US corporate law
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United States corporate law regulates the
governance Governance is the process of interactions through the laws, norms, power or language of an organized society over a social system ( family, tribe, formal or informal organization, a territory or across territories). It is done by the gove ...
, finance and
power Power most often refers to: * Power (physics), meaning "rate of doing work" ** Engine power, the power put out by an engine ** Electric power * Power (social and political), the ability to influence people or events ** Abusive power Power may a ...
of
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 ...
s in
US law The law of the United States comprises many levels of codified and uncodified forms of law, of which the most important is the nation's Constitution, which prescribes the foundation of the federal government of the United States, as well as va ...
. Every state and territory has its own basic corporate code, while
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 ...
creates minimum standards for trade in company shares and governance rights, found mostly in the Securities Act of 1933 and the Securities and Exchange Act of 1934, as amended by laws like the Sarbanes–Oxley Act of 2002 and the Dodd–Frank Wall Street Reform and Consumer Protection Act. The US Constitution was interpreted by the
US Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point of ...
to allow corporations to incorporate in the state of their choice, regardless of where their headquarters are. Over the 20th century, most major corporations incorporated under the Delaware General Corporation Law, which offered lower corporate taxes, fewer shareholder rights against directors, and developed a specialized court and legal profession. Nevada has done the same. Twenty-four states follow the Model Business Corporation Act, while New York and California are important due to their size.


History

At the
Declaration of Independence A declaration of independence or declaration of statehood or proclamation of independence is an assertion by a polity in a defined territory that it is independent and constitutes a state. Such places are usually declared from part or all of th ...
, corporations had been unlawful without explicit authorization in a
Royal Charter A royal charter is a formal grant issued by a monarch under royal prerogative as letters patent. Historically, they have been used to promulgate public laws, the most famous example being the English Magna Carta (great charter) of 1215, but s ...
or an
Act of Parliament Acts of Parliament, sometimes referred to as primary legislation, are texts of law passed by the Legislature, legislative body of a jurisdiction (often a parliament or council). In most countries with a parliamentary system of government, acts of ...
of the United Kingdom. Since the world's first
stock market crash A stock market crash is a sudden dramatic decline of stock prices across a major cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic selling and underlying economic factors. They often foll ...
(the South Sea Bubble of 1720) corporations were perceived as dangerous. This was because, as the economist Adam Smith wrote in '' The Wealth of Nations'' (1776), directors managed "other people's money" and this conflict of interest meant directors were prone to " negligence and profusion". Corporations were only thought to be legitimate in specific industries (such as
insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
or
banking A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Becau ...
) that could not be managed efficiently through partnerships. After the US Constitution was ratified in 1788, corporations were still distrusted, and were tied into debate about interstate exercise of sovereign power. The First Bank of the United States was chartered in 1791 by the
US Congress The United States Congress is the legislature of the federal government of the United States. It is bicameral, composed of a lower body, the House of Representatives, and an upper body, the Senate. It meets in the U.S. Capitol in Washin ...
to raise money for the government and create a common currency (alongside a federal excise tax and the US Mint). It had private investors (not government owned), but faced opposition from southern politicians who feared federal power overtaking state power. So, the First Bank's charter was written to expire in 20 years. State governments could and did also incorporate corporations through special legislation. In 1811, New York became the first state to have a simple public registration procedure to start corporations (not specific permission from the legislature) for manufacturing business. It also allowed investors to have
limited liability Limited liability is a legal status in which a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a corporation, company or partnership. If a company that provides limited liability to it ...
, so that if the enterprise went bankrupt investors would lose their investment, but not any extra debts that had been run up to creditors. An early Supreme Court case, '' Dartmouth College v. Woodward'' (1819), went so far as to say that once a corporation was established a state legislature (in this case, New Hampshire) could not amend it. States quickly reacted by reserving the right to regulate future dealings by corporations. Generally speaking, corporations were treated as "
legal person In law, a legal person is any person or 'thing' (less ambiguously, any legal entity) that can do the things a human person is usually able to do in law – such as enter into contracts, sue and be sued, own property, and so on. The reason for ...
s" with separate legal personality from its shareholders, directors or employees. Corporations were the subject of legal rights and duties: they could make contracts, hold
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 ...
or commission torts, but there was no necessary requirement to treat a corporation as favorably as a real person. Over the late 19th century, more and more states allowed free incorporation of businesses with a simple registration procedure;
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 ...
enacted its General Corporation Law in 1899. Many corporations would be small and democratically organized, with one-person, one-vote, no matter what amount the investor had, and directors would be frequently up for election. However, the dominant trend led towards immense corporate groups where the standard rule was one-share, one-vote. At the end of the 19th century, " trust" systems (where formal ownership had to be used for another person's benefit) were used to concentrate control into the hands of a few people, or a single person. In response, the
Sherman Antitrust Act The Sherman Antitrust Act of 1890 (, ) is a United States antitrust law which prescribes the rule of free competition among those engaged in commerce. It was passed by Congress and is named for Senator John Sherman, its principal author. ...
of 1890 was created to break up big business conglomerates, and the
Clayton Act The Clayton Antitrust Act of 1914 (, codified at , ), is a part of United States antitrust law with the goal of adding further substance to the U.S. antitrust law regime; the Clayton Act seeks to prevent anticompetitive practices in their incipie ...
of 1914 gave the government power to halt
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 ...
that could damage the public interest. By the end of the
First World War World War I (28 July 1914 11 November 1918), often abbreviated as WWI, was one of the deadliest global conflicts in history. Belligerents included much of Europe, the Russian Empire, the United States, and the Ottoman Empire, with fightin ...
, it was increasingly perceived that ordinary people had little voice compared to the "financial oligarchy" of bankers and industrial magnates. In particular, employees lacked voice compared to shareholders, but plans for a post-war "
industrial democracy Industrial democracy is an arrangement which involves workers making decisions, sharing responsibility and authority in the workplace. While in participative management organizational designs workers are listened to and take part in the decisi ...
" (giving employees votes for investing their labor) did not become widespread. Through the 1920s, power concentrated in fewer hands as corporations issued shares with multiple voting rights, while other shares were sold with no votes at all. This practice was halted in 1926 by public pressure and the
New York Stock Exchange The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District of Lower Manhattan in New York City. It is by far the world's largest stock exchange by market capitalization of its listed ...
refusing to list non-voting shares. It was possible to sell voteless shares in the economic boom of the 1920s, because more and more ordinary people were looking to the stock market to save the new money they were earning, but the law did not guarantee good information or fair terms. New shareholders had no power to bargain against large corporate issuers, but still needed a place to save. Before the Wall Street Crash of 1929, people were being sold shares in corporations with fake businesses, as accounts and business reports were not made available to the investing public. The Wall Street Crash saw the total collapse of stock market values, as shareholders realized that corporations had become overpriced. They sold shares ''en masse'', meaning many companies found it hard to get finance. The result was that thousands of businesses were forced to close, and they laid off workers. Because workers had less money to spend, businesses received less income, leading to more closures and lay-offs. This downward spiral began the Great Depression. Berle and Means argued that under-regulation was the primary cause in their foundational book in 1932, '' The Modern Corporation and Private Property''. They said directors had become too unaccountable, and the markets lacked basic transparency rules. Ultimately, shareholder interests had to be equal to or "subordinated to a number of claims by labor, by customers and patrons, by the community". This led directly to the New Deal reforms of the Securities Act of 1933 and Securities and Exchange Act of 1934. A new Securities and Exchange Commission was empowered to require corporations disclose all material information about their business to the investing public. Because many shareholders were physically distant from corporate headquarters where meetings would take place, new rights were made to allow people to cast votes via proxies, on the view that this and other measures would make directors more accountable. Given these reforms, a major controversy still remained about the duties that corporations also owed to employees, other stakeholders, and the rest of society. After
World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposing ...
, a general consensus emerged that directors were not bound purely to pursue "
shareholder value Shareholder value is a business term, sometimes phrased as shareholder value maximization. It became prominent during the 1980s and 1990s along with the management principle value-based management or "managing for value". Definition The term "shar ...
" but could exercise their discretion for the good of all stakeholders, for instance by increasing wages instead of dividends, or providing services for the good of the community instead of only pursuing profits, if it was in the interests of the enterprise as a whole. However, different states had different corporate laws. To increase revenue from corporate tax, individual states had an incentive to lower their standards in a " race to the bottom" to attract corporations to set up their headquarters in the state, particularly where directors controlled the decision to incorporate. " Charter competition", by the 1960s, had led Delaware to become home to the majority of the largest US corporations. This meant that the case law of the Delaware Chancery and Supreme Court became increasingly influential. During the 1980s, a huge takeover and merger boom decreased directors' accountability. To fend off a takeover, courts allowed boards to institute " poison pills" or " shareholder rights plans", which allowed directors to veto any bid – and probably get a payout for letting a takeover happen. More and more people's retirement savings were being invested into the stock market, through pension funds, life insurance and
mutual funds A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV ...
. This resulted in a vast growth in the asset management industry, which tended to take control of voting rights. Both the financial sector's share of income, and executive pay for chief executive officers began to rise far beyond real wages for the rest of the workforce. The Enron scandal of 2001 led to some reforms in the Sarbanes-Oxley Act (on separating auditors from consultancy work). The
financial crisis of 2007–2008 Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...
of 2007 led to minor changes in the Dodd-Frank Act (on soft regulation of pay, alongside
derivative In mathematics, the derivative of a function of a real variable measures the sensitivity to change of the function value (output value) with respect to a change in its argument (input value). Derivatives are a fundamental tool of calculus. ...
markets). However, the basic shape of corporate law in the United States has remained the same since the 1980s.


Corporations and civil law

Corporations are invariably classified as " legal persons" by all modern systems of law, meaning that like
natural person In jurisprudence, a natural person (also physical person in some Commonwealth countries, or natural entity) is a person (in legal meaning, i.e., one who has its own legal personality) that is an individual human being, distinguished from the br ...
s, they may acquire rights and duties. A corporation may be chartered in any of the 50 states (or the District of Columbia) and may become authorized to do business in each jurisdiction it does business within, except that when a corporation sues or is sued over a contract, the court, regardless of where the corporation's headquarters office is located, or where the transaction occurred, will use the law of the jurisdiction where the corporation was chartered (unless the contract says otherwise). So, for example, consider a corporation which sets up a concert in Hawaii, where its headquarters are in Minnesota, and it is chartered in Colorado, if it is sued over its actions involving the concert, whether it was sued in Hawaii (where the concert is located), or Minnesota (where its headquarters are located), the court in that state will still use Colorado law to determine how its corporate dealings are to be performed. All major public corporations are also characterized by holding
limited liability Limited liability is a legal status in which a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a corporation, company or partnership. If a company that provides limited liability to it ...
and having a centralized management. When a group of people go through the procedures to incorporate, they will acquire rights to make contracts, to possess
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 ...
, to sue, and they will also be responsible for
tort A tort is a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. Tort law can be contrasted with criminal law, which deals with criminal wrongs that are punishable ...
s, or other wrongs, and be sued. The federal government does not charter corporations (except National Banks, Federal Savings Banks, and Federal Credit Unions) although it does regulate them. Each of the 50 states plus DC has its own corporation law. Most large corporations have historically chosen to incorporate in Delaware, even though they operate nationally, and may have little or no business in Delaware itself. The extent to which corporations should have the same rights as real people is controversial, particularly when it comes to the
fundamental rights Fundamental rights are a group of rights that have been recognized by a high degree of protection from encroachment. These rights are specifically identified in a constitution, or have been found under due process of law. The United Nations' Susta ...
found in the
United States Bill of Rights The United States Bill of Rights comprises the first ten amendments to the United States Constitution. Proposed following the often bitter 1787–88 debate over the ratification of the Constitution and written to address the objections rai ...
. As a matter of law, a corporation acts through real people that form its board of directors, and then through the officers and employees who are appointed on its behalf. Shareholders can in some cases make decisions on the corporation's behalf, though in larger companies they tend to be passive. Otherwise, most corporations adopt
limited liability Limited liability is a legal status in which a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a corporation, company or partnership. If a company that provides limited liability to it ...
so that generally shareholders cannot be sued for a corporation's commercial debts. If a corporation goes bankrupt, and is unable to pay debts to commercial creditors as they fall due, then in some circumstances state courts allow the so-called "veil of incorporation" to be pierced, and so to hold the people behind the corporation liable. This is usually rare and in almost all cases involves non-payment of trust fund taxes or willful misconduct, essentially amounting to fraud.


