Is Corporate Law Trivial?: A Political and Economic Analysis

Abstract

On its face, state corporate law contains a mix of mandatory and default rules. I develop the triviality that the appearance of a mandatory core to state corporate law is a mirage, and that state corporate law is trivial, in the sense that it lets companies -- managers and investors together -- establish any set of governance rules they would reasonably want. Rules that appear mandatory may be trivial for four reasons. First, some mandatory rules would be universally adopted if people thought about them (market mimicking rules). Second, some rules can be avoided by advance planning, including choice of capital structure and state of incorporation. Third, some mandatory rules are unimportant -- they cover situations that occur rarely or matter little. Finally, as circumstances change, some rules that used to be market mimicking, avoidable, or unimportant may matter, but precisely because these rules matter, they will soon be changed. The political forces that led to the trivialization of corporate law will see to that. Many apparently mandatory corporate law rules are trivial in one of these senses. Moreover, proving that nontrivial rules exist is hard. It is not trivial to disprove the extreme null hypothesis that all of state corporate law is trivial.