Chapter 1: Delaware Corporate Law: Failing Law, Failing Markets
William J. Carney, George B. Shepherd and Joanna M. Shepherd INTRODUCTION For nearly a century Delaware’s corporation law has dominated its market. The explanations given for its dominance have varied over the years, and new ones continue to be offered. At the same time that explanations for success have been offered, some commentators have criticized the quality of Delaware law, and have suggested that it is not ideal, and indeed, may be inferior to some other laws. We offer some additional evidence on this point and explore possible reasons for its continuing success in the wake of a decline in quality. Our study focuses on the role of lawyers as advisers on the choice of the state of incorporation. 1. DELAWARE’S DOMINANCE OF THE CHARTERING COMPETITION Two of us have previously reviewed the history of the competition for corporate chartering business.1 This competition was possible because virtually all American states followed the English choice of law rule, the ‘Internal Affairs Rule’, which applies the law of the incorporating jurisdiction to the governance of the corporation, rather than Europe’s ‘Real Seat Rule’, which required incorporation at the location of the corporation’s real headquarters.2 1 William J. Carney and George B. Shepherd, The Mystery of Delaware Law’s Continuing Success, 2009 U. Ill. L. Rev. 1. Much of the early part of this chapter is drawn from that article. 2 William J. Carney, The Political Economy of Competition for Corporate Charters, 26 J. Legal Stud. 303, 312–15 (1997). 23 24 The law...
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