Internal affairs doctrine

This article is part of a series on
Corporate law
Society.svg
By jurisdiction
General corporate forms
  • Company
  • Conglomerate
  • Cooperative
  • Corporation
  • Holding company
  • Joint-stock
  • Partnership
    • General
    • Limited
    • Limited liability
  • Private limited
  • Sole proprietorship
Corporate forms
by jurisdiction
European Union
  • Societas (SE)
  • Societas cooperativa (SCE)
  • Societas privata (SPE)
  • Societas unius personae (SUP)
  • Economic interest grouping (EEIG)
UK / Ireland / Commonwealth
  • Charitable incorporated organisation (England and Wales) (CIO)
  • Scottish charitable incorporated organisation (SCIO)
  • Community interest company (CIC)
  • Industrial and provident society (IPS)

  • Limited company (Ltd.)
  • Unlimited company
United States
  • Benefit corporation
  • C corporation
  • Limited liability company (LLC)
  • Series LLC
  • Limited liability limited partnership (LLLP)
  • S corporation
  • Delaware corporation / statutory trust
  • Massachusetts business trust
  • Nevada corporation
Others
  • Aktiebolag (AB)
  • Aktiengesellschaft (AG)
  • Ansvarlig selskap (ANS)
  • Aktieselskab (A/S)
  • Aksjeselskap (AS)
  • Gesellschaft mit beschränkter Haftung (GmbH)
  • Kabushiki gaisha (K.K.)
  • Naamloze vennootschap (N.V.)
  • Osakeyhtiö (Oy)
  • S.A.
  • Société à responsabilité limitée (SARL)
  • more...
Doctrines
  • Business judgment rule
  • Corporate governance
  • De facto and estoppel corporations
  • Internal affairs doctrine
  • Limited liability
  • Tag-along right
  • Drag-along right
  • Piercing the corporate veil
  • Rochdale Principles
  • Ultra vires
Related areas
  • Company portal
  • Law portal
  • v
  • t
  • e

The internal affairs doctrine is a choice of law rule in corporations law. Simply stated, it provides that the "internal affairs" of a corporation (e.g. conflicts between shareholders and management figures such as the board of directors and corporate officers) will be governed by the corporate statutes and case law of the state in which the corporation is incorporated, sometimes referred to as the lex incorporationis.[1][2]

Practical effects of the doctrine

The internal affairs doctrine ensures that such issues as voting rights of shareholders, distributions of dividends and corporate property, and the fiduciary obligations of management are all determined in accordance with the law of the state in which the company is incorporated. On the other hand, the "external affairs" of a corporation, such as labor and employment issues and tax liability, are typically governed by the law of the state in which the corporation is doing business. Some issues and activities, such as contracts, mergers and acquisitions, and sales of securities to third parties, may be governed both by the laws of the state of incorporation and by the laws of the state in which the transaction takes place, and in some cases, by federal law as well (for example, United States securities law and antitrust law).

Relation to federalism

In the United States, each state has the power to set its own corporate law. Because of this, and the fact that the internal affairs doctrine has been used by courts to allow application of the lex incorporationis, this has created a competitive market for incorporations among the states. Several states have taken advantage of this situation by becoming corporate havens, particularly Delaware and Nevada. Likewise, many jurisdictions apply the internal affairs doctrine internationally, which has permitted offshore financial centres to flourish.

See also

References

  1. ^ Edgar v. MITE Corp., 457 U.S. 624 (1982).
  2. ^ VantagePoint Venture Partners 1996 v. Examen, Inc., 871 A.2d 1108, 1112-1113 (2005).

Further reading

  • Bauman, Jeffrey D.; Weiss, Elliott J.; and Palmiter, Alan R. Corporations, Law and Policy, Fifth Edition. Thomson-West, 2005. ISBN 0-314-25966-X
  • Kocaoglu (Cahn Kojaolu), Kagan (March 2008). "A Comparative Bibliography: Regulatory Competition on Corporate Law". (Georgetown University Law Center Working Paper). SSRN 1103644.