In today’s highly regulated environment, companies and their directors and officers need to know what laws and standards will be applied to their actions. Even the best-intentioned executives will be challenged to fulfill their fiduciary duties to the corporation if they are uncertain what state’s laws apply to them.
Because of these concerns, courts have long enforced the internal affairs doctrine, under which a corporation’s internal affairs, including the relationships and duties among its officers, directors and shareholders, are regulated by the laws of one state — the one in which the company is incorporated. California’s courts have historically followed this rule, and California Corporations Code �2116 contains a requirement that claims against an out-of-state corporation’s officers and directors for violating any aspect of their “official duty” must be determined under the law of the company’s state of incorporation.
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