Entrepreneurship, loopholes, business, finance, entrepreneur, regulatory treatment, regulatory compliance, risk, exploitation, conceptual framework, exploiting loopholes


All entrepreneurs seek favorable legal or regulatory treatment for their businesses. Sometimes this leads an entrepreneur to build a business within a gap in the law—a loophole. In so doing, these “loophole entrepreneurs” may avoid steep regulatory compliance costs that otherwise would beset (or perhaps prohibit) their businesses, thereby gaining advantages over competitors. Despite these benefits, loophole entrepreneurship is fraught with risks. Loopholes, by nature, are fragile, and their contours are often uncertain. Moreover, the stigma of “exploiting a loophole” (which connotes unfairness or deception) can provoke ill will among competitors, policymakers, and the public.

The ranks of loophole entrepreneurs include companies that have become household names (Southwest Airlines), front-page headlines (Theranos), industry pioneers (DraftKings and FanDuel), and hometown institutions (children’s lemonade stands). Loophole entrepreneurship is not only common but inevitable: wherever there is a law—and a will to evade it—there is a loophole entrepreneur. Yet loophole entrepreneurship remains an understudied area of law. This Article seeks to fill this gap by creating a conceptual framework for understanding the phenomenon, presenting a variety of case studies that reveal some of its nuances and intricacies, and gleaning from these case studies some lessons about the nature of loophole entrepreneurship.



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