Corporate Long Arms

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50 Ariz. St. L.J. 1067 (2018). Summer Kim.

One of the most persistent debates among corporate law scholars has been whether the competition among states for corporate charters produces a race to the top or a race to the bottom. Some argue that the competition leads to the most efficient state emerging as the winner of the race. Others argue that the competition rewards the states that put the interests of managers—who have the power to choose the corporation’s state of incorporation (the “home state”)—ahead of the interests of shareholders and other stakeholders of the corporation. In this Article, I show how corporate long arm statutes could be used to facilitate a race to the top and mitigate the negative spillovers from a race to the bottom that may result from the competition for corporate charters. What I propose is that the rules of another state (a “host state”) would become available to their intended beneficiaries when a host state has a greater interest than the home state in protecting such beneficiaries. I offer a few examples of how the proposed statute would work in practice and show that it is more cost-effective and politically feasible than other proposed alternatives.

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