How to achieve an EMCA
- By revision and comparison to the MBCA project
Master’s thesis within Business Law (Corporate Law)
Author: Azin Taheri
Tutor: Jan Andersson
Date: 2010-12-08
ii
Acknowledgements
The four and a half months I have spent writing this thesis did not just fly by. I have oc-cupied the dining room table, barricaded the living room of my house, snapped at eve-ryone trying to move or touch a single object laying on the table or trying to enter the room and have forced people to ”just stop by the library, it is only one more book that I need” more than once. I have been awful, moody and self-absorbed to an unbelievable extent but my family and friends still refrained from killing me and supported me dur-ing every second of the past semester. I will probably never be able to make it up to you, but know that I will be forever grateful for your unconditional support, kindness and love.
I am also indebted to Prof. Henry Ordower and Mr Christopher Kelly, whom have not only been an invaluable source of information but they have also given me a great deal of help and constructive feedback. The opportunity to have an insight to the US corpo-rate law area is not granted many and I truly appreciate all of your help.
The thesis would never have been a dream or reality if it was not for my corporate law idol and expert, Prof. Jan Andersson. I will never cease to be amazed by his unex-hausted knowledge and the fact that he always knows of an author and year of some, no matter the area, article. His continuous thoughts and remarks (sometimes tiring but al-ways valuable) and support has motivated me to keep striving in order to present a work he would be proud to have tutored. Henry B. Adams once said; “A teacher affects eter-nity; he can never tell, where his influence stops.” – a very true and fitting statement in this case. No matter the frustration and annoyance during our endless discussions, I am glad that we speak the same language.
To wrap it all up, there are some words of wisdom that I wish to share. It is nothing brainy or a quote by some ancient philosopher; however the source can be regarded as a modern day poet. It is merely honest words that always inspire me to keep going, and hopefully it will have the same effect on You:
Life is a trip so sometimes we’re gonna stumble You’ve got to go through pain in order to become you But once the world numbs you, you’ll feel like it’s only one you
Now you’ve got the power to do anything you want to.
iii
Master’s Thesis within Corporate Law
Title: How to achieve an EMCA – by revision and comparison to the MBCA project.
Author: Azin Taheri
Tutor: Jan Andersson
Date: 2010-12-08
Topic: Corporate law, the EU, the US, EMCA, MBCA
Abstract
The demand for a rapid response to constant business developments turns existing cor-porate legislations and Directives into an obstacle to innovation and progress. Company law’s need for continuously updated and flexible solutions can be accomplished with a model act. In 1950 the US presented its MBCA and there is currently a European work-ing group involved in a voluntary and private project trywork-ing to develop a similar model for the EU. An EMCA should cooperate with the competition between Member States and their corporate legislation to further the practice of converging rules within EU company law.
The working group needs to study the structure, comprehension, composition and gen-eral process of the MBCA project in detail and let the established US project have a greater influence on the EMCA. Concrete examples of what the EMCA group can change in their approach to the project are:
1 Procedure: Make the finished drafted chapters and proposed provisions available for the public. Add more steps to the model act’s development procedure and do not rush the publication and the consulting stages with interested parties. Fur-thermore, put one reporter in charge of the entire project and its development. 2 Committee: Appoint more corporate law practitioners and professors within
closely related areas to corporate law, to members of the Group. Furthermore the “experts” of issues that might occur with the EMCA should be involved during the initial development of the provisions.
iv 3 Material: Reinstate the original objective of initially only providing rules for public companies. Preferably present provisions for private companies in a dis-tinct and separated form at a later stage.
If the Working Group were to imitate several of the US procedures for the MBCA project, the EMCA might result in advantageous for the convergence of corporate law within the EU.
v
Abbreviations
ABA - American Bar Association
EMCA - European Model Company Act EU - European Union
MBCA - Model Business Corporation Act
SEC - U.S. Securities and Exchange Commission SOX Act - Sarbanes-Oxley Act of 2002
vi
Table of content
1 Introduction ... 1
1.1 Background ... 1 1.2 Problem background ... 4 1.3 Purpose ... 4 1.4 Problem statement ... 41.5 Method and material ... 5
1.6 Delimitations ... 6
1.7 Disposition ... 7
2
Institutional background of the US vs Europe ... 9
2.1 The federal powers of the US government ... 9
2.2 The supranational and intergovernmental powers of the EU ... 10
2.3 Washington vs Brussels ... 12
2.4 The real seat theory and its consequences ... 14
2.5 Conclusion of the chapter ... 16
3
Corporate legislation in the US ... 20
3.1 Model Business Corporation Act ... 20
3.2 Delaware law completes the MBCA ... 24
3.3 The results of a MBCA ... 24
3.4 Conclusion of the chapter ... 26
4
Corporate legislation in the EU ... 30
4.1 European Model Company Act ... 30
4.2 Competition working together with the EMCA ... 33
4.3 Conclusion of the chapter ... 35
5
The Section of Business Law and its work... 38
5.1 The Corporate Laws Committee... 38
5.2 Construction of the RMBCA ... 41
5.3 The process of changes to the Act ... 43
5.4 The current Corporate Laws Committee ... 45
5.5 Conclusion of the chapter ... 46
6
The EMCA Group and its work ... 49
6.1 The EMCA project and its members ... 49
6.2 The construction and progress of the EMCA ... 51
6.3 Working Group meetings ... 52
6.4 Conclusion of the chapter ... 53
7
Analysis and points of view ... 55
7.1 Arguments for and against an EMCA ... 55
7.2 Washington vs Brussels ... 59
7.3 MBCA and/vs EMCA ... 61
7.4 The Corporate Laws Committee vs the EMCA Group ... 65
8
Final words ... 71
vii Interviews and correspondence ... 78 Case law ... 79 Websites ... 79
1
1 Introduction
1.1
Background
In recent years trade and business between countries has accelerated. Globalization is a fact, a fact that impacts the public and our current business climate. The relocation of businesses, developments in technology and standards set by international organizations as well as dominant business countries affect the business culture and the market. With these factors in consideration it is evident that company law1 is in need of continually updating and flexible solutions. The demand for a rapid response to constant business developments turns existing regulations into an obstacle to innovation and progress.2 Since there is no common standard for the concept “company law”, company law de-pends on a country’s individual statutes and regulations. One certain fact about compa-ny law is that its role is to regulate and facilitate the business of an enterprise.3 To make sure that the legislation within the area of company law corresponds to the goal of a functioning market within the European Union the method of harmonizing national company law through Directives was previously used.4 The purpose of the several Di-rectives that govern the market was to present equivalent conditions to the businesses within the area of company law in all of the countries within the European Union. After some time it was realized that the stated objective could not be obtained because com-plete harmonization in certain areas of the Member States’ company law is impossible to achieve. Therefore, the existing and any future Directives are to focus on and regulate specifically chosen areas within company law.5
1 Throughout this thesis the concepts ”company” and ”corporation” and ”company law” and ”corporate
law” are used as synonyms.
