Deja Vu All Over Again? The Internal Affairs Rule and Entity Law Convergence Patterns in Europe and the United States
Year: 2014
Type: article
Abstract: The internal affairs rule is probably the most well-established choiceof-law principle in American corporate law. This rule holds that the law governing a corporation’s internal matters, like shareholder/management relations, is the law of the state/country where the corporation is organized. As an example, a corporation may incorporate in Delaware, thereby adopting Delaware’s corporate governance rules, and at the same time locate its company headquarters and conduct all business elsewhere. The internal affairs rule stands in marked contrast to the real seat choice-of-law doctrine that continental European countries have traditionally applied in the field of company (corporate) law. Under the latter approach, a business entity must organize itself under the company law of its “real seat” jurisdiction. The company’s real seat is the state/country where the company’s administrative headquarters—its nerve center—and presumably its center of interest is located. Because the internal affairs rule permits business managers to select the incorporating jurisdiction based on corporate governance considerations alone, it is generally agreed that the rule facilitates a market for corporate laws across the United States. Scholars from a variety of perspectives have long argued that Delaware dominates this market, and that Delaware’s dominance has in turn triggered a convergence of state corporate laws around permissive approaches to corporate governance that impose relatively few constraints on shareholders, managers, and other corporate
Source: bepress Legal Repository
Author: Matthew G. Dore
Institution: Brooklyn Law School
Language: English
Topic: Corporate Governance and Law
Subfield: Strategy and Management
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2247338169