For Optional Federal Incorporation

35 Journal of Corporation Law 499 (2010)

Case Legal Studies Research Paper No. 09-31

20 Pages Posted: 24 Oct 2009 Last revised: 29 Apr 2014

George W. Dent Jr.

Case Western Reserve University School of Law

Date Written: 2010

Abstract

The American economy suffers from the domination of corporations by chief executive officers who exercise control for their own benefit, at considerable cost to shareholders and to efficiency. The costs of this defect are rising as capital flees the United States for a growing number of countries that treat investors better. America’s corporate governance problem began and persists because corporations are franchised by the states, and it is in the economic interest of the states (especially Delaware) to cater to CEOS because they control the choice of state of incorporation. To break this destructive arrangement I propose optional federal incorporation with the choice of jurisdiction to be made by shareholders alone. Shareholders are the only constituency whose goal is to maximize share value, and this goal coincides with society’s interest in economic efficiency. Shareholders also have the sophistication to decide major corporate questions wisely. The institution of optional federal incorporation and shareholder choice of jurisdiction of incorporation would trigger a true “race to the top,” a competition to offer the most efficient corporation law.

Keywords: Corporations, Chief Executive Officer, Corporate Governance, Board of Directors, Delaware Corporate Law, Shareholders’ rights, Efficiency, Choice of jurisdiction, Federal Incorporation, Share Value

JEL Classification: K22

Suggested Citation

Dent, George W., For Optional Federal Incorporation (2010). 35 Journal of Corporation Law 499 (2010); Case Legal Studies Research Paper No. 09-31. Available at SSRN: https://ssrn.com/abstract=1493277 or http://dx.doi.org/10.2139/ssrn.1493277

George W. Dent Jr. (Contact Author)

Case Western Reserve University School of Law ( email )

11075 East Boulevard
Cleveland, OH 44106-7148
United States
216-368-3311 (Phone)
216-368-2086 (Fax)

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