By: Allyson Kern
For more than a century, Delaware has occupied a singular position in American corporate law.[1] More than two-thirds of Fortune 500 companies and a majority of publicly traded corporations are incorporated in the state—not because Delaware is where they operate, but because Delaware is where their internal affairs are governed.[2] The legal principle that makes this arrangement possible is the internal affairs doctrine, a conflict-of-laws principle requiring that matters of corporate governance be governed by the law of the state of incorporation.[3]
The internal affairs doctrine has long served as the backbone of Delaware’s corporate franchise.[4] It ensures that corporations are subject to a single, predictable body of law governing fiduciary duties, shareholder voting rights, board structure, and related governance matters.[5] In doing so, the doctrine protects shareholder expectations, facilitates national capital markets, and prevents corporations from being subject to conflicting regulatory regimes across multiple states.[6]
Yet in recent years, the internal affairs doctrine has come under increasing pressure.[7] State legislatures, federal regulators, and courts outside Delaware have all pushed—sometimes explicitly, sometimes indirectly—against its scope.[8] While Delaware remains firmly entrenched as the nation’s corporate law capital, these developments raise a critical question: Is the internal affairs doctrine being meaningfully threatened, and if so, what does that mean for the future of Delaware corporate law?
I. The Internal Affairs Doctrine and Delaware’s Corporate Franchise
The internal affairs doctrine provides that only one state—the state of incorporation—may regulate a corporation’s internal affairs.[9] These include matters such as fiduciary duties owed by directors and officers, shareholder voting rights, dividend policies, and the allocation of authority between boards and shareholders.[10] The doctrine is not merely a technical choice-of-law rule; it is a foundational principle of American corporate federalism.
The doctrine serves several core purposes. First, it promotes uniformity and predictability by ensuring that a corporation’s governance is governed by a single body of law.[11] Second, it protects shareholder expectations, allowing investors to assess governance risk based on the law of the incorporating state.[12] Third, it prevents states from engaging in extraterritorial regulation that could subject corporations to inconsistent or conflicting obligations.[13]
Delaware’s dominance is inseparable from the internal affairs doctrine. The Court of Chancery’s expertise, the predictability of Delaware precedent, and the state’s enabling statutory framework all assume that Delaware law will govern a corporation’s internal affairs regardless of where the company operates.[14] Without the internal affairs doctrine, Delaware incorporation would offer little advantage to companies whose employees, assets, and customers are located elsewhere.
The doctrine also enjoys constitutional support. The U.S. Supreme Court has repeatedly endorsed the internal affairs doctrine as consistent with the Commerce Clause and the Due Process Clause, emphasizing the need for a single governing law for internal corporate matters.[15] While the doctrine is not itself grounded in the Constitution, it has long been reinforced by broader constitutional limits on state regulation.[16]
II. State-Level Resistance
The most direct and longstanding challenge to the internal affairs doctrine has come from California. California’s “quasi-foreign corporation” statute, California Corporations Code § 2115, seeks to apply California corporate governance rules to corporations incorporated elsewhere if they conduct most of their business and have a majority of shareholders in California.[17]
Delaware courts have responded unequivocally. In VantagePoint Venture Partners 1996 v. Examen, Inc., the Delaware Supreme Court refused to apply California law to a Delaware corporation’s voting rights, reaffirming that the internal affairs doctrine is a “long-standing choice of law principle” that Delaware would not abandon.[18] Allowing another state to regulate the internal affairs of a Delaware corporation, the court explained, would undermine predictability and threaten the national corporate system.[19]
Despite these rulings, California’s statute remains on the books and continues to generate practical compliance burdens.[20] While the internal affairs doctrine remains intact, this persistence reflects continued state-level resistance that undermines its practical force.
A more subtle challenge emerged in 2024, when the New York Court of Appeals decided Eccles v. Shamrock Capital Advisors, LLC, involving FanDuel, a company incorporated in Scotland but headquartered in New York.[21] Although the court ultimately applied Scots law to fiduciary duty claims, it rejected the notion that the law of the state of incorporation automatically governs internal affairs.[22] Instead, the court adopted a balancing test under which a non-incorporating state’s law could apply if its interest is dominant and the state of incorporation’s interest is minimal.[23] In reframing the internal affairs doctrine as a rebuttable presumption rather than a bright-line rule, Eccles indicated that internal affairs disputes are no longer automatically beyond the reach of non-incorporating states.