Incorporation and charter competition

The process of starting up a new corporation is quick, though each state differs. A corporation is not the only kind of business organization that can be chosen. People may wish to register a partnership or a
Limited Liability Company A limited liability company (LLC for short) is the US-specific form of a private limited company. It is a business structure that can combine the pass-through taxation of a partnership or sole proprietorship with the limited liability of ...
, depending on the precise tax status and organizational form that is sought. Most frequently, however, people running major enterprises will choose corporations which have
limited liability Limited liability is a legal status in which a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a corporation, company or partnership. If a company that provides limited liability to it ...
for those who become the shareholders: if the corporation goes
bankrupt Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor ...
the default rule is that shareholders will only lose the money they paid for their shares, even if debts to commercial creditors are still unpaid. A state office, perhaps called the "Division of Corporations" or simply the "Secretary of State", will require the people who wish to incorporate to file "
articles of incorporation Article often refers to: * Article (grammar), a grammatical element used to indicate definiteness or indefiniteness * Article (publishing), a piece of nonfictional prose that is an independent part of a publication Article may also refer to: ...
" (sometimes called a "charter") and pay a fee. The articles of incorporation typically record the corporation's name, if there are any limits to its powers, purposes or duration, identify whether all shares will have the same rights. With this information filed with the state, a new corporation will come into existence, and be subject to the legal rights and duties that the people involved create on its behalf. The incorporators will also have to adopt " bylaws" which identify many more details such as the number of directors, the arrangement of the board, requirements for corporate meetings, duties of officer holders and so on. The certificate of incorporation will have identified whether the directors or the shareholders, or both have the competence to adopt and change these rules. All of this is typically achieved through the corporation's first meeting. One of the most important things that the articles of incorporation determine is the state of incorporation. Different states can have different levels of corporate tax or
franchise tax A franchise tax is a government levy (tax) charged by some US states to certain business organizations such as corporations and partnerships with a nexus in the state. A franchise tax is not based on income. Rather, the typical franchise tax ca ...
, different qualities of shareholder and stakeholder rights, more or less stringent directors' duties, and so on. However, it was held by the Supreme Court in '' Paul v Virginia'' that in principle states ought to allow corporations incorporated in a different state to do business freely. This appeared to remain true even if another state (e.g. Delaware) required significantly worse internal protections for shareholders, employees, or creditors than the state in which the corporation operated (e.g. New York). So far, federal regulation has affected more issues relating to the securities markets than the balance of power and duties among directors, shareholders, employees and other stakeholders. The Supreme Court has also acknowledged that one state's laws will govern the " internal affairs" of a corporation, to prevent conflicts among state laws. So on the present law, regardless of where a corporation operates in the 50 states, the rules of the state of incorporation (subject to federal law) will govern its operation. Early in the 20th century, it was recognized by some states, initially New Jersey, that the state could cut its tax rate in order to attract more incorporations, and thus bolster tax receipts. Quickly, Delaware emerged as a preferred state of incorporation. In the 1933 case of '' Louis K. Liggett Co v Lee'', Brandeis J. represented the view that the resulting "race was one not of diligence, but of laxity", particularly in terms of corporate tax rates, and rules that might protect less powerful corporate stakeholders. Over the 20th century, the problem of a " race to the bottom" was increasingly thought to justify Federal regulation of corporations. The contrasting view was that regulatory competition among states could be beneficial, on the assumption that shareholders would choose to invest their money with corporations that were well governed. Thus the state's corporation regulations would be "priced" by efficient markets. In this way it was argued to be a "race to the top". An intermediate viewpoint in the academic literature, suggested that regulatory competition could in fact be either positive or negative, and could be used to the advantage of different groups, depending on which stakeholders would exercise most influence in the decision about which state to incorporate in. Under most state laws, directors hold the exclusive power to allow a vote on amending the articles of incorporation, and shareholders must approve directors' proposals by a majority, unless a higher threshold is in the articles.


Corporate personality

In principle a duly incorporated business acquires "
legal personality Legal capacity is a quality denoting either the legal aptitude of a person to have rights and liabilities (in this sense also called transaction capacity), or altogether the personhood itself in regard to an entity other than a natural person ...
" that is separate from the people who invest their capital, and their labor, into the corporation. Just as the
common law In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omnipres ...
had for municipal and church corporations for centuries, it was held by the Supreme Court in '' Bank of the United States v Deveaux'' that in principle corporations had
legal capacity Legal capacity is a quality denoting either the legal aptitude of a person to have rights and liabilities (in this sense also called transaction capacity), or altogether the personhood itself in regard to an entity other than a natural person ( ...
. At its center, corporations being "legal persons" mean they can make contracts and other obligations, hold property, sue to enforce their rights and be sued for breach of duty. Beyond the core of private law rights and duties the question has, however, continually arisen about the extent to which corporations and real people should be treated alike. The meaning of "person", when used in a statute or the
US Bill of Rights The United States Bill of Rights comprises the first ten amendments to the United States Constitution. Proposed following the often bitter 1787–88 debate over the ratification of the Constitution and written to address the objections rais ...
is typically thought to turn on the construction of the statute, so that in different contexts the legislature or founding fathers could have intended different things by "person". For example, in an 1869 case named '' Paul v Virginia'', the
US Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point of ...
held that the word "citizen" in the
privileges and immunities clause The Privileges and Immunities Clause ( U.S. Constitution, Article IV, Section 2, Clause 1, also known as the Comity Clause) prevents a state from treating citizens of other states in a discriminatory manner. Additionally, a right of interstate ...
of the US Constitution (article IV, section 2) did not include corporations. This meant that the
Commonwealth of Virginia Virginia, officially the Commonwealth of Virginia, is a state in the Mid-Atlantic and Southeastern regions of the United States, between the Atlantic Coast and the Appalachian Mountains. The geography and climate of the Commonwealth are ...
was entitled to require that a New York fire insurance corporation, run by Mr Samuel Paul, acquired a license to sell policies within Virginia, even though there were different rules for corporations incorporated within the state. By contrast, in '' Santa Clara County v Southern Pacific Railroad Co'', a majority of the Supreme Court hinted that a corporation might be regarded as a "person" under the equal protection clause of the Fourteenth Amendment. The Southern Pacific Railroad Company had claimed it should not be subject to differential tax treatment, compared to natural persons, set by the State Board of Equalization acting under the
Constitution of California The Constitution of California ( es, Constitución de California) is the primary organizing law for the U.S. state of California, describing the duties, powers, structures and functions of the government of California. California's original ...
. However, in the event
Harlan J John Marshall Harlan (June 1, 1833 – October 14, 1911) was an American lawyer and politician who served as an associate justice of the U.S. Supreme Court from 1877 until his death in 1911. He is often called "The Great Dissenter" due to his ...
held that the company could not be assessed for tax on a technical point: the state county had included too much property in its calculations. Differential treatment between natural persons and corporations was therefore not squarely addressed. In the late 20th century, however, the issue of whether a corporation counted as a "person" for all or some purposes acquired political significance. Initially, in '' Buckley v Valeo'' a slight majority of the
US Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point of ...
had held that natural persons were entitled to spend unlimited amounts of their own money on their political campaigns. Over a strong dissent, the majority therefore held that parts of the Federal Election Campaign Act of 1974 were unconstitutional since spending money was, in the majority's view, a manifestation of the right to freedom of speech under the
First Amendment First or 1st is the ordinal form of the number one (#1). First or 1st may also refer to: *World record, specifically the first instance of a particular achievement Arts and media Music * 1$T, American rapper, singer-songwriter, DJ, and reco ...
. This did not affect corporations, though the issue arose in '' Austin v Michigan Chamber of Commerce''. A differently constituted
US Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point of ...
held, with three dissents, that the Michigan Campaign Finance Act could, compatibly with the First Amendment, prohibit political spending by corporations. However, by 2010, the Supreme Court had a different majority. In a five to four decision, '' Citizens United v Federal Election Commission'' held that corporations were persons that should be protected in the same was as natural people under the First Amendment, and so they were entitled to spend unlimited amounts of money in donations to political campaigns. This struck down the Bipartisan Campaign Reform Act of 2002, so that an anti-
Hillary Clinton Hillary Diane Rodham Clinton ( Rodham; born October 26, 1947) is an American politician, diplomat, and former lawyer who served as the 67th United States Secretary of State for President Barack Obama from 2009 to 2013, as a United States sen ...
advertisement (" Hillary: The Movie") could be run by a pro-business lobby group. Subsequently, the same Supreme Court majority decided in 2014, in '' Burwell v Hobby Lobby Stores Inc'' that corporations were also persons for the protection of religion under the
Religious Freedom Restoration Act The Religious Freedom Restoration Act of 1993, Pub. L. No. 103-141, 107 Stat. 1488 (November 16, 1993), codified at through (also known as RFRA, pronounced "rifra"), is a 1993 United States federal law that "ensures that interests in religiou ...
. Specifically, this meant that a corporation had to have a right to opt out of provisions of the Patient Protection and Affordable Care Act of 2010, which could require giving health care to employees that the board of directors of the corporation might have religious objections to. It did not specifically address an alternative claim under the
First Amendment First or 1st is the ordinal form of the number one (#1). First or 1st may also refer to: *World record, specifically the first instance of a particular achievement Arts and media Music * 1$T, American rapper, singer-songwriter, DJ, and reco ...
. The dissenting four judges emphasized their view that previous cases provided "no support for the notion that free exercise f religiousrights pertain to for-profit corporations." Accordingly, the issue of corporate personality has taken on an increasingly political character. Because corporations are typically capable of commanding greater economic power than individual people, and the actions of a corporation may be unduly influenced by directors and the largest
shareholders 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 ow ...
, it raises the issue of the corruption of democratic politics.


