Incorporation and Internal Affairs Flashcards
Under the internal -affairs doctrine, the law of the _____ of _____________ governs the internal affairs of a corporation, including the ability of a subsidiary to vote its stock in the parent company.
Under the internal-affairs doctrine, the law of the FORUM/STATE of INCORPORATION governs the internal affairs of a corporation, including the ability of a subsidiary to vote its stock in the parent company.
Under the internal-affairs doctrine, does the law of the forum/state of incorporation govern the internal affairs of a corporation, including the ability of a subsidiary to vote its stock in the parent company?
Yes. Under the internal-affairs doctrine, the law of the forum of incorporation governs the internal affairs of a corporation, including the ability of a subsidiary to vote its stock in the parent company. A majority-owned subsidiary is one in which the parent company owns a majority of the subsidiary’s stock. Under the law of Delaware and most American jurisdictions, a majority-owned subsidiary cannot vote stock in the parent corporation. Otherwise, a parent corporation, via its ownership and control of the subsidiary, could effectively vote shares of its own stock.
When making the determination of which jurisdictions law governs, if the dispute involves a corporation’s internal affairs, meaning things peculiar to the relationship between a corporation and its officers, directors, and shareholders, then the internal-affairs doctrine applies. Under that doctrine, the law of the forum where the corporation is incorporated governs. The rule creates predictability for both the corporation and those entering relationships with the corporation. In contrast, if the disputed issue involves activities applicable to individuals as well as corporations, such as tort, contract, and property disputes, then the choice-of-law determination requires consideration of the corporation’s contacts with the forum where the suit is brought. Often the determination turns on whether the contacts are sufficient to satisfy constitutional due process.
