (both in terms of financing and human capital) to advance one or more major projects. Put differently, the true purpose of the corporation is to do great things in furtherance of entrepreneurial vision.