- Internal affairs doctrine
The internal affairs doctrine is a
choice of lawrule in corporations law. Simply stated, it provides that the "internal affairs" of a corporation(e.g. conflicts between shareholders and managementfigures such as the board of directorsand corporate officers) will be governed by the corporate statutes and case lawof the state in which the corporation is incorporated, sometimes referred to as the "lex incorporationis".
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 fiduciaryobligations 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 lawas well (for example, United States securities lawand antitrust law).
The doctrine and its relation to Federalism
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 Delawareand Nevada. Likewise, many jurisdictions apply the internal affairs doctrine internationally, which has permitted offshore financial centres to flourish.
*Bauman, Jeffrey D.; Weiss, Elliott J.; and Palmiter, Alan R. "Corporations, Law and Policy, Fifth Edition."
Thomson-West, 2005. ISBN 0-314-25966-X
title=A Comparative Bibliography: Regulatory Competition on Corporate Law
journal=(Georgetown University Law Center Working Paper)
Wikimedia Foundation. 2010.
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