2 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2007:0394:FIN:SV:HTML – available
on 2010-11-23 at 12:25 and Report of the High Level Group of company law experts on a Modern Reg-ulatory Framework for Company Law in Europe, p 5.
3
Armour, J. ”Who should make corporate law? Legislation versus regulatory competition”, p 3.
4 Law working paper No. 097/2008. ”The European Model Company Law Act Project”, p 2.
2 It is essential for the company law in Europe to be reviewed and renewed. The high lev-el group of company law experts has stated that company law in Europe has not kept up with the changes and developments in European business.6
The Commission stated that some of the reasons for a new initiative are;
- so that advantage is taken of the internal market. Considering that most compa-nies carry out their activities across national borders there is a need for common Euro-pean company law solutions,
- so that the benefits of modern and continuously changing technology can be ex-ploited in the most optimal way, and because
- the countries that will join the European Union in the future, will contribute their own company law, thus increasing the diversity even further. Their entering increases the need for a principles-based approach that ensures a high level of legal certainty in transactions within the EU.7
There are both advantages and disadvantages with having a fixed set of rules such as Directives incorporated in primary legislation, but the fact is that the legislation either cannot be altered or is extremely difficult to change. As noted, company law demands a flexible and continuously adapting framework for a competitive business environment. According to the opinion of the company law experts, Directives are more inflexible than primary legislation.8 Other commentators also believe that the Directives, in sever-al cases, focus on regulating areas which are not in need of any control by the EU or should be legislated on an EU level. Furthermore, Directives usually bring about out-dated legislation, which results in a few steps back in company law for several Member States, as well as issues concerning the interpretation of the articles.9
6
Report of the High Level Group of company law experts on a Modern Regulatory Framework for Com-pany Law in Europe, p 1.
7
Communication from the Commission to the Council and the European Parliament. “Modernising Com-pany Law and Enhancing Corporate Governance in the European Union- A plan to move forward”, p 6 f.
8 Report of the High Level Group of company law experts on a Modern Regulatory Framework for
Com-pany Law in Europe, p 5 and p 31.
9 Andersson, J. ”The High Level Group and the Issue of European Company Law Harmonisation –
3 Due to several reasons, some of them stated, EU Directives are no longer regarded as the most suitable way for harmonizing company law in the European Union. The estab-lishment of a ”European Model Company Law Act”10 is an alternative that is considered to further the practice of converging rules within company law in the European Union.11 This type of framework act has existed in the US for 60 years. Before its existence, it was up to each one of the states to themselves compose their corporate legislation and US corporations were created by the special state legislature. Corporate law and the competition between the states’ corporate law have existed in the US for a long time. At the end of the 19th century several of the states decided to remove some traditional rules and incorporate more ”liberal” ones. These new rules allowed e.g. all kinds of legal cor-porations to be incorporated in the state without the previously legislated special re-quirement. The legislation also provided new opportunities and greater power to a busi-ness, factors which attracted more corporations to the state.12
In 1946, a draft of the framework was presented as a Report to the Section of Corpora-tion, Banking and Mercantile Law of the Association13. This initial draft was revised and prepared into a more complete and carefully edited Model Business Corporation Act14 in 1950, by the Committee on Business Corporations15 whom serves the American Bar Association. This version of the Act had more extensive improvements and refine-ments in its organization, style and content.16 Since its introduction, the MBCA has been revised several times.17 However, the main focus of the document is and has al-ways been to regulate the internal affairs of companies.18 It is up to each state to decide
10 Hereafter called EMCA.
11 Law Working Paper No. 097/2008. ”The European Model Company Law Act Project”, p 5 f.
12 Pinto, A and Branson, D. ”Understanding Corporate law” p 3 f and Hamilton, R.W. “The law of
corpo-rations in a nutshell” p 12 ff.
13 Now named the Section of Business Law.
14
Hereafter the MBCA.
15
Renamed to Corporate Laws Committee and also a part of the Section of Business Law.
16 Model Business Corporation Act (Revised) 1950, Foreword.
17 Hamilton, R.W. “The law of corporations in a nutshell” p 18 f.
4 whether to disregard the Act, adopt only parts of the Act that are found substantial or to adopt it in its entirety.19
1.2
Problem background
The initiators of the EMCA project, Professor Paul Krüger Andersen and Professor Theodor Baums, formed in 2007 a voluntary commission consisting of prominent pro-fessors representing some of the EU Member States. The goal of the committee is to present a ”European Model Company Law Act”. The project was a privately taken initi-ative by the professors and is developed as a project that should be similar to and reach the success of the US MBCA. The time frame given for the completion of this project was supposedly 3-4 years with the sub-results being published in a working paper se-ries. Three years later there is only one working paper published, there is no sign of how far the project has come and the set time frame has been postponed.
1.3
Purpose
The aim is to investigate whether an EMCA, equivalent to the US MBCA, can be suc-cessfully developed within the EU.
In order to obtain this objective, the complete processes of the European and US projects have to be examined. This includes an investigation and comparison of the US and European institutional backgrounds and their power, the ambition of the prospective EMCA as well as the already existing MBCA. Furthermore, the working groups that control each project as well as the methods for developing and working with the projects will be investigated and compared.
1.4
Problem statement
This investigation will attempt to answer the question whether an EMCA is an alterna-tive option for EU corporate law. Two questions need to be answered:
19
Corporate Laws Committee of the Business Law Section of the American Bar Association. “White Pa-per Uniformity in corporate reform through changes to the Model Business Corporations Act”, p 4 and Model Business Corporation Act Annotated: Fourth Edition, volume 1, p ix.
5 - does the working group behind the European project have to work or act in a way other than the way they are acting at the moment in order to be able to in-troduce a document similar to the American MBCA in the EU, and
- should the MBCA, its working methods, group and other US procedures serve as a stronger source of inspiration to the EMCA.
In order to present a satisfying answer to both of these questions as well as obtaining the purpose of the thesis there are three areas that need to be investigated:
I. The institutional background for the US and EU, II. The objective of the MBCA and EMCA, and
III. The MBCA and EMCA working groups’ composition and operational methods. The intention with this thesis is to be of use and serve as an inspiration for the EMCA working group in their EMCA development process as well as other parties interested in a measure for converging European company law.