Delegated management and agents

Although a corporation may be considered a separate legal person, it physically cannot act by itself. There are, therefore, necessarily rules from the corporation statutes and the
law of agency The law of agency is an area of commercial law dealing with a set of contractual, quasi-contractual and non-contractual fiduciary relationships that involve a person, called the agent, that is authorized to act on behalf of another (called the ...
that attribute the acts of real people to the corporation, to make contracts, deal with property, commission torts, and so on. First, the board of directors will be typically appointed at the first corporate meeting by whoever the
articles of incorporation Article often refers to: * Article (grammar), a grammatical element used to indicate definiteness or indefiniteness * Article (publishing), a piece of nonfictional prose that is an independent part of a publication Article may also refer to: ...
identify as entitled to elect them. The board is usually given the collective power to direct, manage and represent the corporation. This power (and its limits) is usually delegated to directors by the state's law, or the articles of incorporation. Second, corporation laws frequently set out roles for particular "officers" of the corporation, usually in senior management, on or outside of the board. US labor law views directors and officers as holding contracts of employment, although not for all purposes. If the state law, or the corporation's bylaws are silent, the terms of these contracts will define in further detail the role of the directors and officers. Third, directors and officers of the corporation will usually have the authority to delegate tasks, and hire employees for the jobs that need performing. Again, the terms of the employment contracts will shape the express terms on which employees act on behalf of the corporation. Toward the outside world, the acts of directors, officers and other employees will be binding on the corporation depending on the
law of agency The law of agency is an area of commercial law dealing with a set of contractual, quasi-contractual and non-contractual fiduciary relationships that involve a person, called the agent, that is authorized to act on behalf of another (called the ...
and principles of
vicarious liability Vicarious liability is a form of a strict, secondary liability that arises under the common law doctrine of agency, '' respondeat superior'', the responsibility of the superior for the acts of their subordinate or, in a broader sense, the re ...
(or '' respondeat superior''). It used to be that the common law recognized constraints on the total capacity of the corporation. If a director or employee acted beyond the purposes or powers of the corporation (''
ultra vires ('beyond the powers') is a Latin phrase used in law to describe an act which requires legal authority but is done without it. Its opposite, an act done under proper authority, is ('within the powers'). Acts that are may equivalently be termed ...
''), any contract would be ''ex ante'' void and unenforceable. This rule was abandoned in the earlier 20th century, and today corporations generally have unlimited capacity and purposes. However, not all actions by corporate agents are binding. For instance, in '' South Sacramento Drayage Co v Campbell Soup Co'' it was held that a traffic manager who worked for the Campbell Soup Company did not (unsurprisingly) have authority to enter a 15-year exclusive dealing contract for intrastate hauling of tomatoes. Standard principles of commercial agency apply (" apparent authority"). If a reasonable person would not think that an employee (given his or her position and role) has authority to enter a contract, then the corporation cannot be bound. However, corporations can always expressly confer greater authority on officers and employees, and so will be bound if the contracts give express or implied
actual authority The law of agency is an area of commercial law dealing with a set of contractual, quasi-contractual and non-contractual fiduciary relationships that involve a person, called the agent, that is authorized to act on behalf of another (called the p ...
. The treatment of liability for contracts and other consent based obligations, however, differs to torts and other wrongs. Here the objective of the law to ensure the internalization of "
externalities In economics, an externality or external cost is an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's (or parties') activity. Externalities can be considered as unpriced goods involved in either co ...
" or " enterprise risks" is generally seen to cast a wider scope of liability.


Shareholder liability for debts

One of the basic principles of modern corporate law is that people who invest in a corporation have
limited liability Limited liability is a legal status in which a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a corporation, company or partnership. If a company that provides limited liability to it ...
. For example, as a general rule shareholders can only lose the money they invested in their shares. Practically, limited liability operates only as a
default rule {{inline, date=June 2021 In legal theory, a default rule is a rule of law that can be overridden by a contract, trust, will, or other legally effective agreement. Contract law, for example, can be divided into two kinds of rules: ''default rules'' ...
for creditors that can adjust their risk. Banks which lend money to corporations frequently contract with a corporation's directors or shareholders to get personal
guarantee Guarantee is a legal term more comprehensive and of higher import than either warranty or "security". It most commonly designates a private transaction by means of which one person, to obtain some trust, confidence or credit for another, engages ...
s, or to take
security interest In finance, a security interest is a legal right granted by a debtor to a creditor over the debtor's property (usually referred to as the ''collateral'') which enables the creditor to have recourse to the property if the debtor defaults in makin ...
s their personal assets, or over a corporation's assets, to ensure their debts are paid in full. This means much of the time, shareholders are in fact liable beyond their initial investments. Similarly trade creditors, such as suppliers of raw materials, can use title retention clause or other device with the equivalent effect to security interests, to be paid before other creditors in bankruptcy. However, if creditors are unsecured, or for some reason guarantees and security are not enough, creditors cannot (unless there are exceptions) sue shareholders for outstanding debts. Metaphorically speaking, their liability is limited behind the "corporate veil". The same analysis, however has been rejected by the
US Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point of ...
in '' Davis v Alexander'', where a railroad subsidiary company caused injury to cattle that were being transported. As Brandeis J put it, when one "company actually controls another and operates both as a single system, the dominant company will be liable for injuries due to the negligence of the subsidiary company." There are a number of exceptions, which differ according to the law of each state, to the principle of limited liability. First, at the very least, as is recognized in
public international law International law (also known as public international law and the law of nations) is the set of rules, norms, and standards generally recognized as binding between states. It establishes normative guidelines and a common conceptual framework for ...
, courts will "pierce the corporate veil" if a corporation is being used evade obligations in a dishonest manner. Defective organization, such as a failure to duly file the articles of incorporation with a state official, is another universally acknowledged ground. However, there is considerable diversity in state law, and controversy, over how much further the law ought to go. In '' Kinney Shoe Corp v Polan'' the Fourth Circuit Federal Court of Appeals held that it would also pierce the veil if (1) the corporation had been inadequately capitalized to meet its future obligations (2) if no corporate formalities (e.g. meetings and minutes) had been observed, or (3) the corporation was deliberately used to benefit an associated corporation. However, a subsequent opinion of the same court emphasized that piercing could not take place merely to prevent an abstract notion of "unfairness" or "injustice". A further, though technically different, equitable remedy is that according to the
US Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point of ...
in '' Taylor v Standard Gas Co'' corporate insiders (e.g. directors or major shareholders) who are also creditors of a company are subordinated to other creditors when the company goes bankrupt if the company is inadequately capitalized for the operations it was undertaking.
Tort A tort is a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. Tort law can be contrasted with criminal law, which deals with criminal wrongs that are punishable ...
victims differ from commercial creditors because they have no ability to contract around limited liability, and are therefore regarded differently under most state laws. The theory developed in the mid-20th century that beyond the corporation itself, it was more appropriate for the law to recognize the economic "enterprise", which usually composes groups of corporations, where the parent takes the benefit of a subsidiary's activities and is capable of exercising decisive influence. A concept of " enterprise liability" was developed in fields such tax law, accounting practices, 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 ...
that were gradually received into the courts' jurisprudence. Older cases had suggested that there was no special right to pierce the veil in favor of tort victims, even where pedestrians had been hit by a tram owned by a bankrupt-subsidiary corporation, or by taxi-cabs that were owned by undercapitalized subsidiary corporations. More modern authority suggested a different approach. In a case concerning one of the worst oil spills in history, caused by the ''
Amoco Cadiz ''Amoco Cadiz'' was a VLCC (very large crude carrier) owned by Amoco Transport Corp and transporting crude oil for Shell Oil. Operating under the Liberian flag of convenience, she ran aground on 16 March 1978 on Portsall Rocks, from the coa ...
'' which was owned through subsidiaries of the Amoco Corporation, the Illinois court that heard the case stated that the parent corporation was liable by the fact of its group structure. The courts therefore "usually apply more stringent standards to piercing the corporate veil in a contract case than they do in tort cases" because tort claimants do not voluntarily accept limited liability. Under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the
US Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point of ...
in '' United States v Bestfoods'' held if a parent corporation "actively participated in, and exercised control over, the operations of" a subsidiary's facilities it "may be held directly liable". This leaves the question of the nature of the common law, in absence of a specific statute, or where a state law forbids piercing the veil except on very limited grounds. One possibility is that tort victims go uncompensated, even while a parent corporation is solvent and has insurance. A second possibility is that a compromise liability regime, such as
pro rata ''Pro rata'' is an adverb or adjective meaning in equal portions or in proportion. The term is used in many legal and economic contexts. The hyphenated spelling ''pro-rata'' for the adjective form is common, as recommended for adjectives by some E ...
rather than joint and several liability is imposed across all shareholders regardless of size. A third possibility, and one that does not interfere with the basics of corporate law, is that a direct duty of care could be owed in
tort A tort is a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. Tort law can be contrasted with criminal law, which deals with criminal wrongs that are punishable ...
to the injured person by parent corporations and major shareholders to the extent they could exercise control. This route means corporate enterprise would not gain a subsidy at the expense of other people's health and environment, and that there is no need to pierce the veil.


Corporate governance

Corporate governance Corporate governance is defined, described or delineated in diverse ways, depending on the writer's purpose. Writers focused on a disciplinary interest or context (such as accounting, finance, law, or management) often adopt narrow definitions ...
, though used in many senses, is primarily concerned with the balance of power among the main actors in a corporation: directors, shareholders, employees, and other stakeholders. A combination of a state's corporation law, case law developed by the courts, and a corporation's own
articles of incorporation Article often refers to: * Article (grammar), a grammatical element used to indicate definiteness or indefiniteness * Article (publishing), a piece of nonfictional prose that is an independent part of a publication Article may also refer to: ...
and bylaws determine how power is shared. In general, the rules of a corporation's constitution can be written in whatever way its incorporators choose, or however it is subsequently amended, so long as they comply with the minimum compulsory standards of the law. Different laws seek to protect the corporate stakeholders to different degrees. Among the most important are the voting rights they exercise against the board of directors, either to elect or remove them from office. There is also the right to sue for breaches of duty, and rights of information, typically used to buy, sell and associate, or disassociate on the market. The federal
Securities and Exchange Act The Securities Exchange Act of 1934 (also called the Exchange Act, '34 Act, or 1934 Act) (, codified at et seq.) is a law governing the secondary trading of securities (stocks, bonds, and debentures) in the United States of America. A landma ...
of 1934, requires minimum standards on the process of voting, particularly in a "
proxy contest A proxy fight, proxy contest or proxy battle (sometimes even called a proxy war) is an unfriendly contest for the control over an organization. The event usually occurs when a corporation's stockholders develop opposition to some aspect of the corp ...
" where competing groups attempt to persuade shareholders to delegate them their "
proxy Proxy may refer to: * Proxy or agent (law), a substitute authorized to act for another entity or a document which authorizes the agent so to act * Proxy (climate), a measured variable used to infer the value of a variable of interest in climate ...
" vote. Shareholders also often have rights to amend the corporate constitution, call meetings, make business proposals, and have a voice on major decisions, although these can be significantly constrained by the board. Employees of US corporations have often had a voice in corporate management, either indirectly, or sometimes directly, though unlike in many major economies, express "
codetermination In corporate governance, codetermination (also "copartnership" or "worker participation") is a practice where workers of an enterprise have the right to vote for representatives on the board of directors in a company. It also refers to staff having ...
" laws that allow participation in management have so far been rare.


