Reassessing the Distinction between Corporate and Securities Law

68 Pages Posted: 19 May 2016 Last revised: 3 Mar 2017

James J. Park

University of California, Los Angeles (UCLA) - School of Law

Date Written: May 12, 2016

Abstract

Public companies in the United States must comply with both federal securities law and state corporate law. This division of labor is premised on the assumption that there is a meaningful distinction between securities and corporate law. The most common view is that securities law is characterized by its use of disclosure, while corporate law sets forth substantive requirements. Critics respond that securities law is really just a federal version of corporate law. They argue that the federal policy of investor protection justifies preempting state corporate law to address corporate mismanagement.

While investor protection concerns have been invoked as a reason for unifying corporate and securities law, this Article contends that corporate and securities law can be distinguished based on the type of protection they provide to investors. Both corporate and securities law serve to protect investors, but they do so at two different phases of the investment process. First, when purchasing or selling a stock, a trading investor is vulnerable to transacting at an unfair price. Second, during the period when an investor owns a stock, he is vulnerable to new corporate misconduct that reduces the value of the company. Simply put, securities law protects investors as traders while corporate law protects investors as owners.

Distinguishing between trading and ownership protection provides a strong basis for regulating securities and corporate law in different ways. Securities law is uniform and mandatory because investors have a common interest in fair valuation when trading. Corporate law is diverse and enabling because the ownership interests of investors are more difficult to reconcile.

Keywords: Corporate Law, Securities Law, Federal Corporate Law

Suggested Citation

Park, James J., Reassessing the Distinction between Corporate and Securities Law (May 12, 2016). 64 UCLA Law Review 116 (2017); UCLA School of Law, Law-Econ Research Paper No. 16-09. Available at SSRN: https://ssrn.com/abstract=2779261

James J. Park (Contact Author)

University of California, Los Angeles (UCLA) - School of Law ( email )

385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States

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