The state of incorporation doctrine, which now applies both in the United States and in the European Community, allows corporations to choose the state law governing their internal affairs by incorporating in the appropriate state. Most scholars believe that this freedom to choose benefits both shareholders and society as a whole. Against this background, an obvious question is whether the state of incorporation doctrine is really the most efficient way of granting corporations the right to choose. In this Article, the Author argues that while there are sound reasons for retaining the state of incorporation doctrine as one mechanism for allowing corporations to choose the applicable corporate law, it should not be the only such mechanism because the state of incorporation doctrine does not allow corporations to choose the applicable corporate law in isolation, but forces them to accept certain "side effects," such as exposure to litigation in the state of incorporation. These side effects appear to be largely responsible for the general unwillingness of European firms to incorporate in the United States. Therefore, federal law in both Europe and the United States should ensure that corporations can choose the applicable corporate law in their articles of incorporation.
A New Approach to Corporate Choice of Law,
38 Vanderbilt Law Review
Available at: https://scholarship.law.vanderbilt.edu/vjtl/vol38/iss1/2