1.5
Method and material
This thesis describes and compares two different institutions, the US and the EU. The intention is to create an understanding of as well as comparing both of the ”nations” and their work within the area of company law. The investigation has concluded in both a descriptive and comparative study. The descriptive study is made out in the presentation of the MBCA and the EMCA, the institutions of Washington and the EU as well as the introduction to the working groups of the model acts. Furthermore, the study concerns whether and how the EMCA will be a successful option for EU company law. In order to investigate the measures needed for the success of the European project, there must be a comparison to the corresponding project and its working group in the US.
The main sources used to create an understanding of the topic are articles and literature. The material, ranging from the 1950’s up until 2009, is regarded as highly valuable as well as informative, and has been chosen because of the authors’ comprehensive expe-rience and knowledge of US and EU company law. During a visit to St Louis, an inter-view was conducted with Professor Henry Ordower regarding US company law in gen-eral as well as the MBCA. The information provided by Professor Ordower, who has been practicing and teaching law since 1977, is of high value. Mr. Christopher Kelly, a
6 US practicing corporate lawyer, has also contributed valuable information and thoughts regarding the MCBA project. On the European side, there is only one document pub-lished by the EMCA working group with regards to the project. The project description and the supplementing law working paper regarding the EMCA, presented by the work-ing group behind the project, have also been thoroughly studied. The document is re-garded as highly trustworthy material since it is the only official and available docu-ment, developed by a group of corporate law professors active within different Member States of the EU. The obvious lack of information regarding the European project has led to a greater need to use published articles and literature discussing European corpo-rate law. Furthermore, due to the lack of information, it was necessary to e-mail the Eu-ropean group in order to address a few questions. There has been e-mail correspondence with the EMCA working group’s secretary, Ms Evelyne Beatrix Cleff. As a post.doc, she is active in the project and the provided information is highly regarded. However, some of the information given by Ms Cleff differed from the information and material published on the working group’s website. Obviously, the new information from the European working group’s secretary has been accounted for and has been of great use for the study. As a side note it should be noted that the website and the information which was questioned was updated within a week of our e-mail correspondence.
The necessary uniformity within the area of company law has been a continuous and much-disputed subject. The existing federal legislation provided by Washington as well as the US model act has been regarded. Furthermore, there has been some use of the ex-isting case law from the European Court of Justice and the supposedly harmonizing EU Directives within the area of company law. There has not been a lot of reflection or de-scription of the already existing Directives within company law, as the focus is on the harmonizing project, EMCA. A Report performed by European company law experts at the request of the EU Commission as well as the Commission’s response to the Report has also been examined since it provides information regarding the necessary changes within company law.
1.6
Delimitations
This thesis has not been written with the intention to glorify the US Model Business Corporation Act and the work of the Corporate Laws Committee. There are obviously
7 advantages as well as disadvantages with the US model act. However, there is no room to present or discuss the faults and shortcomings of the US model and its process. As mentioned in the purpose, the starting point is that the EMCA working group wishes to transfer a project equivalent to the MBCA to the EU. Furthermore it is important to point out that the EMCA project, which is currently in progress, is not an action taken by the EU Commission in order to harmonize corporate law. It is merely a private project developed in order to produce a document similar to the model act, MBCA, in the US. Throughout the thesis it is to be assumed that an EMCA is a valid option and measure, in the process of harmonization within corporate law, for the EU Commission. Furthermore it is to be recognized that competition does exist in the US, no matter the extent, but no remarks are made on why, to what extent or whether the US is the best role model with regards to the competition aspect.
No in depth investigation of the material provisions within company law in the US has been conducted. Instead, there has only been a functional comparison made between the two different documents and projects.
1.7
Disposition
The upcoming chapter deals with the institutional backgrounds of the US and Europe. The chapter accounts for and compares the US and the EU provisions with regards to corporate law, the influence as well as the roles of both the federal government in the US and the EU organization. The real seat theory and its implications for the EU are presented before the chapter is brought to an end with a conclusion.
The third chapter regards the Model Business Corporation Act in the US. The chapter presents the history of, as well as the objectives with, the US model act. Furthermore, the role of the Delaware corporate statute within the area of corporate law as well as the results of a MBCA is presented before the chapter is brought to an end with a conclu-sion.
The fourth chapter regards the European Model Company Act within the EU. The chap-ter presents the objectives and ambitions with an EU model act. The competition be-tween the Member States’ corporate statues and the competition factor’s influence as
8 well as cooperation with the EMCA is explained before the chapter is brought to an end with a conclusion.
The fifth chapter regards the American Bar Association and their Corporate Laws Committee. The general composition of the Committee influences the MBCA, which makes the presented motivation for the chosen members and the Committee’s structure vital for the model act process. Furthermore, the chapter deals with the Corporate Laws Committee’s operation methods and procedures when constructing and making adjust-ments to the MBCA. The current corporate laws committee’s composition and back-ground is presented before the chapter is brought to an end with a conclusion.
The sixth chapter regards the working methods for the EMCA project and its working group. Initially, the chapter presents factors which a model act such as the EMCA is in-fluenced by; its members, composition and the stages of its development process. Fur-thermore, the chapter presents the working group meetings and other operation methods since it also have an effect on the construction and progress of the EMCA project. As opposed to the other chapters, the following chapter is analyzed consistently in addition to the closing conclusion of the chapter.
The seventh chapter presents a comparison, analysis and points of view with regards to the US and the EU. The issues regarding the US federal institution and the EU suprana-tional/intergovernmental organization, the MBCA and EMCA project as well as their respective working groups’ are compared and discussed.
The eighth chapter is the final chapter of the thesis. It concludes whether or not the EU is able to take on a Model Company Act and how this task should be fulfilled. Conclud-ing the final chapter are advice and proposals for adjustments to the WorkConclud-ing Group re-garding the EMCA project.
9
2 Institutional background of the US vs Europe
The upcoming chapter deals with the institutional backgrounds of the US and Europe. The chapter accounts for and compares the US and the EU provisions with regards to corporate law, the influence as well as the roles of both the federal government in the US and the EU organization. The real seat theory and its implications for the EU are presented before the chapter is brought to an end with a conclusion.
