My colleague Jim Park has an interesting new article:
Public companies in the United States must comply with both federal securities law and state corporate law. This division of labor is premised on the assumption that there is a meaningful distinction between securities and corporate law. The prevailing approach argues that securities law is characterized by its use of disclosure, while corporate law sets forth substantive requirements. Others respond that the securities laws are really just a federal version of corporate law. This argument is largely founded on a broad conception of the investor protection function of the securities laws. If the securities laws are meant to protect investors, reformers contend that they should also preempt state corporate law to address corporate mismanagement.
While investor protection concerns have been used to justify unifying corporate and securities law, this Article makes the novel argument that a more nuanced understanding of investor protection serves as a basis for distinguishing between corporate and securities law. Both corporate and securities law serve to protect investors, but they do so at two different phases of the investment process. First, when purchasing or selling a stock, a trading investor is vulnerable to transacting at an unfair price. Second, during the period when an investor owns a stock, he is vulnerable to new corporate misconduct that reduces the value of the company. Simply put, securities law protects investors when trading while corporate law protects investors while they are owners.
Distinguishing between trading and ownership protection provides a strong basis for regulating securities and corporate law in different ways. Securities law is uniform and mandatory because investors have a uniform interest in fair valuation when trading. Corporate law is diverse and enabling because the ownership interests of investors are more difficult to reconcile.
Park, James J., Reassessing the Distinction between Corporate and Securities Law (May 12, 2016). 64 UCLA L. Rev., Forthcoming; UCLA School of Law, Law-Econ Research Paper No. 16-09. Available at SSRN: http://ssrn.com/abstract=2779261