Corporate constitutions

In principle, a corporation's constitution can be designed in any way so long as it complies with the compulsory rules set down by the state or federal legislature. Most state laws, and the federal government, give a broad freedom to corporations to design the relative rights of directors, shareholders, employees and other stakeholders in the
articles of incorporation Article often refers to: * Article (grammar), a grammatical element used to indicate definiteness or indefiniteness * Article (publishing), a piece of nonfictional prose that is an independent part of a publication Article may also refer to: ...
and the
by-laws A by-law (bye-law, by(e)law, by(e) law), or as it is most commonly known in the United States bylaws, is a set of rules or law established by an organization or community so as to regulate itself, as allowed or provided for by some higher authorit ...
. These are written down during incorporation, and can usually be amended afterwards according to the state law's procedures, which sometimes place obstacles to amendment by a simple majority of shareholders. In the early 1819 case of '' Trustees of Dartmouth College v Woodward'' the
US Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point of ...
held by a majority that there was a presumption that once a corporate charter was made, the corporation's constitution was subject to "no other control on the part of the Crown than what is expressly or implicitly reserved by the charter itself." On the facts, this meant that because
Dartmouth College Dartmouth College (; ) is a private research university in Hanover, New Hampshire. Established in 1769 by Eleazar Wheelock, it is one of the nine colonial colleges chartered before the American Revolution. Although founded to educate Native ...
's charter could not be amended by the New Hampshire legislature, though subsequent state corporation laws subsequently included provisions saying that this could be done. Today there is a general presumption that whatever balance of powers, rights and duties are set down in the constitution remain binding like a
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 tr ...
would. Most corporation statutes start with a presumption (in contrast to old ''
ultra vires ('beyond the powers') is a Latin phrase used in law to describe an act which requires legal authority but is done without it. Its opposite, an act done under proper authority, is ('within the powers'). Acts that are may equivalently be termed ...
'' rules) that corporations may pursue any purpose that is lawful, whether that is running a profitable business, delivering services to the community, or any other objects that people involved in a corporation may choose. By default, the common law had historically suggested that all decisions are to be taken by a majority of the incorporators, and that by default the board could be removed by a majority of shareholders for a reason they themselves determined. However these default rules will take subject to the constitution that incorporators themselves define, which in turn take subject to state law and federal regulation. Although it is possible to structure corporations differently, the two basic organs in a corporate constitution will invariably be the general meeting of its members (usually shareholders) and the board of directors. Boards of directors themselves have been subject in modern regulation to a growing number of requirements regarding their composition, particularly in federal law for public corporations. Particularly after the Enron scandal, companies listed on the major stock exchanges (the
New York Stock Exchange The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District of Lower Manhattan in New York City. It is by far the world's largest stock exchange by market capitalization of its listed ...
, the NASDAQ, and AMEX) were required to adopt minimum standards on the number of
independent director An independent director (also sometimes known as an outside director) is a member of a board of directors who does not have a material or pecuniary relationship with company or related persons, except sitting fees. In the United States, indepen ...
s, and their functions. These rules are enforced through the threat of delisting by the exchange, while the Securities and Exchange Commission works to ensure ultimate oversight. For example, the NYSE Listed Company Manual Rule 303A.01 requires that listed companies have a majority of "independent" directors. "Independence" is in turn defined by Rule 303A.02 as an absence of material business relationship with the corporation, not having worked for the last three years for the corporation as an employee, not receiving over $120,000 in pay, or generally having family members who are. The idea here is that "independent" directors will exercise superior oversight of the executive board members, and thus decrease the likelihood of abuse of power. Specifically, the nominations committee (which makes future board appointments), compensation committee (which sets director pay), and
audit committee An audit committee is a committee of an organisation's board of directors which is responsible for oversight of the financial reporting process, selection of the independent auditor, and receipt of audit results both internal and external. In a U ...
(which appoints the auditors), are required to be composed of independent directors, as defined by the Rules. Similar requirements for boards have proliferated across many countries, and so exchange rules allow foreign corporations that are listed on an American exchange to follow their home jurisdiction's rules, but to disclose and explain how their practices differ (if at all) to the market. The difficulty, however, is that oversight of executive directors by independent directors still leaves the possibility of personal relationships that develop into a conflict of interest. This raises the importance of the rights that can be exercised against the board as a whole.


Shareholder rights

While the board of directors is generally conferred the power to manage the day-to-day affairs of a corporation, either by the statute, or by the
articles of incorporation Article often refers to: * Article (grammar), a grammatical element used to indicate definiteness or indefiniteness * Article (publishing), a piece of nonfictional prose that is an independent part of a publication Article may also refer to: ...
, this is always subject to limits, including the rights that
shareholders 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 ow ...
have. For example, the Delaware General Corporation Law §141(a) says the "business and affairs of every corporation ... shall be managed by or under the direction of a board of directors, except as may be otherwise provided in this chapter or in its certificate of incorporation." However, directors themselves are ultimately accountable to the general meeting through the vote. Invariably, shareholders hold the voting rights, though the extent to which these are useful can be conditioned by the constitution. The DGCL §141(k) gives an option to corporations to have a unitary board that can be removed by a majority of members "without cause" (i.e. a reason determined by the general meeting and not by a court), which reflects the old default common law position. However, Delaware corporations may also opt for a classified board of directors (e.g. where only a third of directors come up for election each year) where directors can only be removed "with cause" scrutinized by the courts. More corporations have classified boards after
initial public offerings An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investment ...
than a few years after going public, because
institutional investors An institutional investor is an entity which pools money to purchase securities, real property, and other investment assets or originate loans. Institutional investors include commercial banks, central banks, credit unions, government-linke ...
typically seek to change the corporation's rules to make directors more accountable. In principle, shareholders in Delaware corporations can make appointments to the board through a majority vote, and can also act to expand the size of the board and elect new directors with a majority. However, directors themselves will often control which candidates can be nominated to be appointed to the board. Under the Dodd-Frank Act of 2010, §971 empowered the Securities and Exchange Commission to write a new SEC Rule 14a-11 that would allow shareholders to propose nominations for board candidates. The Act required the SEC to evaluate the economic effects of any rules it wrote, however when it did, the Business Roundtable challenged this in court. In '' Business Roundtable v SEC'', Ginsburg J in the
DC Circuit Court of Appeals The United States Court of Appeals for the District of Columbia Circuit (in case citations, D.C. Cir.) is one of the thirteen United States Courts of Appeals. It has the smallest geographical jurisdiction of any of the U.S. federal appellate co ...
went as far to say that the SEC had "acted arbitrarily and capriciously" in its rule making. After this, the Securities and Exchange Commission failed to challenge the decision, and abandoned drafting new rules. This means that in many corporations, directors continue to have a monopoly on nominating future directors. Apart from elections of directors, shareholders' entitlements to vote have been significantly protected by federal regulation, either through stock exchanges or the Securities and Exchange Commission. Beginning in 1927, the
New York Stock Exchange The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District of Lower Manhattan in New York City. It is by far the world's largest stock exchange by market capitalization of its listed ...
maintained a " one share, one vote" policy, which was backed by the Securities and Exchange Commission from 1940. This was thought to be necessary to halt corporations issuing non-voting shares, except to banks and other influential corporate insiders. However, in 1986, under competitive pressure from NASDAQ and AMEX, the NYSE sought to abandon the rule, and the SEC quickly drafted a new Rule 19c-4, requiring the one share, one vote principle. In '' Business Roundtable v SEC'' the
DC Circuit Court of Appeals The United States Court of Appeals for the District of Columbia Circuit (in case citations, D.C. Cir.) is one of the thirteen United States Courts of Appeals. It has the smallest geographical jurisdiction of any of the U.S. federal appellate co ...
struck the rule down, though the exchanges and the SEC subsequently made an agreement to regulate shareholder voting rights "proportionately". Today, many corporations have unequal shareholder voting rights, up to a limit of ten votes per share. Stronger rights exist regarding shareholders ability to delegate their votes to nominees, or doing " proxy voting" under the
Securities and Exchange Act The Securities Exchange Act of 1934 (also called the Exchange Act, '34 Act, or 1934 Act) (, codified at et seq.) is a law governing the secondary trading of securities (stocks, bonds, and debentures) in the United States of America. A landma ...
of 1934. Its provisions were introduced to combat the accumulation of power by directors or management friendly voting trusts after the Wall Street Crash. Under SEC Rule 14a-1, proxy votes cannot be solicited except under its rules. Generally, one person soliciting others' proxy votes requires disclosure, although SEC Rule 14a-2 was amended in 1992 to allow shareholders to be exempt from filing requirements when simply communicating with one another, and therefore to take collective action against a board of directors more easily. SEC Rule 14a-9 prohibits any false or misleading statements being made in soliciting proxies. This all matters in a
proxy contest A proxy fight, proxy contest or proxy battle (sometimes even called a proxy war) is an unfriendly contest for the control over an organization. The event usually occurs when a corporation's stockholders develop opposition to some aspect of the corp ...
, or whenever shareholders wish to change the board or another element of corporate policy. Generally speaking, and especially under Delaware law, this remains difficult. Shareholders often have no rights to call meetings unless the constitution allows, and in any case the conduct of meetings is often controlled by directors under a corporation's
by-laws A by-law (bye-law, by(e)law, by(e) law), or as it is most commonly known in the United States bylaws, is a set of rules or law established by an organization or community so as to regulate itself, as allowed or provided for by some higher authorit ...
. However, under SEC Rule 14a-8, shareholders have a right to put forward proposals, but on a limited number of topics (and not director elections). On a number of issues that are seen as very significant, or where directors have incurable conflicts of interest, many states and federal legislation give shareholders specific rights to veto or approve business decisions. Generally state laws give the right for shareholders to vote on decision by the corporation to sell off "all or substantially all assets" of the corporation. However fewer states give rights to shareholder to veto political contributions made by the board, unless this is in the articles of incorporation. One of the most contentious issues is the right for shareholders to have a " say on pay" of directors. As executive pay has grown beyond inflation, while average worker wages remained stagnant, this was seen important enough to regulate in the Dodd-Frank Act of 2010 §951. This provision, however, simply introduced a non-binding vote for shareholders, though better rights can always be introduced in the articles of incorporation. While some institutional shareholders, particularly
pension funds A pension fund, also known as a superannuation fund in some countries, is any plan, fund, or scheme which provides retirement income. Pension funds typically have large amounts of money to invest and are the major investors in listed and priva ...
, have been active in using shareholder rights, asset managers regulated by the Investment Advisers Act of 1940 have tended to be mute in opposing corporate boards, as they are often themselves disconnected from the people whose money they are voting upon.


