Corporate Distributions to Shareholders in Delaware and in Israel Anat Urman University of Georgia School of Law

Total Page:16

File Type:pdf, Size:1020Kb

Corporate Distributions to Shareholders in Delaware and in Israel Anat Urman University of Georgia School of Law Digital Commons @ Georgia Law LLM Theses and Essays Student Works and Organizations 12-1-2001 Corporate Distributions to Shareholders in Delaware and in Israel Anat Urman University of Georgia School of Law Repository Citation Urman, Anat, "Corporate Distributions to Shareholders in Delaware and in Israel" (2001). LLM Theses and Essays. 52. https://digitalcommons.law.uga.edu/stu_llm/52 This Article is brought to you for free and open access by the Student Works and Organizations at Digital Commons @ Georgia Law. It has been accepted for inclusion in LLM Theses and Essays by an authorized administrator of Digital Commons @ Georgia Law. Please share how you have benefited from this access For more information, please contact [email protected]. ANAT URMAN Corporate Distributions To Shareholders In Delaware And In Israel: Cash Dividends And Share Repurchases. (Under the Direction of Professor CHARLES R.T. O’KELLEY) This thesis considers the corporate legal systems of Israel and Delaware as they address the subject of corporate distributions to shareholders. The thesis reviews the significance of cash dividends and the acquisition by corporations of their own stock, in the management and survival of corporations, the effect they have on the disposition of creditors, and the extent to which they are restricted by operation of law. The thesis demonstrates how dividends and share repurchases may translate into a transfer of value from creditors to shareholders. It considers the effectiveness of the legal capital in securing creditors’ interest, and concludes that the legal capital scheme presents no real obstacle to distributions. It is further concluded that despite the recent corporate law reform in Israel, Delaware’s corporate law system continues to surpass Israel in flexibility and broad approach to distributions. Nevertheless it is expected that Israeli courts will consider Delaware’s methodology on the matter. INDEX WORDS: Debt, Distribution, Dividend, Equity, Equity cushion, Fiduciary, Greenmail, Insolvency, Legal capital, Leverage, Nimble dividend, Par value, Recapitalization, Redemption, Restrictive covenant, Repurchase, Surplus, Takeover. i CORPORATE DISTRIBUTIONS TO SHAREHOLDERS IN DELAWARE AND IN ISRAEL: CASH DIVIDENDS AND SHARE REPURCHASES by ANAT URMAN LL.B. The University of Manchester, Israel, 1998 A Thesis Submitted to the Graduate Faculty of The University of Georgia in Partial Fulfillment of the Requirements for the Degree MASTER OF LAWS ATHENS, GEORGIA 2001 ii © 2001 Anat Urman All Rights Reserved iii CORPORATE DISTRIBUTIONS TO SHAREHOLDERS IN DELAWARE AND IN ISRAEL: CASH DIVIDENDS AND SHARE REPURCHASES by ANAT URMAN Approved: Major Professor: Charles R.T. O’Kelley Committee: Fredrick W. Huszagh Charles R.T. O’Kelley Electronic Version Approved: Gordhan L. Patel Dean of the Graduate School The University of Georgia December 2001 iv DEDICATION To my parents Malka and Menachem Urman, and to Ron Kalfus. Thank you for your support. iv vi TABLE OF CONTENTS Page CHAPTER 1 INTRODUCTION…………………………………………………………..1 I. Thesis Background…………………………………………………..1 II. The Significance Of Distributions To Corporate Constituencies……………………………………………………….4 III. Israel’s Corporate Law System……………………………………...6 IV. Thesis Structure……………………………………………………...7 2 THE CONFLICT OF INTEREST BETWEEN THE SHAREHOLDERS AND THE CREDITORS……………………………...9 I. Introduction……………………………………………….…………9 II. The Conflict Between Debt and Equity……………………….…...10 III. Eliminating Investment Risks And The Function Of The Equity Cushion……………………………………………………..15 3 LEGAL CAPITAL RULES AND THE EQUITY CUSHION……………18 I. Introduction To The Legal Capital System……………….