Uber-Ized Corporate Law: Toward a 21st Century Corporate Governance for Crowdfunding and App-Based Investor Communications

ABSTRACT:

This Article begins with a thought experiment about how corporate governance of small public companies trading on new platforms—like crowdfunding portals (or alternatively, “crowdfunding exchanges”)—might be expected to evolve to make corporate governance easier and more flexible for users. New opportunities could involve increased use of default rules whereby shareholders or owners defer direct participation in governance (in line with the Bainbridge director primacy argument), subject to default participation rules developed on crowdfunding platform apps (in a multitude of ways, including through open source methods). They could also include more shareholder empowering regimes. In examining the heterogeneous corporate governance needs that crowdfunded firms are likely to have, this Article will link contributions from the New Institutional Economics, or “Theory of the Firm” Literature, to corporate entity formation to provide a flavor for the range of “outside the box” innovations that may be possible in a new and more competitive corporate chartering race free from the federal overlay.

Of all the claims made in this Article, the strongest is that increased use of arbitration—rather than litigation—to resolve shareholder claims against company defendants will be a necessary element to reinvigorated charter competition for crowdfunded firms. The SEC currently prohibits full use of arbitration of shareholder claims against companies. This Article argues that since antifraud actions under the Securities Exchange Act of 1934 and state corporate governance claims are now largely interchangeable, the SEC’s intransigence on arbitration, in spite of federal case law favoring arbitration generally, must be addressed to make state law arbitration a viable alternative means of adjudication for states that compete with Delaware as sources of business entity law.