Busy Bees and Busybodies: The Extraterritorial Reach of California Corporate Law
John W. Edwards II
Posted Tuesday, October 2, 2012

The situation is familiar to American commerce: a corporation is formed under the laws of one state — say, Delaware — but maintains its headquarters and operations in another — say, California. When an issue arises about the “internal affairs” of that corporation, does the law of California or Delaware apply? Most practitioners, particularly outside California, would answer that the law of the state of incorporation governs internal corporate affairs.

California, however has answered that question differently. In a series of statutes, the California Legislature has attempted to apply California law to foreign corporations with certain defined nexuses to California. This effort essentially rewrites portions of the foreign corporations’ charters and of overruling provisions of the laws of the states of incorporation.

California’s effort to export its law to corporations created by its sister states has met with varying degrees of success in the courts of that State and with stinging rejection from the Supreme Court of Delaware, unsurprisingly. Recently, the California Supreme Court passed on an opportunity to address the issue directly, and so the debate lingers.

This article reviews the various theories of Constitutional law used to challenge California’s effort to apply its own corporate law to foreign corporations. Finding none to have been sufficiently definitive, it suggests an additional theory to resolve the issue.