………..18 II. Distributions And Their Effect On Creditors………………………26 III. Legal Limitations On Distributions………………….……….……29 4 CRITICISM OVER TRADITIONAL LEGAL CAPITAL DOCTRINES……………………………………………………….……...45 v vi 5 MOTIVES FOR ENGAGING IN CASH DISTRIBUTIONS AND SHARE REPURCHASES……………………………………….….48 I. Introduction……………………………………………….…….….48 II. Leveraged Recapitalizations………………………………….……52 III. The Excess Cash Theory………………………………….………..56 IV. The Signaling Explanation…………………………………………56 V. The Bird-In-The-Hand Theory……………………………………..62 VI. The Takeover Defense Theory……………………………………..63 VII. Greenmail…………………………………………………………..65 VIII. Stock Manipulations And The Creditor Expropriation Theory…………………………………………………….………..67 IX. Stock Redemptions……………………………………….………...69 6 RESTRICTIONS ON DIVIDEND DISTRIBUTIONS AND SHARE REPURCHASES…………………………………………….…...74 I. Restrictive Covenants…………………………………….………...74 II. Statutory Limitations………………………………………….……76 III. Limitations Imposed By Case Law..……………………………….80 7 LIABILITY FOR IMPROPER DISTRIBUTIONS……………………...113 8 CONCLUSION…………………………………………………………..118 BIBLIOGRAPHY………………………………………………………..125 CHAPTER 1 INTRODUCTION I. Thesis Background Israel is small country with very few natural resources, facing difficult political scenarios. Despite these adverse conditions, Israel has reportedly sprouted into the world’s second most important high-tech cluster after Silicon Valley.1 In a country of only six million people, there are nearly as many Israeli companies listed on the NASDAQ (National Association of Securities Dealers Automated Quotation System) as there are European companies. The government of Israel has taken an active role in promoting the county’s technological capabilities.2 The high-tech sector has become a central element in Israel’s economy, so much so, that its continued success is central to Israel’s economy. However, it has become increasingly difficult to attract foreign investors to participate in ventures within Israel. If fact, Israel’s high-tech industry is reportedly losing its business to foreign countries.3 In the past several years, over ninety percent of 1 Roger Abravanel, The Promised Economy, THE MCKINSEY QUARTERLY, 2001 Number 4 (hereinafter The McKinsey Quarterly). Also available at, http://www.mckinseyquarterly.com/article_abstract.asp?tk=:1108:7&ar=1108&L2=7&L3=10. According to The McKinsey Quarterly, during the year 2000, Israeli high-tech start-ups attracted more investment per head than any other country in the world. Israeli high-tech start-ups attracted $3.2 billion in capital investment, most of which foreign. This amounts to a 30-fold increase in investments in a period of only three years. 2 Subsidizing and setting up labs, incubators and seed-money venture capital funds. 3 Many companies transfer their business centers and management teams out of Israel. Even when the research is performed in Israel, the development products are transferred to related companies overseas. 1 2 the new start-up companies that were formed in Israel, incorporated as foreign companies,4 many of those in the U.S., a majority of which in Delaware. Why is it then that Israel, an incubator for world-class technological innovation, is struggling to prevent companies from immigrating to Delaware? One known turnoff for choosing Israel as a jurisdiction, is its unique system of corporate law. A major source of funding flowing into the venture capital industry in Israel originates from U.S. investors who do not believe in the Israeli system. Much pressure is, therefore, placed on Israeli entrepreneurs to set up their companies in the U.S. rather than Israel. Clearly, investors are likely to choose a jurisdiction whose laws are simple and most advantageous. Indeed, we see that among worldwide systems, those that dominate are systems that have the