Multistate Business Entities

40 Pages Posted: 2 Dec 2022 Last revised: 11 Mar 2024

See all articles by Andrew D. Appleby

Andrew D. Appleby

Stetson University College of Law

Tomer Stein

University of Tennessee College of Law

Date Written: November 23, 2022

Abstract

The binary legislative choice between state and federal regulation of a firm’s internal affairs is deeply entrenched in the existing literature and policy discussions. Alas, this regulatory menu contains a false and distortive dichotomy. The state-federal dichotomy is false because multistate formation and regulation of business entities are possible as well. This dichotomy is distortive because it deprives policymakers of the advantages of multistate corporations and other business entities. In this Article, we demonstrate that a multistate business entities regime can resolve multiple predicaments that presently bring about unfairness and inefficiencies in both business entities law and business entities taxation.

A multistate business entity regime promises to be beneficial for both the participating states and the business entities themselves. For example, by choosing to co-compete, states that have so far lost in the market for corporate charters would be able to generate—and divide among themselves—substantial business and tax revenues by offering the corporations formed under their regime unique tax and corporate law benefits. In this way, for example, a “tri-state” co-op, offered by New York, Connecticut, and New Jersey, could compete with Delaware; and a “rust belt” coalition could retain industry charters within its multistate jurisdiction.

The hitherto unnoticed potential for a multistate entity regime aligns with the Framers’ vision for state cooperation under the Constitution’s Compact Clause. Further yet, setting up this regime would vastly improve the functioning of the market for both corporate charters and other business entities. This regime would allow states to vigorously compete for both managers and investors, boost stakeholder advocacy, and accomplish ESG goals to the benefit of their constituents.

Keywords: Entity Formation, Interstate Competition, Compact Clause, Corporate Governance, Taxation of Business Associations

Suggested Citation

Appleby, Andrew D. and Stein, Tomer, Multistate Business Entities (November 23, 2022). Arizona State Law Journal, Vol. 55, No. 1, (Forthcoming, 2023), University of Tennessee Legal Studies Research Paper, Available at SSRN: https://ssrn.com/abstract=4284247 or http://dx.doi.org/10.2139/ssrn.4284247

Andrew D. Appleby

Stetson University College of Law ( email )

1401 61st Street South
Gulfport, FL 33707
United States
727.562.7327 (Phone)

Tomer Stein (Contact Author)

University of Tennessee College of Law ( email )

1505 West Cumberland Avenue
Knoxville, TN 37996
United States

HOME PAGE: http://https://law.utk.edu/directory/tomer-s-stein/

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