2.1
The federal powers of the US government
The US is a federal government which means that all powers not granted to the federal government are reserved for the states and the people. The Constitution is the basis of the federal government which allows the states to act together as one whilst still protect-ing the sovereignty of each of the states.20 There is no federal company law in the US.21 However, this type of approach to the area of corporate law for certain companies has been suggested by Cary, where he stated that minimum federal provisions regarding corporate law and responsibility should be prescribed and that actions should be taken so that the states do not interpret the same provisions differently.22
The states’ corporate laws are regarded as ”enabling” as opposed to ”regulatory” sta-tutes. This means that the legislation allows incorporation on terms satisfactory to the shareholders which fulfill the minimum requirements according to the statute.23 The states hold the competence within the area of company law but, as with securities regu-lation which is shared between the states and the federal central government, Washing-ton can interfere in the area of corporate law as well.24
20 http://www.whitehouse.gov/our-government available on 2010-10-27 at 17:46 and Tenth Amendment
of the Constitution.
21 Backer, L. ”Comparative Corporate Law – United States, European Union, China and Japan: Cases and
Materials”, p 548.
22 Cary, W.L. ”Federalism and Corporate Law: Reflections upon Delaware” in Yale Law Journal, p 701.
23
Backer, L. ”Comparative Corporate Law – United States, European Union, China and Japan: Cases and Materials”, p 176.
24
Lombardo, S. “Regulatory Competition in Company Law in the European Community – Prerequisites and Limits”, p 83 compared with Cary, W.L. ”Federalism and Corporate Law: Reflections upon Dela-ware” in Yale Law Journal.
10 The federal laws which apply to the internal affairs of publicly held corporations are the Securities Act of 1933 and Securities Exchange Act of 1934. With the latter one, the Congress also created the Securities and Exchange Commission, the SEC. The 1934 Act gives the SEC great power and broad authority over the securities industry, e.g. the stock exchanges. Furthermore, the 1934 Act also gives SEC the power to require infor-mation reporting from corporations with publicly traded securities. The prime objectives of these two federal laws are that:
- “Companies publicly offering securities for investment dollars must tell the pub-lic the truth about their businesses, the securities they are selling, and the risks involved in investing.
- People who sell and trade securities – brokers, dealers, and exchanges – must treat investors fairly and honestly, putting investors' interests first.”25
The Sarbanes-Oxley Act, from 2002, adopted many new rules for the public corpora-tions. Several changes were made in order to improve corporate responsibility, increase financial disclosures and fight corporate and accounting fraud.26 Furthermore, it de-mands that companies establish an internal control system and has led to greater federal influence over the operations of US corporate governance. With the SOX Act a large part of the regulatory area which used to belong to the individual states now belongs to the federal government instead.27
2.2
The supranational and intergovernmental powers of the
EU
The Member States of the EU have limited sovereign rights and are obliged to follow this community body of law with its own personality, institutions and legal capacity.28 The EU can be regarded as an organization with both supranational and intergovern-mental elements.An intergovernmental organization encourages voluntary co-operation and coordination amongst the Member States, although the decisions and agreements
25
http://www.sec.gov/about/whatwedo.shtml available on 2010-10-28 at 10:27.
26 http://www.sec.gov/about/whatwedo.shtml available on 2010-10-28 at 10:45.
27 Von Hein, J. “Competitive Company Law: Comparisons with the USA” in Modern Company Law for a European Economy- Ways and Means, p 37 f.
11 which are made are not considered enforceable, meaning that the states maintain their independence. The central aspect of an intergovernmental organization is that the Mem-ber States do not give up any power, and do not become sovereign, to the organization. However, there are some that regard the EU as a supranational organization since sever-al of the EU decisions are taken 'at a level above nationsever-al governments'. The involve-ment of the EU institutions, which the Member States have delegated some decision-making powers to, make the decisions supranational.29
The supranational and intergovernmental elements have caused a lot of tension in the progression to European integration. McCormick states that there are forces which push and demand the Member States to give up their sovereignty to the EU, a supranational authority.30 According to McCormick, supranationalism in the EU does not have to mean that the organization exercises authority over the Member States, it might also be described as a process where:
“the participants refrain from unconditionally vetoing proposals and instead seek to at-tain agreement by means of compromises upgrading common interests.”31
The EU cooperation concerning certain areas within company law is an example of su-pranationality. As known, the EU has produced several Directives dealing with certain company law issues, which the Member States have to implement.32 The necessity of an EU Directive within some of the regulated areas can be debated. Andersson is of the opinion that some of the company law Directives tend to harmonize areas which do not need to be harmonized, and that the EU disregards some areas which should be harmo-nized.33 The EU’s supranationality is also obvious in the organization’s specifically es-tablished corporate forms, such as the SE and SPE-corporations. The presented EU
29McCormmick, J. “The European Union: Politics and Policies”, p 81,
http://europa.eu/abc/eurojargon/index_en.htm - definition of “supranational” and “intergovernmental” available on 2010-10-27 at 19.15 and Albi, A. “EU enlargement and the constitutions of Central and Eastern Europe”, p 204.
30
McCormmick, J. “The European Union: Politics and Policies”, p 81.
31 McCormmick, J. “The European Union: Politics and Policies”, p 15.
32 For example the 1st, 2nd, 3rd and 4th Council Directive.
33 Andersson, J. “Competition between Member States as Corporate Legislator” in Modern Company Law for a European Economy- Ways and Means, p 145 f.
12 porate forms are either fully or partially regulated by mutual regulations all through the EU. This means that the specific companies are generally not forced to adapt to the company law rules of the different Member States and consequently simplifies business activities between the Member States.34
2.3
Washington vs Brussels
The federal authorities in the US put much more pressure on its states than Brussels does on the Member States of the EU. Since Brussels do not put as much central pres-sure, their power is weaker in comparison to the powers exercised by the federal author-ities in the US. There are several reasons for the limited weight of Brussels central regu-latory authority, such as Europe not having a single European Securities Regulator, equivalent and comparable to the US SEC. Another contributing factor is the lack of an obviously dominant European stock exchange, comparable to the US stock exchanges NASDAQ and NYSE. For example, the SEC has been very successful urging the ex-changes to adopt the established federal corporate governance regulations, further strengthening the federal power in Washington. There are no similar activities taken within the EU, but there are still a few measures taken with the objective of ascertaining an efficient equivalence to a supervised and integrated capital market.
