Posts Tagged ‘Incorporations’

The State of State Competition for Incorporations

Posted by Marcel Kahan, NYU School of Law, on Monday September 22, 2014 at 9:05 am
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Editor’s Note: Marcel Kahan is the George T. Lowy Professor of Law at the New York University School of Law.

The competition by states for incorporations has long been the subject of extensive scholarship. Views of this competition differ radically. While some commentators regard it as “The Genius of American Corporate Law,” others believe it leads to a “Race to the Bottom” and yet others have taken the position that it barely exists. Despite this lack of consensus among corporate law scholars, scholars in other fields have treated state competition for incorporations as a paradigm case of regulatory competition.

…continue reading: The State of State Competition for Incorporations

Race to the Bottom Recalculated: Scoring Corporate Law Over Time

Posted by Brian R. Cheffins, University of Cambridge, on Thursday September 18, 2014 at 9:07 am
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Editor’s Note: Brian Cheffins is Professor of Corporate Law at the University of Cambridge. The following post is based on an article co-authored by Professor Cheffins, Steven A. Bank, Paul Hastings Professor of Business Law at UCLA School of Law, and Harwell Wells, Associate Professor of Law at Temple University Beasley School of Law.

In The Race to the Bottom Recalculated: Scoring Corporate Law Over Time we undertake a pioneering historically-oriented leximetric analysis of U.S. corporate law to provide insights concerning the evolution of shareholder rights. There have previously been studies seeking to measure the pace of change with U.S. corporate law. Our study, which covers from 1900 to the present, is the first to quantify systematically the level of protection afforded to shareholders.

…continue reading: Race to the Bottom Recalculated: Scoring Corporate Law Over Time

Revisiting American Exceptionalism

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday August 5, 2014 at 9:03 am
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Editor’s Note: The following post comes to us from Naomi R. Lamoreaux, Stanley B. Resor Professor of Economics and History, Yale University, and Research Associate, NBER.

The legal rules governing businesses’ organizational choices have varied across nations along two main dimensions: the number of different forms that firms could adopt; and the extent to which firms had the contractual freedom to modify the available forms to suit their needs. Until the last quarter of the twentieth century, businesses in the U.S. had a narrower range of forms from which to choose than their counterparts in most other countries and also much less ability to modify the basic forms contractually. In the recent NBER Working Paper, Revisiting American Exceptionalism: Democracy and the Regulation of Corporate Governance in Nineteenth-Century Pennsylvania, I explore the exceptional character of the U.S. legal rules by focusing on the different structure of U.S. and British general incorporation laws.

…continue reading: Revisiting American Exceptionalism

Delaware Public Benefit Corporations 90 Days Out: Who’s Opting In?

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday July 23, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Alicia E. Plerhoples at Georgetown University Law Center. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

On August 1, 2013, amendments to the Delaware General Corporation Law (DGCL) became effective, allowing entities to incorporate as a public benefit corporation, a new corporate form that requires managers to produce a public benefit and balance shareholders’ financial interests with the best interests of stakeholders materially affected by the corporation’s conduct.

In my paper, Delaware Public Benefit Corporations 90 Days Out: Who’s Opting in?, I present empirical research on the companies that adopted the Delaware public benefit corporation form within the first three months of the effective date of the amended DGCL.

…continue reading: Delaware Public Benefit Corporations 90 Days Out: Who’s Opting In?

The Role of Social Enterprise and Hybrid Organizations

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday February 3, 2014 at 9:07 am
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Editor’s Note: The following post comes to us from Ofer Eldar of Yale Law School.

In my paper, The Role of Social Enterprise and Hybrid Organizations, which was recently made available on SSRN, I advance a theory of hybrid organizations that combine profit-seeking and social missions.

Recent years have brought remarkable growth in hybrid organizations, including firms that pursue corporate social responsibility (“CSR”) policies, socially responsible investment firms, and environmentally-friendly firms. In addition, much attention has focused on a broad but vaguely defined group of hybrid organizations which are commonly referred to as “social enterprises”; these include microfinance institutions, businesses that sell fair trade products, work integration firms, and companies that sell affordable products in developing countries (e.g., eyeglasses and bed-nets). Despite popular enthusiasm for hybrid organizations, legal reforms to facilitate their formation and growth—including, in particular, special enabling statutes for hybrid firms (e.g., the Low-Profit LLC and the Benefit Corporation)—have largely been ineffective. This failure stems in large part from the lack of a theory that identifies the structural and functional elements that make some types of hybrid organizations more effective than others. Rather, legal and economic scholars tend to treat different forms of hybrids, especially social enterprises and firms implementing CSR policies, as essentially the same form of enterprise, i.e., firms with a mixed profit and social mission.

…continue reading: The Role of Social Enterprise and Hybrid Organizations

DGCL Amended to Authorize Public Benefit Corporations

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday August 15, 2013 at 9:13 am
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Editor’s Note: The following post comes to us from Frederick H. Alexander, partner in the Delaware Corporate Law Counseling Group at Morris, Nichols, Arsht & Tunnell LLP. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Beginning on August 1, 2013, the Delaware General Corporation Law will authorize the formation of public benefit corporations. The new provisions will allow entrepreneurs and investors to create for-profit Delaware corporations that are charged with promoting public benefits. These provisions modify the fiduciary duties of directors of PBCs by requiring them to balance such benefits with the economic interests of stockholders. In addition, the new provisions will require public benefit corporations to report to their stockholders with respect to the advancement of such non-stockholder interests.

