United States corporate law

United States corporate law regulates the governance, finance and power of corporations
in US law. Every state and territory has its own basic corporate code, while federal law
creates minimum standards for trade in company shares and governance rights, found
mostly in the Securities Act of 1933 and the Securities and Exchange Act of 1934, as
amended by laws like the Sarbanes–Oxley Act of 2002 and the Dodd–Frank Wall Street
Reform and Consumer Protection Act. The US Constitution was interpreted by the US
Supreme Court to allow corporations to incorporate in the state of their choice, regardless
of where their headquarters are. Over the 20th century, most major corporations
incorporated under the Delaware General Corporation Law, which offered lower corporate
taxes, fewer shareholder rights against directors, and developed a specialized court and
legal profession. Nevada has done the same. Twenty-four states follow the Model Business
Corporation Act,[1] while New York and California are important due to their size.

The New York Stock Exchange

(headquarters pictured) is the
major center for listing and
trading shares in United States.
Most corporations are, however,
incorporated under the influential
Delaware General Corporation
Law.

History
At the Declaration of Independence, corporations had been unlawful without explicit
authorization in a Royal Charter or an Act of Parliament of the United Kingdom. Since the
world's first stock market crash (the South Sea Bubble of 1720) corporations were
perceived as dangerous. This was because, as the economist Adam Smith wrote in The
Wealth of Nations (1776), directors managed "other people's money" and this conflict of
interest meant directors were prone to "negligence and profusion". Corporations were only
thought to be legitimate in specific industries (such as insurance or banking) that could not
be managed efficiently through partnerships.[2] After the US Constitution was ratified in
1788, corporations were still distrusted, and were tied into debate about interstate exercise
of sovereign power. The First Bank of the United States was chartered in 1791 by the US
Congress to raise money for the government and create a common currency (alongside a
federal excise tax and the US Mint). It had private investors (not government owned), but
faced opposition from southern politicians who feared federal power overtaking state power.
So, the First Bank's charter was written to expire in 20 years. State governments could and
did also incorporate corporations through special legislation. In 1811, New York became the
first state to have a simple public registration procedure to start corporations (not specific
permission from the legislature) for manufacturing business.[3] It also allowed investors to
have limited liability, so that if the enterprise went bankrupt investors would lose their
investment, but not any extra debts that had been run up to creditors. An early Supreme
Court case, Dartmouth College v. Woodward (1819),[4] went so far as to say that once a
corporation was established a state legislature (in this case, New Hampshire) could not
amend it. States quickly reacted by reserving the right to regulate future dealings by
corporations.[5] Generally speaking, corporations were treated as "legal persons" with
separate legal personality from its shareholders, directors or employees. Corporations were
the subject of legal rights and duties: they could make contracts, hold property or
commission torts,[6] but there was no necessary requirement to treat a corporation as
favorably as a real person.

"The Bosses of the Senate",

corporate interests–from steel,
copper, oil, iron, sugar, tin, and
 coal to paper bags, envelopes,
and salt–as giant money bags
looming over senators.[7]

Over the late 19th century, more and more states allowed free incorporation of businesses
with a simple registration procedure;[8] Delaware enacted its General Corporation Law in
1899. Many corporations would be small and democratically organized, with one-person,
one-vote, no matter what amount the investor had, and directors would be frequently up for
election. However, the dominant trend led towards immense corporate groups where the
standard rule was one-share, one-vote. At the end of the 19th century, "trust" systems
(where formal ownership had to be used for another person's benefit) were used to
concentrate control into the hands of a few people, or a single person. In response, the
Sherman Antitrust Act of 1890 was created to break up big business conglomerates, and
the Clayton Act of 1914 gave the government power to halt mergers and acquisitions that
could damage the public interest. By the end of the First World War, it was increasingly
perceived that ordinary people had little voice compared to the "financial oligarchy" of
bankers and industrial magnates.[9] In particular, employees lacked voice compared to
shareholders, but plans for a post-war "industrial democracy" (giving employees votes for
investing their labor) did not become widespread.[10] Through the 1920s, power
concentrated in fewer hands as corporations issued shares with multiple voting rights, while
other shares were sold with no votes at all. This practice was halted in 1926 by public
pressure and the New York Stock Exchange refusing to list non-voting shares.[11] It was
possible to sell voteless shares in the economic boom of the 1920s, because more and
more ordinary people were looking to the stock market to save the new money they were
earning, but the law did not guarantee good information or fair terms. New shareholders had
no power to bargain against large corporate issuers, but still needed a place to save. Before
the Wall Street Crash of 1929, people were being sold shares in corporations with fake
businesses, as accounts and business reports were not made available to the investing
public.

The Wall Street Crash saw the total

collapse of stock market values, as
shareholders realized that corporations
had become overpriced. They sold shares
en masse, meaning many companies
found it hard to get finance. The result
was that thousands of businesses were
over the enterprise and over the physical
property – the instruments of production – in
which he has an interest, the owner has little
control. At the same time he bears no
responsibility with respect to the enterprise or
its physical property. It has often been said that
the owner of a horse is responsible. If the horse

forced to close, and they laid off workers. lives he must feed it. If the horse dies he must
Because workers had less money to bury it. No such responsibility attaches to a

spend, businesses received less income,
leading to more closures and lay-offs. This
downward spiral began the Great
Depression. Berle and Means argued that
under-regulation was the primary cause in
their foundational book in 1932, The
Modern Corporation and Private Property.
They said directors had become too
share of stock. The owner is practically
powerless through his own efforts to affect the
underlying property ... Physical property capable
of being shaped by its owner could bring to him
direct satisfaction apart from the income it
yielded in more concrete form. It represented an
extension of his own personality. With the
corporate revolution, this quality has been lost
to the property owner much as it has been lost

unaccountable, and the markets lacked to the worker through the industrial revolution.

basic transparency rules. Ultimately, —AA Berle and GC Means, The Modern

shareholder interests had to be equal to or Corporation and Private Property (1932) Book I,
ch IV, 64
"subordinated to a number of claims by
labor, by customers and patrons, by the
community".[12] This led directly to the
New Deal reforms of the Securities Act of 1933 and Securities and Exchange Act of 1934. A
new Securities and Exchange Commission was empowered to require corporations disclose
all material information about their business to the investing public. Because many
shareholders were physically distant from corporate headquarters where meetings would
take place, new rights were made to allow people to cast votes via proxies, on the view that
this and other measures would make directors more accountable. Given these reforms, a
major controversy still remained about the duties that corporations also owed to employees,
other stakeholders, and the rest of society.[13] After World War II, a general consensus
emerged that directors were not bound purely to pursue "shareholder value" but could
exercise their discretion for the good of all stakeholders, for instance by increasing wages
instead of dividends, or providing services for the good of the community instead of only
pursuing profits, if it was in the interests of the enterprise as a whole.[14] However, different
states had different corporate laws. To increase revenue from corporate tax, individual
states had an incentive to lower their standards in a "race to the bottom" to attract
corporations to set up their headquarters in the state, particularly where directors controlled
the decision to incorporate. "Charter competition", by the 1960s, had led Delaware to
become home to the majority of the largest US corporations. This meant that the case law
of the Delaware Chancery and Supreme Court became increasingly influential. During the
1980s, a huge takeover and merger boom decreased directors' accountability. To fend off a
takeover, courts allowed boards to institute "poison pills" or "shareholder rights plans",
which allowed directors to veto any bid – and probably get a payout for letting a takeover
happen. More and more people's retirement savings were being invested into the stock
market, through pension funds, life insurance and mutual funds. This resulted in a vast
growth in the asset management industry, which tended to take control of voting rights.
Both the financial sector's share of income, and executive pay for chief executive officers
began to rise far beyond real wages for the rest of the workforce. The Enron scandal of 2001
led to some reforms in the Sarbanes-Oxley Act (on separating auditors from consultancy
work). The financial crisis of 2007–2008 of 2007 led to minor changes in the Dodd-Frank
Act (on soft regulation of pay, alongside derivative markets). However, the basic shape of
corporate law in the United States has remained the same since the 1980s.

Corporations and civil law

The state of Delaware is the place of incorporation for over

60 per cent of Fortune 500 corporations.[15] In 1999, from
6,530 publicly traded nonfinancial firms in the US, 3,771
(57.75%) were incorporated in Delaware, 283 (4.33%) in
California, and 226 (3.46%) in New York.[16]

Corporations are invariably classified as "legal persons" by all modern systems of law,
meaning that like natural persons, they may acquire rights and duties. A corporation may be
chartered in any of the 50 states (or the District of Columbia) and may become authorized
to do business in each jurisdiction it does business within, except that when a corporation
sues or is sued over a contract, the court, regardless of where the corporation's
headquarters office is located, or where the transaction occurred, will use the law of the
jurisdiction where the corporation was chartered (unless the contract says otherwise). So,
for example, consider a corporation which sets up a concert in Hawaii, where its
headquarters are in Minnesota, and it is chartered in Colorado, if it is sued over its actions
involving the concert, whether it was sued in Hawaii (where the concert is located), or
Minnesota (where its headquarters are located), the court in that state will still use Colorado
law to determine how its corporate dealings are to be performed.

All major public corporations are also characterized by holding limited liability and having a
centralized management.[17] When a group of people go through the procedures to
incorporate, they will acquire rights to make contracts, to possess property, to sue, and
they will also be responsible for torts, or other wrongs, and be sued. The federal
government does not charter corporations (except National Banks, Federal Savings Banks,
and Federal Credit Unions) although it does regulate them. Each of the 50 states plus DC
has its own corporation law. Most large corporations have historically chosen to incorporate
in Delaware, even though they operate nationally, and may have little or no business in
Delaware itself. The extent to which corporations should have the same rights as real people
is controversial, particularly when it comes to the fundamental rights found in the United
States Bill of Rights. As a matter of law, a corporation acts through real people that form its
board of directors, and then through the officers and employees who are appointed on its
behalf. Shareholders can in some cases make decisions on the corporation's behalf, though
in larger companies they tend to be passive. Otherwise, most corporations adopt limited
liability so that generally shareholders cannot be sued for a corporation's commercial debts.
If a corporation goes bankrupt, and is unable to pay debts to commercial creditors as they
fall due, then in some circumstances state courts allow the so-called "veil of incorporation"
to be pierced, and so to hold the people behind the corporation liable. This is usually rare
and in almost all cases involves non-payment of trust fund taxes or willful misconduct,
essentially amounting to fraud.

Incorporation and charter competition …

The process of starting up a new corporation is quick, though each state differs.[18] A
corporation is not the only kind of business organization that can be chosen. People may
wish to register a partnership or a Limited Liability Company, depending on the precise tax
status and organizational form that is sought.[19] Most frequently, however, people running
major enterprises will choose corporations which have limited liability for those who become
the shareholders: if the corporation goes bankrupt the default rule is that shareholders will
only lose the money they paid for their shares, even if debts to commercial creditors are still
unpaid. A state office, perhaps called the "Division of Corporations" or simply the
"Secretary of State",[20] will require the people who wish to incorporate to file "articles of
incorporation" (sometimes called a "charter") and pay a fee. The articles of incorporation
typically record the corporation's name, if there are any limits to its powers, purposes or
duration, identify whether all shares will have the same rights. With this information filed
with the state, a new corporation will come into existence, and be subject to the legal rights
and duties that the people involved create on its behalf. The incorporators will also have to
adopt "bylaws" which identify many more details such as the number of directors, the
arrangement of the board, requirements for corporate meetings, duties of officer holders
and so on. The certificate of incorporation will have identified whether the directors or the
shareholders, or both have the competence to adopt and change these rules. All of this is
typically achieved through the corporation's first meeting.

Corporate income tax as a share

of GDP, 1946–2009.

One of the most important things that the articles of incorporation determine is the state of
incorporation. Different states can have different levels of corporate tax or franchise tax,
different qualities of shareholder and stakeholder rights, more or less stringent directors'
duties, and so on. However, it was held by the Supreme Court in Paul v Virginia that in
principle states ought to allow corporations incorporated in a different state to do business
freely.[21] This appeared to remain true even if another state (e.g. Delaware) required
significantly worse internal protections for shareholders, employees, or creditors than the
state in which the corporation operated (e.g. New York). So far, federal regulation has
affected more issues relating to the securities markets than the balance of power and duties
among directors, shareholders, employees and other stakeholders. The Supreme Court has
also acknowledged that one state's laws will govern the "internal affairs" of a corporation, to
prevent conflicts among state laws.[22] So on the present law, regardless of where a
corporation operates in the 50 states, the rules of the state of incorporation (subject to
federal law) will govern its operation.[23] Early in the 20th century, it was recognized by
some states, initially New Jersey, that the state could cut its tax rate in order to attract more
incorporations, and thus bolster tax receipts.[24] Quickly, Delaware emerged as a preferred
state of incorporation.[25] In the 1933 case of Louis K. Liggett Co v Lee,[26] Brandeis J.
represented the view that the resulting "race was one not of diligence, but of laxity",
particularly in terms of corporate tax rates, and rules that might protect less powerful
corporate stakeholders. Over the 20th century, the problem of a "race to the bottom" was
increasingly thought to justify Federal regulation of corporations. The contrasting view was
that regulatory competition among states could be beneficial, on the assumption that
shareholders would choose to invest their money with corporations that were well governed.
Thus the state's corporation regulations would be "priced" by efficient markets. In this way
it was argued to be a "race to the top".[27] An intermediate viewpoint in the academic
literature,[28] suggested that regulatory competition could in fact be either positive or
negative, and could be used to the advantage of different groups, depending on which
stakeholders would exercise most influence in the decision about which state to incorporate
in.[29] Under most state laws, directors hold the exclusive power to allow a vote on
amending the articles of incorporation, and shareholders must approve directors' proposals
by a majority, unless a higher threshold is in the articles.

