Déjà Vu All Over Again? The Internal Affairs Rule and Entity Law Convergence Patterns in Europe and the United States

Abstract

This comparative corporate law article contrasts the American “internal affairs” choice of law rule for business associations with the traditional European “real seat” choice of law rule for business entities. The article focuses on recent EU developments that have moved Europe closer to an internal affairs choice of law model but without triggering substantial convergence of European company laws. The article also describes nearly simultaneous legal developments in the U.S. where new unincorporated business entity laws developed in similar ways across the states before it was clear that the internal affairs rule applied.

Both these developments, the article argues, cast doubt on the traditional view that corporate law convergence is an inevitable byproduct of the internal affairs choice of law rule and market competition by jurisdictions that seek to attract new entity formations by offering ever more efficient corporation laws. Instead, these developments support more nuanced views of scholars who question whether the internal affairs rule creates a market for business association laws that is sufficiently strong to foster convergence around a single set of “efficient” norms.

While the article agrees with those who argue that neither an evolution towards efficiency theory, nor any other single theory, provides a reliable crystal ball for predicting convergence of corporate or other business association laws, the article does not advocate that corporate law scholars abandon comparative study. Rather, as explained in the article, if scholars will shift their focus away from the phenomenon of convergence of corporate laws, there are many important areas where comparative business association law scholarship will likely yield useful results. The article concludes with suggestions about several important topics where the U.S. might benefit from comparative company law comparisons with Europe.