Below are a few of the more salient elements of Delaware’s public benefit corporation legislation:

…continue reading: DGCL Amended to Authorize Public Benefit Corporations

Corporate Mobility and Regulatory Competition in Europe

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday May 7, 2013 at 9:34 am
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Editor’s Note: The following post comes to us from Wolf-Georg Ringe, Professor of International Commercial Law at Copenhagen Business School.

Is there a competition for corporate charters in Europe? Corporate and comparative scholars have been discussing the similarities between the Delaware-led competition in the United States with the slowly emerging market for corporate legal forms in the European Union.

In my recent paper, Corporate Mobility in the European Union – a Flash in the Pan? An empirical study on the success of lawmaking and regulatory competition, recently made available on SSRN, I provide new empirical evidence on the development of the market for incorporations in Europe, and on the impact of national law reforms.

Since the seminal Centros case in 1999, European entrepreneurs have been allowed to select foreign legal forms to govern their affairs. While much academic effort has been spent to evaluate the early market reactions to this case-law, effectively opening up the European market, relatively little attention has been devoted to subsequent developments. This is surprising, since the various national lawmakers’ responses to the wave of entrepreneurial migration offer a rare glimpse on the effects of regulatory competition and subsequent business’ reaction, as well as on the relevance and effects of lawmaking and regulatory responses to market pressure.

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Putting Stockholders First, Not the First-Filed Complaint

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday January 22, 2013 at 9:11 am
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Editor’s Note: The following post comes to us from Leo E. Strine, Jr., Senior Fellow for the Harvard Program on Corporate Governance and Austin Wakeman Scott Lecturer at Harvard Law School, Lawrence A. Hamermesh, Ruby R. Vale Professor of Corporate and Business Law at Widener University School of Law, and Matthew Jennejohn, an associate at Shearman & Sterling, LLP.

The prevalence of settlements in class and derivative litigation challenging mergers and acquisitions in which the only payment is to plaintiffs’ attorneys suggests potential systemic dysfunction arising from the increased frequency of parallel litigation in multiple state courts. After examining possible explanations for that dysfunction, and the historical development of doctrines limiting parallel state court litigation — the doctrine of forum non conveniens and the “first-filed” doctrine — this paper suggests that those doctrines should be revised to better address shareholder class and derivative litigation. Revisions to the doctrine of forum non conveniens should continue the historical trend, deemphasizing fortuitous and increasingly irrelevant geographic considerations, and should place greater emphasis on voluntary choice of law and the development of precedential guidance by the courts of the state responsible for supplying the chosen law. The “first-filed” rule should be replaced in shareholder representative litigation by meaningful consideration of affected parties’ interests and judicial efficiency.

Putting Stockholders First responds to the observation that in 2011, only 5% of settlements of shareholder litigation challenging mergers and acquisitions involved an additional payout to stockholders, 84% of such settlements were based on additional disclosure only, but all of such settlements involved payment of fees for plaintiffs’ attorneys. These figures reflect a significant change from 1999 to 2000, when 52% of suits filed on behalf of shareholders produced a financial benefit for the class, and only 10% of settlements were “disclosure-only.”

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Delaware Law as Lingua Franca: Evidence from VC-Backed Startups

Posted by Jesse Fried, Harvard Law School, on Tuesday January 8, 2013 at 8:57 am
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Editor’s Note: Jesse Fried is a Professor of Law at Harvard Law School. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Delaware dominates the corporate chartering market in the U.S—it is the only state that attracts a significant number of out-of-state incorporations. As a result, incorporation decisions are “bimodal,” with public and private firms typically choosing between home-state and Delaware incorporation.

Much ink has been spilled in the debate over whether Delaware’s dominance arose because it offers high-quality or low-quality corporate law. Under the “race-to-the-top” view, Delaware has prevailed because its law maximizes firm value. Under the “race-to-the-bottom” view, Delaware has won by offering corporate law that favors insiders at other parties’ expense.

But a firm today may choose Delaware law not solely because of its inherent features but rather because, after decades of Delaware’s dominance, business parties—including investors and their lawyers—are now simply more familiar with Delaware law than the laws of other states. Indeed, the bimodal pattern of domiciling is itself strong evidence that business parties are familiar only with their home states’ corporate law and Delaware’s.

In our paper, Delaware Law as Lingua Franca: Evidence from VC-Backed Startups, recently made public on SSRN, Brian Broughman, Darian Ibrahim, and I show, for the first time, that familiarity does in fact affect firms’ decisions to domicile in Delaware rather in their home states.

…continue reading: Delaware Law as Lingua Franca: Evidence from VC-Backed Startups

California Court Acknowledges “Quasi-California Corporation” Decision

Posted by Larry Sonsini, Wilson Sonsini Goodrich & Rosati, on Wednesday September 19, 2012 at 8:53 am
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Editor’s Note: Larry Sonsini is chairman of Wilson Sonsini Goodrich & Rosati. This post is based on a WSGR alert.

Companies incorporated outside of California but with significant California contacts (so-called “quasi-California corporations”) have struggled with exactly how to comply with the long-arm statute found in Section 2115 of the California Corporations Code. The statute purports to impose a number of provisions of the California Corporations Code on quasi-California corporations, including the state’s requirement to obtain separate approval from holders of each class of capital stock on a merger “to the exclusion of the law of the jurisdiction in which [the quasi-California corporation] is incorporated.” Section 2115 has been thought to be legally infirm for some time, particularly after a decision by the Delaware Supreme Court in 2005. However, there never has been an acknowledgement by a California court that Section 2115 reaches too far. That changed earlier this year, when a California Court of Appeal stated in dicta that certain matters of internal corporate governance fall within a corporation’s internal affairs and should be governed by the laws of the corporation’s state of incorporation.

…continue reading: California Court Acknowledges “Quasi-California Corporation” Decision

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