easiest, clearest, simplest, and most worthwhile laws governing economics, securities, income tax, and companies. Such systems compete in the global market because they are compatible with worldwide leading codes. The new 1999 Israeli Companies Law, on which work commenced fifteen years ago, was intended to serve this purpose precisely. However, by introducing an innovative and revolutionary code, legislators have, in effect, set back Israel’s competitive position. The new Companies Law is widely criticized as being less clear, less simple, less predictable, and less user-friendly than its foreign counterparts. Delaware, which has become a corporate haven for many Israeli corporations, has been offering an attractive legal landscape for incorporation for over two decades. 4 Ron Tira, Bye-Bye-Tech, GLOBES ISRAEL’S BUSINESS ARENA, June 7, 2000. 3 In fact, a large number of U.S. and international corporations, headquartered elsewhere, are incorporated in Delaware.5 Delaware is known to have one of the most flexible and convenient series of company regulations in the world. Over the years, Delaware has led the development of sophisticated company regulations and a reform of bureaucratic mechanisms that have made it one of the most convenient places to incorporate. First, it offers a finely developed corporate statue that presents companies with a convenient legal environment and an extensive statutory protection for corporate officers and shareholders. Delaware’s legislators and the Bar Association’s Section on Corporate Law, constantly revise and update the corporate statutes so that they remain dynamic and flexible to surging needs. Second, Delaware maintains a separate pro-business corporate law court system. On the bench of the Delaware Court of Chancery, sit judges appointed for their extensive knowledge of corporate law. Over two hundred years of legal precedent lend Delaware law with predictability and clarity that are fundamental to its popularity. Israeli legislators have long recognized the advantages Delaware offers to Israeli companies.
Recommended publications
  • China Report with Cover
    China Copes with Globalization a mixed review a report by the international forum on globalization author Dale Wen, Visiting Scholar The International Forum on Globalization (IFG) is a research and educational institution comprised of leading scholars, economists, researchers, and activists from around the globe. International Forum on Globalization (IFG) 1009 General Kennedy Avenue, No. 2 San Francisco, CA 94129 415-561-7650 Email: [email protected] Website: www. ifg.org Editor: Debi Barker Additional editing: Sarah Anderson Research: Suzanne York Manuscript Coordination: Megan Webster Publication Designer: Daniela Sklan NEW LEAF PAPER: 100 PERCENT POST-CONSUMER WASTE, PROCESSED CHLORINE FREE China Copes With Globalization a mixed review Contents Foreward and Executive Summary 2 Debi Barker Introduction: China’s Economic Policies From Mao to Present 4 Debi Barker and Dale Wen Section One: Consequences of Reform Policies I. The Plight of Rural Areas 12 Box: The Taste of Sugar is Not Always Sweet 15 II. Urban Reform and the Rise of Sweatshops 17 Box: A Chinese Perspective on Textile Trade 19 Section Two: Impacts on Quality of Life and the Environment I. Poverty and Inequality 21 II. Worker Exploitation 22 III. Health and Education 24 Box: Fast Food Invasion 26 IV. Environment 27 Section Three: Alternative Voices from China I. Progressive Measures by the Government 32 II. Environmental Movement 34 III. New Rural Reconstruction Movement 38 IV. China’s “New Left” 39 Section Four: China at the Crossroad 40 Footnotes 44 Listing of IFG Publications, Poster and Maps 47 foreward The International Forum on Globalization (IFG) is pleased to present this briefing on some of the key issues now at play from the impact of globalization in China.
