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40 Wake Forest Law Review 827 (2005)


When the law conceptualizes the legal form that houses a closely held business, does it matter whether the law envisages that form as an entity separate from, rather than an aggregate of, the several owners of the business? At one time, this question was at the conceptual core of the law of general partnerships, but the Revised Uniform Partnership Act supposedly put the issue to rest. Moreover, the closely held corporation is emphatically an entity, as is the predominant form of unincorporated organization - the limited liability company. Today, the entity-aggregate question might seem a mere relic of a discarded paradigm.

It turns out, however, that the question has not become extinct; it has merely gone underground. Manifestations of the entity-aggregate question persist across a range of legal regimes (e.g., bankruptcy, federal employment law rights for owner-managers, fiduciary duties of managers, taxation, transfer restrictions on ownership interests), and the answer to the question varies depending both on the area of doctrine and the type of legal form involved. With regard to general partnerships, close corporations, and LLCs alike, the deep structure on this question remains somewhat schizoid.

This essay will explore some of the modern manifestations of the entity-aggregate question in closely held businesses and, in particular will: - introduce the entity-aggregate concept, briefly review its pedigree in the U.S. law of closely held entities, and note the legal developments that seemed to signal the end of the entity-aggregate dichotomy; - survey the current situation and probe beneath the surface to demonstrate that the distinction has not ceased to exist but has rather gone underground, becoming, if anything, more complex, confused and confusing than ever before; - offer several reasons - both abstract and practical - why scholars and practicing attorneys should care about the dichotomy and the confusion; and - tentatively suggest criteria for rationalizing this area of law.