The genius of American corporate law lies in its federal organization. State competition for revenues from corporate charters has produced a system that, for the most part, benefits investors.

Because the small state of Delaware leads the others by far as an incorporation state, concern has arisen that managers choose it because it benefits from them at the expense of others. To resolve this issue, the author examines the structure of the corporate charter market, the impact of takeover regulation and federal securities law, and the spreading of criminalization of corporate duties. She also compares the U.S. system with the federal systems of Canada and the European Community.

After reviewing the classic debate over the benefits of state competition for incorporation versus a national corporate code, this study concludes that, though state laws are imperfect, national regulation is unlikely to result in a better public policy instrument.

Roberta Romano is an adjunct scholar at AEI.