Internal Affairs Doctrine

The internal affairs doctrine is a choice-of-law rule in corporate law providing that the internal affairs of a corporation, meaning matters such as disputes between shareholders and the board of directors or corporate officers, are governed by the statutes and case law of the state where the corporation was incorporated, regardless of where it actually does business. The doctrine draws a line between those internal matters, sometimes described by the Latin lex incorporationis, and the external affairs of a corporation such as employment law and taxation, which follow the law of the states where the corporation actually operates. American courts have grounded the doctrine in cases including Edgar v. MITE Corp in 1982 and VantagePoint Venture Partners 1996 v. Examen, Inc in 2005, and it gives corporations predictable governance rules wherever they conduct business. The doctrine has also driven competition among states for corporate charters, most visibly the roles of Delaware and Nevada as favored states of incorporation, and a similar dynamic among offshore jurisdictions internationally.