Enterprise Without Entities

Andrew Verstein*

Scholars and practicing lawyers alike consider legal entities to be essential. Who can imagine running a large business without using a business organization, such as a corporation or partnership? This Article challenges conventional wisdom by showing that vast enterprises—with millions of customers paying trillions of dollars—often operate without any meaningful use of entities.

This Article introduces the reciprocal exchange, a type of insurance company that operates without any meaningful use of a legal entity. Instead of obtaining insurance from a common nexus of contract, customers directly insure one another through a dense web of bilateral agreements. While often overlooked or conflated with mutual insurance companies, reciprocal exchanges include some of America’s largest and best-known insurance enterprises.

This Article explores how it is possible to run an international conglomerate with essentially no recourse to organizational law as it is normally conceived, and it then draws out the important implications of these findings. The viability of reciprocal exchanges stands as a powerful foil to the academic consensus that legal entities are somehow essential, while nevertheless validating the underlying logic that led scholars to elevate entities in the first place.

* Associate Professor of Law, Wake Forest University School of Law; Visiting Associate Professor and Charles J. Merriam Scholar, University of Chicago Law School. I am grateful to Michael Aylward, Miriam Baer, Jonathan Barnett, Steven Bainbridge, Margaret Blaire, Ofer Eldar, Ezra Friedman, Victor Goldberg, William Klein, Lynn LoPucki, Omri Marian, Patricia McCoy, Peter Molk, John Rappaport, Eric Rasmussen, Gabriel Rauterberg, Mark Roe, Daniel Schwarcz, Sid Shapiro, Richard Squire, Rick Swedloff, Mark Ira Weinstein, and the participants at the 2017 Spring Fordham Faculty Workshop Series, the 2017 Fall University of Chicago Works in Progress Series, the American Law and Economics Association 2016 Annual Meeting, the Insurance Section of the American Association of Law Schools 2016 Annual Meeting, and the 2016 Liberty Mutual New Scholars Workshop on Insurance Law and Risk at Boston College. Librarian Sally Irvin and students Daniel Jouppi and John Sanders helped greatly with research.

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