The internal affairs doctrine is a

choice of law Choice of law is a procedural stage in the litigation of a case involving the conflict of laws when it is necessary to reconcile the differences between the laws of different legal jurisdictions, such as sovereign states, federated states (as in t ...

rule in corporations law. Simply stated, it provides that the "internal affairs" of a

corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...

(e.g. conflicts between

shareholder A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal own ...

s and

management Management (or managing) is the administration of an organization, whether it is a business, a nonprofit organization, or a government body. It is the art and science of managing resources of the business. Management includes the activities o ...

figures such as the

board of directors A board of directors (commonly referred simply as the board) is an executive committee that jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such as a business, nonprofit organiz ...

and

corporate officer Corporate titles or business titles are given to corporate officers to show what duties and responsibilities they have in the organization. Such titles are used by publicly and privately held for-profit corporations, cooperatives, non-profit or ...

s) will be governed by the corporate

statute A statute is a formal written enactment of a legislative authority that governs the legal entities of a city, state, or country by way of consent. Typically, statutes command or prohibit something, or declare policy. Statutes are rules made by le ...

s and

case law Case law, also used interchangeably with common law, is law that is based on precedents, that is the judicial decisions from previous cases, rather than law based on constitutions, statutes, or regulations. Case law uses the detailed facts of a l ...

of the state in which the corporation is incorporated, sometimes referred to as the ''lex incorporationis''.
VantagePoint Venture Partners 1996 v. Examen, Inc.
'' 871 A.2d 1108, 1112-1113 (2005).

Practical effects of the doctrine

The internal affairs doctrine ensures that such issues as voting rights of shareholders, distributions of

dividend A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-in ...

s and corporate

property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, r ...

, and the

fiduciary A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for exampl ...

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

contract A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...

mergers and acquisitions Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspect ...

, and sales of

securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...

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 Federal law is the body of law created by the federal government of a country. A federal government is formed when a group of political units, such as states or provinces join in a federation, delegating their individual sovereignty and many po ...

as well (for example,

United States securities law Securities regulation in the United States is the field of U.S. law that covers transactions and other dealings with securities. The term is usually understood to include both federal and state-level regulation by governmental regulatory agencies, ...

and

antitrust law Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust ...

Relation to federalism

In the

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...

, each

state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * ''The State'' (newspaper), a daily newspaper in Columbia, South Carolina, United States * ''Our S ...

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 haven Corporate haven, corporate tax haven, or multinational tax haven is used to describe a jurisdiction that multinational corporations find attractive for establishing subsidiaries or incorporation of regional or main company headquarters, mostly du ...

s, particularly

Delaware Delaware ( ) is a state in the Mid-Atlantic region of the United States, bordering Maryland to its south and west; Pennsylvania to its north; and New Jersey and the Atlantic Ocean to its east. The state takes its name from the adjacent Del ...

and

Nevada Nevada ( ; ) is a U.S. state, state in the Western United States, Western region of the United States. It is bordered by Oregon to the northwest, Idaho to the northeast, California to the west, Arizona to the southeast, and Utah to the east. N ...

. Likewise, many jurisdictions apply the internal affairs doctrine internationally, which has permitted

offshore financial centre An offshore financial centre (OFC) is defined as a "country or jurisdiction that provides financial services to nonresidents on a scale that is incommensurate with the size and the financing of its domestic economy." "Offshore" does not refer ...

s to flourish.

Practical effects of the doctrine

Relation to federalism

See also

References

Further reading