Corporate personality …

In principle a duly incorporated business acquires "legal personality" that is separate from
the people who invest their capital, and their labor, into the corporation. Just as the common
law had for municipal and church corporations for centuries,[30] it was held by the Supreme
Court in Bank of the United States v Deveaux[31] that in principle corporations had legal
capacity. At its center, corporations being "legal persons" mean they can make contracts
and other obligations, hold property, sue to enforce their rights and be sued for breach of
duty. Beyond the core of private law rights and duties the question has, however, continually
arisen about the extent to which corporations and real people should be treated alike. The
meaning of "person", when used in a statute or the US Bill of Rights is typically thought to
turn on the construction of the statute, so that in different contexts the legislature or
founding fathers could have intended different things by "person". For example, in an 1869
case named Paul v Virginia, the US Supreme Court held that the word "citizen" in the
privileges and immunities clause of the US Constitution (article IV, section 2) did not include
corporations.[32] This meant that the Commonwealth of Virginia was entitled to require that
a New York fire insurance corporation, run by Mr Samuel Paul, acquired a license to sell
policies within Virginia, even though there were different rules for corporations incorporated
within the state.[33] By contrast, in Santa Clara County v Southern Pacific Railroad Co,[34] a
majority of the Supreme Court hinted that a corporation might be regarded as a "person"
under the equal protection clause of the Fourteenth Amendment. The Southern Pacific
Railroad Company had claimed it should not be subject to differential tax treatment,
compared to natural persons, set by the State Board of Equalization acting under the
Constitution of California. However, in the event Harlan J held that the company could not
be assessed for tax on a technical point: the state county had included too much property in
its calculations. Differential treatment between natural persons and corporations was
therefore not squarely addressed.

In Citizens United v FEC, the US

Supreme Court in a 5 to 4
decision removed the power of
state and federal legislatures to
control unlimited spending by
corporations on political
campaigns, reasoning that
corporations are "persons" under
the First Amendment.[35]

In the late 20th century, however, the issue of whether a corporation counted as a "person"
for all or some purposes acquired political significance. Initially, in Buckley v Valeo[36] a
slight majority of the US Supreme Court had held that natural persons were entitled to
spend unlimited amounts of their own money on their political campaigns. Over a strong
dissent, the majority therefore held that parts of the Federal Election Campaign Act of 1974
were unconstitutional since spending money was, in the majority's view, a manifestation of
the right to freedom of speech under the First Amendment. This did not affect corporations,
though the issue arose in Austin v Michigan Chamber of Commerce.[37] A differently
constituted US Supreme Court held, with three dissents, that the Michigan Campaign
Finance Act could, compatibly with the First Amendment, prohibit political spending by
corporations. However, by 2010, the Supreme Court had a different majority. In a five to four
decision, Citizens United v Federal Election Commission[35] held that corporations were
persons that should be protected in the same was as natural people under the First
Amendment, and so they were entitled to spend unlimited amounts of money in donations
to political campaigns. This struck down the Bipartisan Campaign Reform Act of 2002, so
that an anti-Hillary Clinton advertisement ("Hillary: The Movie") could be run by a pro-
business lobby group. Subsequently, the same Supreme Court majority decided in 2014, in
Burwell v Hobby Lobby Stores Inc[38] that corporations were also persons for the protection
of religion under the Religious Freedom Restoration Act. Specifically, this meant that a
corporation had to have a right to opt out of provisions of the Patient Protection and
Affordable Care Act of 2010, which could require giving health care to employees that the
board of directors of the corporation might have religious objections to. It did not
specifically address an alternative claim under the First Amendment. The dissenting four
judges emphasized their view that previous cases provided "no support for the notion that
free exercise [of religious] rights pertain to for-profit corporations."[39] Accordingly, the
issue of corporate personality has taken on an increasingly political character. Because
corporations are typically capable of commanding greater economic power than individual
people, and the actions of a corporation may be unduly influenced by directors and the
largest shareholders, it raises the issue of the corruption of democratic politics.[40]

Delegated management and agents …

Although a corporation may be considered a separate legal person, it physically cannot act
by itself. There are, therefore, necessarily rules from the corporation statutes and the law of
agency that attribute the acts of real people to the corporation, to make contracts, deal with
property, commission torts, and so on. First, the board of directors will be typically
appointed at the first corporate meeting by whoever the articles of incorporation identify as
entitled to elect them. The board is usually given the collective power to direct, manage and
represent the corporation. This power (and its limits) is usually delegated to directors by the
state's law, or the articles of incorporation.[41] Second, corporation laws frequently set out
roles for particular "officers" of the corporation, usually in senior management, on or
outside of the board. US labor law views directors and officers as holding contracts of
employment, although not for all purposes.[42] If the state law, or the corporation's bylaws
are silent, the terms of these contracts will define in further detail the role of the directors
and officers. Third, directors and officers of the corporation will usually have the authority to
delegate tasks, and hire employees for the jobs that need performing. Again, the terms of
the employment contracts will shape the express terms on which employees act on behalf
of the corporation.
 The actions of all employees, in
the course of employment
become those of the corporation,
when it goes right or wrong
because it is thought that if a
corporation takes the benefits of
an employee's work, it should
also take the burdens.[43]

Toward the outside world, the acts of directors, officers and other employees will be binding
on the corporation depending on the law of agency and principles of vicarious liability (or
respondeat superior). It used to be that the common law recognized constraints on the total
capacity of the corporation. If a director or employee acted beyond the purposes or powers
of the corporation (ultra vires), any contract would be ex ante void and unenforceable. This
rule was abandoned in the earlier 20th century,[44] and today corporations generally have
unlimited capacity and purposes.[45] However, not all actions by corporate agents are
binding. For instance, in South Sacramento Drayage Co v Campbell Soup Co[46] it was held
that a traffic manager who worked for the Campbell Soup Company did not (unsurprisingly)
have authority to enter a 15-year exclusive dealing contract for intrastate hauling of
tomatoes. Standard principles of commercial agency apply ("apparent authority"). If a
reasonable person would not think that an employee (given his or her position and role) has
authority to enter a contract, then the corporation cannot be bound.[47] However,
corporations can always expressly confer greater authority on officers and employees, and
so will be bound if the contracts give express or implied actual authority. The treatment of
liability for contracts and other consent based obligations, however, differs to torts and
other wrongs. Here the objective of the law to ensure the internalization of "externalities" or
"enterprise risks" is generally seen to cast a wider scope of liability.

Shareholder liability for debts …

One of the basic principles of modern corporate law is that people who invest in a
corporation have limited liability. For example, as a general rule shareholders can only lose
the money they invested in their shares. Practically, limited liability operates only as a
default rule for creditors that can adjust their risk.[48] Banks which lend money to
corporations frequently contract with a corporation's directors or shareholders to get
personal guarantees, or to take security interests their personal assets, or over a
corporation's assets, to ensure their debts are paid in full. This means much of the time,
shareholders are in fact liable beyond their initial investments. Similarly trade creditors, such
as suppliers of raw materials, can use title retention clause or other device with the
equivalent effect to security interests, to be paid before other creditors in bankruptcy.[49]
However, if creditors are unsecured, or for some reason guarantees and security are not
enough, creditors cannot (unless there are exceptions) sue shareholders for outstanding
debts. Metaphorically speaking, their liability is limited behind the "corporate veil". The
same analysis, however has been rejected by the US Supreme Court in Davis v
Alexander,[50] where a railroad subsidiary company caused injury to cattle that were being
transported. As Brandeis J put it, when one "company actually controls another and
operates both as a single system, the dominant company will be liable for injuries due to the
negligence of the subsidiary company."

There are a number of exceptions, which differ according to the law of each state, to the
principle of limited liability. First, at the very least, as is recognized in public international
law,[51] courts will "pierce the corporate veil" if a corporation is being used evade
obligations in a dishonest manner. Defective organization, such as a failure to duly file the
articles of incorporation with a state official, is another universally acknowledged
ground.[52] However, there is considerable diversity in state law, and controversy, over how
much further the law ought to go. In Kinney Shoe Corp v Polan[53] the Fourth Circuit Federal
Court of Appeals held that it would also pierce the veil if (1) the corporation had been
inadequately capitalized to meet its future obligations (2) if no corporate formalities (e.g.
meetings and minutes) had been observed, or (3) the corporation was deliberately used to
benefit an associated corporation. However, a subsequent opinion of the same court
emphasized that piercing could not take place merely to prevent an abstract notion of
"unfairness" or "injustice".[54] A further, though technically different, equitable remedy is
that according to the US Supreme Court in Taylor v Standard Gas Co[55] corporate insiders
(e.g. directors or major shareholders) who are also creditors of a company are subordinated
to other creditors when the company goes bankrupt if the company is inadequately
capitalized for the operations it was undertaking.
 The trend in US corporate tort
cases, particularly in oil spill
disasters, as with The Amoco
Cadiz case and in the Deepwater
Horizon litigation, is to either
pierce the corporate veil or hold
parent corporations directly liable
for the harm their enterprise
causes.

Tort victims differ from commercial creditors because they have no ability to contract
around limited liability, and are therefore regarded differently under most state laws. The
theory developed in the mid-20th century that beyond the corporation itself, it was more
appropriate for the law to recognize the economic "enterprise", which usually composes
groups of corporations, where the parent takes the benefit of a subsidiary's activities and is
capable of exercising decisive influence.[56] A concept of "enterprise liability" was
developed in fields such tax law, accounting practices, and antitrust law that were gradually
received into the courts' jurisprudence. Older cases had suggested that there was no
special right to pierce the veil in favor of tort victims, even where pedestrians had been hit
by a tram owned by a bankrupt-subsidiary corporation,[57] or by taxi-cabs that were owned
by undercapitalized subsidiary corporations.[58] More modern authority suggested a
different approach. In a case concerning one of the worst oil spills in history, caused by the
Amoco Cadiz which was owned through subsidiaries of the Amoco Corporation, the Illinois
court that heard the case stated that the parent corporation was liable by the fact of its
group structure.[59] The courts therefore "usually apply more stringent standards to
piercing the corporate veil in a contract case than they do in tort cases" because tort
claimants do not voluntarily accept limited liability.[60] Under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, the US Supreme Court in
United States v Bestfoods[61] held if a parent corporation "actively participated in, and
exercised control over, the operations of" a subsidiary's facilities it "may be held directly
liable". This leaves the question of the nature of the common law, in absence of a specific
statute, or where a state law forbids piercing the veil except on very limited grounds.[62] One
possibility is that tort victims go uncompensated, even while a parent corporation is solvent
and has insurance. A second possibility is that a compromise liability regime, such as pro
rata rather than joint and several liability is imposed across all shareholders regardless of
size.[63] A third possibility, and one that does not interfere with the basics of corporate law,
is that a direct duty of care could be owed in tort to the injured person by parent
corporations and major shareholders to the extent they could exercise control. This route
means corporate enterprise would not gain a subsidy at the expense of other people's
health and environment, and that there is no need to pierce the veil.

Corporate governance

The New York Stock Exchange, along

with Federal and state laws, is a
significant regulator of corporate
governance for listed corporations,
particularly on shareholder voting rights
and board structures.

Corporate governance, though used in many senses, is primarily concerned with the
balance of power among the main actors in a corporation: directors, shareholders,
employees, and other stakeholders.[64] A combination of a state's corporation law, case law
developed by the courts, and a corporation's own articles of incorporation and bylaws
determine how power is shared. In general, the rules of a corporation's constitution can be
written in whatever way its incorporators choose, or however it is subsequently amended,
so long as they comply with the minimum compulsory standards of the law. Different laws
seek to protect the corporate stakeholders to different degrees. Among the most important
are the voting rights they exercise against the board of directors, either to elect or remove
them from office. There is also the right to sue for breaches of duty, and rights of
information, typically used to buy, sell and associate, or disassociate on the market.[65] The
federal Securities and Exchange Act of 1934, requires minimum standards on the process of
voting, particularly in a "proxy contest" where competing groups attempt to persuade
shareholders to delegate them their "proxy" vote. Shareholders also often have rights to
amend the corporate constitution, call meetings, make business proposals, and have a voice
on major decisions, although these can be significantly constrained by the board.
Employees of US corporations have often had a voice in corporate management, either
indirectly, or sometimes directly, though unlike in many major economies, express
"codetermination" laws that allow participation in management have so far been rare.

Corporate constitutions …

In principle, a corporation's constitution can be designed in any way so long as it complies

with the compulsory rules set down by the state or federal legislature. Most state laws, and
the federal government, give a broad freedom to corporations to design the relative rights
of directors, shareholders, employees and other stakeholders in the articles of incorporation
and the by-laws. These are written down during incorporation, and can usually be amended
afterwards according to the state law's procedures, which sometimes place obstacles to
amendment by a simple majority of shareholders.[66] In the early 1819 case of Trustees of
Dartmouth College v Woodward[4] the US Supreme Court held by a majority that there was
a presumption that once a corporate charter was made, the corporation's constitution was
subject to "no other control on the part of the Crown than what is expressly or implicitly
reserved by the charter itself."[67] On the facts, this meant that because Dartmouth
College's charter could not be amended by the New Hampshire legislature, though
subsequent state corporation laws subsequently included provisions saying that this could
be done. Today there is a general presumption that whatever balance of powers, rights and
duties are set down in the constitution remain binding like a contract would.[68] Most
corporation statutes start with a presumption (in contrast to old ultra vires rules) that
corporations may pursue any purpose that is lawful,[69] whether that is running a profitable
business, delivering services to the community, or any other objects that people involved in
a corporation may choose. By default, the common law had historically suggested that all
decisions are to be taken by a majority of the incorporators,[70] and that by default the
board could be removed by a majority of shareholders for a reason they themselves
determined.[71] However these default rules will take subject to the constitution that
incorporators themselves define, which in turn take subject to state law and federal
regulation.
 The NASDAQ is the second
biggest stock in the US, after the
New York Stock Exchange. It
specializes in IT sector, that saw
its first major crash with the Dot-
com bubble of 2000.

