The Least Uncomfortable Choice: Why Delaware and England Win the Global Corporate Law Race
73 South Carolina Law Review 387 (2021)
50 Pages Posted: 17 Mar 2022
Date Written: December 31, 2021
What makes the corporate laws of some jurisdictions more attractive for entrepreneurs and investors than others in the global arena? Delaware’s well-known corporate law and its highly regarded specialized Court of Chancery attract entrepreneurs who choose the small state as their locus of incorporation. Moreover, in cross-border deals, global investors often choose to assign Delaware corporate law as the law governing their corporate investments and shareholder agreements in mergers and acquisitions (M&As). Within the United States, the competition among state laws is a popular explanation for Delaware’s prominence. However, existing literature has generally neglected Delaware’s global role. Using qualitative methods based on interviews with M&A practitioners from the United States, United Kingdom, continental Europe, and Israel, we find that Delaware faces strong competition in the global corporate arena, particularly from the United Kingdom. In fact, the laws of England are a popular choice in cross-border M&As even when the parties and the corporations involved were incorporated under civil law jurisdictions. This Article unpacks the process and the factors that drive incorporation and M&A choice-of-law decisions in the global corporate arena. Contrary to the common assumption of private international law that corporate law stimulates the interjurisdictional competition for corporate charters, our findings suggest that corporate law plays a relatively modest role in incorporation decisions; in the global arena, it is far less important than tax considerations. We also identify myriad factors driving decisions about the governing law in cross-border M&As, generating a nuanced choice-of-law narrative. This Article concludes that the popularity of certain choices of corporate laws in cross-border M&As, such as the laws of Delaware and England, is based on their being more enabling than others, less intrusive, more predictable, and, most of all, often the least uncomfortable neutral choice.
Keywords: choice of law, regulatory competition, federalism, corporate law, cross-border transactions, mergers and acquisitions, incorporation, taxation, legal profession
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