In the United States, the relationship between investors and the managers of public companies is governed by a combination of state and federal law. Traditionally, state corporate law has provided the substantive rules that govern the relationship between management and investors. Federal law, on the other hand, has provided rules requiring public companies to provide investors with information. Although one may argue that the federal government has become more involved in providing substantive rules for the governance of public companies in recent years, the distinction between how state law and federal law affect the governance of public companies remains true in most respects.
Despite the central role state corporate law plays in the governance of public firms and despite the intense focus legal academia places on state corporate law (evidenced by the in-depth treatment of the subject in casebooks, legal hornbooks, and law review articles), public companies are not required to disclose information about the corporate law of their respective states of incorporation in their regular disclosures to the market (i.e., the disclosures companies first make when they first go public and the annual and quarterly disclosures they must make thereafter). The message to the investor is clear: If you want to know how state corporate law affects the public company, you must gather this information yourself.
Of course, gathering this information would be relatively simple if all public companies were subject to one corporate law. However, they are not. Although the State of Delaware may dominate the market for incorporation of public firms, roughly forty percent of public firms in the U.S. incorporate in states other than Delaware, and nearly every jurisdiction in the United States is the state of incorporation for at least one public company.
The implicit assumption of our current disclosure regime is that there is insufficient justification for requiring disclosure of state corporate law. In this Article, I challenge that assumption and question why we do not require public companies to disclose specific information on state corporate law. Indeed, because arguments against mandatory disclosure of state corporate law are not particularly strong, and because the market would receive significant benefits from such disclosures, I conclude that we should require public companies to disclose certain aspects of state corporate law as part of the regular disclosures they make to the market.
The Mandatory Disclosure of State Corporate Law,
86 Neb. L. Rev.
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