III. Federalization and the Shrinking Domain of State Corporate Law
A subtler—but more consequential—pressure on the internal affairs doctrine comes from federalization.[24] Over the past two decades, Congress and federal regulators have increasingly regulated areas traditionally governed by state corporate law.[25] Statutes such as the Sarbanes-Oxley Act and the Dodd-Frank Act impose governance requirements related to board oversight, executive compensation, internal controls, whistleblower protections, and risk management.[26]
Unlike state-level challenges, federal regulation does not contest the internal affairs doctrine directly. Instead, it bypasses it. When Congress legislates pursuant to its enumerated powers, federal law preempts state corporate law regardless of the state of incorporation.[27] As a result, these developments may gradually narrow the range of issues governed exclusively by Delaware law.
This distinction matters. State resistance operates at the level of defiance and conflict; federalization operates through supremacy. Over time, federal governance mandates can reshape corporate behavior more effectively than state statutes that are doctrinally vulnerable under the internal affairs doctrine.[28]
This shift does not eliminate Delaware’s role, but it changes it. Delaware courts increasingly operate alongside an expansive federal governance regime rather than at the center of corporate regulation.[29] For large public companies already subject to extensive federal oversight, the marginal value of Delaware’s fiduciary law advantages may diminish as federal rules occupy more regulatory space.
Among the pressures facing the internal affairs doctrine, federalization poses the most durable constraint because it alters the baseline allocation of regulatory authority rather than merely challenging it.
IV. ESG, Stakeholder Statutes, and Emerging Governance Conflicts
More recently, environmental, social, and governance (“ESG”) initiatives have generated new tensions with the internal affairs doctrine.[30] Several states have enacted or proposed laws mandating board diversity, expanding stakeholder considerations beyond shareholders, or imposing governance-related disclosure obligations tied to social policy objectives.[31]
When applied to foreign corporations doing business in-state, these laws raise classic internal affairs concerns. Board composition, fiduciary priorities, and governance mandates sit near the core of what the internal affairs doctrine has traditionally protected.
Courts have been skeptical of state laws that intrude into core governance functions of corporations incorporated elsewhere. Nevertheless, enforcement efforts and political pressure persist, and the line between permissible external regulation and impermissible governance intrusion is not always clear.[32]
These developments suggest that the internal affairs doctrine may face its most complex challenges not from traditional corporate law disputes, but from broader regulatory movements that seek to use corporate governance as a policy instrument. Unlike California-style statutes, these efforts are often framed in terms of public welfare rather than corporate law, making doctrinal boundaries harder to police.
Conclusion
The internal affairs doctrine is not on the verge of collapse, but it is no longer operating in isolation. State resistance, federal regulation, and ESG-driven governance reforms have each narrowed the scope of issues governed exclusively by Delaware law. These pressures do not dethrone Delaware, but they reshape the terrain on which Delaware corporate law operates.
Rather than an existential threat, the current moment represents an inflection point. If these trends continue, Delaware’s future dominance may depend less on exclusive control over corporate governance rules and more on its ability to integrate state fiduciary law within an increasingly federalized and policy-driven governance framework.
[1] See William L. Cary, Federalism and Corporate Law: Reflections Upon Delaware, 83 Yale L.J. 663, 666 (1974).
[2] Armando A. Argueta, Delaware Incorporation: Benefits, Drawbacks and How-To-Steps, Silicon Valley Bank, https://www.svb.com/startup-insights/vc-relations/why-incorporate-in-delaware/.
[3] Restatement (Second) of Conflict of Laws §§ 301–02, 302 cmt. a (Am. L. Inst. 1971); Edgar v. MITE Corp., 457 U.S. 624, 645 (1982) (describing the internal affairs doctrine as a conflict-of-laws principle requiring that matters of corporate governance be governed by the law of the state of incorporation).
[4] VantagePoint Venture Partners 1996 v. Examen, Inc., 871 A.2d 1108, 1113–15 (Del. 2005); see also McDermott Inc. v. Lewis, 531 A.2d 206, 209 (Del. 1987) (“internal affairs doctrine is a major tenet of Delaware corporation law having important federal constitutional underpinnings.”).
[5] MITE Corp., 457 U.S. at 645.
[6] Id.
[7] Ann M. Lipton, New Challenges to the Internal Affairs Doctrine, CLS Blue Sky Blog (Dec. 19, 2022), https://clsbluesky.law.columbia.edu/2022/12/19/new-challenges-to-the-internal-affairs-doctrine/.