Investor rights

Most state corporate laws require shareholders have governance rights against boards of directors, but fewer states guarantee governance rights to the real investors of capital. Currently
investment managers Investment management is the professional asset management of various securities, including shareholdings, bonds, and other assets, such as real estate, to meet specified investment goals for the benefit of investors. Investors may be institut ...
control most voting rights in the economy using "
other people's money ''Other People's Money'' is a 1991 American romantic comedy-drama film directed by Norman Jewison, starring Danny DeVito, Gregory Peck and Penelope Ann Miller. It was adapted by screenwriter Alvin Sargent from the 1989 play of the same name by ...
". Investment management firms, such as Vanguard,
Fidelity Fidelity is the quality of faithfulness or loyalty. Its original meaning regarded duty in a broader sense than the related concept of ''fealty''. Both derive from the Latin word ''fidēlis'', meaning "faithful or loyal". In the City of London fin ...
,
Morgan Stanley Morgan Stanley is an American multinational investment management and financial services company headquartered at 1585 Broadway in Midtown Manhattan, New York City. With offices in more than 41 countries and more than 75,000 employees, the fir ...
or
BlackRock BlackRock, Inc. is an American multi-national investment company based in New York City. Founded in 1988, initially as a risk management and fixed income institutional asset manager, BlackRock is the world's largest asset manager, with trill ...
, are often delegated the task of trading fund assets from three main types of institutional investors:
pension funds A pension fund, also known as a superannuation fund in some countries, is any plan, fund, or scheme which provides retirement income. Pension funds typically have large amounts of money to invest and are the major investors in listed and priva ...
, life insurance companies, and
mutual funds A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV ...
. These are usually substitutes to save for retirement. Pensions are most important kind, but can be organized through different legal forms. Investment managers, who are subject to the Employee Retirement Income Security Act of 1974, are then often delegated the task of investment management. Over time, investment managers have also vote on corporate shares, assisted by a "proxy advice" firm such as
ISS The International Space Station (ISS) is the largest modular space station currently in low Earth orbit. It is a multinational collaborative project involving five participating space agencies: NASA (United States), Roscosmos (Russia), JAXA (J ...
or
Glass Lewis Glass, Lewis & Co. (Glass Lewis) is a major American proxy advisory services company. As of spring 2019, Glass Lewis controlled 28% of the proxy advisory market for mutual funds; this makes it the second-largest company in the market behind Inst ...
. Under ERISA 1974 §1102(a), a plan must merely have named fiduciaries who have "authority to control and manage the operation and administration of the plan", selected by "an employer or employee organization" or both jointly. Usually these fiduciaries or
trustees Trustee (or the holding of a trusteeship) is a legal term which, in its broadest sense, is a synonym for anyone in a position of trust and so can refer to any individual who holds property, authority, or a position of trust or responsibility to t ...
, will delegate management to a professional firm, particularly because under §1105(d), if they do so, they will not be liable for an investment manager's breaches of duty. These investment managers buy a range of assets (e.g. government bonds,
corporate bonds A corporate bond is a bond issued by a corporation in order to raise financing for a variety of reasons such as to ongoing operations, M&A, or to expand business. The term is usually applied to longer-term debt instruments, with maturity of ...
, commodities, real estate or
derivative In mathematics, the derivative of a function of a real variable measures the sensitivity to change of the function value (output value) with respect to a change in its argument (input value). Derivatives are a fundamental tool of calculus. ...
s) but particularly corporate stocks which have voting rights. The largest form of retirement fund has become the 401(k)
defined contribution A defined contribution (DC) plan is a type of retirement plan in which the employer, employee or both make contributions on a regular basis. Individual accounts are set up for participants and benefits are based on the amounts credited to these a ...
scheme. This is often an individual account that an employer sets up, named after the Internal Revenue Code § 401(k), which allows employers and employees to defer tax on money that is saved in the fund until an employee retires. The individual invariably loses any voice over how shareholder voting rights that their money buys will be exercised. Investment management firms, that are regulated by the Investment Company Act of 1940, the
Investment Advisers Act of 1940 The Investment Advisers Act of 1940, codified at through , is a United States federal law that was created to monitor and regulate the activities of investment advisers (also spelled "advisors") as defined by the law. It is the primary source of r ...
and ERISA 1974, will almost always take shareholder voting rights. By contrast, larger and collective pension funds, many still
defined benefit Defined benefit (DB) pension plan is a type of pension plan in which an employer/sponsor promises a specified pension payment, lump-sum, or combination thereof on retirement that depends on an employee's earnings history, tenure of service and age ...
schemes such as
CalPERS The California Public Employees' Retirement System (CalPERS) is an agency in the California executive branch that "manages pension and health benefits for more than 1.5 million California public employees, retirees, and their families".CalPERSFa ...
or
TIAA The Teachers Insurance and Annuity Association of America-College Retirement Equities Fund (TIAA, formerly TIAA-CREF), is a Fortune 100 financial services organization that is the leading provider of financial services in the academic, research ...
, organize to take voting in house, or to instruct their investment managers. Two main types of pension fund to do this are labor union organized Taft-Hartley plans, and state public pension plans. A major example of a mixture is
TIAA The Teachers Insurance and Annuity Association of America-College Retirement Equities Fund (TIAA, formerly TIAA-CREF), is a Fortune 100 financial services organization that is the leading provider of financial services in the academic, research ...
, established on the initiative of
Andrew Carnegie Andrew Carnegie (, ; November 25, 1835August 11, 1919) was a Scottish-American industrialist and philanthropist. Carnegie led the expansion of the American steel industry in the late 19th century and became one of the richest Americans i ...
in 1918, which requires participants to have voting rights for the plan trustees. Under the amended
National Labor Relations Act of 1935 The National Labor Relations Act of 1935, also known as the Wagner Act, is a foundational statute of United States labor law that guarantees the right of private sector employees to organize into trade unions, engage in collective bargaining, and ...
§302(c)(5)(B) a union organized plan has to be jointly managed by representatives of employers and employees. Many local pension funds are not consolidated and have had critical funding notices from the
U.S. Department of Labor The United States Department of Labor (DOL) is one of the United States federal executive departments, executive departments of the federal government of the United States, U.S. federal government. It is responsible for the administration of fede ...
. But more funds with beneficiary representation ensure that corporate voting rights are cast according to the preferences of their members. State public pensions are often larger, and have greater
bargaining power Bargaining power is the relative ability of parties in an argumentative situation (such as bargaining, contract writing, or making an agreement) to exert influence over each other. If both parties are on an equal footing in a debate, then they w ...
to use on their members' behalf. State pension schemes usually disclose the way trustees are selected. In 2005, on average more than a third of trustees were elected by employees or beneficiaries. For example, the California Government Code §20090 requires that its public employee pension fund,
CalPERS The California Public Employees' Retirement System (CalPERS) is an agency in the California executive branch that "manages pension and health benefits for more than 1.5 million California public employees, retirees, and their families".CalPERSFa ...
has 13 members on its board, 6 elected by employees and beneficiaries. However, only pension funds of sufficient size have acted to replace
investment manager Investment management is the professional asset management of various securities, including shareholdings, bonds, and other assets, such as real estate, to meet specified investment goals for the benefit of investors. Investors may be institut ...
voting. No federal law requires voting rights for employees in pension funds, despite several proposals. For example, the Joint Trusteeship Bill of 1989, sponsored by Peter Visclosky in the
US House of Representatives The United States House of Representatives, often referred to as the House of Representatives, the U.S. House, or simply the House, is the lower chamber of the United States Congress, with the Senate being the upper chamber. Together they ...
, would have required all single employer pension plans to have trustees appointed equally by employers and employee representatives. There is also currently no legislation to stop investment managers voting with other people's money, in the way that the Securities Exchange Act of 1934 §78f(b)(10) bans broker-dealers voting on significant issues without instructions.


Employee rights

While investment managers tend to exercise most voting rights in corporations, bought with pension, life insurance and
mutual fund A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV ...
money, employees also exercise voice through
collective bargaining Collective bargaining is a process of negotiation between employers and a group of employees aimed at agreements to regulate working salaries, working conditions, benefits, and other aspects of workers' compensation and rights for workers. The ...
rules in
labor law Labour laws (also known as labor laws or employment laws) are those that mediate the relationship between workers, employing entities, trade unions, and the government. Collective labour law relates to the tripartite relationship between employee, ...
. Increasingly, corporate law has converged with
labor law Labour laws (also known as labor laws or employment laws) are those that mediate the relationship between workers, employing entities, trade unions, and the government. Collective labour law relates to the tripartite relationship between employee, ...
. The United States is in a minority of Organisation for Economic Co-operation and Development countries that, as yet, has no law requiring employee voting rights in corporations, either in the general meeting or for representatives on the board of directors. On the other hand, the United States has the oldest voluntary codetermination statute for private corporations, in Massachusetts since 1919 passed under the Republican governor Calvin Coolidge, enabling manufacturing companies to have employee representatives on the board of directors, if corporate stockholders agreed. Also in 1919 both
Procter & Gamble The Procter & Gamble Company (P&G) is an American multinational consumer goods corporation headquartered in Cincinnati, Ohio, founded in 1837 by William Procter and James Gamble. It specializes in a wide range of personal health/consumer he ...
and the General Ice Delivery Company of Detroit had employee representation on boards. In the early 20th century, labor law theory split between those who advocated collective bargaining backed by strike action, those who advocated a greater role for binding arbitration, and proponents codetermination as "
industrial democracy Industrial democracy is an arrangement which involves workers making decisions, sharing responsibility and authority in the workplace. While in participative management organizational designs workers are listened to and take part in the decisi ...
". Today, these methods are seen as complements, not alternatives. A majority of countries in the Organisation for Economic Co-operation and Development have laws requiring direct participation rights. In 1994, the '' Dunlop Commission on the Future of Worker-Management Relations: Final Report'' examined law reform to improve collective labor relations, and suggested minor amendments to encourage worker involvement. Congressional division prevented federal reform, but labor unions and state legislatures have experimented. Corporations are chartered under state law, the larger mostly in
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 ...
, but leave investors free to organize voting rights and board representation as they choose. Because of
unequal bargaining power Inequality of bargaining power in law, economics and social sciences refers to a situation where one party to a bargain, contract or agreement, has more and better alternatives than the other party. This results in one party having greater power ...
, but also historic caution of labor unions, shareholders monopolize voting rights in American corporations. From the 1970s employees and unions sought representation on company boards. This could happen through collective agreements, as it historically occurred in Germany or other countries, or through employees demanding further representation through employee stock ownership plans, but they aimed for voice independent from capital risks that could not be diversified. Corporations included where workers attempted to secure board represented included
United Airlines United Airlines, Inc. (commonly referred to as United), is a major American airline headquartered at the Willis Tower in Chicago, Illinois.
, the
General Tire and Rubber Company Continental Tire the Americas, LLC, d.b.a. General Tire, is an American manufacturer of tires for motor vehicles. Founded in 1915 in Akron, Ohio by William Francis O'Neil, Winfred E. Fouse, Charles J. Jahant, Robert Iredell, & H.B. Pushee as ...
, and the
Providence and Worcester Railroad The Providence and Worcester Railroad is a Class II railroad operating of tracks in Rhode Island, Massachusetts, and Connecticut, as well as New York via trackage rights. The company was founded in 1844 to build a railroad between Providence, ...
. However, in 1974 the Securities and Exchange Commission, run by appointees of
Richard Nixon Richard Milhous Nixon (January 9, 1913April 22, 1994) was the 37th president of the United States, serving from 1969 to 1974. A member of the Republican Party, he previously served as a representative and senator from California and was ...
, rejected that employees who held shares in
AT&T AT&T Inc. is an American multinational telecommunications holding company headquartered at Whitacre Tower in Downtown Dallas, Texas. It is the world's largest telecommunications company by revenue and the third largest provider of mobile te ...
were entitled to make proposals to include employee representatives on the board of directors. This position was eventually reversed expressly by the Dodd-Frank Act of 2010 §971, which subject to rules by the Securities and Exchange Commission entitles shareholders to put forward nominations for the board. Instead of pursuing board seats through shareholder resolutions, for example, the
United Auto Workers The International Union, United Automobile, Aerospace, and Agricultural Implement Workers of America, better known as the United Auto Workers (UAW), is an American labor union that represents workers in the United States (including Puerto Rico) ...
successfully sought board representation by collective agreement at Chrysler in 1980, and the
United Steel Workers The United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, commonly known as the United Steelworkers (USW), is a general trade union with members across North America. Headquar ...
secured board representation in five corporations in 1993. However, it was clear that employee stock ownership plans were open to abuse, particularly after
Enron Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. It was founded by Kenneth Lay in 1985 as a merger between Lay's Houston Natural Gas and InterNorth, both relatively small regional compani ...
collapsed in 2003. Workers had been enticed to invest an average of 62.5 per cent of their retirement savings from 401(k) plans in Enron stock, against basic principles of prudent, diversified investment, and had no board representation. This meant, employees lost a majority of pension savings. For this reason, employees and unions have sought representation simply for investment of labor, without taking on undiversifiable capital risk. Empirical research suggests by 1999 there were at least 35 major employee representation plans with worker directors, though often linked to corporate stock.


Directors' duties

While corporate constitutions typically set out the balance of power between directors, shareholders, employees and other stakeholders, additional duties are owed by members of the board to the corporation as a whole. First, rules can restrain or empower the directors in whose favor they exercise their discretion. While older corporate law judgments suggested directors had to promote "
shareholder value Shareholder value is a business term, sometimes phrased as shareholder value maximization. It became prominent during the 1980s and 1990s along with the management principle value-based management or "managing for value". Definition The term "shar ...
", most modern state laws empower directors to exercise their own " business judgment" in the way they balance the claims of shareholders, employees, and other stakeholders. Second, all state laws follow the historical pattern of
fiduciary duties 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 exam ...
to require that directors avoid
conflicts of interest A conflict of interest (COI) is a situation in which a person or organization is involved in multiple wikt:interest#Noun, interests, finance, financial or otherwise, and serving one interest could involve working against another. Typically, t ...
between their own pursuit of profit, and the interests of the corporation. The exact standard, however, may be more or less strict. Third, many states require some kind of basic duty of care in performance of a director's tasks, just as minimum standards of care apply in any
contract for services An employment contract or contract of employment is a kind of contract used in labour law to attribute rights and responsibilities between parties to a bargain. The contract is between an "employee" and an "employer". It has arisen out of the old m ...
. However, Delaware has increasingly abandoned objective duties of care, and allows liability waivers.


