Most existing theories of the rms de ne a rm as a collection of physical assets, and hence can not explain the rm from a human-asset perspective, which is of particular importance for understanding human-capital intensive rms. To ll in the gap, this paper proposes an alternative de nition a rm is a group of people who work in a very close way so that outsiders cannot clearly distinguish one group member from another. By this de nition, the boundaries of the rm matter because they can alter investment speci city and hence alleviate or aggravate the hold-up problem. Speci cally, when there is substantial investment externalities integration is more e¢ cient, and conversely separation is more e¢ cient when investment externalities are small. This result is obtained under both Nash and alternating-o¤er bargaining. The e¤ect of relational contracts(Baker, Gibbons and Murphy ) is also examined to show that the newly de ned organization structures matter even when relational contracts can be signed.