    [Show full text]
  • How Delaware Thrives As a Corporate Tax Haven
    http://nyti.ms/QD9kUW BUSINESS DAY How Delaware Thrives as a Corporate Tax Haven By LESLIE WAYNE JUNE 30, 2012 WILMINGTON, Del. NOTHING about 1209 North Orange Street hints at the secrets inside. It’s a humdrum office building, a low-slung affair with a faded awning and a view of a parking garage. Hardly worth a second glance. If a first one. But behind its doors is one of the most remarkable corporate collections in the world: 1209 North Orange, you see, is the legal address of no fewer than 285,000 separate businesses. Its occupants, on paper, include giants like American Airlines, Apple, Bank of America, Berkshire Hathaway, Cargill, Coca-Cola, Ford, General Electric, Google, JPMorgan Chase, and Wal-Mart. These companies do business across the nation and around the world. Here at 1209 North Orange, they simply have a dropbox. What attracts these marquee names to 1209 North Orange and to other Delaware addresses also attracts less-upstanding corporate citizens. For instance, 1209 North Orange was, until recently, a business address of Timothy S. Durham, known as “the Midwest Madoff.” On June 20, Mr. Durham was found guilty of bilking 5,000 mostly middle-class and elderly investors out of $207 million. It was also an address of Stanko Subotic, a Serbian businessman and convicted smuggler — just one of many Eastern Europeans drawn to the state. Big corporations, small-time businesses, rogues, scoundrels and worse — all have turned up at Delaware addresses in hopes of minimizing taxes, skirting regulations, plying friendly courts or, when needed, covering their tracks.
    [Show full text]
  • Libertà Di Stabilimento E Concorrenza Sleale Tra Stati
    Dipartimento di Giurisprudenza Cattedra di European Business Law Libertà di stabilimento e concorrenza sleale tra Stati Prof. Nicola de Luca Prof. Ugo Patroni Griffi Matr. 136053 Anno Accademico 2019/2020 1 2 LIBERTÀ DI STABILIMENTO E CONCORRENZA SLEALE TRA STATI 3 4 INDICE INDICE ................................................................................................................................................ 5 Introduction .......................................................................................................................................... 7 Introduzione ....................................................................................................................................... 13 CAPITOLO I...................................................................................................................................... 19 1. Le dimensioni del fenomeno: “Le inchieste di fiume di denaro” .................................................. 19 2. I criteri internazionali di ripartizione dei diritti impositivi ............................................................ 29 2.1 Stabile organizzazione e prezzi di trasferimento: la genesi storica ed i principi generali ........ 29 2.2 Il progetto “BEPS” ................................................................................................................... 34 2.3 L’economia digitale .................................................................................................................. 39 3. Il quadro europeo ..........................................................................................................................
    [Show full text]
  • Delaware Court Invalidates Commonly-Used Corporate Classified Board Provision As Contrary to Delaware Law
    DELAWARE CORPORATE LAW BULLETIN Delaware Court Invalidates Commonly-Used Corporate Classified Board Provision as Contrary to Delaware Law Robert S. Reder* Lauren Messonnier Meyers** Finds that plain language of DGCL §141(k) protects stockholders’ right to remove members of an unclassified board without cause. INTRODUCTION ............................................................................. 177 I. IN RE VAALCO ENERGY, INC. STOCKHOLDER LITIGATION . 179 A. Factual Background ............................................... 179 B. Litigation Ensues ................................................... 180 C. Vice Chancellor Laster’s Analysis of the “Wacky” Provisions ................................................. 180 CONCLUSION ................................................................................ 182 INTRODUCTION Corporations seek to maintain highly valuable flexibility when structuring their charter documents under the Delaware General Corporate Law (“DGCL”)—indeed, corporations have long flocked to this corporate haven to benefit from its hallmark trait of autonomy. However, if a Delaware corporation abuses this flexibility by adopting a charter provision that is “contrary to the laws of the State,” that 177 178 VAND. L. REV. EN BANC [Vol. 69:177 provision is invalid.1 Unfortunately, the plain language of the DGCL, at times, is not so clear. For example, the DGCL allows a company to structure its board of directors to be either classified or unclassified. Under Section 141(d) of the DGCL (“DGCL § 141(d)”), a board may