According to Von Hein, these European solutions take the shape of actions that are sup-posed to improve the participation in the process and implementation of European legis-lation as well as the cooperation between the Member States securities regulators. An example of these actions is the work with the Commission’s Financial Services Action Plan and the included ”Lamfalussy Directives”, an advance to the legislative process of the financial service industry. There are four “Lamfalussy Directives” concerning the financial supervision within the EU:
1. the Directive on Markets in Financial Instruments, 2. the Market Abuse Directive,
3. the Prospectus Directive, and
34 http://www.eu-upplysningen.se/Amnesomraden/Naringsliv-och-konkurrens/Bolagsratt/ available on
13 4. the Transparency Directive.35
Despite this join action which gains the EU some power, the fact that the area of corpo-rate governance in the EU, as opposed to the US, consists of several and for the Mem-ber States individual legislations, weakens Brussels. The differences between the na-tional legislations for corporate governance generate an insecurity and unpredictability for all parties involved. Although the last years events have caused an intense debate about corporate governance, the Commission is of the opinion that an EU corporate go-vernance code is not necessary. They believe that an EU corporate gogo-vernance frame-work will not be of additional value to the already existing international guidelines and legislation.36
Furthermore, when considering the European lawmaking bodies, one cannot disregard the fact that Europe has several big and politically heavy-weight Member States that may object to the proposed rules, slow down the speed of centrally adopted legislation and consequently affect Brussels’ power. Delaware’s37 weight in Washington is not equal and cannot be compared to the political weight of some of the European Member States. This became evident with the signing of the SOX Act, where Congress federa-lized some of the rules concerning corporate governance without any concern about get-ting the legislation blocked by the Congressional members from Delaware.38 In order to not risk losing essential parts of their regulatory turf to the federal legislators, it is vital for states such as Delaware to not derogate from the preferences of federal lawmakers.39 That might very well be the case with the MBCA since Washington and the federal
35 Von Hein, J. “Competitive Company Law: Comparisons with the USA” in Modern Company Law for a European Economy- Ways and Means, p 56 f and http://ec.europa.eu/internal_market/securities/transposition/index_en.htm available on 2010-12-02 at 12:43.
36 Communication from the Commission to the Council and the European Parliament. “Modernising
Company Law and Enhancing Corporate Governance in the European Union- A plan to move forward”, p 10 f.
37 US state famous for and influential in its corporate legislation.
38 Von Hein, J. “Competitive Company Law: Comparisons with the USA” in Modern Company Law for a European Economy- Ways and Means, p 57.
39 Von Hein, J. “Competitive Company Law: Comparisons with the USA” in Modern Company Law for a European Economy- Ways and Means, p 39 ff.
14 government’s interference results in the MBCA losing some of its market. The simple threat of federalizing an area within company law puts a great pressure on the US and the states’ company law.40
2.4
The real seat theory and its consequences
A comparison between the EU and the US leads to the question of whether the Centros and Überseering BV41 cases have launched an EU competition for corporate charters such as the one in the US. Although the US is not the best role model for competition, it still occurs within the area of corporate law and the question is whether this type of ho-rizontal competition between the Member States as offerors of company incorporation will lead to the familiar “Delaware effect”42 as in the US.43 In order to accomplish the US-style competition in the EU, and thereafter develop it into a more successful factor than in the US, the basic conditions for the EU Member States have to be the same. This does also comprise the abolishment of the real seat theory, freedom for a business to reincorporate in another Member State as well as an incentive for the Member States to compete as legislators.44 The real seat theory determines the applicable law for govern-ing the internal affairs of a company based on the country where the business has its ac-tual head office. On the other hand, the incorporate state theory determines what com-pany law a business should apply with regards to the state where the business was in-corporated and registered.45 The jurisdictions of the EU Member States diverge from each other because of these two theories and are therefore likely to discourage a
40
Levmore, S. “Uncorporations and the Delaware Strategy” in Private Company Law Reform-
Interna-tional and European Perspectives, p 62. 41
Case 212-97 Centros Ltd v Erhvervs- og Selskabsstyrelsen [1999] ECR I-1459 and Case 208-00 Über-seering BV v Nordic Construction Company Baumanagement GmbH (NCC) [2002] ECR I-9919.
42
Briefly explained, the “Delaware effect” is a competitively advantageous and monopolistic position of the US state as an offeror of corporate charters (explanation found in e.g. Gelter, M. “The Structure of Regulatory Competition in European Corporate Law”, p 18).
43 Von Hein, J. “Competitive Company Law: Comparisons with the USA” in Modern Company Law for a European Economy- Ways and Means, p 25.
44 Andersson, J. “Competition between Member States as Corporate Legislator” in Modern Company Law for a European Economy- Ways and Means, p 154 f.
45 Friis Hansen, S. “The Free Movement of Companies” in Scandinavian Studies in Law Volume 45 – Company Law, p 149.
15 ny’s reincorporation and limit its mobility.46
The Centros and Überseering BV cases have resulted in that the real seat theory can no longer be used as an argument for deny-ing recognition of a company formed in accordance with another Member State’s com-pany law and the EC rules47.48 The application of the real seat theory makes it become substantially more difficult for competition between the Member States’ company laws.49 This was probably acknowledged by the Advocate General La Pergola who stated with regards to the Centros case50 that;
“in the absence of harmonisation, competition among rules must be allowed free play in corporate matters.”
This statement from the Advocate General suggested a US regulatory idea to the EU legislation.51 The US has applied the incorporation theory for the last two hundred years. As explained, this means that a company’s internal affairs must follow the com-pany law of the state where it has been incorporated. A comcom-pany’s internal affairs aim at the “matters peculiar to the relationships among or between the corporation and its current officers, directors and shareholders”.52
The argument for practice of the theory is its predictability and certainty of obligations and rights for the involved parties that con-sequently are able to trust one single legal system, selected by them. Concon-sequently, if the corporation were to follow multiple jurisdictions, this would generate uncertainty and unpredictability as applied to issues that inevitably arise.53 Since the incorporation
46 Lombardo, S. “Regulatory Competition in Company Law in the European Community – Prerequisites
and Limits”, p 28.
47 Art. 54 Treaty of Lisbon.
48 Friis Hansen, S. “The Free Movement of Companies” in Scandinavian Studies in Law Volume 45 – Company Law, p 170.
49 Andenas, M and Woolridge, F. “European Comparative Company Law”, p 34 f.
50 Opinion of Advocate General La Pergola, filed on 16 jul 1998 in Case 212-97 Centros Ltd v Erhvervs-
og Selskabsstyrelsen [1999] ECR I-1459, para 20.
51 Von Hein, J. “Competitive Company Law: Comparisons with the USA” in Modern Company Law for a European Economy- Ways and Means, p 28 f.
52 Lombardo, S. “Regulatory Competition in Company Law in the European Community – Prerequisites
and Limits”, p 84.