Although it is possible to structure corporations differently, the two basic organs in a

corporate constitution will invariably be the general meeting of its members (usually
shareholders) and the board of directors.[72] Boards of directors themselves have been
subject in modern regulation to a growing number of requirements regarding their
composition, particularly in federal law for public corporations. Particularly after the Enron
scandal, companies listed on the major stock exchanges (the New York Stock Exchange, the
NASDAQ, and AMEX) were required to adopt minimum standards on the number of
independent directors, and their functions. These rules are enforced through the threat of
delisting by the exchange, while the Securities and Exchange Commission works to ensure
ultimate oversight. For example, the NYSE Listed Company Manual Rule 303A.01 requires
that listed companies have a majority of "independent" directors.[73] "Independence" is in
turn defined by Rule 303A.02 as an absence of material business relationship with the
corporation, not having worked for the last three years for the corporation as an employee,
not receiving over $120,000 in pay, or generally having family members who are.[74] The
idea here is that "independent" directors will exercise superior oversight of the executive
board members, and thus decrease the likelihood of abuse of power. Specifically, the
nominations committee (which makes future board appointments), compensation
committee (which sets director pay), and audit committee (which appoints the auditors), are
required to be composed of independent directors, as defined by the Rules.[75] Similar
requirements for boards have proliferated across many countries,[76] and so exchange rules
allow foreign corporations that are listed on an American exchange to follow their home
jurisdiction's rules, but to disclose and explain how their practices differ (if at all) to the
market.[77] The difficulty, however, is that oversight of executive directors by independent
directors still leaves the possibility of personal relationships that develop into a conflict of
interest. This raises the importance of the rights that can be exercised against the board as
a whole.

Shareholder rights …

While the board of directors is generally conferred the power to manage the day-to-day
affairs of a corporation, either by the statute, or by the articles of incorporation, this is
always subject to limits, including the rights that shareholders have. For example, the
Delaware General Corporation Law §141(a) says the "business and affairs of every
corporation ... shall be managed by or under the direction of a board of directors, except as
may be otherwise provided in this chapter or in its certificate of incorporation."[78] However,
directors themselves are ultimately accountable to the general meeting through the vote.
Invariably, shareholders hold the voting rights,[79] though the extent to which these are
useful can be conditioned by the constitution. The DGCL §141(k) gives an option to
corporations to have a unitary board that can be removed by a majority of members
"without cause" (i.e. a reason determined by the general meeting and not by a court), which
reflects the old default common law position.[80] However, Delaware corporations may also
opt for a classified board of directors (e.g. where only a third of directors come up for
election each year) where directors can only be removed "with cause" scrutinized by the
courts.[81] More corporations have classified boards after initial public offerings than a few
years after going public, because institutional investors typically seek to change the
corporation's rules to make directors more accountable.[82] In principle, shareholders in
Delaware corporations can make appointments to the board through a majority vote,[83] and
can also act to expand the size of the board and elect new directors with a majority.[84]
However, directors themselves will often control which candidates can be nominated to be
appointed to the board. Under the Dodd-Frank Act of 2010, §971 empowered the Securities
and Exchange Commission to write a new SEC Rule 14a-11 that would allow shareholders to
propose nominations for board candidates. The Act required the SEC to evaluate the
economic effects of any rules it wrote, however when it did, the Business Roundtable
challenged this in court. In Business Roundtable v SEC,[85] Ginsburg J in the DC Circuit
Court of Appeals went as far to say that the SEC had "acted arbitrarily and capriciously" in
its rule making. After this, the Securities and Exchange Commission failed to challenge the
decision, and abandoned drafting new rules. This means that in many corporations,
directors continue to have a monopoly on nominating future directors.
 The Securities and Exchange
Commission has a statutory duty
to regulate some aspects of
director elections and
shareholder voting rights, though
its rule-making authority has
continually been challenged by
the Business Roundtable.[86]

Apart from elections of directors, shareholders' entitlements to vote have been significantly
protected by federal regulation, either through stock exchanges or the Securities and
Exchange Commission. Beginning in 1927, the New York Stock Exchange maintained a "one
share, one vote" policy, which was backed by the Securities and Exchange Commission
from 1940.[87] This was thought to be necessary to halt corporations issuing non-voting
shares, except to banks and other influential corporate insiders.[88] However, in 1986, under
competitive pressure from NASDAQ and AMEX, the NYSE sought to abandon the rule, and
the SEC quickly drafted a new Rule 19c-4, requiring the one share, one vote principle. In
Business Roundtable v SEC[89] the DC Circuit Court of Appeals struck the rule down,
though the exchanges and the SEC subsequently made an agreement to regulate
shareholder voting rights "proportionately". Today, many corporations have unequal
shareholder voting rights, up to a limit of ten votes per share.[90] Stronger rights exist
regarding shareholders ability to delegate their votes to nominees, or doing "proxy voting"
under the Securities and Exchange Act of 1934. Its provisions were introduced to combat
the accumulation of power by directors or management friendly voting trusts after the Wall
Street Crash. Under SEC Rule 14a-1, proxy votes cannot be solicited except under its rules.
Generally, one person soliciting others' proxy votes requires disclosure, although SEC Rule
14a-2 was amended in 1992 to allow shareholders to be exempt from filing requirements
when simply communicating with one another,[91] and therefore to take collective action
against a board of directors more easily. SEC Rule 14a-9 prohibits any false or misleading
statements being made in soliciting proxies. This all matters in a proxy contest, or whenever
shareholders wish to change the board or another element of corporate policy. Generally
speaking, and especially under Delaware law, this remains difficult. Shareholders often have
no rights to call meetings unless the constitution allows,[92] and in any case the conduct of
meetings is often controlled by directors under a corporation's by-laws. However, under
SEC Rule 14a-8, shareholders have a right to put forward proposals, but on a limited number
of topics (and not director elections).[93]

Ratio of average pay of CEOs and production workers

within a corporation from 1965 to 2009, not taking
into account outsourced workers, or supply
chains.[94]

On a number of issues that are seen as very significant, or where directors have incurable
conflicts of interest, many states and federal legislation give shareholders specific rights to
veto or approve business decisions. Generally state laws give the right for shareholders to
vote on decision by the corporation to sell off "all or substantially all assets" of the
corporation.[95] However fewer states give rights to shareholder to veto political
contributions made by the board, unless this is in the articles of incorporation.[96] One of
the most contentious issues is the right for shareholders to have a "say on pay" of directors.
As executive pay has grown beyond inflation, while average worker wages remained
stagnant, this was seen important enough to regulate in the Dodd-Frank Act of 2010 §951.
This provision, however, simply introduced a non-binding vote for shareholders, though
better rights can always be introduced in the articles of incorporation. While some
institutional shareholders, particularly pension funds, have been active in using shareholder
rights, asset managers regulated by the Investment Advisers Act of 1940 have tended to be
mute in opposing corporate boards, as they are often themselves disconnected from the
people whose money they are voting upon.
Investor rights …

Most state corporate laws require shareholders have governance rights against boards of
directors, but fewer states guarantee governance rights to the real investors of capital.
Currently investment managers control most voting rights in the economy using "other
people's money".[97] Investment management firms, such as Vanguard, Fidelity, Morgan
Stanley or BlackRock, are often delegated the task of trading fund assets from three main
types of institutional investors: pension funds, life insurance companies, and mutual
funds.[98] These are usually substitutes to save for retirement. Pensions are most important
kind, but can be organized through different legal forms. Investment managers, who are
subject to the Employee Retirement Income Security Act of 1974, are then often delegated
the task of investment management. Over time, investment managers have also vote on
corporate shares, assisted by a "proxy advice" firm such as ISS or Glass Lewis. Under ERISA
1974 §1102(a),[99] a plan must merely have named fiduciaries who have "authority to control
and manage the operation and administration of the plan", selected by "an employer or
employee organization" or both jointly. Usually these fiduciaries or trustees, will delegate
management to a professional firm, particularly because under §1105(d), if they do so, they
will not be liable for an investment manager's breaches of duty.[100] These investment
managers buy a range of assets (e.g. government bonds, corporate bonds, commodities,
real estate or derivatives) but particularly corporate stocks which have voting rights.

The largest form of retirement fund has become the 401(k) defined contribution scheme.
This is often an individual account that an employer sets up, named after the Internal
Revenue Code §401(k), which allows employers and employees to defer tax on money that
is saved in the fund until an employee retires.[101] The individual invariably loses any voice
over how shareholder voting rights that their money buys will be exercised.[102] Investment
management firms, that are regulated by the Investment Company Act of 1940, the
Investment Advisers Act of 1940 and ERISA 1974, will almost always take shareholder voting
rights. By contrast, larger and collective pension funds, many still defined benefit schemes
such as CalPERS or TIAA, organize to take voting in house, or to instruct their investment
managers. Two main types of pension fund to do this are labor union organized Taft-Hartley
plans,[103] and state public pension plans. A major example of a mixture is TIAA, established
on the initiative of Andrew Carnegie in 1918, which requires participants to have voting
rights for the plan trustees.[104] Under the amended National Labor Relations Act of 1935
§302(c)(5)(B) a union organized plan has to be jointly managed by representatives of
employers and employees.[105] Many local pension funds are not consolidated and have had
critical funding notices from the U.S. Department of Labor.[106] But more funds with
beneficiary representation ensure that corporate voting rights are cast according to the
preferences of their members. State public pensions are often larger, and have greater
bargaining power to use on their members' behalf. State pension schemes usually disclose
the way trustees are selected. In 2005, on average more than a third of trustees were
elected by employees or beneficiaries.[107] For example, the California Government Code
§20090 requires that its public employee pension fund, CalPERS has 13 members on its
board, 6 elected by employees and beneficiaries. However, only pension funds of sufficient
size have acted to replace investment manager voting. No federal law requires voting rights
for employees in pension funds, despite several proposals.[108] For example, the Joint
Trusteeship Bill of 1989, sponsored by Peter Visclosky in the US House of Representatives,
would have required all single employer pension plans to have trustees appointed equally by
employers and employee representatives.[109] There is also currently no legislation to stop
investment managers voting with other people's money, in the way that the Securities
Exchange Act of 1934 §78f(b)(10) bans broker-dealers voting on significant issues without
instructions.[110]

Employee rights …

While investment managers tend to
exercise most voting rights in
corporations, bought with pension,
life insurance and mutual fund
money, employees also exercise
voice through collective bargaining
rules in labor law.[111] Increasingly,
corporate law has converged with
labor law.[112] The United States is in
a minority of Organisation for
Economic Co-operation and
Development countries that, as yet,
... while there are many contributing causes to unrest,
that there is one cause which is fundamental. That is
the necessary conflict – the contrast between our
political liberty and our industrial absolutism. We are as
free politically, perhaps, as free as it is possible for us
to be ... On the other had, in dealing with industrial
problems, the position of the ordinary worker is exactly
the reverse. The individual employee has no effective
voice or vote. And the main objection, as I see it, to the
very large corporation is, that it makes possible – and
in many cases makes inevitable – the exercise of
industrial absolutism ... The social justice for which we
are striving is an incident of our democracy, not its

has no law requiring employee main end… the end for which we must strive is the
attainment of rule by the people, and that involves
voting rights in corporations, either
industrial democracy as well as political democracy.
in the general meeting or for
—Louis Brandeis, Testimony to Commission on
representatives on the board of
Industrial Relations (1916) vol 8, 7659–7660
directors.[113] On the other hand, the
United States has the oldest
voluntary codetermination statute for private corporations, in Massachusetts since 1919
passed under the Republican governor Calvin Coolidge, enabling manufacturing companies
to have employee representatives on the board of directors, if corporate stockholders
agreed.[114] Also in 1919 both Procter & Gamble and the General Ice Delivery Company of
Detroit had employee representation on boards.[115] In the early 20th century, labor law
theory split between those who advocated collective bargaining backed by strike action,
those who advocated a greater role for binding arbitration,[116] and proponents
codetermination as "industrial democracy".[117] Today, these methods are seen as
complements, not alternatives. A majority of countries in the Organisation for Economic Co-
operation and Development have laws requiring direct participation rights.[118] In 1994, the
Dunlop Commission on the Future of Worker-Management Relations: Final Report examined
law reform to improve collective labor relations, and suggested minor amendments to
encourage worker involvement.[119] Congressional division prevented federal reform, but
labor unions and state legislatures have experimented.

The United Auto Workers at the

Chrysler Corporation successfully
made a collective agreement in
1980 to have employee directors
on the board. Shareholding
institutions tend to monopolize
voting rights in corporations.

