Nexus of Contracts

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Nexus of Contracts

Any contract or other thing that is related to anything else, especially something that causes something else.
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* Kenneth Ayotte, Northwestern University, and Henry Hansmann, Yale University, "A Nexus of Contracts Theory of Legal Entities"
(2) The nexus of contracts theory is meant to point up the voluntary, market-oriented nature of the firm and to dismiss the notion that the corporation owes anything to the state.
The nexus of contracts theory, generally attributed to Jensen and Meckling's Theory of the Firm, holds that the firm--and by extension the corporation--is merely a central hub for a series of contractual relationships.
The nexus of contracts theory has been extremely influential in shaping corporate law theory over the past three decades.
At least, his work has demonstrated agreement with the descriptive and the normative aspects of the nexus of contracts theory. His most direct discussion of the theory is Opting Out of Fiduciary Duties: A Response to the Anti-Contractarians, an article he wrote with Henry Butler.
We read The Rise of the Uncorporation, however, as a refutation of the descriptive part of the nexus of contracts theory, at least as applied to the twenty-first century corporation.
The nexus of contracts theory is thus not really a theory of the firm at all, but rather a theory of agency costs within a certain type of firm.
* Kenneth Ayotte, Northwestern University Law School, and Henry Hansmann, Yale University, "A Nexus of Contracts Theory of Legal Entities"