A Rule-Based Method for Comparing Corporate Laws

Scholars, lawyers, judges, and policy-makers frequently need to compare corporate laws, both internationally and domestically. To make those comparisons, researchers need a method. Those who simply search foreign law for a similar rule typically fall into a ubiquitous trap-even the same verbal rule often does not produce the same results in different legal systems, and widely differing verbal rules often do produce the same results. 

Comparative law scholars have generated numerous methods for avoiding this trap, and also developed some widely accepted standards by which to judge those methods. Although comparisons may be rule-based, they are expected to take context, including legal traditions, into account. They must be capable of discovering and including institutions that perform the same functions, even when those institutions are contained in disparate doctrines and described by different terminology. They must recognize that when concepts do exist in different jurisdictions, they may be understood differently. Comparisons must take into account how the legal systems actually enforce their rules.

This exacting list of requirements has thus far prevented the field of comparative law from meeting corporate law's need for a simple and intuitive method that corporate law experts can apply without extensive comparative law training. In 'A Rule-Based Method for Comparing Corporate Laws', forthcoming in volume 94 of the Notre Dame Law Review, I seek to fill that need. In that Article, I specify a rule-based method for comparing corporation laws that can meet all of the requirements. Parts of the method-such as the use of country experts-are already in wide use. Other parts-the extraction, juxtaposing, and comparing of rules-are new. The method is for comparison of a single aspect of one entity law with the corresponding aspect of another. It requires participation by an expert in each of the corporate laws to be compared. 

The method consists of six steps. The first step is to create a hypothetical fact scenario that raises the aspect of corporate law that is of interest to the researchers. The scenario should be stated in concrete, physical terms, without using the legal jargon of either country. The second step is to choose two comparable entity types for comparison. Attempts to compare 'U.S. corporate law', for example, with the corporate law of some other country are necessarily inexact, because no U.S. law of corporations actually exists. Delaware corporate law does exist.

The third step is to conduct the research necessary to resolve the scenario under the law applicable to each entity type, in essentially the same manner that an attorney would if tasked with rendering an opinion. The researchers should state who wins on the facts of the scenario in each country. In doing so, they necessarily identify the governing rule in each jurisdiction. 

The fourth step is to extract from their research the rules-whether legal, practical, or something else-that directly determined the resolution in each country, express those rules in parallel to the extent practical, and juxtapose them. The fifth step is to express the most important respects in which the extracted rules are the same or different. These fourth and fifth steps are new and crucial to the success of the method.

When researchers attempt to compare without method, what they usually produce is a narrative about the law of each country in the relevant respect. That narrative may be ten pages or a single paragraph on each jurisdiction. The researchers stop there, thinking that the comparison is either complete or obvious. But the production of such narratives is not comparison-it leaves the task of comparing to a reader who is typically much less capable of doing it than is the writer.

The sixth step is to apply the researchers' evaluative criteria to reach useful conclusions. Because the method is efficient, flexible, and easy to use, it can be applied by corporate law scholars, legal reformers, judges, and policy-makers to compare specific aspects of corporate law between two jurisdictions, by corporate lawyers to choose entity types internationally or domestically, and by corporate litigators to anticipate the effect of the court's choice of law.

This post is a modified version of a post that was first published here.

Lynn M. LoPucki is Security Pacific Bank Distinguished Professor of Law at UCLA School of Law.