regular market contractors in UK , Canada , and Newzealand


that regular market contractors would not have used.45 This logic has been described
This strategy, which would give parties an incentive to write a less ambiguous
contract than they might otherwise, has two motivations. First, it discourages
parties from externalizing the cost of interpreting the contract on the courts.
If parties were clearer, courts would have less work to do. Second, 

it discourages parties from opportunistically concealing information from each other. If
one party knows about the ambiguity of the word ‘chicken’ and prefers the
majoritarian meaning, and the other party does not know about the ambiguity,
then the frst party would have no incentive to disclose the ambiguity to the
second, unless a penalty default rule held the informed party to the less favourable meaning.46
There is, however, a structural difculty with penalty rules. An informed party
may, even then, decide to proceed with the penalty rather than provide information
to the other party which may result in that other party push for a better outcome to
a transaction.

47 This applies even when the party with the information and the party
without are on the same ‘side’ of the transaction.48 Supporters of penalty default
rules are keen to emphasise that such strategic positioning does not undermine the
value of penalty defaults where information asymmetries between the parties are
particularly high.49 However, their utility in other situations is likely to be limited: it
is a question of fact as to whether any given default rule should be a ‘majoritarian’
or ‘penalty’ default rule.50
In establishing how to set the content of the Model Articles, the UK government chose to design them ‘with the needs of small, owner-managed businesses in
mind’.51 Further, they acknowledged that most companies by number are small, and
should only need simple articles—but where needs are more complex, then they are
also likely to be more bespoke.

52 Accordingly, the UK government made certain
assumptions about the needs of the majority of companies and set the Model Articles to meet those assumptions. This would appear to be clear majoritarian default—
the UK government aimed to pick rules that suited the needs of the majority of
companies, and therefore that the majority of companies would apply, to save the
majority of companies from needing to negotiate their own constitutions. There is
certainly no hint of penalty default rhetoric.
But have the UK government picked these correctly? Are market participants
actually using the Model Articles, or are they diverging from them? Qualitative empirical studies of constitutions of UK companies have been undertaken, most
notably of constitutions of companies prior to 1850.53 We can build on this by providing a quantitative empirical studies of articles of association of companies incorporated in the UK under the Companies Act 2006. We will synthesise large amounts
of data by adopting a leximetric approach to analysing articles of association.

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