    [Show full text]
  • A Guide Toforming Your Business
    a guide to forming your business table of contents entity descriptions, advantages & disadvantages ......2 ■ sole proprietorship..................................2 ■ general partnership . 2 ■ limited partnership .................................3 ■ limited liability partnership ..........................3 ■ C corporation ......................................4 ■ S corporation ......................................4 ■ limited liability company ............................5 ■ nonprofit corporation ...............................5 ■ professional corporation.............................6 ■ professional limited liability company.................6 business entity comparison table .....................6 where to form .......................................8 ■ forming in the home state vs. another state ...........8 ■ state statutes and taxation requirements..............9 ■ Delaware . 9 the formation process ...............................10 ■ documentation, fees, and typical time frames.........10 ■ mandatory corporation and llc dislosures.............10 ■ registered agent ....................................11 ■ disclosure information required for corporations ...... 12 ■ disclosure information required for llcs............... 12 ■ common information required for nonprofits ......... 13 post-formation and compliance requirements ........14 ■ internal requirements . 14 ■ external requirements..............................16 ■ consequences of non-compliance ................... 17 using an incorporation service provider ...............18 ■ benefits
    [Show full text]
  • Corporate Urbanization: Between the Future and Survival in Lebanon
    A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Sharp, Deen Shariff Doctoral Thesis — Published Version Corporate Urbanization: Between the Future and Survival in Lebanon Provided in Cooperation with: The Bichler & Nitzan Archives Suggested Citation: Sharp, Deen Shariff (2018) : Corporate Urbanization: Between the Future and Survival in Lebanon, Graduate Faculty in Earth and Environmental Sciences, City University of New York, New York, NY, http://bnarchives.yorku.ca/593/ This Version is available at: http://hdl.handle.net/10419/195088 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu Between the Future and Survival in Lebanon C o r p o r a t e U r b a n i z a t i o n By Deen Shariff Sharp, 2018 i City University of New York (CUNY) CUNY Academic Works Dissertations, Theses, and Capstone Projects Graduate Center 9-2018 Corporate Urbanization: Between the Future and Survival in Lebanon Deen S.
    [Show full text]
  • DLA Piper Women's General Counsel Summit September 30, 2014 CLE
    DLA Piper Women’s General Counsel Summit September 30, 2014 CLE Written Materials Moderator • Elizabeth Bohannon, Vice President & Associate General Counsel, Williams Sonoma, Inc. Panelists • Allyson Bouldon, Vice President and Chief Compliance Officer, Chiquita Brands International • Nancy Hill Dowling, Vice President and General Counsel, Danone–US • Julie Jacobs, Executive Vice President, General Counsel and Corporate Secretary, AOL • Joan B. Stafslien, Executive Vice President, General Counsel and Corporate Secretary, CareFusion Panel Topic Managing Corporate Risk: Key Issues in Preventing and Navigating Through Crisis I. COURSE OVERVIEW Today’s general counsel often walks a challenging path in conveying the application of overlapping and inconsistent global regulations to business teams and advising on best approaches from a practical perspective. Our experienced panelists will provide insight about the development of proactive risk assessment tools and the establishment of workable guardrails that provide practical parameters to the business as it navigates the company’s strategic goals for growth and expansion. This panel will focus on key risks and concerns in the global market, the integration of the CLO and her team into the way the business can address these risks in its day to day, and strategies to provide thought leadership and “value add” to considerations of the corporate agenda in this landscape. Often times, the opportunity to showcase this ability to advance business needs and concerns does not appear until after a crisis occurs. This distinguished panel will address how solutions can be identified and implemented before and in the event of a crisis particularly with respect to these high risk concerns. II. COURSE DISCUSSION A.
