Incorporation and charter competition United States corporate law

although every state have slight differences in requirements, process of forming new corporation quick. corporation not kind of business organization can chosen. people may wish register partnership or limited liability company, depending on precise tax status , organizational form sought. frequently, however, people choose corporations have limited liability become shareholders: if corporation goes bankrupt default rule shareholders lose money paid shares, if debts commercial creditors still unpaid. state office, perhaps called division of corporations or secretary of state , require people wish incorporate file articles of incorporation (sometimes called charter ) , pay fee. articles of incorporation typically record corporation s name, if there limits powers, purposes or duration, identify whether shares have same rights. information filed state, new corporation come existence, , subject legal rights , duties people involved create on behalf. incorporators have adopt bylaws identify many more details such number of directors, arrangement of board, requirements corporate meetings, duties of officer holders , on. certificate of incorporation have identified whether directors or shareholders, or both have competence adopt , change these rules. of typically achieved through corporation s first meeting.

corporate income tax share of gdp, 1946–2009.

one of important things articles of incorporation determine state of incorporation. different states can have different levels of corporate tax or franchise tax, different qualities of shareholder , stakeholder rights, more or less stringent directors duties, , on. however, held supreme court in paul v virginia in principle states ought allow corporations incorporated in different state business freely. appeared remain true if state (e.g. delaware) required worse internal protections shareholders, employees, creditors state in corporation operated (e.g. new york). far, federal regulation has affected more issues relating securities markets balance of power , duties among directors, shareholders, employees , other stakeholders. supreme court has acknowledged 1 state s laws govern internal affairs of corporation, prevent conflicts among state laws. on present law, regardless of corporation operates in 50 states, rules of state of incorporation (subject federal law) govern operation. in 20th century, recognized states, new jersey, state cut tax rate in order attract more incorporations, , bolster tax receipts. quickly, delaware emerged preferred state of incorporation. in 1933 case of louis k. liggett co v lee, brandeis j. represented view resulting race 1 not of diligence, of laxity , particularly in terms of corporate tax rates, , rules might protect less powerful corporate stakeholders. on 20th century, problem of race bottom increasingly thought justify federal regulation of corporations. contrasting view regulatory competition among states beneficial, on assumption shareholders choose invest money corporations governed. state s corporation regulations priced efficient markets. in way argued race top . intermediate viewpoint in academic literature, suggested regulatory competition in fact either positive or negative, , used advantage of different groups, depending on stakeholders exercise influence in decision state incorporate in. under state laws, directors hold exclusive power allow vote on amending articles of incorporation, , shareholders must approve directors proposals majority, unless higher threshold in articles.