Stakeholder interests

Most corporate laws empower directors, as part of their management functions, to determine which strategies will promote a corporation's success in the interests of all stakeholders. Directors will periodically decide whether and how much of a corporation's
revenue In accounting, revenue is the total amount of income generated by the sale of goods and services related to the primary operations of the business. Commercial revenue may also be referred to as sales or as turnover. Some companies receive reven ...
should be shared among directors' own pay, the pay for employees (e.g. whether to increase or not next financial year), the
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-i ...
s or other returns to shareholders, whether to lower or raise prices for consumers, whether to retain and reinvest earnings in the business, or whether to make charitable and other donations. Most states have enacted " constituency statutes", which state expressly that directors are empowered to balance the interests of all stakeholders in the way that their conscience, or good faith decisions would dictate. This discretion typically applies when making a decision about the distribution of corporate resources among different groups, or in whether to defend against a takeover bid. For example, in ''
Shlensky v Wrigley ''Shlensky v Wrigley'', 237 NE 2d 776 (Ill. App. 1968) is a leading US corporate law case concerning the board's discretion to determine how to balance stakeholders' interests. The case embraces the application of the business judgment rule to dir ...
'' the president of the Chicago Cubs baseball team was sued by stockholders for allegedly failing to pursue the objective of shareholder profit maximization. The president had decided the corporation would not install flood lights over the baseball ground that would have allowed games to take place at night, because he wished to ensure baseball games were accessible for families, before children's bed time. The Illinois court held that this decision was sound because even though it could have made more money, the director was entitled to regard the interests of the community as more important. Following a similar logic in '' AP Smith Manufacturing Co v Barlow'' a New Jersey court held that the directors were entitled to make a charitable donation to
Princeton University Princeton University is a private research university in Princeton, New Jersey. Founded in 1746 in Elizabeth as the College of New Jersey, Princeton is the fourth-oldest institution of higher education in the United States and one of the ...
on the basis because there was "no suggestion that it was made indiscriminately or to a pet charity of the corporate directors in furtherance of personal rather than corporate ends." So long as the directors could not be said to have conflicting interests, their actions would be sustained. Delaware's law has also followed the same general logic, even though it has no specific constituency or stakeholder statute. The standard is, however, contested largely among business circles which favor a view that directors should act in the sole interests of
shareholder value Shareholder value is a business term, sometimes phrased as shareholder value maximization. It became prominent during the 1980s and 1990s along with the management principle value-based management or "managing for value". Definition The term "shar ...
. Judicial support for this aim is typically found in a case from Michigan in 1919, called '' Dodge v Ford Motor Company''. Here, the
Ford Motor Company Ford Motor Company (commonly known as Ford) is an American multinational automobile manufacturer headquartered in Dearborn, Michigan, United States. It was founded by Henry Ford and incorporated on June 16, 1903. The company sells automobi ...
president
Henry Ford Henry Ford (July 30, 1863 – April 7, 1947) was an American industrialist, business magnate, founder of the Ford Motor Company, and chief developer of the assembly line technique of mass production. By creating the first automobile that ...
had publicly announced that he wished not merely to maximize shareholder returns but to raise employee wages, decrease the price of cars for consumers, because he wished, as he put it, "to spread the benefits of this industrial system to the greatest possible number". A group of shareholders sued, and the
Michigan Supreme Court The Michigan Supreme Court is the highest court in the U.S. state of Michigan. It is Michigan's court of last resort and consists of seven justices. The Court is located in the Michigan Hall of Justice at 925 Ottawa Street in Lansing, the sta ...
said in an ''
obiter dictum ''Obiter dictum'' (usually used in the plural, ''obiter dicta'') is a Latin phrase meaning "other things said",''Black's Law Dictionary'', p. 967 (5th ed. 1979). that is, a remark in a legal opinion that is "said in passing" by any judge or arbit ...
'' that a "business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end." However, in the case itself a damages claim against Ford did not succeed, and since then Michigan law has been changed. The US Supreme Court has also made it clear in '' Burwell v Hobby Lobby Stores Inc'' that shareholder value is not a default or overriding aim of corporate law, unless a corporation's rules expressly opt to define such an objective. In practice, many corporations do operate for the benefit of shareholders, but this is less because of duties, and more because shareholders typically exercise a monopoly on the control rights over electing the board. This assumes, however, that directors do not merely use their office to further their own personal goals over the interests of shareholders, employees, and other stakeholders.


Conflicts of interest

Since the earliest corporations were formed, courts have imposed minimum standards to prevent directors using their office to pursue their own interests over the interests of the corporation. Directors can have no conflict of interest. In
trusts law A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In the Anglo-American common law, the party who entrusts the right is known as the "settl ...
, this core
fiduciary duty 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 examp ...
was formulated after the collapse of the
South Sea Company The South Sea Company (officially The Governor and Company of the merchants of Great Britain, trading to the South Seas and other parts of America, and for the encouragement of the Fishery) was a British joint-stock company founded in Ja ...
in 1719 in the United Kingdom. ''
Keech v Sandford is a foundational case, deriving from English trusts law, on the fiduciary duty of loyalty. It concerns the law of trusts and has affected much of the thinking on directors' duties in company law. It holds that a trustee owes a strict duty of ...
'' held that people in fiduciary positions had to avoid any possibility of a conflict of interest, and this rule "should be strictly pursued". It was later held that no inquiry should be made into transactions where the fiduciary was interested in both sides of the deal. These principles of equity were received into the law of the United States, and in a modern formulation Cardozo J said in '' Meinhard v Salmon'' that the law required "the punctilio of an honor the most sensitive ... at a level higher than that trodden by the crowd." The standards applicable to directors, however, began to depart significantly from traditional principles of equity that required "no possibility" of conflict regarding
corporate opportunities The ''corporate opportunity'' doctrine is the legal principle providing that directors, officers, and controlling shareholders of a corporation must not take for themselves any business opportunity that could benefit the corporation. The corporate ...
, and "no inquiry" into the actual terms of transactions if tainted by
self-dealing Self-dealing is the conduct of a trustee, attorney, corporate officer, or other fiduciary that consists of taking advantage of their position in a transaction and acting in their own interests rather than in the interests of the beneficiaries of ...
. In a Delaware decision from 1939, ''
Guth v Loft Inc ''Guth v. Loft Inc'', 5 A.2d 503, 23 Del. Ch. 255 (Del. 1939) is a Delaware corporation law case, important for United States corporate law, on corporate opportunities and the duty of loyalty. It deviated from the year 1726 rule laid down in '' K ...
'', it was held that
Charles Guth Charles George Guth (June 3, 1877May 24, 1948) was an American businessman, who, as executive of the Loft Candy Company, purchased the trademark and the syrup recipe of the twice-bankrupt Pepsi-Cola Company. He was President of Loft Candy Compan ...
, the president of a drink manufacturer named Loft Inc., had breached his duty to avoid conflicts of interest by purchasing the
Pepsi company PepsiCo, Inc. is an American multinational food, snack, and beverage corporation headquartered in Harrison, New York, in the hamlet of Purchase. PepsiCo's business encompasses all aspects of the food and beverage market. It oversees the manufa ...
and its syrup recipe in his own name, rather than offering it to Loft Inc. However, although the duty was breached, the Delaware Supreme Court held that the court will look at the particular circumstances, and will not regard a conflict as existing if the company it lacked finances to take the opportunity, if it is not in the same line of business, or did not have an "interest or reasonable expectancy". More recently, in '' Broz v Cellular Information Systems Inc'',637 A2d 148 (Del Supr 1996) it was held that a non-executive director of CIS Inc, a man named Mr Broz, had not breached his duty when he bought telecommunications licenses for the Michigan area for his own company, RFB Cellular Inc. CIS Inc had been shedding licenses at the time, and so Broz alleged that he thought there was no need to inquire whether CIS Inc would be interested. CIS Inc was then taken over, and the new owners pushed for the claim to be brought. The Delaware Supreme Court held that because CIS Inc had not been financially capable at the time to buy licenses, and so there was no actual conflict of interest. In order to be sure, or at least avoid litigation, the Delaware General Corporation Law §144 provides that directors cannot be liable, and a transaction cannot be voidable if it was (1) approved by disinterested directors after full disclosure (2) approved by shareholders after disclosure, or (3) approved by a court as fair. *'' Miller v Miller'', 222 NW.2d 71 (1974) Corporate officers and directors may pursue business transactions that benefit themselves as long as they can prove the transaction, although self-interested, was nevertheless intrinsically "fair" to the corporation. *'' Lieberman v Becker'', 38 Del Ch 540, 155 A 2d 596 (Super Ct 1959) *DGCL §144 contains the rule that the burden for proving unfairness remains on plaintiff after disclosure *'' Flieger v Lawrence'', 361 A2d 218 (Del 1976) the burden of proof shifts onto the plaintiff to show a transaction was conflicted if approval by disinterested stockholders or directors has been given to a transaction. Also '' Remillard Brick Co v Remillard-Dandini Co'', 109 Cal App2d 405 (1952) *'' Oberly v Kirby'', 592 A2d 445, 467 (Del 1991) *''
Cinerama Inc v Technicolor Inc Cinerama is a widescreen process that originally projected images simultaneously from three synchronized 35mm projectors onto a huge, deeply curved screen, subtending 146° of arc. The trademarked process was marketed by the Cinerama corporati ...
'', 663 A2d 1156, 1170 (Del. 1995) *'' Benihana of Tokyo Inc v Benihana Inc.'', 906 A2d 114 (Del. 2006)


Duty of care

The
duty of care In tort law, a duty of care is a legal obligation that is imposed on an individual, requiring adherence to a standard of reasonable care while performing any acts that could foreseeably harm others. It is the first element that must be establi ...
that is owed by all people performing services for others is, in principle, also applicable to directors of corporations. Generally speaking, the duty of care requires an objective standard of diligence and skill when people perform services, which could be expected from a reasonable person in a similar position (e.g. auditors must act "with the care and caution proper to their calling", and builders must perform their work in line with "industry standards"). In a 1742 decision of the English
Court of Chancery The Court of Chancery was a court of equity in England and Wales that followed a set of loose rules to avoid a slow pace of change and possible harshness (or "inequity") of the common law. The Chancery had jurisdiction over all matters of equ ...
, '' The Charitable Corporation v Sutton'', the directors of the Charitable Corporation, which gave out small loans to the needy, were held liable for failing to keep procedures in place that would have prevented three officers defrauding the corporation of a vast sum of money. Lord Hardwicke, noting that a director's office was of a "mixed nature", partly "of the nature of a public office" and partly like "agents" employed in "trust", held that the directors were liable. Though they were not to be judged with
hindsight Hindsight bias, also known as the knew-it-all-along phenomenon or creeping determinism, is the common tendency for people to perceive past events as having been more predictable than they actually were. People often believe that after an event ha ...
, Lord Hardwicke said he could "never determine that frauds of this kind are out of the reach of courts of law or equity, for an intolerable grievance would follow from such a determination." Many states have similarly maintained an objective baseline duty of care for corporate directors, while acknowledging different levels of care can be expected from directors of small or large corporations, and from directors with executive or non-executive roles on the board. However, in Delaware, as in a number of other states, the existence of a duty of care has become increasingly uncertain. In 1985, the Delaware Supreme Court passed one of its most debated judgments, ''
Smith v Van Gorkom ''Smith v. Van Gorkom'' 488 A.2d 858 ( Del. 1985) is a United States corporate law case of the Delaware Supreme Court, discussing a director's duty of care. It is often called the "Trans Union case". ''Van Gorkom'' is sometimes referred to as the ...
''. The directors of TransUnion, including Jerome W. Van Gorkom, were sued by the shareholders for failing to adequately research the corporation's value, before approving a sale price of $55 per share to the Marmon Group. The Court held that to be a protected business judgment, "the directors of a corporation ust haveacted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company." Failing to act on an informed basis, if it caused loss, would amount to gross negligence, and here the directors were liable. The decision triggered a panic among corporate boards which believed they would be exposed to massive liability, and insurance firms who feared rising costs of providing directors and officers liability insurance to corporate boards. In response to lobbying, the Delaware General Corporation Law was amended to insert a new §102(b)(7). This allowed corporations to give directors immunity from liability for breach of the duty of care in their charter. However, for those corporations which did not introduce liability waivers, the courts subsequently proceeded to reduce the duty of care outright. In 1996, '' In re Caremark International Inc. Derivative Litigation'' required "an utter failure to attempt to assure a reasonable information and reporting system exists", and in 2003 '' In re Walt Disney Derivative Litigation'' went further. Chancellor Chandler held directors could only be liable for showing "reckless indifference to or a deliberate disregard of the whole body of stockholders" through actions that are "without the bounds of reason". In one of the cases that came out of the
financial crisis of 2007–2008 Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...
, the same line of reasoning was deployed in '' In re Citigroup Inc Shareholder Derivative Litigation''. Chancellor Chandler, confirming his previous opinions in ''Re Walt Disney'' and the ''dicta'' of ''Re Caremark'', held that the directors of Citigroup could not be liable for failing to have a warning system in place to guard against potential losses from sub-prime mortgage debt. Although there had been several indications of the significant risks, and Citigroup's practices along with its competitors were argued to have contributed to crashing the international economy, Chancellor Chandler held that "plaintiffs would ultimately have to prove bad faith conduct by the director defendants". This suggested that Delaware law had effectively negated any substantive duty of care. This suggested that corporate directors were exempt from duties that any other professional performing services would owe.