Corporations are chartered under state law, the larger mostly in Delaware, but leave
investors free to organize voting rights and board representation as they choose.[120]
Because of unequal bargaining power, but also historic caution of labor unions,[121]
shareholders monopolize voting rights in American corporations. From the 1970s employees
and unions sought representation on company boards. This could happen through collective
agreements, as it historically occurred in Germany or other countries, or through employees
demanding further representation through employee stock ownership plans, but they aimed
for voice independent from capital risks that could not be diversified. Corporations included
where workers attempted to secure board represented included United Airlines, the General
Tire and Rubber Company, and the Providence and Worcester Railroad.[122] However, in
1974 the Securities and Exchange Commission, run by appointees of Richard Nixon,
rejected that employees who held shares in AT&T were entitled to make proposals to include
employee representatives on the board of directors.[123] This position was eventually
reversed expressly by the Dodd-Frank Act of 2010 §971, which subject to rules by the
Securities and Exchange Commission entitles shareholders to put forward nominations for
the board.[124] Instead of pursuing board seats through shareholder resolutions, for
example, the United Auto Workers successfully sought board representation by collective
agreement at Chrysler in 1980,[125] and the United Steel Workers secured board
representation in five corporations in 1993.[126] However, it was clear that employee stock
ownership plans were open to abuse, particularly after Enron collapsed in 2003. Workers
had been enticed to invest an average of 62.5 per cent of their retirement savings from
401(k) plans in Enron stock, against basic principles of prudent, diversified investment, and
had no board representation. This meant, employees lost a majority of pension savings.[127]
For this reason, employees and unions have sought representation simply for investment of
labor, without taking on undiversifiable capital risk. Empirical research suggests by 1999
there were at least 35 major employee representation plans with worker directors, though
often linked to corporate stock.[128]

Directors' duties

While corporate constitutions typically set out the balance of power between directors,
shareholders, employees and other stakeholders, additional duties are owed by members of
the board to the corporation as a whole. First, rules can restrain or empower the directors in
whose favor they exercise their discretion. While older corporate law judgments suggested
directors had to promote "shareholder value", most modern state laws empower directors to
exercise their own "business judgment" in the way they balance the claims of shareholders,
employees, and other stakeholders. Second, all state laws follow the historical pattern of
fiduciary duties to require that directors avoid conflicts of interest between their own pursuit
of profit, and the interests of the corporation. The exact standard, however, may be more or
less strict. Third, many states require some kind of basic duty of care in performance of a
director's tasks, just as minimum standards of care apply in any contract for services.
However, Delaware has increasingly abandoned objective duties of care, and allows liability
waivers.

Stakeholder interests …

Most states follow the approach

in Shlensky v Wrigley,[129] that
directors do not only need to
maximize shareholder profits.
They can balance the interests of
all stakeholders, as in a decision
to not put in floodlights to play
nighttime baseball games, in the
community's interest.

Most corporate laws empower directors, as part of their management functions, to

determine which strategies will promote a corporation's success in the interests of all
stakeholders. Directors will periodically decide whether and how much of a corporation's
revenue should be shared among directors' own pay, the pay for employees (e.g. whether to
increase or not next financial year), the dividends or other returns to shareholders, whether
to lower or raise prices for consumers, whether to retain and reinvest earnings in the
business, or whether to make charitable and other donations. Most states have enacted
"constituency statutes",[130] which state expressly that directors are empowered to balance
the interests of all stakeholders in the way that their conscience, or good faith decisions
would dictate. This discretion typically applies when making a decision about the
distribution of corporate resources among different groups, or in whether to defend against
a takeover bid. For example, in Shlensky v Wrigley[129] the president of the Chicago Cubs
baseball team was sued by stockholders for allegedly failing to pursue the objective of
shareholder profit maximization. The president had decided the corporation would not
install flood lights over the baseball ground that would have allowed games to take place at
night, because he wished to ensure baseball games were accessible for families, before
children's bed time. The Illinois court held that this decision was sound because even
though it could have made more money, the director was entitled to regard the interests of
the community as more important. Following a similar logic in AP Smith Manufacturing Co v
Barlow a New Jersey court held that the directors were entitled to make a charitable
donation to Princeton University on the basis because there was "no suggestion that it was
made indiscriminately or to a pet charity of the corporate directors in furtherance of
personal rather than corporate ends."[131] So long as the directors could not be said to have
conflicting interests, their actions would be sustained.

Dodge v Ford Motor Co

notoriously held in 1919 that
corporations had to be run
"primarily for the profit of the
stockholders" though most
states, and the Supreme Court,
have since followed the view that
directors must balance all
stakeholders' interests.[132]

Delaware's law has also followed the same general logic, even though it has no specific
constituency or stakeholder statute.[133] The standard is, however, contested largely among
business circles which favor a view that directors should act in the sole interests of
shareholder value. Judicial support for this aim is typically found in a case from Michigan in
1919, called Dodge v Ford Motor Company.[134] Here, the Ford Motor Company president
Henry Ford had publicly announced that he wished not merely to maximize shareholder
returns but to raise employee wages, decrease the price of cars for consumers, because he
wished, as he put it, "to spread the benefits of this industrial system to the greatest possible
number". A group of shareholders sued, and the Michigan Supreme Court said in an obiter
dictum that a "business corporation is organized and carried on primarily for the profit of
the stockholders. The powers of the directors are to be employed for that end." However, in
the case itself a damages claim against Ford did not succeed, and since then Michigan law
has been changed.[135] The US Supreme Court has also made it clear in Burwell v Hobby
Lobby Stores Inc that shareholder value is not a default or overriding aim of corporate
law,[136] unless a corporation's rules expressly opt to define such an objective. In practice,
many corporations do operate for the benefit of shareholders, but this is less because of
duties, and more because shareholders typically exercise a monopoly on the control rights
over electing the board. This assumes, however, that directors do not merely use their office
to further their own personal goals over the interests of shareholders, employees, and other
stakeholders.

Conflicts of interest …

Since the earliest corporations were formed, courts have imposed minimum standards to
prevent directors using their office to pursue their own interests over the interests of the
corporation. Directors can have no conflict of interest. In trusts law, this core fiduciary duty
was formulated after the collapse of the South Sea Company in 1719 in the United Kingdom.
Keech v Sandford held that people in fiduciary positions had to avoid any possibility of a
conflict of interest, and this rule "should be strictly pursued".[137] It was later held that no
inquiry should be made into transactions where the fiduciary was interested in both sides of
the deal.[138] These principles of equity were received into the law of the United States, and
in a modern formulation Cardozo J said in Meinhard v Salmon that the law required "the
punctilio of an honor the most sensitive ... at a level higher than that trodden by the
crowd."[139]

The standards applicable to directors, however, began to depart significantly from

traditional principles of equity that required "no possibility" of conflict regarding corporate
opportunities, and "no inquiry" into the actual terms of transactions if tainted by self-
dealing. In a Delaware decision from 1939, Guth v Loft Inc,[140] it was held that Charles
Guth, the president of a drink manufacturer named Loft Inc., had breached his duty to avoid
conflicts of interest by purchasing the Pepsi company and its syrup recipe in his own name,
rather than offering it to Loft Inc. However, although the duty was breached, the Delaware
Supreme Court held that the court will look at the particular circumstances, and will not
regard a conflict as existing if the company it lacked finances to take the opportunity, if it is
not in the same line of business, or did not have an "interest or reasonable expectancy".
More recently, in Broz v Cellular Information Systems Inc,[141] it was held that a non-
executive director of CIS Inc, a man named Mr Broz, had not breached his duty when he
bought telecommunications licenses for the Michigan area for his own company, RFB
Cellular Inc. CIS Inc had been shedding licenses at the time, and so Broz alleged that he
thought there was no need to inquire whether CIS Inc would be interested. CIS Inc was then
taken over, and the new owners pushed for the claim to be brought. The Delaware Supreme
Court held that because CIS Inc had not been financially capable at the time to buy licenses,
and so there was no actual conflict of interest. In order to be sure, or at least avoid litigation,
the Delaware General Corporation Law §144 provides that directors cannot be liable, and a
transaction cannot be voidable if it was (1) approved by disinterested directors after full
disclosure (2) approved by shareholders after disclosure, or (3) approved by a court as
fair.[142]

Miller v Miller, 222 NW.2d 71 (1974)

Corporate officers and directors may pursue business transactions that benefit themselves
as long as they can prove the transaction, although self-interested, was nevertheless
intrinsically "fair" to the corporation.

Lieberman v Becker, 38 Del Ch 540, 155 A 2d 596 (Super Ct 1959)

DGCL §144 contains the rule that the burden for proving unfairness remains on plaintiff
after disclosure

Flieger v Lawrence, 361 A2d 218 (Del 1976) the burden of proof shifts onto the plaintiff to
show a transaction was conflicted if approval by disinterested stockholders or directors
has been given to a transaction. Also Remillard Brick Co v Remillard-Dandini Co, 109 Cal
App2d 405 (1952)

Oberly v Kirby, 592 A2d 445, 467 (Del 1991)

Cinerama Inc v Technicolor Inc, 663 A2d 1156, 1170 (Del. 1995)

Benihana of Tokyo Inc v Benihana Inc., 906 A2d 114 (Del. 2006)

Duty of care …

In Ultramares Corporation v
 Touche,[143] a case concerning
Touche, Niven & Company (now
Deloitte) across from the
NYSE,[144] Cardozo CJ held that
the ordinary duty of care
applicable to professionals
performing services requires
people to act "with the care and
caution proper to their calling".

The duty of care that is owed by all people performing services for others is, in principle,
also applicable to directors of corporations. Generally speaking, the duty of care requires an
objective standard of diligence and skill when people perform services, which could be
expected from a reasonable person in a similar position (e.g. auditors must act "with the
care and caution proper to their calling",[145] and builders must perform their work in line
with "industry standards"[146]). In a 1742 decision of the English Court of Chancery, The
Charitable Corporation v Sutton,[147] the directors of the Charitable Corporation, which gave
out small loans to the needy, were held liable for failing to keep procedures in place that
would have prevented three officers defrauding the corporation of a vast sum of money.
Lord Hardwicke, noting that a director's office was of a "mixed nature", partly "of the nature
of a public office" and partly like "agents" employed in "trust", held that the directors were
liable. Though they were not to be judged with hindsight, Lord Hardwicke said he could
"never determine that frauds of this kind are out of the reach of courts of law or equity, for
an intolerable grievance would follow from such a determination." Many states have similarly
maintained an objective baseline duty of care for corporate directors, while acknowledging
different levels of care can be expected from directors of small or large corporations, and
from directors with executive or non-executive roles on the board.[148] However, in
Delaware, as in a number of other states,[149] the existence of a duty of care has become
increasingly uncertain.

In re Citigroup Inc Shareholder

Derivative Litigation[150] ensured
that no director of any major
 banking corporation could be
held liable for breach of the duty
of care, even though its risky
practices caused the financial
crisis of 2007–2008.[151]

In 1985, the Delaware Supreme Court passed one of its most debated judgments, Smith v
Van Gorkom.[152] The directors of TransUnion, including Jerome W. Van Gorkom, were sued
by the shareholders for failing to adequately research the corporation's value, before
approving a sale price of $55 per share to the Marmon Group. The Court held that to be a
protected business judgment, "the directors of a corporation [must have] acted on an
informed basis, in good faith and in the honest belief that the action taken was in the best
interests of the company." Failing to act on an informed basis, if it caused loss, would
amount to gross negligence, and here the directors were liable. The decision triggered a
panic among corporate boards which believed they would be exposed to massive liability,
and insurance firms who feared rising costs of providing directors and officers liability
insurance to corporate boards. In response to lobbying, the Delaware General Corporation
Law was amended to insert a new §102(b)(7). This allowed corporations to give directors
immunity from liability for breach of the duty of care in their charter. However, for those
corporations which did not introduce liability waivers, the courts subsequently proceeded to
reduce the duty of care outright.[153] In 1996, In re Caremark International Inc. Derivative
Litigation[154] required "an utter failure to attempt to assure a reasonable information and
reporting system exists", and in 2003 In re Walt Disney Derivative Litigation[155] went
further. Chancellor Chandler held directors could only be liable for showing "reckless
indifference to or a deliberate disregard of the whole body of stockholders" through actions
that are "without the bounds of reason".[156] In one of the cases that came out of the
financial crisis of 2007–2008, the same line of reasoning was deployed in In re Citigroup Inc
Shareholder Derivative Litigation.[150] Chancellor Chandler, confirming his previous opinions
in Re Walt Disney and the dicta of Re Caremark, held that the directors of Citigroup could
not be liable for failing to have a warning system in place to guard against potential losses
from sub-prime mortgage debt. Although there had been several indications of the
significant risks, and Citigroup's practices along with its competitors were argued to have
contributed to crashing the international economy, Chancellor Chandler held that "plaintiffs
would ultimately have to prove bad faith conduct by the director defendants". This
suggested that Delaware law had effectively negated any substantive duty of care. This
suggested that corporate directors were exempt from duties that any other professional
performing services would owe.
Derivative suits …

Because directors owe their duties to the corporation and not, as a general rule, to specific
shareholders or stakeholders, the right to sue for breaches of directors duty rests by default
with the corporation itself. The corporation is necessarily party to the suit.[157] This creates
a difficulty because almost always, the right to litigate falls under the general powers of
directors to manage the corporation day to day (e.g. Delaware General Corporation Law
§141(a)). Often, cases arise (such as in Broz v Cellular Information Systems Inc[141]) where
an action is brought against a director because the corporation has been taken over and a
new, non-friendly board is in place, or because the board has been replaced after
bankruptcy. Otherwise, there is a possibility of a conflict of interest because directors will be
reluctant to sue their colleagues, particularly when they develop personal ties. The law has
sought to define further cases where groups other than directors can sue for breaches of
duty. First, many jurisdictions outside the US allow a specific percentage of shareholders to
bring a claim as of right (e.g. 1 per cent).[158] This solution may still entail significant
collective action problems where shareholders are dispersed, like the US. Second, some
jurisdictions give standing to sue to non-shareholder groups, particularly creditors, whose
collective action problems are less.[159] Otherwise, third, the main alternative is that any
individual shareholder may "derive" a claim on the corporation's behalf to sue for breach of
duty, but such a derivative suit will be subject to permission from the court.

