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The Historical Race Competition for Corporate Charters and the Rise and Decline of New Jersey: 1880-1910

I. INTRODUCTION II. THE ORIGINS OF STATE COMPETITION FOR CORPORATE CHARTERS: 1875-1888 A. State Competition in the Era of Special Charters B. General Incorporation Statutes and the Origins of New Jersey's Dominance III. INCORPORATION OF THE TRUSTS: NEW JERSEY'S CONTROVERSIAL 1889 STATUTE. A. Events Leading to Enactment of the 1889 Statute B. The 1889 Statute and its Impact on Trust Incorporations IV. THE BUSINESS OF SELLING INCORPORATIONS: 1890-1899 A. Organization of the Corporation Trust Company of New Jersey B. The 1896 Revision of New Jersey Corporate Law V. MERGER MANIA AND THE CHALLENGE TO NEW JERSEY: 1899-1910 A. Causes of the Great Merger Boom B. State Competition During the Great Merger Boom 1. Delaware 2. Maine 3. New York 4. West Virginia 5. South Dakota C. Charter Competition at the End of the Great Merger Boom VI. CONCLUSIONS AND IMPLICATIONS APPENDIX I APPENDIX II APPENDIX III APPENDIX IV APPENDIX V I. INTRODUCTION In July 1902, readers of The American Lawyer, a self-styled "News-Journal of the American Bar" would have seen a large advertisement for an organization called the "Delaware Corporation Company." (1) It offered "Corporations organized under Delaware Law. Perpetual Charters. Low rate of taxation. Original books may be kept outside the State. Copy of the Law, Blank Forms and full information forwarded upon request." (2) A few pages later in that same publication, a similar ad promoted "Maine Corporations," which, it said, "have broader powers, greater immunity to stockholders and are taxed less than those of New Jersey, New York, Delaware or West Virginia." (3) Appearing in the October issue were two additional advertisements for incorporation in South Dakota. One reported that the state's "laws are liberal. Least trouble and expense and more privileges than any other state." (4) The other ad simply announced "This beats New Jersey." (5) New Jersey was definitely the state to beat. The so-called "Mother of Trusts" was the beneficiary of the first great merger boom in American business history, (6) as combinations of industrial finns created such industry-dominant companies as Consolidated Tobacco, Standard Oil and U.S. Steel, all incorporated in New Jersey. (7) The financial benefit to the state was substantial. By 1896 New Jersey was, according to its Governor, "practically out of debt" and had no statewide taxes. (8) By 1905, it had begun to remit to localities a portion of the school tax assessments. (9) It was not surprising that other states sought to both emulate and compete with New Jersey by offering even more "liberal" state corporation laws or by charging lower incorporation fees and franchise taxes. In the long run, of course, it was Delaware that emerged the victor in this historical race, but that victory was not generally recognized until long after New Jersey, in 1913, effectively took itself out of the running by passing the reform statutes known as the "seven sisters." (10) The subject of regulatory competition among states for corporate charters has attracted immense theoretical interest in recent years. Broadly speaking, this work can be divided among those who view Delaware's current dominance as the result of a "race to the bottom," frequently coupling that analysis with a call for greater federal regulation of corporations; (11) those who argue that the beneficial effects of state competition create instead a "race to the top;" (12) and various intermediate positions. (13) In recent years, empirical research (14) has added significantly to the sophistication and complexity of the debate, if not as significantly to its resolution. (15) Given this interest, it is somewhat surprising that more attention has not been paid to the historical origins of state regulatory competition in its earliest period, roughly 1880 to 1910. …