Unlike the corporate governance literature that focuses on publically-traded corporations, we examine how a founder trying to attract capital might try to structure his firm without losing control of the enterprise. In the 1860s and 1870s, Germany and France had quite similar corporate law, but starting in the 1880s, divergence set in. Germany severely restricted the use of the corporation in 1884, and in 1892, Germany introduced the Gesellschaft mit beschränkter Haftung (GmbH), a private, limited-liability company. France never altered is corporation the way Germany did in 1884, and did not introduce a GmbH-like legal form until the Société à responsabilité limitée (SARL) in 1925. The GmbH was popular but never eliminated alternative forms. The SARL’s introduction in France, on the other hand, quickly replaced the French alternatives. Alsace-Lorraine’s experience allows us to focus on firms that faced a menu of forms that at different times included the GmbH and the SARL. When Alsace-Lorraine belonged to Germany, its firms behaved liked other German firms, and when it was French, its firms behaved liked other French firms (excluding Paris). In each case the relative popularity of an enterprise form was driven by tradeoff between tying control rights to equity ownership (as in a corporation) or to individuals (as in a partnership).
Link to paper: http://acle.uva.nl/binaries/content/assets/subsites/amsterdam-center-for-law–economics/acle-seminars/economics-seminars/guinnane-rosenthal-eha-2012.pdf