Timothy Guinanne
(Yale University)
will give a presentation on
Using a New Legal Form: The GmbH, 1892-1914
Abstract: Germany introduced the Gesellschaft mit beschränkter Haftung (GmbH) in 1892 in response to dissatisfaction with the menu of business enterprise forms then available to its entrepreneurs. The GmbH combines some features of the corporation with the flexibility of the partnership, and can be compared to vehicles such as the Limited Liability Company (LLC) popular in the United States today. The new form quickly became popular and is now the most common enterprise form in Germany. In creating this new legal form, the legislator engaged in a rare form of institutional innovation; other enterprise forms such as the partnership and corporation date to at least medieval times. Pre-introduction arguments reflected assumptions about how business firms would use the GmbH. This paper compares the predictions to the reality for the period prior to 1914. GmbHs became more popular than most expected. Critics of the new form exaggerated some practices they viewed as abuses, probably because they relied on specific examples of problem firms rather than comprehensive data. The lower contracting costs implicit in the GmbH led to its wide use in many sectors and sometimes for entirely new purposes.