    [Show full text]
  • Focus on Trade
    Focus-on-Trade is a regular electronic bulletin providing updates and analysis of trends in regional and world trade and Focus on Trade finance, with an emphasis on analysis of these trends from an integrative, interdisci- plinary viewpoint that is sensitive not only to economic issues, but also to ecological, political, gender and social issues. Your contributions and comments are welcome. Number 101, July 2004 THE OTHER RECONSTRUCTION: THIS issue of Focus on Trade marks the meaningless How private contractors are trans- “handover of sovereignty” by the US to their handpicked forming Iraq’s society “interim government” in Baghdad. The Financial Times called By Herbert Docena the ceremony an “embarrassing last act by a departing US authority and an unfortunate reflection of the troubles it WHAT TO EXPECT FROM US leaves behind.” Far from being the last act, however, the “DEMOCRACY PROMOTION” IN handover simply marks another phase in the US’ overall IRAQ* strategy to gain political and economic domination of Iraq By William I. Robinson and the whole region. The secrecy in which the ceremony took place was an inauspicious — but fitting — start to the NICARAGUA´S AND LATIN new era sham sovereignty. AMERICA´S “LESSONS” FOR IRAQ By Alejandro Bendaña THE FINAL UN RESOLUTION ON IRAQ’S INTERIM GOVERNMENT By Phyllis Bennis WAR: TRADE BY OTHER MEANS: How the US is getting a free trade agreement minus the negotiations By Marylou Malig THE US’ STRATEGY OF DESPERA- TION By Walden Bello Please contact us c/o CUSRI, Wisit Prachuabmoh Building, Chulalongkorn University, Bangkok 10330 Thailand. Tel: (66 2) 218 7363/7364/7365, Fax: (66 2) 255 9976, E-Mail: [email protected], Website: http://focusweb.org.
    [Show full text]
  • Regulatory Effectiveness & Offshore Financial Centers
    Texas A&M University School of Law Texas A&M Law Scholarship Faculty Scholarship 1-2013 Regulatory Effectiveness & Offshore Financial Centers Andrew P. Morriss Texas A&M University School of Law, [email protected] Clifford C. Henson Follow this and additional works at: https://scholarship.law.tamu.edu/facscholar Part of the Law Commons Recommended Citation Andrew P. Morriss & Clifford C. Henson, Regulatory Effectiveness & Offshore Financial Centers, 53 Va. J. Int'l L. 417 (2013). Available at: https://scholarship.law.tamu.edu/facscholar/325 This Article is brought to you for free and open access by Texas A&M Law Scholarship. It has been accepted for inclusion in Faculty Scholarship by an authorized administrator of Texas A&M Law Scholarship. For more information, please contact [email protected]. Regulatory Effectiveness & Offshore Financial Centers ANDREW P. MORRISS*& CLIFFORD C. HENSON Onshorejurisdictions, such as the United States, United Kingdom, France, and Germany, are critical of offshore financial centers (OFCs) such as Bermuda, the Cayman Islands, and the Channel Islands. Arguments against OFCr include claims that their regulatoy oversight is lax, allowingfraud and criminal activity. In this article, we present cross-jurisdictionaldata, showing that OFCs are not lax. We also provide qualitative analyses of regulatory effectiveness, demonstrating that input-based measures of regulation are inappropriate metrics for comparingjurisdictions. Based on both quantitadve input measures and a qualitaive assessment, we reject the onshore critique of OFCs as bastions of laxip. Introduction .................................... ...... 418 I. Qualitative Differences Among Jurisdictions ......... ....... 428 A. Regulatory Goals .............. ..... ................ 428 B. Rules vs. Principles ...................... ...... 436 C. Institutional Constraints ................... ..... 438 D.