Increasingly courts have denied

that the board should restrict
derivative suits, as in the 2003
case In re Oracle Corp Derivative
Litigation[160] where it was held
that an insider trading claim
against Oracle Corp CEO Larry
Ellison could proceed.[161]

The risk of allowing individual shareholders to bring derivative suits is usually thought to be
that it could encourage costly, distracting litigation, or "strike suits"[162] – or simply that
litigation (even if the director is guilty of a breach of duty) could be seen as
counterproductive by a majority of shareholders or stakeholders who have no conflicts of
interest. Accordingly, it is generally thought that oversight by the court is justified to ensure
derivative suits match the corporation's interests as a whole because courts may be more
independent. However, especially from the 1970s some states, and especially Delaware,
began also to require that the board have a role. Most common law jurisdictions have
abandoned role for the board in derivative claims,[163] and in most US states before the
1980s, the board's role was no more than a formality.[164] But then, a formal role for the
board was reintroduced. In the procedure to bring a derivative suit, the first step is often
that the shareholder had to make a "demand" on the board to bring a claim.[165] Although it
might appear strange to ask a group of directors who will be sued, or whose colleagues are
being sued, for permission, Delaware courts took the view that the decision to litigate ought
by default to lie within the legitimate scope of directors' business judgment. For example, in
Aronson v Lewis[166] a shareholder of the Meyers Parking System Inc claimed that the board
had improperly wasted corporate assets by giving its 75-year-old director, Mr Fink, a large
salary and bonus for consultancy work even though the contract did not require
performance of any work. Mr Fink had also personally selected all of the directors.
Nevertheless, Moore J. held for the Delaware Supreme Court that there was still a
requirement to make a demand on the board before a derivative suit could be brought.
There was "a presumption that in making a business decision, the directors of a corporation
acted on an informed basis in good faith and in the honest belief that the action was taken in
the best interests of the company", even if they owed their jobs to the person being sued. A
requirement to make a demand on the board will, however, be excused if it is shown that it
would be entirely "futile", primarily because a majority of the board is alleged to have
breached its duty. Otherwise it must be shown that all board members are in some very
strong sense conflicted, but merely working with the accused directors, and the personal
ties this potentially creates, is insufficient for some courts.[167] This indicated a significant
and controversial change in Delaware's judicial policy, that prevented claims against boards.

In 1981, in Zapata Corp v

Maldonado[168] the Delaware
 Supreme Court held that the
board of Zapata Corp., founded
by George H. W. Bush, could not
be sued for breach of fiduciary
duty. An "independent
investigation committee" was
competent to reject the demand
for a derivative suit, despite being
appointed by the board.

In some cases corporate boards attempted to establish "independent litigation committees"

to evaluate whether a shareholder's demand to bring a suit was justified. This strategy was
used to pre-empt criticism that the board was conflicted. The directors would appoint the
members of the "independent committee", which would then typically deliberate and come
to the conclusion that there was no good cause for bringing litigation. In Zapata Corp v
Maldonado[168] the Delaware Supreme Court held that if the committee acted in good faith
and showed reasonable grounds for its conclusion, and the court could be "satisfied [about]
other reasons relating to the process", the committee's decision to not allow a claim could
not be overturned. Applying Connecticut law, the Second Circuit Federal Court of Appeals
held in Joy v North[169] that the court could substitute its judgment for the decisions of a
supposedly independent committee, and the board, on the ground that there was scope for
conflicting interests. Then, the substantive merits for bringing the derivative claim would be
assessed. Winter J held overall that shareholders would have the burden "to demonstrate
that the action is more likely than not to be against the interests of the corporation". This
would entail a cost benefit analysis. On the benefit side would be "the likely recoverable
damages discounted by the probability of a finding of liability", and the costs side would
include "attorney's fees and other out-of-pocket expenses", "time spent by corporate
personnel", "the impact of distraction of key personnel", and potential lost profits which may
result from the publicity of a trial." If it is thought that the costs exceed the benefits, then
the shareholders acquire the right to sue on the corporation's behalf. A substantive hearing
on the merits about the alleged breach of director's duty may be heard. The tendency in
Delaware, however, has remained to allow the board to play a role in restricting litigation,
and therefore minimize the chances that it could be held accountable for basic breaches of
duty.[170]

Minority shareholder protections

Ivanhoe Partners v Newmont Mining Corp., 535 A.2d 1334 (Del. 1987) a shareholder
owning over 50% of shares is a controlling shareholder; but actual control may also be
present through other mechanisms

Citron v Fairchild Camera & Instrument Corp., 569 A.2d 53, 70 (Del. 1989) non-controlling
shareholders do not owe duties to minority shareholders and may vote their shares for
personal gain without concern

In re Cysive, Inc. Shareholders Litigation 836 A.2d 531 (Del. 2003) Nelson Carbonell
owned 35% of Cysive, Inc., a publicly traded company. His associates' holdings and
options to buy more stock, however, actually meant he controlled around 40% of the
votes. Chancellor held that "without having to attract much, if any, support from public
stockholders" Carbonell could control the company. This was especially so since "100%
turn-out is unlikely even in a contested election" and "40% block is very potent in view of
that reality."

Kahn v Lynch Communications Systems, Inc. 638 A.2d 1110 (Del. 1994) Alcatel held 43%
of shares in Lynch. One of its nominees on the board told the others, "you must listen to
us. We are 43% owner. You have to do what we tell you." The Delaware Supreme Court
held that Alcatel did in fact dominate Lynch.

Perlman v Feldmann, 219 F.2d 173 (2d Cir 1955), certiorari denied, 349 US 952 (1955)
held it was foreseeable that a takeover bidder wished to divert a corporate advantage to
itself, and so the selling shareholders were required to pay the premium they received to
the corporation

Jones v H.F. Ahmanson & Co. 1 Cal.3d 93, 460 P.2d 464 (1969) holders of 85% of comm
shares in a savings and loan association, exchanged shares for shares of a new
corporation and began to sell those to the public, meaning that the minority holding 15%
had no market for the sale of their shares. Held, breach of fiduciary duty to the minority:
"majority shareholders ... have a fiduciary responsibility to the minority and to the
corporation to use their ability to control the corporation in a fair, just, and equitable
manner."

New York Business Corporation Law section 1104-a, the holders of 20 per cent of voting
shares of a non-public corporation may request that the corporation be wound up on
grounds of oppression.

NY Bus Corp Law §1118 and Alaska Plastics, Inc. v. Coppock, 621 P.2d 270 (1980) the
minority can sue to be bought out at a fair value, determined by arbitration or a court.

Donahue v Rodd Electrotype Co of New England 367 Mass 578 (1975) majority
 shareholders cannot authorise a share purchase from one shareholder when the same
opportunity is not offered to the minority.

In re Judicial Dissolution of Kemp & Beatley, Inc 64 NY 2d 63 (1984) under a "just and
equitable winding up" provision, (equivalent to IA 1986 s 212(1)(g)), it was construed that
less drastic remedies were available to the court before winding up, and "oppression" was
said to mean 'conduct that substantially defeats the 'reasonable expectations' held by
minority shareholders in committing their capital to the particular enterprise. A
shareholder who reasonably expected that ownership in the corporation would entitle him
or her to a job, a share of corporate earnings, a place in corporate management, or some
other form of security, would oppressed in a very real sense when others in the
corporation seek to defeat those expectations and there exists no effective means of
salvaging the investment.'

Meiselman v Meiselman 309 NC 279 (1983) a shareholder's 'reasonable expectations' are

to be determined by looking at the whole history of the participants' relationship. 'That
history will include the 'reasonable expectations' created at the inception of the
participants' relationship; those 'reasonable expectations' as altered over time; and the
'reasonable expectations' which develop as the participants engage in a course of dealing
in conducting the affairs of the corporation.'

Mergers and acquisitions

Applicable to Delaware corporations:

DGCL §203

Cheff v Mathes 199 A2d 548 (Del 1964)

Weinberger v UOP Inc, 457 A2d 701, 703–04 (Del 1983) plaintiff must start by alleging
the fiduciary stood to gain a material economic benefit. The burden then shifts to the
defendant to show the fairness of the transaction. The court considers both the terms,
and the process for the bargain, i.e. both a fair price, and fair dealing. However, if the
director shows that full disclosure was made to either the disinterested directors or
disinterested shareholders, then the burden remains on the plaintiff.

Revlon Inc v MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1985)

Hanson Trust PLC v ML SCM Acquisition, Inc, 781 F.2d 264 (2d Cir 1986), asset lock up in
contested takeover, violation of duty of care
 Unitrin Inc v American General Corp.

Unocal Corp v Mesa Petroleum Co 493 A.2d 946 (Del. 1985)

Moran v Household International Inc, 500 A.2d 1346 (Del. 1985)

Lacos Land Co v Arden Group Inc, 517 A 2d 271 (Del Ch 1986)

Paramount Communications Inc v QVC Network Inc, 637 A.2d 34 (Del. 1994)

Corporate finance

US Securities and Exchange Commission

Dodd–Frank Wall Street Reform and Consumer Protection Act

Stock certificate, Unissued stock and Treasury stock

Securities markets …
Securities Act of 1933

Securities Exchange Act of 1934

Williams Act

SEC Rule 10b-5, unlawful to make 'any untrue statement of a material fact or to omit to
state a material fact necessary in order to make the statements made ... not misleading.'

Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975) only those suffering direct
loss from the purchase or sale of stock have standing to sue under federal securities law.

TSC Industries v Northway 426 U.S. 438 (https://supreme.justia.com/cases/federal/us/42

6/438/) (1976) Burger CJ, material means 'a substantial likelihood that a reasonable
shareholder would consider it important in deciding how to vote'.

Chiarella v. United States, 445 U.S. 222 (1980) an employee of a printer that figured out
upcoming company positions from his work was not liable for securities fraud.

Basic v Levinson 485 U.S. 224 (https://supreme.justia.com/cases/federal/us/485/224/)

(1988) every affected investor can sue for personal loss, under a rebuttable presumption
of reliance on the information (the 'fraud-on-the-market theory').

United States v. O'Hagan 521 U.S. 642 (https://supreme.justia.com/cases/federal/us/521/6

42/) (1997)

Matrixx Initiatives, Inc. v. Siracusano 563 U.S. ___ (2011) company reports on products a
 basis for securities fraud action

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71 (2006) state law securities
fraud class action claims were preempted by the Securities Litigation Uniform Standards
Act of 1998

Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. ___ (2011) 5 to 4 decision
that related companies were not also liable under SEC Rule 10b-5

Investment businesses …
Investment Advisers Act of 1940

Investment Company Act of 1940

Credit Rating Agency Reform Act of 2006

Auditing …
Sarbanes–Oxley Act 2002 §404, listed corporations must document and disclose an
enterprise-wide system of internal financial information. §301, CEO and CFO must
personally certify integrity of annual financial statements.

Schedule 13D, within 10 days anyone who acquires beneficial ownership of more than 5%
of any class of publicly traded securities in a public company must tell the SEC.

SEA 1934 §13 or 15(d) requires an annual report

Form 10-K, the basic information required by the US Securities and Exchange
Commission as an annual report

Form 10-Q, required each quarter

Bankruptcy …
Chapter 11, Title 11, United States Code

Claim in bankruptcy

Taylor v Standard Gas and Electric Company

Marrama v Citizens Bank of Massachusetts

Taxation …

Theory

Nexus of contracts and Concession theory

 WZ Ripley, Wall Street and Main Street (1927)

AA Berle and GC Means, The Modern Corporation and Private Property (1932)

LLSV and leximetrics

Shareholder value, stakeholders and codetermination

Charles A. Beard, "Corporations and Natural Rights," The Virginia Quarterly Review (1936)

See also

UK company law

Connecticut General Life Insurance Company v. Johnson

Dodd-Frank Wall Street Reform and Consumer Protection Act 2010

Swiss referendum "against corporate Rip-offs" of 2013

List of company registers

Notes

1. Lucian Bebchuk, The Case for Increasing Shareholder Power 118 Harvard Law Review 833, 844
(2004)

2. cf A Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (1776) Book V, ch 1,
§107 (http://oll.libertyfund.org/titles/119#Smith_0206-02_591)

3. Act Relative to Incorporations for Manufacturing Purposes of 1811

4. 17 US 518 (https://supreme.justia.com/cases/federal/us/17/518/) (1819)

5. cf William A. Klein and John C. Coffee, Business Organization and Finance 113–114 (9th edn
2004) cf Gibbons v. Ogden, 22 US 1 (https://www.law.cornell.edu/supct/html/historics/USSC_CR_
0022_0001_ZO.html) (1824) the right of Congress to regulate interstate trade under the
commerce clause.

6. See Louisville C&CR Co v Letson, 2 How. 497, 558, 11 L.Ed. 353 (1844), a corporation is "capable
of being treated as a citizen of [the State which created it], as much as a natural person."
Marshall v. Baltimore & Ohio Railway Co, 16 How. 314, 329, 14 L.Ed. 953 (1854) "those who use
the corporate name, and exercise the faculties conferred by it," should be presumed conclusively
to be citizens of the corporation's State of incorporation.

