26/9/19 Internal affairs doctrine
The internal affairs doctrine is a choice of law rule in corporations law. Simply stated, it provides that the “internal affairs” of a corporation (e.g. conflicts between shareholders and management figures such as the board of directors and corporate officers) will be governed by the corporate statutes and case law of the state in which the corporation is incorporated, sometimes referred to as the lex incorporationis.
The internal affairs doctrine ensures that such issues as voting rights of shareholders, distributions of dividends and corporate property, and the fiduciary obligations of management are all determined in accordance with the law of the state in which the company is incorporated.
On the other hand, the “external affairs” of a corporation, such as labor and employment issues and tax liability, are typically governed by the law of the state in which the corporation is doing business. Some issues and activities, such as contracts, mergers and acquisitions, and sales of securities to third parties, may be governed both by the laws of the state of incorporation and by the laws of the state in which the transaction takes place, and in some cases, by federal law as well (for example, United States securities law and antitrust law).