53 Lombardo, S. “Regulatory Competition in Company Law in the European Community – Prerequisites
16 theory predominates in the US, a company is allowed to choose for themselves in whi-chever one of the fifty-one jurisdictions they wish to incorporate their business.54 The-reafter the company usually can operate in any other state across the US and still main-tain its ability to reincorporate in whichever state with small tax results or other advan-tageous outcomes.55 One basic condition in order to make regulatory competition work in an efficient way is to ensure companies full mobility. Complete mobility for firms is accomplished in the US by offering a company the possibility to reincorporate as well as the free choice of law, where the company itself chooses its preferred jurisdiction. As a result, the US market for corporate charters generates the positive advantages of an ef-ficient market.56
As obvious, the real seat theory is a barrier to competition which cannot be abolished unless companies are mutually recognized amongst all Member States in the EU.57 By leaning towards the US model and letting the incorporation theory predominate, conse-quently allowing the freedom to reincorporate without the significant work and costs provided by the current provisions as well as mutual recognition of the company throughout the Member States, the allocation of resources would be efficient in the EU as well.58
2.5
Conclusion of the chapter
As a federal nation, Washington and the US have some power over the country’s states. With regards to corporate law, there is no federal legislation for the states to obey. Ac-cording to the Constitution, Corporate law is state law whilst securities law is federal legislation. However, it has to be mentioned that the federal government of the US can always interfere and legislate within areas designated for state law. For example, the
54
Lombardo, S. “Regulatory Competition in Company Law in the European Community – Prerequisites and Limits”, p 15.
55
Backer, L. ”Comparative Corporate Law – United States, European Union, China and Japan: Cases and Materials”, p 426.
56
Lombardo, S. “Regulatory Competition in Company Law in the European Community – Prerequisites and Limits”, p 63 and p 91.
57
Romano, R. ”The Genius of American Corporate Law”, p 133 f.
58 Lombardo, S. “Regulatory Competition in Company Law in the European Community – Prerequisites
17 ganization of the SEC provided the federal government a great tool for control over US companies. The powers of the federal government have generally been greatly expanded and after the bankruptcies and scandals of large US companies, such as Enron, there has been a major reform in US business practices. Furthermore, the incidents caused the en-forcement of the SOX Act which gave the federal government the right to regulate ”state areas” of corporate law. There is really no type of competition between Washing-ton and the individual states within the company law area. The question is therefore whether the MBCA is influenced or threatened by the risk of federal interference or regulations. No matter the answer, should it really be the MBCA’s business to develop its provisions with the US federal government in consideration.
There are currently 27 members within the supranational/intergovernmental organiza-tion of the EU. The EU aims for a harmonizaorganiza-tion of the Member States legislaorganiza-tion with-in the area of company law. Even though this is the objective and parts of company law are supposedly a supranational area, there is still competition between the Member States themselves as well as with the EU within the area of company law. By introduc-ing several Directives and specific European company types, Brussels is hopintroduc-ing to gain more power, influence and control than it currently has. What the organization seems to forget is that each one of the Member States, in addition to the incorporated Directives, has their individual and special corporate legislation. By having the Directives as well as the several individual legislations involved there is a great confusion for the Member States, a factor which interferes and prevents Brussels and the EU from gaining control and putting pressure on its members. Furthermore, the several and various legislations complicate matters for a business and do not provide any predictability in which provi-sions that should be used and how they should be interpreted consequently affecting how corporate law issues shall be resolved.
Basically, the US and the EU have different approaches; they both act and try to set up certain minimum provisions within the corporate law area, but the US and its govern-ment has more pressure put on its states than the EU does. The US’s power over its states exists since it regulates areas within corporate law that are of great importance and which also involves the states cooperation. Corporate governance is a good exam-ple; it ensures Washington both influence and control over the states’ legislation and
18 companies. The EU has made an active choice to not incorporate a common code for corporate governance and leaves it, once again, up to the Member States to individually adopt such a document.
By providing certain provisions the US sets an international standard and wins regulato-ry turf within the area. The question is whether the EU realizes that by not providing a joint approach, it grows weaker and loses more power to its Member States as well as the US. There are measures which the EU can, and has tried to, take in order to gain power, control and simplify the existing corporate law obstacles. As stated by Von Hein, the EU could take the initiative and present a single European Securities Commis-sion. This would be an efficient way for the EU to gain some control over and put pres-sure on its Member States, instead of simply letting the countries individual securities regulator organizations cooperate. An action actually taken by the EU is the introduc-tion of the specific and supranaintroduc-tional EU company types; the SE and SPE-corporaintroduc-tions. Both of the company types are designed to meet the particular concerns and interests of the Member States and are therefore also free to move and reincorporate in accordance with the incorporation theory. The alternative corporate forms provided overcome sev-eral of the obstacles that are faced by a regular Member State corporation. Furthermore, it also encourages competition between some legislated areas, such as taxation laws, of the Member States.
The complication that occurs when having several corporate legislations involved can, to some extent, be avoided if the incorporation theory was allowed to predominate the EU. By providing a model framework which ensures that corporations were to be rec-ognized and able to reincorporate between the Member States, Brussels could grow stronger and gain more power than it currently has. The Centros and Überseering cases have sparked the discussion of whether the real seat theory even is compatible with the EU rules regarding the right of establishment of companies. Furthermore, by allowing the incorporation theory to predominate; competition between the Member States is enabled, predictability for businesses is offered and the countries will be able to offer the businesses continuously new advantageous incentives in order to attract them to their country. As shown in the US, the incorporation theory will enhance competition between the EU Member States’ corporate legislation and will contribute to the
effi-19 ciency of the market as well as somewhat harmonization within the area of company law.
20
3 Corporate legislation in the US
The upcoming chapter regards the Model Business Corporation Act in the US. The chapter presents the history of, as well as the objectives with, an US model act. Fur-thermore, the role of the Delaware corporate statute within the area of corporate law as well as the results of a MBCA is presented before the chapter is brought to an end with a conclusion.
3.1
Model Business Corporation Act
The US model act was created as a private project after the ABA’s Corporate Laws Committee was asked to create an MBCA, in case a serious demand for such a statute would ever occur in the future. In 1946, the initial MBCA was developed for the US states.59 This initial draft of the MBCA has its own model in the Illinois Business Cor-poration Act of 1933. One of the contributing factors to the Illinois Act’s influence was that three of the Corporate Laws Committee members of the ABA also were a part of the drafting of the Illinois Act. The Illinois Act on the other hand was, considered as “entirely original”, but still influenced by the organization, style and originality of the Indiana General Corporation Act of 1929.60
The Committee regarded the initial draft as “incomplete in certain respects” and in need of a more thorough study and careful editing. This intervention from the Committee concluded in the MBCA from 1950, which was presented as an Act
“embodying principles and procedures believed by the Committee to be the best in modern American statutory law applicable to business corporations in general.”61
The Committee believes, with regards to the revised acts, the MBCA from 1950 to be the most important and the one Act where its present form took shape.62 The Act took the shape as a framework of regulations under which
59 Eisenberg, M.A. ”The Model Business Corporation Act and the Model Business Corporation Act
An-notated” in The Business Lawyer, p 1407.
