This open-source casebook is the twelfth edition of a casebook using the H2O/OpenCasebook platform of the Library Innovation Lab of the Harvard Library and the Berkman Center. This casebook and the H2O/OpenCasebook platform are part of an effort by educators to make high quality course materials and casebooks available to students at reasonable prices. Because this casebook is subject to a Creative Commons license and can be printed via Amazon/Kindle Direct Publishing, it is available to students at a very modest cost. Alternatively, students can access and read the cases and materials online via the H2O platform at opencasebook.org at no cost. 

Although this course is called an Introduction to the Law of Corporations, it is better understood as a more general business organizations course. This casebook is intended to be used as the main casebook for this course. However, your learning during this semester-long course will not be limited to the corporate law. We will start the class with an online course covering the basic concepts of Agency. Agency is the single most important building block required to understand the corporate law. Agency is also an essential building block to understand the laws governing other forms of business organization. 

During the course of this semester, you will also be introduced to other forms of business organization, including Partnerships, Limited Liability Companies, Nonprofit Corporations, and Public Benefit Corporations. Most of your introduction to these other forms will come through a series of online courses covering the basic concepts and rules for each of the forms. You should plan to complete all of these courses, including the accompanying quizzes in Canvas, by the dates set forth in the syllabus. While you are working on these online courses, in class we will focus on the corporate form, the Delaware corporate code, and the Delaware common law of corporations.

Because the corporate law is so much more extensive than the laws of other business forms, like for example the law governing LLCs, courts often lean heavily on the corporate law and apply it by analogy to other forms when they are in search of persuasive authority. By becoming expert in the corporate law, you will find it easy to translate that knowledge and apply it other business organizations. 

Much of the work of the corporate lawyer starts with the code. As such, we will start with an in depth examination of the corporate code.  Although we could study the Model Code or the Massachusetts code, for most corporate lawyers, the Delaware corporate law will be central to their practice. Sixty percent of all publicly traded corporations are Delaware corporations. With respect to private corporations, they are typically incorporated in the state in which they are physically located, or they are incorporated in Delaware.

Beyond the code, Delaware has a very deep corporate common law. It is in the corporate common law that the courts have developed the law of corporate fiduciary duties. It is through fiduciary duties that the corporate law attempts to regulate the relationship between stockholders and the corporation, between managers and the corporation, as well as the relationships of controlling stockholders and minority stockholders. Delaware's treatment of the corporate common law is so extensive that it is not at all uncommon at all for the courts of other states to refer to, or cite Delaware corporate law cases, when deciding questions involving their own corporate law. The Delaware corporate law is the closest we have to a lingua franca in the US for corporate law.

The fiduciary duties of corporate directors are tested most often in the context of corporate takeovers. The corporate takeover materials in this casebook attempt to highlight the most important issues in takeover situations as well as the court's doctrinal efforts to mitigate the transaction costs that arise in these situations.

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In his 1970 book Exit, Voice, and Loyalty, Albert O. Hirschman offered a framework for understanding how individuals respond to decline in organizations, firms, or states. We will be thinking about this framework, and its application to corporate governance, over the course of the semester. When a member of an organization becomes dissatisfied, Hirschman argued, she faces two basic options: first, she can leave (exit). A citizen can emigrate to another country, like a refugee seeking a safer regime or a digital nomad seeking a cheaper lifestyle. Many organizations and states are essentially voluntary associations, where dissatisfied participants can simply decline to participate further. Second, she can stay and use her voice to complain about the decline (voice). Some organizations as very sticky, and not all individuals will find it easy to walk away from an organization. Or, emigration may be impossible for some. In that case, a citizen stay and vote for their representatives, or they can take to the streets with funny signs and slogans to demonstrate.

Related to these two choices that participants in associations face is a third dynamic, that of loyalty. The concept of loyalty refers to a kind of adverse selection that presents in organizations. Participants with low loyalty to the organization, may exit immediately upon evidence of decline. Those participants with a higher degree of loyalty to the organization will stay; the costs of exit are too high, or they may agree with the ends of the organization. Those who stay will use their voice for as long as possible before they too decide to endure the costs required to exit a declining organization. Over time as an organization declines, the smaller and smaller group of remainders will be those participants most dedicated to the goals of the declining organization. In the words of Donald Rumsfeld, these are the ‘dead enders,’ people who will stubbornly cling to a cause or organization long after there is any realistic chance of the organization’s success. Jets fans will understand this feeling.

The elegance of the Hirschman’s framework lies in its tension between the two choices of a participant in the organization: exit is the economist’s solution, clean and market-driven, while voice is the political scientist’s, messy and relational. If exit is too cheap or easy, Hirschman warned, an organization will be impoverished due to members draining away at the first hint of difficulty. However, the answer is not necessary to impede exit. If participants cannot exit, they must have voice. Too much voice amongst those who remain can lead to polarization and paralysis. Too little voice leads to internal collapse with potentially catastrophic results. The challenge, as Hirschman noted, was to find the right balance.

Corporate governance has long mapped onto this framework with unusual neatness. Exit is the so-called Wall Street Rule: the shareholder who dislikes management simply sells her shares and moves on, disciplining the firm through the market rather than through engagement. Voice is the shareholder’s ballot: the proxy vote, the annual meeting resolution, the shareholder proposal filed under SEC Rule 14a-8; and the shareholder lawsuit. Voice is the machinery through which shareholders attempt to hold boards and corporate officers accountable. Each channel has its limits, of course, but taken together they have historically constituted a reasonably robust system of accountability, one in which shareholders retained meaningful leverage over the enterprises they owned.

What is striking about the current moment is that these governance channels are being simultaneously narrowed, in ways that are individually explicable but collectively alarming. The decades-long rise of passive index investing has largely neutered exit as a disciplining mechanism: an index fund manager who is dissatisfied with Apple or ExxonMobil cannot simply sell, because the mandate of the fund requires holding the stock. The Wall Street Rule presupposes a market of active, mobile capital; index investing converts shareholders into permanent, captive owners.

The voice channel has fared no better. The SEC’s recent retreat from robust enforcement of the shareholder proposal process has made it easier for companies to exclude inconvenient resolutions from the proxy ballot and avoid uncomfortable questions from shareholders. More troublingly, the emerging practice of proxy solicitation firms obtaining standing voting proxies (blanket authorizations that allow them to cast votes on behalf of shareholders without specific instruction) threatens to take advantage of rational shareholder apathy to reduce shareholder voice further. The wave of corporate reincorporations into Nevada and Texas, states that have aggressively curtailed shareholder litigation rights, has shrunk the jurisdictional space in which shareholders can sue. SpaceX’s 2026 IPO takes this anti-voice logic to its endpoint, including mandatory arbitration clauses that would effectively abolish class action litigation by shareholders, consigning disputes to a private forum that offers no precedent, limited discovery, and no meaningful public accountability.

Hirschman understood that organizations need some mechanism by which members can signal dissatisfaction and compel a response. Strip out exit, and there is no market discipline. Strip out voice, and there is no democratic accountability. We appear to be in the process of engineering a corporate governance regime in which all the traditional levers are being weakened at the same time. The beneficiaries of this shift are not hard to identify: entrenched management, controlling shareholders, and the institutional intermediaries who now stand between retail investors and the companies they nominally own. The losers are the millions of ordinary Americans whose retirement savings are invested in public markets on the implicit promise that those markets are governed by rules designed to protect them. That promise is becoming harder to keep.