7. Joseph Keppler, Puck (January 23, 1889)

8. See M Dodd, American Business Association Law a Hundred Years Ago and Today in Law: A
Century of Progress: 1835–1935 (Reppy 1937) 254 and Lawrence M. Friedman, A History of
 Century of Progress: 1835–1935 (Reppy 1937) 254 and Lawrence M. Friedman, A History of
American Law (1973) 166–175

9. See L Brandeis, Other People's Money And How the Bankers Use It (1914)

10. The Massachusetts governor Calvin Coolidge passed "An Act to enable manufacturing
corporations to provide for the representation of their employees on the board of directors" (April
3, 1919) Chap. 0070. This was a measure that allowed corporations to voluntarily give workers
votes. It remains in the Massachusetts Laws, General Laws, Part I Administration of the
Government, Title XII Corporations, ch 156 Business Corporations, §23

11. See William Z. Ripley, Wall Street and Main Street (1927). The practice began again in 1986.

12. AA Berle, 'For Whom Corporate Managers Are Trustees: A Note' (1932) 45(8) Harvard Law
Review 1365 (https://www.jstor.org/stable/pdf/1331920) , 1372. See also the Berle-Dodd debate.

13. AA Berle, 'Corporate Powers As Powers in Trust' (1931) 44 Harvard Law Review 1049, EM Dodd,
'For Whom Are Corporate Managers Trustees?' (1932) 45 Harvard Law Review 1145 and AA Berle,
'For Whom Corporate Managers Are Trustees: A Note' (1932) 45 Harvard Law Review 1365

14. e.g. AP Smith Manufacturing Co v Barlow, 13 N.J. 145, 98 A.2d 581, 39 ALR 2d 1179 (1953) and
Shlensky v Wrigley, 237 N.E. 2d 776 (Ill. App. 1968)

15. See corplaw.delaware.gov (http://corplaw.delaware.gov/eng/why_delaware.shtml) .

16. See L Bebchuk, A Cohen and A Ferrell, Does the Evidence Favor State Competition in Corporate
Law? 90 California LR 1775 (http://www.law.harvard.edu/programs/corp_gov/papers/No352.02.Be
bchuk-Cohen-Ferrell.pdf) , 1809–1810 (2002)

17. c.f. RC Clark, Corporate Law (Aspen 1986) 2, who defines the modern public corporation by four
main features: separate legal personality, limited liability, centralized management, and freely
transferable shares.

18. See generally, WA Klein and JC Coffee, Business Organization and Finance: Legal and Economic
Principles (9th edn Foundation 2004) 137–140

19. See also Limited liability limited partnership

20. e.g. in Delaware see the Division of Corporations at corp.delaware.gov (http://corp.delaware.gov/h

owtoform.shtml) , in New York see the Division of Corporations at dos.ny.gov/corps (http://www.
dos.ny.gov/corps/) , and in California see the "Business Entities" section of the Secretary of
State website at sos.ca.gov/business (http://www.sos.ca.gov/business/be/)

21. 75 US 168 (https://supreme.justia.com/cases/federal/us/75/168/) (1869) and see Henry N.

Butler, Nineteenth century jurisdictional competition in the granting of corporate privileges (1985)
14(1) Journal of Legal Studies 129 (https://www.jstor.org/stable/724319)

22. See Edgar v MITE Corp, 457 US 624 (https://supreme.justia.com/cases/federal/us/457/624/)

(1982) White J., citing Restatement (Second) of Conflict of Laws § 302, Comment b, pp. 307–308
(1971) Also VantagePoint Venture Partners 1996 v Examen Inc, 871 A2d 1108, 1113 (2005) 'The
 internal affairs doctrine applies to those matters that pertain to the relationships among or
between the corporation and its officers, directors, and shareholder.'

23. Contrast the European Union decisions, including Kamer van Koophandel en Fabrieken voor
Amsterdam v Inspire Art Ltd (2003) C-167/01 (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?
uri=CELEX:62001J0167:EN:HTML) and see Simon Deakin, Two Types of Regulatory
Competition: Competitive Federalism versus Reflexive Harmonisation. A Law and Economics
Perspective on Centros (1999) 2 Cambridge Yearbook of European Legal Studies 231

24. See WL Cary, 'Federalism and Corporate Law: Reflections on Delaware' (1974) 83(4) Yale Law
Journal 663 (https://www.jstor.org/pss/795524) , 664, noting how under Woodrow Wilson acting
as governor tightened New Jersey law, provoking Delaware to change its regulation.

25. See William Ripley, Wall Street and Main Street (1927 (https://archive.org/stream/mainstreetandw
al00riplrich#page/30/mode/2up) ) 30, 'The little state of Delaware has always been forward in
this chartermongering business.'

26. 288 US 517 (https://supreme.justia.com/cases/federal/us/288/517/) (1933)

27. See RK Winter, 'State Law, Shareholder Protection, and the Theory of the Corporation' (1977) 6 J
Leg Studies 251

28. This is vast. See K Kocaoglu, 'A Comparative Bibliography: Regulatory Competition on Corporate
Law' (2008) Georgetown University Law Center Working Paper, on SSRN (https://ssrn.com/abstra
ct=1103644)

29. e.g. W Bratton, 'Corporate Law's Race to Nowhere in Particular' (1994) 44 U Toronto LJ 401.

30. e.g. Case of Sutton's Hospital (1612) 77 Eng Rep 960

31. 9 US 61 (https://supreme.justia.com/cases/federal/us/9/61/) (1809)

32. 75 US 168 (https://supreme.justia.com/cases/federal/us/75/168/) (1869)

33. The larger consequence was that insurance regulation remained state based, as the Court also
held that insurance did not generally affect interstate commerce. This latter ruling was, however,
overturned by United States v South-Eastern Underwriters Association, 322 US 533 (https://supr
eme.justia.com/cases/federal/us/322/533/) (1944)

34. 118 US 394 (https://supreme.justia.com/cases/federal/us/118/394/) (1886)

35. 558 US 310 (https://supreme.justia.com/cases/federal/us/558/310/) (2010)

36. 424 US 1 (https://supreme.justia.com/cases/federal/us/424/1/) (1976)

37. 494 US 652 (https://supreme.justia.com/cases/federal/us/494/652/) (1990)

38. 573 US ___ (2014)

39. per Ginsburg J (dissenting), at page 14 of the dissent 573 US ___ (https://www.supremecourt.gov
/opinions/13pdf/13-354_olp1.pdf) (2014)
40. cf Kennedy J (dissenting) Citizens United v Federal Election Commission, 558 US 310 (https://sup
reme.justia.com/cases/federal/us/558/310/) (2010)

41. e.g. DGCL §141(a) (http://delcode.delaware.gov/title8/c001/sc04/index.shtml) , "The business

and affairs of every corporation organized under this chapter shall be managed by or under the
direction of a board of directors, except as may be otherwise provided in this chapter or in its
certificate of incorporation." California Corporations Code §300(a) (http://www.leginfo.ca.gov/cgi-
bin/displaycode?section=corp&group=00001-01000&file=300-318) Archived (https://web.archi
ve.org/web/20121113085241/http://www.leginfo.ca.gov/cgi-bin/displaycode?section=corp&group=
00001-01000&file=300-318) November 13, 2012, at the Wayback Machine. NYBCL §701 (http://
codes.lp.findlaw.com/nycode/BSC/7/701) , "Subject to any provision in the certificate of
incorporation authorized by ... [the] certificate of incorporation as to control of directors ... the
business of a corporation shall be managed under the direction of its board of directors ... " This
is a change from an old dictum in Manson v Curtis, 119 NE 559, 562 (NY 1918) where it was said
that a director's powers are "original and undelegated". For support for this position, see
Johannes Zahn, Wirtschaftsführertum und Vertragsethik im Neuen Aktienrecht 95 (1934)
reviewed by Friedrich Kessler (1935) 83 University of Pennsylvania Law Review 393 (http://digital
commons.law.yale.edu/cgi/viewcontent.cgi?article=3658&context=fss_papers) and Stephen
Bainbridge, Director Primacy and Shareholder Disempowerment, 119(6) Harvard Law Review
1735, 1746, fn 59 (2006)

42. See NLRB v Bell Aerospace Co, 416 US 267 (https://supreme.justia.com/cases/federal/us/416/267

/) (1974) excluding "managerial employees" from the scope of the National Labor Relations Act
of 1935 §2(3) and (11). See further A Cox, DC Bok, RA Gorman and MW Finkin, Labor Law Cases
and Materials (14th edn 2006) 92–97

43. cf Turberville v Stampe (1697) 91 ER 1072

(http://www.worldlii.org/int/cases/EngR/1792/2684.pdf) , per Lord Holt CJ

44. See RS Stevens, 'A Proposal as to the Codification and Restatement of the Ultra Vires Doctrine'
(1927) 36(3) Yale Law Journal 297 (https://www.jstor.org/stable/788703) and MA Schaeftler,
'Ultra Vires – Ultra Useless: The Myth of State Interest in Ultra Vires Acts of Business
Corporations' (1983–1984) Journal of Corporation Law 81

45. Revised MBCA §3.01(a) presumption that a corporation's purpose is to 'engage in any lawful
business unless a more limited purpose is set forth in the articles of incorporation.' Also §3.04,
precludes a corporation from asserting ultra vires as a defense from having contracts enforced
against it.

46. 220 Cal App2d 851, (3d Dist 1963)

47. See further, Restatement of the Law of Agency (3rd edn 2006)

48. LA Bebchuk and JM Freid, 'The Uneasy Case for the Priority of Secured Claims in Bankruptcy'
(1996) 105 Yale LJ 857, 881–890
49. All such interests need to be registered to take effect under the Uniform Commercial Code art 9 (
https://www.law.cornell.edu/ucc/9/)

50. 269 U.S. 114 (https://supreme.justia.com/cases/federal/us/269/114/) (1925)

51. See Re Barcelona Traction, Light, and Power Co, Ltd [1970] ICJ 1 (http://www.worldlii.org/int/cases
/ICJ/1970/1.html)

52. e.g. MBCA §2.04

53. 939 F.2d 209 (4th Cir. 1991)

54. See Perpetual Real Estate Services Inc v Michaelson Properties Inc, 974 F2d 545 (4th Cir 1992)

55. 306 US 307 (https://supreme.justia.com/cases/federal/us/306/307/) (1939) known as the "Deep

Rock doctrine"

56. See generally AA Berle, 'The Theory of Enterprise Entity' (1947) 47(3) Columbia Law Review 343
(https://www.jstor.org/stable/1118398)

57. Berkey v Third Avenue Railway, 244 NY 602 (1927)

58. e.g. Walkovszky v Carlton 223 NE2d 6 (NY 1966). Contrast the dissent of Keating J and the
Californian decision Minton v Cavaney, 56 Cal2d 576 (1961). Traynor J held the veil would be
pierced when shareholders "provide inadequate capitalization and actively participate in the
conduct of corporate affairs." This meant the family of a girl who drowned in a swimming pool
would be compensated.

59. In re Oil Spill by the Amoco Cadiz off the Coast of France on March 16, 1978, 1984 AMC 2123 (ND
Ill 1984), McGarr J, at 2191, "As an integrated multinational corporation which is engaged through
a system of subsidiaries in the exploration, production, refining, transportation and sale of
petroleum products throughout the world, Standard is responsible for the tortious acts of its
wholly owned subsidiaries and instrumentalities, AIOC and Transport."

60. Perpetual Real Estate Services Inc v Michaelson Properties Inc, 974 F2d 545 (4th Cir 1992) citing
WM Fletcher, Fletcher Cyclopedia of the Law of Private Corporations (1990) § 41.85 at 71, "courts
usually apply more stringent standards to piercing the corporate veil in a contract case than they
do in tort cases. This is because the party seeking relief in a contract case is presumed to have
voluntarily and knowingly entered into an agreement with a corporate entity, and is expected to
suffer the consequences of the limited liability associated with the corporate business form, while
this is not the situation in tort cases." c.f. Fletcher v Atex Inc 8 F.3d 1451 (2d Cir. 1995)

61. 524 US 51 (https://supreme.justia.com/cases/federal/us/524/51/) (1998)

62. e.g. Texas Business Corporation Act of 1997, art 2.21(2)

63. Henry Hansmann and Reiner Kraakman, Towards Unlimited Liability for Corporate Torts 100(7)
Yale Law Journal 1879, 1900–1901 (1991)

64. See Peter Gourevitch and James Shinn, Political Power and Corporate Control (Princeton 2005) 4
65. See Robert C. Clark, Corporate Law 86 (Aspen 1986)

66. e.g. DGCL §242(b)(1) requires a resolution by the directors, and then a majority vote of
shareholders, and the affected classes of shareholder.

67. cf William A. Klein and John C. Coffee, Business Organization and Finance 113–114 (9th edn
2004) "The decision evoked much contemporary protest, because to many it seemed to imply
that once a corporate charter was granted, the corporation was beyond legislative control. In fact,
its significance was more limited than this because, as Justice Story pointed out ... the state
could insert a provision in any charter that it granted reserving its right to amend or further
condition the charter."

68. cf, the English Court of Appeal case, Automatic Self-Cleansing Filter Syndicate Co Ltd v
Cuninghame [1906] 2 Ch 34, cited in Jesse H. Choper, John C. Coffee and Ronald J. Gilson,
Cases and Materials on Corporations (8th Edition 2012)

69. e.g. DGCL §102(b)

70. Attorney General v Davy (1741) 26 ER 531 (http://www.worldlii.org/int/cases/EngR/1741/14.pdf) ,

per Lord Hardwicke LC

71. R v Richardson (1758) 97 ER 426 (http://www.worldlii.org/int/cases/EngR/1758/158.pdf) , per

Lord Mansfield

72. cf Manson v Curtis, 223 NY 313, 119 NE 559 (1918) holding that the board of directors could not
be effectively abolished so as to allow large shareholders to dominate.

