First Restatement on Conflicts
§§ 154-55, 165-66, 182-83, 187-88, 190-92, 205
Incorporation is governed by the state where the corporation was incorporation or where the attempt was made. If successful, incorporation in one state will result in recognition by every other state.
The essence of this principle is called the internal affairs doctrine. This doctrine simply states that the state of incorporation will govern disputes about the internal affairs of the corporation (e.g., disputes between shareholders and directors, etc.).
McDermott Inc. v. Lewis
531 A.2d 206 (Del. 1987).
The plaintiff’s were given an improper voting device in a corporation under the laws of Delaware. However, the corporation was incorporated in Panama, which allowed the voting device in certain situations (the voting device here met those standards).
Our analysis has two parts. Does Panama allow the law? If so, whose laws govern, Panama or Delaware?
Part one is easy, Panama does allow the voting device to be utilized in the present situation.
Part two is also easy. Due to the internal affairs doctrine, the state of incorporation is designed to govern the internal affairs of the corporation. Here, the corporation was incorporated in Panama, so Panama law will govern the rules regarding the voting device.
Because Panama allows the voting device, and we are applying Panama laws, the voting device is a valid application of corporate voting power.
In other words, the state of incorporation governed here because we are dealing with the shares of the international corporation (and this is an international issue). Although this is the primary doctrine applied, there are such things as migratory companies, and different laws may apply to them. See the case below.
State ex rel Weede v. Iowa Southern Utilities Co. of Delaware
2 N.W.2d 372 (Iowa 1942).
The utilities company is incorporated in Delaware, but is a migratory company, doing all of its work, management, and physical presence in Iowa.
Presently, the company was in violation of a stock transfer process enacted in Iowa. The question is, does the law apply to a foreign corporation primarily doing business within Iowa?
Here, the court decided that the law could be applied to the foreign corporation because the foreign corporation subjected themselves to the Iowa law. There is no reason for the Iowa legislature to apply the law only to Iowa corporations (with a significant punishment). As such, it makes sense that foreign corporations should be subject to the law as well. This is especially true because the corporation was a Delaware corporation in a technical (only on paper) sense.
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