[8] Ann M. Lipton, Inside Out (or, One State to Rule Them All): New Challenges to the Internal Affairs Doctrine, 58 Wake Forest L. Rev. 321 (2023) [hereinafter, Lipton, Inside Out]; Ann Lipton, The Monkey’s Paw Curls, Bus. L. Prof Blog (June 5, 2025) https://www.businesslawprofessors.com/2025/06/the-monkeys-paw-curls/; Joan Heminway, Corporate Books and Records Under Delaware Law: A New Internal Affairs Controversy Is Brewing, Tenn. Bar Ass’n (June 23, 2025) https://www.tba.org/?pg=Articles&blAction=showEntry&blogEntry=127104; see Stephen M. Bainbridge, DExit Drivers: Is Delaware’s Dominance Threatened?, 50 J. Corp. L. 823, 823–28 (2025).
[9] MITE Corp., 457 U.S. 624, 645 (1982) (“The internal affairs doctrine is a conflict of laws principle which recognizes that only one State should have the authority to regulate a corporation’s internal affairs—matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders—because otherwise a corporation could be faced with conflicting demands.”).
[10] Id.
[11] McDermott Inc. v. Lewis, 531 A.2d 206, 216 (Del.1987); Restatement (Second) of Conflict of Laws § 301; see also Restatement (Second) of Conflict of Laws § 303 cmt. d (stressing importance of uniform treatment of shareholders).
[12] VantagePoint Venture Partners 1996 v. Examen, Inc., 871 A.2d 1108, 1112 (Del. 2005); Restatement (Second) of Conflict of Laws § 302, cmt. e (1971) (“Uniform treatment of directors, officers and shareholders is an important objective which can only be attained by having the rights and liabilities of those persons with respect to the corporation governed by a single law”).
[13] VantagePoint Venture Partners 1996, 871 A.2d at 1112.
[14] Juul Labs, Inc. v. Grove, 238 A.3d 904 (2020).
[15] Salzberg v. Sciabacucchi, 227 A.3d 102, 136 (Del. 2020) (quoting McDermott Inc., 531 A.2d at 216–17).
[16] VantagePoint Venture Partners 1996, 871 A.2d at 1113.
[17] Larry Sonsini, California Court Acknowledges “Quasi-California Corporation” Decision, Harv. L. Sch. F. on Corp. Governance (Sep. 19, 2012), https://corpgov.law.harvard.edu/2012/09/19/california-court-acknowledges-quasi-california-corporation-decision/.
[18] VantagePoint Venture Partners 1996 v. Examen, Inc., 871 A.2d 1108, 1112 (Del. 2005).
[19] Id. at 1113–18.
[20] Cal. Corp. Code § 2115 (2023); Sonsini, supra note 17.
[21] Eccles v. Shamrock Cap. Advisors, LLC, 245 N.E.3d 1110 (N.Y. 2024).
[22] Id. at 1115.
[23] Id. at 1223 (“[T]o overcome this presumption and establish the applicability of New York law, a party must demonstrate both that (1) the interest of the place of incorporation is minimal—i.e., that the company has virtually no contact with the place of incorporation other than the fact of its incorporation, and (2) New York has a dominant interest in applying its own substantive law.”).
[24] See Bainbridge, supra note 8, at 825 (noting longstanding academic arguments that Delaware corporate law should be displaced by federal corporate governance regulation); see William L. Cary, Federalism and Corporate Law: Reflections Upon Delaware, 83 Yale L. J. 663, 705 (1974) (criticizing corporate law’s “race for the bottom, with Delaware in the lead”).
[25] Marc I. Steinberg, The Federalization of Corporate Governance, Harv. L. Sch. F. on Corp. Governance (June 21, 2018), https://corpgov.law.harvard.edu/2018/06/21/the-federalization-of-corporate-governance/.
[26] Id. (explaining that perceived deficiencies in state corporate regulation can prompt federal legislative intervention, particularly during periods of crisis).
[27] U.S. Const. art. VI, cl. 2.
[28] Steinberg, supra note 25.
[29] Id.
[30] Bainbridge, supra note 8, at 825 (“At the other end of the political spectrum, former Trump Attorney General William Barr recently claimed that Delaware courts’ flirtations with the environmental, social, and governance (ESG) movement could cause a corporate exodus from Delaware.”); Lipton, Inside Out, supra note 8, at 324.
[31] Lipton, Inside Out, supra note 8, at 324.
[32] William P. Barr & Jonathan Berry, Delaware Is Trying Hard to Drive Away Corporations, Wall St. J. (Nov. 24, 2023), https://www.wsj.com/opinion/delaware-is-trying-hard-to-drive-away-corporations-business-environmental-social-governance-investing-780f812a.
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