60 Garrett, R. ”Model Business Corporation Act” in Baylor Law Review, p 418 f and p 424.
61 Model Business Corporation Act (Revised), 1950, Foreword.
62 Eisenberg, M.A. ”The Model Business Corporation Act and the Model Business Corporation Act
21 “a corporation may be organized and continue to exist, controlling its internal affairs and determining its relation with the state of its creation while its existence continues.” Furthermore, the 1950 Act was regarded as a tool which would benefit the states in their modernization of their business corporation statutes, perhaps to the degree of a future uniformity in corporation statutes amongst the states.63
Since the Committee presented the MBCA as an ongoing project, the document is re-viewed and revised on a periodic basis.64 Major changes of the Act were made in 1969, and thereafter there were substantial changes made in 1980.65 A subcommittee, desig-nated by the Committee to study parts of the Act which had not been reviewed in detail since the Act’s introduction, pointed out that an update of the Act was necessary. The Act was, at that point, not structured in an entirely logical way, and the subcommittee stated that the Act should draw inspiration from the state statutes reorganization of the Act’s structure. Furthermore, the significant amount of amendments made to the Act since 1950, did not present its content as internally consistent and uniform. The Com-mittee decided that there was a need to update the MBCA, and Robert W. Hamilton and Elliot Goldstein66 prepared for a complete revision of the Act.67
The Revised Model Business Corporation ACT68 was the first fully revised version of the MBCA in more than 30 years, and was considered to be an enabling, instead of a regulatory, statute.69 The RMBCA was accepted and published in 1984 and due to the flexibility of the document; the RMBCA was welcomed in several states.70 The purpose
63 Model Business Corporation Act (Revised), 1950, Foreword.
64
Model Business Corporation Act Annotated: Fourth Edition, volume 1, p iii.
65 Booth, R. ”A chronology of the evolution of the MBCA”, in The Business Lawyer, p 63 f.
66 Members and Reporter respectively Chairman of the 1984 Corporate Laws Committee, see the
supple-ment.
67 Model Business Corporation Act Annotated: Revised Model Business Corporation Act (1984), volume
1, p xxv f.
68 Hereafter the RMBCA.
69 Model Business Corporation Act Annotated: Revised Model Business Corporation Act (1984), volume
1, p xxiv and Hamilton, R.W. ”The law of corporations in a nutshell”, p 18 f.
70 Booth, R. ”A chronology of the evolution of the MBCA”, in The Business Lawyer, p 63 f, Model
Busi-ness Corporation Act Annotated: Revised Model BusiBusi-ness Corporation Act (1984), volume 1, p xxiv and Hamilton, R.W. ”The law of corporations in a nutshell”, p 18 f.
22 of the RMBCA was to serve as a guide, contemplating up-to-date views of both com-mercial and social interests involving modern business corporations, for the state corpo-ration statutes. The RMBCA, used by both publicly and closely held corpocorpo-rations, takes into consideration the rights and duties of e.g. officers and shareholders as well as the interests of the state.71 The RMBCA forms the basis for the Act at hand72, with signifi-cant amendments that have been made due to the supplements added to the document after its introduction in 1984 until the end of 2007. Annual supplements to the current Act started in 2008.73 Nor does this Act make any distinction between publicly and pri-vately held corporations; it applies to all profitable businesses.74
The purpose of the MBCA is neither to accomplish nor attempt uniformity amongst the states.75 The introduction of a ”model” framework rather proposes the possibility of di-vergence from state laws and the possibility of experimenting with new or different ideas.76 The point of the Act is to have a common approach to certain issues but still al-low for certain local differences.77 The differences that may give birth to dissimilar is-sues in the state corporation laws are considered by the Committee to be of great bene-ficial value for corporation law.78
Each state in the US has its own statute and judicial created law which applies to corpo-rations. A state corporate law statute provides the rules for a corporation incorporated in that specific state.79 The Committee developed the MBCA as a “free standing general corporation statute”80
which ensures that the states themselves can decide what part of
71 Model Business Corporation Act Annotated: Revised Model Business Corporation Act (1984),, volume
1, p xxiii.
72 Model Business Corporation Act Annotated: Fourth Edition.
73 Model Business Corporation Act Annotated: Fourth Edition, volume 1, p v.
74
Model Business Corporation Act Annotated: Fourth Edition, volume 1, p ix.
75 Pinto, A and Branson, D. ”Understanding Corporate Law”, p 2 f.
76 Model Business Corporation Act Annotated: Fourth Edition, volume 1, p xii.
77 Pinto, A and Branson, D. ”Understanding Corporate Law”, p 2 f.
78
Model Business Corporation Act Annotated: Fourth Edition, volume 1, p xii.
79 Pinto, A and Branson, D. ”Understanding Corporate Law”, p 2 f.
23 the Act they wish to incorporate. State legislature can therefore choose to disregard the Act, adopt the Act in its entirety or only adopt the parts found acceptable.81 By tradition, the MBCA has been associated with the purpose of being a flexible and modern frame-work. This results in a company statute, designed with the purpose to ”assure efficiency and economy of management and to avoid unnecessary costs.” Economists are of the opinion that the state’s company legislation should incorporate the MBCA provisions, in order to work as a tool creating efficiency and avoid all costs related to the drafting and redrafting of the regular provisions. Furthermore, economists believe that the dif-ferent state legislations should offer corporations the possibility to choose incorporation where the provisions are the most suitable to the business’s needs. Although this is not the Committee’s reason for drafting a model act, it is true that company statutes, at times, are partial substitutes for drafting exercises.8283
The MBCA includes its provisions, Official Comments and the Reporter’s annotation for each section. The Official Comments are prepared and included for each section of the Act in order to simplify and improve the use of the document. The Official Com-ments, which are prepared and specially approved by the Committee, provide an expla-nation of the purpose and meaning of the specific section as well as a description of the conclusions made in the drafting process. The sections and provisions of the MBCA are compiled after analyzing and reviewing similar provisions in influential commercial states as well as proposals from corporation service companies.84
Although the MBCA is influenced by several different factors, it has also had a signifi-cant influence on the development of several states corporate law statutes and modern corporation law. When first presented, the MBCA influenced approximately 30 states.85 In 2002 the Act was the law in some 44 states and adopted in varying degrees in the
81 Corporate Laws Committee of the Business Law Section of the American Bar Association. “White
Pa-per Uniformity in corporate reform through changes to the Model Business Corporations Act”, p 4 and Model Business Corporation Act Annotated: Fourth Edition, volume 1, p ix.