73. See also NASDAQ Rule 4350(c)(1)

74. See NYSE Listed Company Manual Rule 303A.02 (http://nysemanual.nyse.com/LCMTools/Platform

Viewer.asp?selectednode=chp_1_4&manual=%2Flcm%2Fsections%2Flcm-sections%2F)

75. NYSE Rule 303A.04-06. See also NASDAQ Rule 4350(c)(3)-(4) allows one of three directors to
lack "independence" if he or she is not an officer or family member of an officer.

76. This is generally thought to have begun with the UK Cadbury Report.

77. e.g. NYSE Listed Company Manual Rule 303A.11

78. DGCL §141(a) (http://delcode.delaware.gov/title8/c001/sc04/index.shtml#TopOfPage) Also see

DGCL §350, shareholder agreements may only affect a board's discretion in close corporations,
and Galler v Galler, 32 Ill2d 16 (1964)

79. This is not inevitable, as in corporations without shareholders, or those which may choose to give
a voice to employees, e.g. Massachusetts Laws, General Laws, Part I Administration of the
Government, Title XII Corporations, ch 156 Business Corporations, §23 (https://malegislature.gov/
Laws/GeneralLaws/PartI/TitleXXII/Chapter156/Section23)

80. Attorney General v Davy (1741) 2 Atk 212 and R v Richardson (1758) 97 ER 426 (http://www.worldli
i.org/int/cases/EngR/1758/158.pdf)
 i.org/int/cases/EngR/1758/158.pdf)

81. The case law on the meaning of "with cause" is conflicting. In New York, see Fox v Cody, 141 Misc
552, 252 NYS 395 (Sup Ct 1930) and Auer v Dressel, 306 NY 427, 118 NE 2d 590, 593 (1954)
and in Delaware, see Campbell v Loew's Inc, 36 Del Ch 563, 134 A 2d 852 (Ch 1957) referring
back to Auer.

82. Marcel Kahan and Edward Rock, Embattled CEOs, 88(5) Texas Law Review 987, 1008 (2010)

83. DGCL §211(b)

84. DGCL §228

85. 647 F3d 1144 (DC Cir 2011)

86. See Business Roundtable v SEC, 647 F3d 1144 (DC Cir 2011) and Business Roundtable v SEC,
905 F2d 406 (DC Cir 1990)

87. See Joel Seligman, Equal Protection in Shareholder Voting Rights: The One Common Share, One
Vote Controversy, 54 George Washington Law Review 687 (1986)

88. See William Z. Ripley, Two Changes in the Nature and Conduct of Corporations 11(4) Trade
Associations and Business Combinations 143 (1926); or Proceedings of the Academy of Political
Science in the City of New York 695

89. 905 F 2d 406 (DC Cir 1990)

90. e.g. NYSE Listed Company Manual §313.00

91. See, SEC Release No. 34-31326 (October 16, 1992) changing rules so that (1) preparing and filing
proxy statements are not needed if a person is not seeking to obtain voting authority from
another person, but owners of over $5m are required. (2) no prior review of preliminary proxy
solicitation materials (3) proxies are required to unbundle proposals so there are separate votes
on each.

92. e.g. DGCL §211(d). See also, SEC 13d-5, dating from times when groups of investors were
considered potential cartels, saying any 5% shareholder voting block must register with the
Federal financial authority, the Securities and Exchange Commission.

93. SEC Rule 14a-8 (http://www.ecfr.gov/cgi-bin/text-idx?node=17:4.0.1.1.1&rgn=div5#17:4.0.1.1.1.2.87.

231)

94. Economic Policy Institute, 'More compensation heading to the very top: 1965–2009 (http://www.s
tateofworkingamerica.org/charts/view/17) Archived (https://web.archive.org/web/201111240408
39/http://www.stateofworkingamerica.org/charts/view/17) November 24, 2011, at the Wayback
Machine' (May 16, 2011) Based on data from Wall Street Journal/Mercer, Hay Group 2010.

95. DGCL §271, and cf Katz v Bregman, 431 A2d 1274 (1981) includes assets under 50% of the
company's value.

96. cf the United Kingdom Companies Act 2006 ss 366–368 and 378
 96. cf the United Kingdom Companies Act 2006 ss 366–368 and 378

97. See earlier, LD Brandeis, Other People's Money And How the Bankers Use It (1914 (http://louisville
.edu/law/library/special-collections/the-louis-d.-brandeis-collection/other-peoples-money-by-loui
s-d.-brandeis) ) an JS Taub, 'Able but Not Willing: The Failure of Mutual Fund Advisers to
Advocate for Shareholders' Rights' (2009) 34(3) The Journal of Corporation Law 843, 876

98. See AA Berle, Property, Production and Revolution (1965) 65 Columbia Law Review 1 (https://ww
w.jstor.org/pss/1120512)

99. ERISA 1974, 29 USC §1102 (http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title2

9-section1102&num=0&edition=prelim)

100. 29 USC §1105(d) (http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title29-section1

105&num=0&edition=prelim)

101. 26 USC §401(k) (http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section4

01&num=0&edition=prelim)

102. JS Taub, 'Able but Not Willing: The Failure of Mutual Fund Advisers to Advocate for Shareholders'
Rights' (2009) 34(3) The Journal of Corporation Law 843, 876

103. Taft-Hartley Act of 1947, 29 USC §186(c)(5)(B) (http://uscode.house.gov/view.xhtml?req=granulei

d:USC-prelim-title29-section186&num=0&edition=prelim)

104. This followed Carnegie's attendance the Commission on Industrial Relations in 1916 to explain
labor unrest. See W Greenough, It's My Retirement Money – Take Good Care of It: The TIAA-CREF
Story (Irwin 1990) 11–37, and E McGaughey, Participation in Corporate Governance (2014) ch
6(3) (https://ssrn.com/abstract=2593904)

105. 29 USC §302(c)(5)(B)

106. See US Department of Labor, Critical, Endangered and WRERA Status Notices (https://www.dol.g
ov/ebsa/criticalstatusnotices.html) ' (Retrieved August 11, 2016)

107. See D Hess, 'Protecting and Politicizing Public Pension Fund Assets: Empirical Evidence on the
Effects of Governance Structures and Practices' (2005–2006) 39 UC Davis LR 187, 195. The
recommended Uniform Management of Public Employee Retirement Systems Act of 1997 §17(c)
(3) suggested funds publicize their governance structures. This was explicitly adopted by a
number of states, while others already followed the same best practice.

108. e.g., sponsored by Bernie Sanders, Workplace Democracy Act of 1999, HR 1277 (https://www.gov
track.us/congress/bills/106/hr1277/text) , Title III, §301. See further R Cook, 'The Case for Joint
Trusteeship of Pension Plans' (2002) WorkingUSA 25. Most recently, the Employees' Pension
Security Act of 2008 (HR 5754 (http://www.opencongress.org/bill/110-h5754/text) ) §101 would
have amended ERISA 1974 §403(a) to insert 'The assets of a pension plan which is a single-
employer plan shall be held in trust by a joint board of trustees, which shall consist of two or more
trustees representing on an equal basis the interests of the employer or employers maintaining
the plan and the interests of the participants and their beneficiaries.'
109. See HR 2664 (http://thomas.loc.gov/cgi-bin/query/z?c101:H.R.2664.IH:)

110. This was inserted by the Dodd-Frank Act of 2010 §957: Securities Exchange Act of 1934 §6(b)
(10), 15 USC §78f(b)(10) (http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title15-s
ection78f&num=0&edition=prelim)

111. See generally, A Cox, DC Bok, MW Finkin and RA Gorman, Labor Law: Cases and Materials (2011)
part 11 and RL Hogler and GJ Grenier, Employee Participation and Labor Law in the American
Workplace (1992)

112. See the popular text by the former Dean of Harvard Law School, RC Clark, Corporate Law (1986)
32, 'even if your aim is not to understand all of law's effects on corporate activities but only to
grasp the basic legal 'constitution' or make-up of the modern corporation, you must, at the very
least, also gain a working knowledge of labor law.'

113. See further worker-participation.eu (http://www.worker-participation.eu)

114. Massachusetts Laws, General Laws, Part I Administration of the Government, Title XII
Corporations, ch 156 Business Corporations, §23 (https://malegislature.gov/Laws/GeneralLaws/Pa
rtI/TitleXXII/Chapter156/Section23) . This was originally introduced by An Act to enable
manufacturing corporations to provide for the representation of their employees on the board of
directors (April 3, 1919) Chap. 0070.

115. NM Clark, Common Sense in Labor Management (1919) 28–29

116. See generally JR Commons and JB Andrews, Principles of Labor Legislation (1920) and US
Congress, Report of the Committee of the Senate Upon the Relations between Labor and Capital
(Washington DC 1885) vol II, 806 on Straiton & Storm

117. See Commission on Industrial Relations, Final Report and Testimony (1915) vol 1, 92 ff, and LD
Brandeis, The Fundamental Cause of Industrial Unrest (1916) vol 8, 7672, C Magruder, 'Labor
Copartnership in Industry' (1921) 35 Harvard Law Review 910 (https://www.jstor.org/stable/13290
12) and S Webb and B Webb, The History of Trade Unionism (1920) Appendix VIII

118. See further, www.worker-participation.eu (http://www.worker-participation.eu)

119. Dunlop Commission on the Future of Worker-Management Relations: Final Report (1994 (http://di
gitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1004&context=key_workplace) )

120. n.b. The New Jersey Revised Statute (1957) §14.9-1 to 3 expressly empowered employee
representation on boards, but has subsequently been left out of the code. See further JB
Bonanno, 'Employee Codetermination: Origins in Germany, present practice in Europe and
applicability to the United States' (1976–1977) 14 Harvard Journal on Legislation 947

121. e.g. E McGaughey, 'Democracy in America at Work: The History of Labor’s Vote in Corporate
Governance' (2019) 42 Seattle University Law Review 697 (https://digitalcommons.law.seattleu.e
du/sulr/vol42/iss2/18/) , RA Dahl, 'Power to the Workers?' (November 19, 1970) New York Review
of Books (http://www.nybooks.com/articles/1970/11/19/power-to-the-workers/) 20
 of Books (http://www.nybooks.com/articles/1970/11/19/power-to-the-workers/) 20

122. See B Hamer, 'Serving Two Masters: Union Representation on Corporate Boards of Directors'
(1981) 81(3) Columbia Law Review 639 (https://www.jstor.org/stable/1122261) , 640 and 'Labor
Unions in the Boardroom: An Antitrust Dilemma' (1982) 92(1) Yale Law Journal 106 (http://scholar
ship.law.wm.edu/cgi/viewcontent.cgi?article=1115&context=facpubs)

123. American Telephone & Telegraph Company, CCH Federal Securities Law Reporter 79,658 (1974)
see JW Markham, 'Restrictions on Shared Decision-Making Authority in American Business'
(1975) 11 California Western Law Review 217, 245–246

124. This was subject to litigation in Business Roundtable v SEC, 647 F3d 1144 (DC Cir 2011) but the
SEC eventually produced implementing rules.

125. JD Blackburn, 'Worker Participation on Corporate Directorates: Is America Ready for Industrial
Democracy?' (1980–1981) 18 Houston Law Review 349

126. 'The Unions Step on Board' (October 27, 1993) Financial Times

127. PJ Purcell, 'The Enron Bankruptcy and Employer Stock in Retirement Plans' (March 11, 2002) CRS
Report for Congress (https://fpc.state.gov/documents/organization/9102.pdf) and JH Langbein,
SJ Stabile and BA Wolk, Pension and Employee Benefit Law (4th edn Foundation 2006) 640–641

128. See RB McKersie, 'Union-Nominated Directors: A New Voice in Corporate Governance' (April 1,
1999) MIT Working Paper. Further discussion in E Appelbaum and LW Hunter, 'Union Participation
in Strategic Decisions of Corporations' (2003) NBER Working Paper 9590

129. 237 NE 2d 776 (Ill App 1968)

130. 28 states in 1991. See C Hansen, 'Other Constituency Statutes: A Search for Perspective' (1991)
46(4) The Business Lawyer 1355, Appendix A for a list of laws. The Connecticut General Statute
Ann. §33-756 goes further than most in requiring directors take account of stakeholders.

131. 39 ALR 2d 1179 (1953)

132. See Lynn Stout, Why We Should Stop Teaching Dodge v. Ford, 3 Virginia Law and Business
Review 163 (2008)

133. See Davis v Louisville Gas and Electric Co, 16 Del Ch 157 (1928) 'the directors are chosen to pass
upon such questions and their judgment unless shown to be tainted with fraud is accepted as
final. The judgment the directors of the corporation enjoys the benefit of a presumption that it
was formed in good faith, and was designed to promote the best interests of the corporation they
serve.' See also Unocal Corp v Mesa Petroleum Co, 493 A2d 946 (Del 1985)

134. 170 NW 668 (Mich 1919)

135. Michigan Business Corporation Act §§251 and 541a(1)(c) (http://www.legislature.mi.gov/%28S%2

8zvxq5i55n3aif145tywic155%29%29/printDocument.aspx?objectName=mcl-Act-284-of-1972&v
ersion=txt) , and see Churella v Pioneer State Mutual Insurance Co, 671 NW2d 125 (2003)
distinguishing Dodge.
136. 573 U.S. ___ (2014) at page 23, "While it is certainly true that a central objective of for- profit
corporations is to make money, modern corporate law does not require for-profit corporations to
pursue profit at the expense of everything else, and many do not do so. For-profit corporations,
with ownership approval, support a wide variety of charitable causes, and it is not at all
uncommon for such corporations to further humanitarian and other altruistic objectives."

