27 Nov Pros and Cons of Hybrid Legal System
However, these new hybrid models also carry some risks. Perhaps the greatest risk is that there is currently a lack of jurisprudence on these new forms of organization. This means that there is very little to guide these corporations and their directors and officers in their activities and decisions, and to align the public objectives or benefits of these organizations with their profit motives. Unlike more traditional for-profit, tax-exempt structures, which in many ways can draw on a plethora of case law, hybrid corporations are new and untested, and there is not much case law in areas that would clarify or expand the requirements and conditions of these hybrids. It is not uncommon for new or new forms of organization to be introduced and eventually to gain wider acceptance. For example, the organizational form of the limited liability company (LLC) has become more widespread and accepted since its introduction in the late 1970s. However, some 30 years after its inception, jurisprudence on LLCs is still not firmly or uniformly established and, as a result, many institutional and other investors have still not fully adopted the LLC form. For similar reasons, incumbents may be reluctant to fund new hybrid companies, at least for the most part, until case law is more developed. Despite the benefits, charitable corporations are largely uncharted territory, which carries some risks and raises some questions from a legal perspective.
For example, the Articles of Association of the Benefit Corporation do not describe or give clear instructions on how the directors or officers of a Benefit Corporation should balance the pursuit of the Company`s general and/or specific objectives or how those objectives would balance with the Company`s need (or desire) to generate operating income and/or profit for investors. It should be noted that before examining the different legal systems, it is important to distinguish between what the term civil law means in the context of legal systems and what it means in relation to civil and criminal law. The Washington Act also modifies the fiduciary duties of directors and officers of a special purpose vehicle by allowing them to “give weight” to one or more of the corporation`s corporate objectives in the performance of their duties. Any action of a director or officer that, in his or her opinion, furthers a corporate purpose will be considered in the “best interests” of the Corporation and directors and officers will not be liable for any action taken in accordance with these requirements. As with the other hybrid models described above, only shareholders have the right to bring actions under the Special Purpose Vehicles Act. The island of Guernsey is another example of customary law. Although it is one of the Channel Islands off the coast of England, Guernsey is not part of the United Kingdom. The legal system of Guernsey derives from the medieval power of the monarch, the Duke of Normandy.53 The former Duchy of Normandy is an influential source of law in Guernsey.
Duchestic laws developed in two periods, the Old Custom of 1199-1538 and the Reformed Custom of 1538-1804.54 The legal system of Guernsey also contains elements of English common law and modern statutory law enacted by the island`s elected legislature. Guernsey enjoys almost complete autonomy over its internal affairs, and the country determines many matters on the basis of ancient customary laws, with elected bailiffs and juries making decisions.55 The American legal system and other legal systems emanating from British rule are a common law system.44 Originally, the common law meant a law made by judges that filled gaps where there was no law. Written. The judges looked at previous decisions to determine unwritten judicial law and apply it to new cases. Today, however, almost all laws are written and enacted by a legislator as laws. Many statutes codify, amend or abolish the established common law, depending on the purpose of the statute. There are cases where an unwritten common law is still applied, but these are rare. While transparency may be essential to ensure that the unique general or specific objectives of a hybrid entity are achieved effectively and in a timely manner, the assessment, reporting and/or disclosure requirements of different hybrid forms may prove to be too subjective, costly and/or onerous for many entities. or outweigh the real or perceived benefits of adopting one of these models. Despite the key elements that set them apart from each other, there are some advantages and disadvantages common to the various hybrid organizational models described above, and there are certain attributes that these models share with traditional for-profit and not-for-profit structures. Unlike a traditional for-profit corporation, any company that organizes itself under one of these hybrid models makes a statement to its owners, directors, officers, employees, customers, and other stakeholders that it is motivated by broader goals than the pursuit of profit.
Organizing in one of these forms can make it easier for a company to stand out in a competitive marketplace, whether to attract consumers who want to make socially responsible or environmentally friendly purchases, or to attract investors, especially one of the many new socially responsible investment vehicles. Although, theoretically, any business (including any for-profit corporation) can choose to pursue a general or specific public interest without organizing itself as a hybrid entity, the various hybrid forms of organization are generally intended to provide legal protection to board members and/or officers in order to facilitate the pursuit of these benefits without fear of liability if such persecution jeopardizes or diminishes shareholder returns. A hybrid legal system combines parts of more than one approach to create a system that is unique in the country. Many countries have mixed legal systems that include general, civil, religious, and customary systems.59 For example, the state of Louisiana has a hybrid system. Louisiana uses some common law, but it also uses a civil justice system for much of its state laws and procedures because of its origins as a French territory. Even on recognized tribal lands, customary tribal rights can be used instead of state or federal laws. Another example is the Philippine system, which, because of its history, includes French civil law, American-style common law, Sharia law, and Indigenous common law.60 Many African countries have a parallel tribal or ethnic legal system for deciding family law issues.61 California is not the only state considering the Benefit Corporation model and taking an alternative approach. Decides. Washington State recently approved a new form of organization called the Social Purpose Corporation. A social purpose corporation is a for-profit corporation organized to pursue one or more social and/or environmental purposes while creating economic value for shareholders. The market`s response to this ongoing and growing conflict has produced a growing variety of new models or forms of so-called “hybrid” business organization, designed to provide more flexibility and a certain degree of legal protection to organizations that “want to do good.” None of these hybrid companies are eligible for tax exemption; However, they take into account charitable or social interests in various ways and are exempt from the various significant burdens of the tax exemption.
This article introduces some of the most common hybrid business structures for a test drive and explores the main advantages and disadvantages of each. The great thing about the new legal structures is that they have not been tested in court. In other words, there is no case law. To be honest, we do not know how the courts will react or how impact targets will be maintained. You always need people to raise their hands and be first, but some companies may not want to be in such an undefined area of law. Since each state has adopted its own version of these legal structures, each state has different requirements. It is worth mentioning that Delaware Supreme Court Chief Justice Leo Stline has written articles on the subject, including one titled “Making It Easier for Directors To `Do The Right Thing?`” in which he supports the idea that charitable corporation articles have the potential to shift responsibility and put real power behind the idea. that companies must act responsibly. These two systems, common law and civil law, are the most widely used legal systems in the world. They differ in the weight they give to judicial precedents and their views on the subject matter of the judicial proceedings.
The conflict between traditional for-profit and not-for-profit structures was exacerbated by the stock market crash of 2008 and the recession and prolonged recovery that followed. Executives are looking for ways to differentiate their business from the competition, satisfy socially responsible investors, and re-promote notions of “corporate greed” by diversifying their revenue streams and/or aligning their profit goal with socially responsible motives.