    [Show full text]
  • Understanding Offshore Finance: the Panama Papers in Perspective Andy Hira, Brian Murata, and Shea Monson [email protected] Updated: Mar
    Understanding Offshore Finance: The Panama Papers in Perspective Andy Hira, Brian Murata, and Shea Monson [email protected] Updated: Mar. 17, 2016 Work in progress- please do not circulate without permission of the authors Acknowledgements: Norbert Gaillard, Patty Hira The Western financial system is rapidly coming to resemble nothing as much as a vast casino. – Susan Strange (1986, 1). Introduction In April 2016, the International Consortium of Investigative Journalists (ICIJ) announced the release of 11.5 million leaked documents from the Panamanian law firm Mossack Fonseca dating back to the 1970s. The documents were leaked originally to the German newspaper Süddeutsche Zeitung, who then contacted the ICIJ for help. The Panama Papers help to shed light on how wealthy individuals and corporations around the world use offshore financial centres to hide wealth and evade taxes. News that prominent leaders such as UK PM David Cameron and Icelandic PM Gunnlaugsson had such accounts created public awareness about how widespread such practices are. The issue dates back to the 1980s when offshore centres were set up; in 1998 the OECD published a report about “harmful tax competition” from offshore centres. The Panama Papers reinforce the perceptions of widespread injustice in the financial and taxation systems, which feeds into a wider discourse centred around global and national inequality. As Susan Strange pointed out in 1996 (63), the social and political consequences of the failure of governments to harmonize taxes is “almost entirely overlooked” in the political science and economics literature. The consequences, as we discuss below, include an increasingly disproportionate burden on individual taxpayers, exacerbating inequality, and increasing resort to debt by governments This paper examines issues around global tax evasion, including obstacles to reform and possible paths forward.
    [Show full text]
  • Federalism and Corporate Law: Reflections Upon Delaware
    The Yale Law Journal Volume 83, Number 4, March 1974 Federalism and Corporate Law: Reflections Upon Delaware William L. Caryt [T]he favorable climate which the state of Delaware had tradi- tionally provided for corporations has been a leading source of revenue for the state. The General Assembly . declares [this] to be the public policy of the State .... 1 We are often asked "Why Delaware?" . Here's why: Excep- tionally favorable tax, trust, and corporation laws historically supported by sound court decisions in Delaware are major reasons.2 Delaware is both the sponsor and the victim of a system contributing to the deterioration of corporation standards. This unhappy state of affairs, stemming in great part from the movement toward the least common denominator, Delaware, seems to be developing on both the legislative and judicial fronts. In the management of corporate affairs, state statutory and case law has always been supreme, with federal intrusion limited to the field of securities regulation. Perhaps now is the time to reconsider the federal role. I. The History of State Corporation Laws A. Legislative Developments In the early stages of the American economy there were grants of special franchises reminiscent of royal charters, but during the mid- nineteenth century there was a revulsion against them as anti-egali- f Dwight Professor of Law, Columbia University. I am grateful for the helpful criticism of Joseph L. Weiner, Esquire, of the New York Bar. I. Law of December 31, 1963, ch. 218, [1963] 54 Del. Laws 724, authorizing the financing of the Delaware Corporation Law Revision Commission of 1967.
    [Show full text]
  • Corporate Charter Competition
    Article Corporate Charter Competition Lynn M. LoPucki† Introduction ............................................................................ 2102 I. The System for Corporate Regulation ............................ 2109 A. The Internal Affairs Doctrine ................................... 2110 1. Externality-Generating Capacity ....................... 2110 2. Losing-State Generation ..................................... 2112 3. Losing-State Acquiescence .................................. 2113 B. Corporate Choice of Incorporation State ................. 2115 1. Who Decides? ....................................................... 2116 2. What Is the Basis for Choice? ............................. 2117 C. State Choice of Corporate Law Package .................. 2123 1. Modeling State Competition ............................... 2124 2. The Corporate-Law Production Subsystems ..... 2131 D. Court Regulation of Corporations ............................ 2134 E. Insulation from Democratic Control ........................ 2137 1. Insulation from Citizens of Incorporation States .................................................................... 2137 2. Insulation from Citizens of Doing-Business States .................................................................... 2138 3. Insulation from Citizens of the United States .. 2139 II. Delaware’s Judicial Strategy .......................................... 2141 A. Delaware’s Strategic Challenge ................................ 2142 B. Delaware’s Strategy .................................................
    [Show full text]