82
The concept is “default rules” that apply unless the corporate documents provide different rules.
83 Hamilton, R.W. “Reflections of a Reporter” in Texas Law Review, p 1466 f.
84 Model Business Corporation Act Annotated: Revised Model Business Corporation Act (1984), volume
1, p xxiv.
24 maining states. The MBCA’s revision and updates results in the states usually following and enacting its changes which is why the MBCA is considered as;
“an ideal vehicle to effect broad and uniform corporate governance reform applicable to public corporations”.86
3.2
Delaware law completes the MBCA
There is one state, Delaware, whose company law has had and still has a great impact on the corporate law development within the US. According to Andersson, it is well-known that a modification in the Delaware corporate law is influential and closely ob-served by states’ corporate committees. Any contemplated modification or amendment by the individual state’s corporate committee to its company law takes the Delaware’s corporate legislation into consideration.87 Delaware plays such a major part within the company law area, that the authors of the MBCA review the Delaware corporate legisla-tion when revising the MBCA.88 This is true but the Delaware company legislation is, on occasion, influenced by the MBCA. Andersson believes that the reason for the dual influence is because the lawyers who are members of the corporate committee of Dela-ware, also serve as active members in the MBCA Corporate Laws Committee. Conse-quently, the leading lawyers of corporate law in Delaware take part in and are able to in-fluence the development of the MBCA. As a result, the MBCA in association with De-laware’s corporate law has a deep impact on the remaining states’ corporate legisla-tion.89
3.3
The results of a MBCA
Although the MBCA is regarded as successful by some, there are people debating this opinion. Hamilton believes that the success of the Act cannot be taken for granted. Its success mainly depends on the public opinion and the trust that the realized changes are
86 Corporate Laws Committee of the Business Law Section of the American Bar Association. “White
Pa-per Uniformity in corporate reform through changes to the Model Business Corporations Act”, p 4.
87 Andersson, J. “Competition between Member States as Corporate Legislator” in Modern Company Law for a European Economy- Ways and Means, p 153 f.
88 Ordower, H. Interview in STL.
89 Andersson, J. “Competition between Member States as Corporate Legislator” in Modern Company Law for a European Economy- Ways and Means, p 153 f.
25 the result of the Committee’s thorough consideration and experiments.90 Ordower is of the opinion that the MBCA failed to achieve its intended leadership and influence with-in US corporate law. He explawith-ins that Delaware corporate law holds the leadership posi-tion so that in the competiposi-tion among states for corporate franchises, the other states have no real choice other than to follow Delaware in accommodating corporations.91 On the other hand, Eisenberg is of the opinion that the Committee’s definitive objective has always been to simply offer help and guidance to those involved in the changes of statu-tory law.92 Hamilton goes on pointing out that absolute uniformity is neither sought nor ever obtained by the means of a model law. He believes that the Act should only be re-garded “as a device by which incremental improvement in state corporation law may occur”.93
Furthermore, he considers the Delaware corporate legislation as ”rather wor-dy” but not that much different, in essence, from the MBCA and the other states corpo-rate law statutes.94 Andersson regard the composition and extensive nature of the Dela-ware corporate legislation more difficult to understand and adapt than its corresponding provisions in the MBCA.95 Carney and Shepherd are on the same track, stating that even a quick comparison between the two corporate statutes presents the MBCA’s pro-visions as much more clear than the Delaware corporate statute.96 The clarity is moti-vated by Delaware’s failure to adopt several changes which are included in the MBCA and deemed as significant for the area by the Corporate Laws Committee.97
By giving the individual states the power to form its own corporate law, based on either the MBCA, Delaware corporate law or other sources; competition has emerged to some
90 Hamilton, R.W. “Reflections of a Reporter” in Texas Law Review, p 1470.
91
Ordower, H. Interview in STL.
92 Eisenberg, M.A. ”The Model Business Corporation Act and the Model Business Corporation Act
An-notated” in The Business Lawyer, p 1415.
93 Hamilton, R.W. “Reflections of a Reporter” in Texas Law Review, p 1470.
94 Hamilton, R.W. ”The law of corporations in a nutshell”, p 16.
95 Andersson, J. “Competition between Member States as Corporate Legislator” in Modern Company Law for a European Economy- Ways and Means, p 153 f.
96 Carney, J.W., Shepherd, B.G. ”The mystery of Delaware law’s continuing success” in University of Il-linois Law Review, p 50.
97 For examples see Carney, J.W., Shepherd, B.G. ”The mystery of Delaware law’s continuing success”
26 degree.98 However, Kahan and Kamar question the general notion of competition be-tween the US states’ corporate statutes. It is their opinion that no state, except for Dela-ware, has significant financial incentives to compete with its corporate statute. They be-lieve that the reason for this is that no state would earn any consequential extra fran-chise taxes, no matter the number of corporations incorporated, and therefore states do very little in order to attract incorporations. Furthermore, Kahan and Kamar go on and argue that the importance of the MBCA is difficult to come to terms with if one believe that the states “actively compete for incorporations” of businesses. It is their opinion that the members of the Corporate Laws Committee simply are interested in enhancing their own reputation and question whether the members have any inducement to in-crease whichever states’ business incorporations.99
No matter whether the members in-volve themselves in the Committee for their own sake, the MBCA, its provisions and the states adoption of the act are results of the work put in by the Committee. The incen-tive for the members do not really matter since I consider, in contrast to Kahan and Ka-mar, the fact that states actually do incorporate the MBCA is an indication of their inter-est to compete with their corporation statute.
The competition factor within US company law has played a big part in the harmoniza-tion within the field. The states’ possibility to choose the rules to incorporate in their corporate statutes has resulted in a predominant conformity within the US states’ com-pany legislation. The harmonization is, according to Andersson, due to the MBCA combined with mainly the Delaware corporate law but also other corporate legisla-tion.100
3.4
Conclusion of the chapter
The MBCA serves the US as a modern, flexible and enabling proposition of corporate law regulations which provides some degree of uniformity within the area of corporate law. The objective of the MBCA is not to legally bind any state or corporation in the
98 Andersson, J. ”The High Level Group and the Issue of European Company Law Harmonisation –
Eu-rope Stumbles Along?”- in The Regulation of Companies- A tribute to Paul Krüger Andersen, p 193.
99 Kahan, M. and Kamar, E. ”The Myth of State Competition in Corporate Law” in Stanford Law Review,
p 702.
100 Andersson, J. ”The High Level Group and the Issue of European Company Law Harmonisation –