Derivative suits

Because directors owe their duties to the corporation and not, as a general rule, to specific shareholders or stakeholders, the right to sue for breaches of directors duty rests by default with the corporation itself. The corporation is necessarily party to the suit. This creates a difficulty because almost always, the right to litigate falls under the general powers of directors to manage the corporation day to day (e.g. Delaware General Corporation Law §141(a)). Often, cases arise (such as in '' Broz v Cellular Information Systems Inc'') where an action is brought against a director because the corporation has been taken over and a new, non-friendly board is in place, or because the board has been replaced after bankruptcy. Otherwise, there is a possibility of a conflict of interest because directors will be reluctant to sue their colleagues, particularly when they develop personal ties. The law has sought to define further cases where groups other than directors can sue for breaches of duty. First, many jurisdictions outside the US allow a specific percentage of shareholders to bring a claim as of right (e.g. 1 per cent). This solution may still entail significant collective action problems where shareholders are dispersed, like the US. Second, some jurisdictions give standing to sue to non-shareholder groups, particularly creditors, whose collective action problems are less. Otherwise, third, the main alternative is that any individual shareholder may "derive" a claim on the corporation's behalf to sue for breach of duty, but such a derivative suit will be subject to permission from the court. The risk of allowing individual shareholders to bring derivative suits is usually thought to be that it could encourage costly, distracting litigation, or " strike suits" – or simply that litigation (even if the director is guilty of a breach of duty) could be seen as counterproductive by a majority of shareholders or stakeholders who have no conflicts of interest. Accordingly, it is generally thought that oversight by the court is justified to ensure derivative suits match the corporation's interests as a whole because courts may be more independent. However, especially from the 1970s some states, and especially Delaware, began also to require that the board have a role. Most
common law In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omnipres ...
jurisdictions have abandoned role for the board in derivative claims, and in most US states before the 1980s, the board's role was no more than a formality. But then, a formal role for the board was reintroduced. In the procedure to bring a derivative suit, the first step is often that the shareholder had to make a "demand" on the board to bring a claim. Although it might appear strange to ask a group of directors who will be sued, or whose colleagues are being sued, for permission, Delaware courts took the view that the decision to litigate ought by default to lie within the legitimate scope of directors' business judgment. For example, in '' Aronson v Lewis'' a shareholder of the Meyers Parking System Inc claimed that the board had improperly wasted corporate assets by giving its 75-year-old director, Mr Fink, a large salary and bonus for consultancy work even though the contract did not require performance of any work. Mr Fink had also personally selected all of the directors. Nevertheless, Moore J. held for the
Delaware Supreme Court The Delaware Supreme Court is the sole appellate court in the United States state of Delaware. Because Delaware is a popular haven for corporations, the Court has developed a worldwide reputation as a respected source of corporate law decision ...
that there was still a requirement to make a demand on the board before a derivative suit could be brought. There was "a presumption that in making a business decision, the directors of a corporation acted on an informed basis in good faith and in the honest belief that the action was taken in the best interests of the company", even if they owed their jobs to the person being sued. A requirement to make a demand on the board will, however, be excused if it is shown that it would be entirely "futile", primarily because a majority of the board is alleged to have breached its duty. Otherwise it must be shown that all board members are in some very strong sense conflicted, but merely working with the accused directors, and the personal ties this potentially creates, is insufficient for some courts. This indicated a significant and controversial change in Delaware's judicial policy, that prevented claims against boards. In some cases corporate boards attempted to establish "independent litigation committees" to evaluate whether a shareholder's demand to bring a suit was justified. This strategy was used to pre-empt criticism that the board was conflicted. The directors would appoint the members of the "independent committee", which would then typically deliberate and come to the conclusion that there was no good cause for bringing litigation. In '' Zapata Corp v Maldonado'' the Delaware Supreme Court held that if the committee acted in good faith and showed reasonable grounds for its conclusion, and the court could be "satisfied boutother reasons relating to the process", the committee's decision to not allow a claim could not be overturned. Applying Connecticut law, the Second Circuit Federal Court of Appeals held in '' Joy v North'' that the court could substitute its judgment for the decisions of a supposedly independent committee, and the board, on the ground that there was scope for conflicting interests. Then, the substantive merits for bringing the derivative claim would be assessed. Winter J held overall that shareholders would have the burden "to demonstrate that the action is more likely than not to be against the interests of the corporation". This would entail a cost benefit analysis. On the benefit side would be "the likely recoverable damages discounted by the probability of a finding of liability", and the costs side would include "attorney's fees and other out-of-pocket expenses", "time spent by corporate personnel", "the impact of distraction of key personnel", and potential lost profits which may result from the publicity of a trial." If it is thought that the costs exceed the benefits, then the shareholders acquire the right to sue on the corporation's behalf. A substantive hearing on the merits about the alleged breach of director's duty may be heard. The tendency in Delaware, however, has remained to allow the board to play a role in restricting litigation, and therefore minimize the chances that it could be held accountable for basic breaches of duty.c.f. more recently, '' In re Oracle Corp Derivative Litigation'', 824 A.2d 917 (2003) concerning insider trading, approving a derivative claim on the basis of the director's personal ties.


Minority shareholder protections

*'' Ivanhoe Partners v Newmont Mining Corp.'', 535 A.2d 1334 (Del. 1987) a shareholder owning over 50% of shares is a controlling shareholder; but actual control may also be present through other mechanisms *'' Citron v Fairchild Camera & Instrument Corp.'', 569 A.2d 53, 70 (Del. 1989) non-controlling shareholders do not owe duties to minority shareholders and may vote their shares for personal gain without concern *'' In re Cysive, Inc. Shareholders Litigation'' 836 A.2d 531 (Del. 2003) Nelson Carbonell owned 35% of Cysive, Inc., a publicly traded company. His associates' holdings and options to buy more stock, however, actually meant he controlled around 40% of the votes. Chancellor held that "without having to attract much, if any, support from public stockholders" Carbonell could control the company. This was especially so since "100% turn-out is unlikely even in a contested election" and "40% block is very potent in view of that reality." *''
Kahn v Lynch Communications Systems, Inc. Kahn is a surname of German origin. ''Kahn'' means "small boat", in German. It is also a Germanized form of the Jewish surname Cohen, another variant of which is ''Cahn''.
'' 638 A.2d 1110 (Del. 1994) Alcatel held 43% of shares in Lynch. One of its nominees on the board told the others, "you must listen to us. We are 43% owner. You have to do what we tell you." The Delaware Supreme Court held that Alcatel did in fact dominate Lynch. *'' Perlman v Feldmann'', 219 F.2d 173 (2d Cir 1955), certiorari denied, 349 US 952 (1955) held it was foreseeable that a takeover bidder wished to divert a corporate advantage to itself, and so the selling shareholders were required to pay the premium they received to the corporation *'' Jones v H.F. Ahmanson & Co.'' 1 Cal.3d 93, 460 P.2d 464 (1969) holders of 85% of comm shares in a savings and loan association, exchanged shares for shares of a new corporation and began to sell those to the public, meaning that the minority holding 15% had no market for the sale of their shares. Held, breach of fiduciary duty to the minority: "majority shareholders ... have a fiduciary responsibility to the minority and to the corporation to use their ability to control the corporation in a fair, just, and equitable manner." * New York Business Corporation Law section 1104-a, the holders of 20 per cent of voting shares of a non-public corporation may request that the corporation be wound up on grounds of oppression. *NY Bus Corp Law §1118 and '' Alaska Plastics, Inc. v. Coppock'', 621 P.2d 270 (1980) the minority can sue to be bought out at a fair value, determined by arbitration or a court. *'' Donahue v Rodd Electrotype Co of New England'' 367 Mass 578 (1975) majority shareholders cannot authorise a share purchase from one shareholder when the same opportunity is not offered to the minority. *'' In re Judicial Dissolution of Kemp & Beatley, Inc'' 64 NY 2d 63 (1984) under a "just and equitable winding up" provision, (equivalent to IA 1986 s 212(1)(g)), it was construed that less drastic remedies were available to the court before winding up, and "oppression" was said to mean 'conduct that substantially defeats the 'reasonable expectations' held by minority shareholders in committing their capital to the particular enterprise. A shareholder who reasonably expected that ownership in the corporation would entitle him or her to a job, a share of corporate earnings, a place in corporate management, or some other form of security, would oppressed in a very real sense when others in the corporation seek to defeat those expectations and there exists no effective means of salvaging the investment.' *'' Meiselman v Meiselman'' 309 NC 279 (1983) a shareholder's 'reasonable expectations' are to be determined by looking at the whole history of the participants' relationship. 'That history will include the 'reasonable expectations' created at the inception of the participants' relationship; those 'reasonable expectations' as altered over time; and the 'reasonable expectations' which develop as the participants engage in a course of dealing in conducting the affairs of the corporation.'


Mergers and acquisitions

Applicable to Delaware corporations: * DGCL §203 *''
Cheff v Mathes ''Cheff v. Mathes'', 199 A.2d 548 (Del. 1964), was a Legal case, case in which the Delaware Supreme Court first addressed the issue of Board of directors, director conflict of interest in a corporate change of control setting. This case is the p ...
'' 199 A2d 548 (Del 1964) *'' Weinberger v UOP Inc'', 457 A2d 701, 703–04 (Del 1983) plaintiff must start by alleging the fiduciary stood to gain a material economic benefit. The burden then shifts to the defendant to show the fairness of the transaction. The court considers both the terms, and the process for the bargain, i.e. both a fair price, and fair dealing. However, if the director shows that full disclosure was made to either the disinterested directors or disinterested shareholders, then the burden remains on the plaintiff. *'' Revlon Inc v MacAndrews & Forbes Holdings, Inc.'', 506 A.2d 173 (Del. 1985) *'' Hanson Trust PLC v ML SCM Acquisition, Inc'', 781 F.2d 264 (2d Cir 1986), asset lock up in contested takeover, violation of duty of care *'' Unitrin Inc v American General Corp.'' *'' Unocal Corp v Mesa Petroleum Co'' 493 A.2d 946 (Del. 1985) *'' Moran v Household International Inc'', 500 A.2d 1346 (Del. 1985) *'' Lacos Land Co v Arden Group Inc'', 517 A 2d 271 (Del Ch 1986) *'' Paramount Communications Inc v QVC Network Inc'', 637 A.2d 34 (Del. 1994)


Corporate finance

*
US Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
* Dodd–Frank Wall Street Reform and Consumer Protection Act *
Stock certificate In corporate law, a stock certificate (also known as certificate of stock or share certificate) is a legal document that certifies the legal interest (a bundle of several legal rights) of ownership of a specific number of shares (or, under Ar ...
, Unissued stock and
Treasury stock A treasury stock or reacquired stock is stock which is bought back by the issuing company, reducing the amount of outstanding stock on the open market ("open market" including insiders' holdings). Stock repurchases are used as a tax efficie ...