137. [1726] EWHC Ch J76 (http://www.bailii.org/ew/cases/EWHC/Ch/1726/J76.html)

138. See Whelpdale v Cookson (1747) 27 ER 856

139. 164 N.E. 545 (N.Y. 1928)

140. 5 A2d 503 (Del 1939)

141. 637 A2d 148 (Del Supr 1996)

142. See also the Revised Model Business Corporation Act §8.61 and California Corporation Code
§310

143. 174 NE 441 (1932)

144. At 30 Broad Street, New York City.

145. See Ultramares Corporation v Touche, 174 N.E. 441 (1932)

146. See Terlinde v Neely, 275 SC 395, 271 SE2d 768 (1980)

147. (1742) 26 ER 642

148. e.g. Barnes v Andrews, 298 F 614 (SDNY 1924) A director of the Liberty Starter Co, now
insolvent, was accused of having contributed to the failure by being inattentive on the board.
Acknowledging the duty of care, but distinguishing on these facts, Learned Hand J held, "It is
easy to say he should have done something, but that will not serve to harness upon him the whole
loss, nor is it the equivalent of saying that, had he acted, the company would now flourish. An
inattentive director or directors cannot be held liable for a corporate loss if it is shown that proper
attentiveness to corporate affairs by all the directors would still not have prevented the loss
complained of. In order words, it must be demonstrated that the accused director's slothfulness
was a cause of the company's loss. This notion of causation is thus a critical element in any
action brought against a poorly performing board of directors and has had a tremendous impact
on the course of modern corporate governance."

149. e.g. Indiana Code Ann §23-1-35(1)(e)(2) requires willful misconduct or recklessness before any
liability. c.f. Model Business Corporation Act §8.30(a) which requires a director act in good faith
and what he or she reasonably believes to be in the company's best interests.

150. 964 A 2d 106 (Del Ch 2009)

151. See further, JC Coffee, 'What went wrong? An initial inquiry into the causes of the 2008 financial
crisis' (2009) 9(1) Journal of Corporate Law Studies 1
152. 488 A2d 858 (Sup Ct Del 1985) Before this, the leading case was Graham v Allis-Chalmers
Manufacturing Co, 188 A2d 125 (Del Supr 1963)

153. See also Cinerama Inc v Technicolor, Inc, 663 A.2d 1156 (1995) directors proved the 'entire
fairness' of a merger, selling to MacAndrews & Forbes Group, even though directors failed to
conduct an adequate market check to determine if other bidders would have given a higher price.
Van Gorkom was distinguished.

154. 698 A 2d 959 (Del. Ch. 1996)

155. 825 A 2d 275 (2003)

156. See also, Brehm v Eisner, 746 A.2d 244 (2000) Del Supreme Court, "Due care in the
decisionmaking context is process due care only. Irrationality is the outer limit of the business
judgment rule. Irrationality may be the functional equivalent of the waste test or it may tend to
show that the decision is not made in good faith, which is a key ingredient of the business
judgment rule."

157. See generally Davenport v Dows, 85 US 626 (https://supreme.justia.com/cases/federal/us/85/626

/) (1873) and Ross v Bernhard, 396 US 531 (https://supreme.justia.com/cases/federal/us/396/5
31/) (1970)

158. e.g., the German Aktiengesetz 1965 §148 (http://www.gesetze-im-internet.de/aktg/__148.html)

159. e.g. BCE Inc v 1976 Debentureholders [2008] 3 SCR 560 (http://www.canlii.org/en/ca/scc/doc/20
08/2008scc69/2008scc69.html)

160. 824 A.2d 917 (2003)

161. The case was subsequently settled. See 'Oracle's Chief in Agreement to Settle Insider Trading
Lawsuit' (September 12, 2005) NY Times (https://www.nytimes.com/2005/09/12/technology/12ora
cle.html?_r=0)

162. Yehezkel, Ariel; Ackerman, Amanda. "Court Sets Forth Road Map for Defending "Strike Suits" " (ht
tps://www.transactionadvisors.com/insights/court-sets-forth-road-map-defending-strike-
suits) . Transaction Advisors. ISSN 2329-9134 (https://www.worldcat.org/issn/2329-9134) .

163. See for example, the UK Companies Act 2006 ss 261–263 (http://www.legislation.gov.uk/ukpga/2
006/46/part/11)

164. See RM Buxbaum, 'Conflict-of-Interest Statutes and the Need for a Demand on Directors in
Derivative Actions' (1980) 68 Californian Law Review 1122

165. Delaware Chancery Court Rules, Rule 23.1, requires exhaustion of internal remedies.

166. 473 A 2d 805, 812 (Del 1984)

167. e.g. in New York, see Barr v Wackman 329 NE.2d 180 (1975) and In re Kaufmann Mutual Fund
Actions, 479 F.2d 257 (1973) cert denied 414 US 857 (1973)

168. 430 A 2d 779 (Del Sup 1981)

168. 430 A 2d 779 (Del Sup 1981)

169. 692 F.2d 880 (1982)

170. c.f. more recently, In re Oracle Corp Derivative Litigation, 824 A.2d 917 (2003) concerning insider
trading, approving a derivative claim on the basis of the director's personal ties.

References

Textbooks
V Morawetz, A Treatise on the Law of Private Corporations (2nd edn Little, Brown and Co
1886) vol I (https://archive.org/stream/atreatiseonlawp00moragoog#page/n4/mode/2up)

WW Cook, A treatise on the law of corporations having a capital stock (7th edn Little,
Brown and Co 1913) vol I (https://archive.org/stream/corporationshavi01cook#page/n3/mo
de/2up)

WO Douglas and CM Shanks, Cases and Materials on the Law of Management of Business
Units (Callaghan 1931 (http://hdl.handle.net/2027/wu.89098553043?urlappend=%3Bseq
=7) )

Robert C. Clark, Corporate Law (Aspen 1986)

A Cox, DC Bok, RA Gorman and MW Finkin, Labor Law Cases and Materials (14th edn
2006)

JH Choper, JC Coffee and R. J. Gilson, Cases and Materials on Corporations (7th edn
Aspen 2009)

WA Klein and JC Coffee, Business Organization and Finance (11th edn Foundation Press
2010)
Books
AA Berle and Gardiner Means, The Modern Corporation and Private Property (New York,
Macmillan 1932)

William Ripley, Wall Street and Main Street (1927)

Johannes Zahn, Wirtschaftsführertum und Vertragsethik im Neuen Aktienrecht (1934)

Peter Gourevitch and James Shinn, Political Power and Corporate Control (Princeton
2005)
Articles
Stephen Bainbridge, Director Primacy and Shareholder Disempowerment, 119(6) Harvard
Law Review 1735 (2006)
LA Bebchuk, The Case for Increasing Shareholder Power 118 Harvard Law Review 833
(2004)

LA Bebchuk, A Cohen and A Ferrell, Does the Evidence Favor State Competition in
Corporate Law? 90 California LR 1775 (http://www.law.harvard.edu/programs/corp_gov/pa
pers/No352.02.Bebchuk-Cohen-Ferrell.pdf) (2002)

AA Berle, Non-Voting Stock and Bankers Control (1925–1926) 39 Harvard Law Review
673 (http://heinonline.org/HOL/LandingPage?collection=journals&handle=hein.journals/hlr
39&div=47&id=&page=)

AA Berle, Corporate Powers as Powers in Trust (1931) 44 Harvard Law Review 1049

AA Berle, The Theory of Enterprise Entity (1947) 47(3) Columbia Law Review 343 (https://
www.jstor.org/stable/1118398)

AA Berle, The Developing Law of Corporate Concentration (1952) 19(4) University of

Chicago Law Review 639 (https://www.jstor.org/pss/1597746)

AA Berle, Control in Corporate Law (1958) 58 Columbia Law Review 1212 (http://heinonlin
e.org/HOL/LandingPage?collection=journals&handle=hein.journals/clr58&div=91&id=&pa
ge=)

AA Berle, Modern Functions of the Corporate System (1962) 62 Columbia Law Review
433 (http://heinonline.org/HOL/LandingPage?collection=journals&handle=hein.journals/clr
62&div=31&id=&page=)

AA Berle, Property, Production and Revolution (1965) 65 Columbia Law Review 1 (https://
www.jstor.org/pss/1120512)

AA Berle, Corporate Decision-Making and Social Control (1968–1969) 24 Business

Lawyer 149 (http://heinonline.org/HOL/LandingPage?collection=journals&handle=hein.jour
nals/busl24&div=18&id=&page=)

V Brudney, Contract and Fiduciary Duty in Corporate Law 38 BCL Review 595 (1977)

RM Buxbaum, Conflict-of-Interest Statutes and the Need for a Demand on Directors in

Derivative Actions (1980) 68 Californian Law Review 1122

WL Cary, Federalism and Corporate Law: Reflections on Delaware (1974) 83(4) Yale Law
Journal 663

JC Coffee, What went wrong? An initial inquiry into the causes of the 2008 financial crisis
(2009) 9(1) Journal of Corporate Law Studies 1
 C Hansen, Other Constituency Statutes: A Search for Perspective (1991) 46(4) The
Business Lawyer 1355

Henry Hansmann and Reiner Kraakman, Towards Unlimited Liability for Corporate Torts,
100(7) Yale Law Journal 1879 (1991)

Marcel Kahan and Edward Rock, Embattled CEOs, 88(5) Texas Law Review 987 (2010)

Friedrich Kessler, Book Review (1935) 83 University of Pennsylvania Law Review 393

K Kocaoglu, A Comparative Bibliography: Regulatory Competition on Corporate Law

(2008) Georgetown University Law Center Working Paper

MA Schaeftler, Ultra Vires – Ultra Useless: The Myth of State Interest in Ultra Vires Acts
of Business Corporations (1983–1984) Journal of Corporation Law 81

Joel Seligman, Equal Protection in Shareholder Voting Rights: The One Common Share,
One Vote Controversy, 54 George Washington Law Review 687 (1986)

RS Stevens, A Proposal as to the Codification and Restatement of the Ultra Vires Doctrine
(1927) 36(3) Yale Law Journal 297

Lynn Stout, Why We Should Stop Teaching Dodge v. Ford, 3 Virginia Law and Business
Review 163 (2008)

William Z. Ripley, Two Changes in the Nature and Conduct of Corporations, 11(4) Trade
Associations and Business Combinations 143 (1926); or Proceedings of the Academy of
Political Science in the City of New York 695

RK Winter, 'State Law, Shareholder Protection, and the Theory of the Corporation' (1977)
6 J Leg Studies 251

External links

List of States' corporate laws and websites from law.cornell.edu (http://topics.law.cornell.e

du/wex/table_corporations)

US Corporate Law on Wikibooks (https://en.wikibooks.org/wiki/US_Corporate_Law)

Fordham syllabus 2003 (http://www.fordham.edu/law/faculty/patterson/corporations/sylla

bus.html)
Based on the MBCA
Arizona Revised Statutes, Title 10 (http://www.azleg.state.az.us/ArizonaRevisedStatutes.a
sp?Title=10)
Florida Business Corporation Act (http://www.leg.state.fl.us/statutes/index.cfm?App_mod
e=Display_Statute&URL=Ch0607/titl0607.htm&StatuteYear=2005&Title=%2D%3E2005%
2D%3EChapter%20607) (FBCA)

Georgia Business Corporation Code (https://web.archive.org/web/20040720094345/http:

//www.legis.state.ga.us/legis/GaCode/Title14.pdf) (GBCC)

Illinois Business Corporation Act (http://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=2273

&ChapAct=805%26nbsp%3BILCS%26nbsp%3B5%2F&ChapterID=65&ChapterName=B
USINESS+ORGANIZATIONS&ActName=Business+Corporation+Act+of+1983%2E)
(IBCA)

North Carolina Business Corporation Act (http://www.ncga.state.nc.us/gascripts/Statutes/

StatutesTOC.pl?Chapter=0055) (NCBCA)

South Carolina Business Corporation Act (https://archive.today/20000819063936/http://w

ww.scstatehouse.net/code/titl33.htm) (SCBCA)

Washington Business Corporation Act (http://apps.leg.wa.gov/rcw/default.aspx?

Cite=23B) (WBCA)

Wisconsin Business Corporation Law (http://folio.legis.state.wi.us/cgi-bin/om_isapi.dll?clie

ntID=67489791&infobase=stats.nfo&jump=ch.%20180&softpage=Document#JUMPDEST
_ch.%20180) (WBCL)
Other states with own laws
California Corporations Code (http://www.leginfo.ca.gov/cgi-bin/calawquery?codesection
=corp&codebody=&hits=20) (CCC)

Delaware General Corporation Law (http://www.delcode.state.de.us/title8/c001/index.htm

) Archived (https://web.archive.org/web/20080605232410/http://www.delcode.state.de.
us/title8/c001/index.htm) 2008-06-05 at the Wayback Machine (DGCL)

Nevada Revised Statutes (http://www.leg.state.nv.us/NRS/NRS-078.html) (NRS)

New Jersey Business Corporation Act (NJBCA)

New York Business Corporation Law (http://caselaw.lp.findlaw.com/nycodes/c13.html)

(NYBCL)

Ohio General Corporation Law (http://onlinedocs.andersonpublishing.com/oh/lpExt.dll/PO

RC/da2b/da2d?f=templates&fn=document-frame.htm&2.0#JD_1701) (OGCL)

Pennsylvania Business Corporation Law (http://members.aol.com/StatutesPA/15.html)

(PBCL)
Texas Business Corporation Act (http://www.capitol.state.tx.us/statutes/ba.toc.htm)
(TBCA)