Securities markets

* Securities Act of 1933 * Securities Exchange Act of 1934 * Williams Act *
SEC Rule 10b-5 SEC Rule 10b-5, codified at , is one of the most important rules targeting securities fraud promulgated by the U.S. Securities and Exchange Commission, pursuant to its authority granted under § 10(b) of the Securities Exchange Act of 1934. The rul ...
, unlawful to make 'any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made ... not misleading.' *''
Blue Chip Stamps v. Manor Drug Stores ''Blue Chip Stamps v. Manor Drug Stores'', 421 U.S. 723 (1975), was a decision by the United States Supreme Court, which ruled that only those suffering direct loss from the purchase or sale of stock had standing to sue under federal securities la ...
'', 421 U.S. 723 (1975) only those suffering direct loss from the purchase or sale of stock have standing to sue under federal securities law. *'' TSC Industries v Northway'' Burger CJ, material means 'a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote'. *'' Chiarella v. United States'', 445 U.S. 222 (1980) an employee of a printer that figured out upcoming company positions from his work was not liable for securities fraud. *''
Basic v Levinson ''Basic Inc. v. Levinson'', 485 U.S. 224 (1988), was a case in which the Supreme Court of the United States articulated the "fraud-on-the-market theory" as giving rise to a rebuttable presumption of reliance in securities fraud cases. Background ...
'' every affected investor can sue for personal loss, under a rebuttable presumption of reliance on the information (the ' fraud-on-the-market theory'). *'' United States v. O'Hagan'' *'' Matrixx Initiatives, Inc. v. Siracusano'' 563 U.S. ___ (2011) company reports on products a basis for securities fraud action *'' Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit'', 547 U.S. 71 (2006) state law securities fraud class action claims were preempted by the Securities Litigation Uniform Standards Act of 1998 *'' Janus Capital Group, Inc. v. First Derivative Traders'', 564 U.S. ___ (2011) 5 to 4 decision that related companies were not also liable under SEC Rule 10b-5


Investment businesses

*
Investment Advisers Act of 1940 The Investment Advisers Act of 1940, codified at through , is a United States federal law that was created to monitor and regulate the activities of investment advisers (also spelled "advisors") as defined by the law. It is the primary source of r ...
* Investment Company Act of 1940 * Credit Rating Agency Reform Act of 2006


Auditing

*
Sarbanes–Oxley Act The Sarbanes–Oxley Act of 2002 is a United States federal law that mandates certain practices in financial record keeping and reporting for corporations. The act, (), also known as the "Public Company Accounting Reform and Investor Protect ...
2002 §404, listed corporations must document and disclose an enterprise-wide system of internal financial information. §301, CEO and CFO must personally certify integrity of annual financial statements. *
Schedule 13D Schedule 13D is an SEC filing that must be submitted to the US Securities and Exchange Commission within 10 days by anyone who acquires beneficial ownership of more than 5% of any class of publicly traded securities in a public company. A filer mu ...
, within 10 days anyone who acquires beneficial ownership of more than 5% of any class of publicly traded securities in a public company must tell the SEC. * SEA 1934 §13 or 15(d) requires an annual report * Form 10-K, the basic information required by the US Securities and Exchange Commission as an annual report *
Form 10-Q Form 10-Q, (also known as a 10-Q or 10Q) is a quarterly report mandated by the United States federal Securities and Exchange Commission, to be filed by publicly traded corporations. Pursuant to Section 13 or 15(d) of the Securities Exchange A ...
, required each quarter


Bankruptcy

* Chapter 11, Title 11, United States Code * Claim in bankruptcy *'' Taylor v Standard Gas and Electric Company'' *'' Marrama v Citizens Bank of Massachusetts''


Taxation


Theory

* Nexus of contracts and
Concession theory A concession or concession agreement is a grant of rights, land or property by a government, local authority, corporation, individual or other legal entity. Public services such as water supply may be operated as a concession. In the case of a p ...
* WZ Ripley, '' Wall Street and Main Street'' (1927) * AA Berle and
GC Means Gardiner Coit Means (June 8, 1896 in Windham, Connecticut – February 15, 1988 in Vienna, Virginia) was an American economist who worked at Harvard University, where he met lawyer-diplomat Adolf A. Berle. Together they wrote the seminal work of ...
, '' The Modern Corporation and Private Property'' (1932) * LLSV and
leximetrics Leximetrics is a field which attempts to rank the strength or weaknesses of laws, by assigning a numerical value to each type of law in a particular field. The law's numbers are then used to compare the efficacy of different legal systems, and how ...
*
Shareholder value Shareholder value is a business term, sometimes phrased as shareholder value maximization. It became prominent during the 1980s and 1990s along with the management principle value-based management or "managing for value". Definition The term "shar ...
, stakeholders and
codetermination In corporate governance, codetermination (also "copartnership" or "worker participation") is a practice where workers of an enterprise have the right to vote for representatives on the board of directors in a company. It also refers to staff having ...
* Charles A. Beard, "Corporations and Natural Rights," ''The Virginia Quarterly Review'' (1936)


See also

*
UK company law The United Kingdom company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directives and court cases, the company is the primary lega ...
*''
Connecticut General Life Insurance Company v. Johnson ''Connecticut General Life Insurance Company v. Johnson'', 303 U.S. 77 (1938), is a case in which the Supreme Court of the United States dealt with corporate entities. The case involved whether California could levy a tax on a company licensed to d ...
'' * Dodd-Frank Wall Street Reform and Consumer Protection Act 2010 * Swiss referendum "against corporate Rip-offs" of 2013 *
List of company registers This is a list of official business registers around the world. There are many types of official business registers, usually maintained for various purposes by a state authority, such as a government agency, or a court of law. In some cases, ...


Notes


References

;Textbooks *V Morawetz, ''A Treatise on the Law of Private Corporations'' (2nd edn Little, Brown and Co 1886
vol I
*WW Cook, ''A treatise on the law of corporations having a capital stock'' (7th edn Little, Brown and Co 1913
vol I
* WO Douglas and CM Shanks, ''Cases and Materials on the Law of Management of Business Units''
Callaghan 1931
*
Robert C. Clark Robert C. Clark (born 1944) is Harvard University Distinguished Service Professor, Emeritus and the Austin Wakeman Scott Professor of Law, Emeritus at Harvard Law School. He previously served as dean and professor of law at Harvard Law School fr ...
, ''Corporate Law'' (Aspen 1986) *A Cox, DC Bok, RA Gorman and MW Finkin, ''Labor Law Cases and Materials'' (14th edn 2006) *JH Choper, JC Coffee and R. J. Gilson, ''Cases and Materials on Corporations'' (7th edn Aspen 2009) *WA Klein and JC Coffee, ''Business Organization and Finance'' (11th edn Foundation Press 2010) ;Books * AA Berle and
Gardiner Means Gardiner Coit Means (June 8, 1896 in Windham, Connecticut – February 15, 1988 in Vienna, Virginia) was an American economist who worked at Harvard University, where he met lawyer-diplomat Adolf A. Berle. Together they wrote the seminal work of ...
, '' The Modern Corporation and Private Property'' (New York, Macmillan 1932) * William Ripley, ''Wall Street and Main Street'' (1927) *Johannes Zahn, ''Wirtschaftsführertum und Vertragsethik im Neuen Aktienrecht'' (1934) * Peter Gourevitch and James Shinn, Political Power and Corporate Control (Princeton 2005) ;Articles *Stephen Bainbridge, ''Director Primacy and Shareholder Disempowerment'', 119(6) Harvard Law Review 1735 (2006) * LA Bebchuk, ''The Case for Increasing Shareholder Power'' 118 Harvard Law Review 833 (2004) * LA Bebchuk, A Cohen and A Ferrell, ''Does the Evidence Favor State Competition in Corporate Law?'
90 California LR 1775
(2002) * AA Berle, ''Non-Voting Stock and Bankers Control'' (1925–1926
39 Harvard Law Review 673
* AA Berle, ''Corporate Powers as Powers in Trust'' (1931) 44 Harvard Law Review 1049 * AA Berle, ''The Theory of Enterprise Entity'' (1947
47(3) Columbia Law Review 343
* AA Berle, ''The Developing Law of Corporate Concentration'' (1952
19(4) University of Chicago Law Review 639
* AA Berle, ''Control in Corporate Law'' (1958
58 Columbia Law Review 1212
* AA Berle, ''Modern Functions of the Corporate System'' (1962
62 Columbia Law Review 433
* AA Berle, ''Property, Production and Revolution'' (1965
65 Columbia Law Review 1
* AA Berle, ''Corporate Decision-Making and Social Control'' (1968–1969
24 Business Lawyer 149
*V Brudney, ''Contract and Fiduciary Duty in Corporate Law'' 38 BCL Review 595 (1977) *RM Buxbaum, ''Conflict-of-Interest Statutes and the Need for a Demand on Directors in Derivative Actions'' (1980) 68 Californian Law Review 1122 *WL Cary, ''Federalism and Corporate Law: Reflections on Delaware'' (1974) 83(4) Yale Law Journal 663 * JC Coffee, ''What went wrong? An initial inquiry into the causes of the 2008 financial crisis'' (2009) 9(1) Journal of Corporate Law Studies 1 *C Hansen, ''Other Constituency Statutes: A Search for Perspective'' (1991) 46(4) The Business Lawyer 1355 *Henry Hansmann and Reiner Kraakman, ''Towards Unlimited Liability for Corporate Torts'', 100(7) Yale Law Journal 1879 (1991) *Marcel Kahan and Edward Rock, ''Embattled CEOs'', 88(5) Texas Law Review 987 (2010) * Friedrich Kessler, ''Book Review'' (1935) 83 University of Pennsylvania Law Review 393 *K Kocaoglu, ''A Comparative Bibliography: Regulatory Competition on Corporate Law'' (2008) Georgetown University Law Center Working Paper *MA Schaeftler, ''Ultra Vires – Ultra Useless: The Myth of State Interest in Ultra Vires Acts of Business Corporations'' (1983–1984) Journal of Corporation Law 81 *Joel Seligman, ''Equal Protection in Shareholder Voting Rights: The One Common Share, One Vote Controversy'', 54 George Washington Law Review 687 (1986) *RS Stevens, ''A Proposal as to the Codification and Restatement of the Ultra Vires Doctrine'' (1927) 36(3) Yale Law Journal 297 * Lynn Stout, ''Why We Should Stop Teaching Dodge v. Ford'', 3 Virginia Law and Business Review 163 (2008) * William Z. Ripley, ''Two Changes in the Nature and Conduct of Corporations'', 11(4) Trade Associations and Business Combinations 143 (1926); or Proceedings of the Academy of Political Science in the City of New York 695 *RK Winter, 'State Law, Shareholder Protection, and the Theory of the Corporation' (1977) 6 J Leg Studies 251


External links


List of States' corporate laws and websites from law.cornell.eduUS Corporate Law on Wikibooks
;Based on the MBCA
Arizona Revised Statutes, Title 10


(FBCA) * ttps://web.archive.org/web/20040720094345/http://www.legis.state.ga.us/legis/GaCode/Title14.pdf Georgia Business Corporation Code(GBCC)
Illinois Business Corporation Act
(IBCA)
North Carolina Business Corporation Act
(NCBCA)

(SCBCA)
Washington Business Corporation Act
(WBCA)
Wisconsin Business Corporation Law
(WBCL) ;Other states with own laws
California Corporations Code
(CCC)

(DGCL)

(NRS) * New Jersey Business Corporation Act (NJBCA)

(NYBCL)

(OGCL)

(PBCL)

(TBCA) {{Law of the United States