Chapter

Corporations and the Duty to Obey the Law

in The Failure of Corporate Law

Published by University of Chicago Press

Published in print February 2007 | ISBN: 9780226306933
Published online March 2013 | e-ISBN: 9780226306988 | DOI: http://dx.doi.org/10.7208/chicago/9780226306988.003.0005
Corporations and the Duty to Obey the Law

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Most corporate law scholars seem not to care much about corporate crime. While courts hearing corporate law cases do occasionally talk in principle about the firm's duty to obey the law, these cases tend to arise in situations in which the violation of law ended by costing the shareholders money. This chapter argues in favor of bringing lawsuits against corporations breaking the law on the grounds that illegality is “ultra vires,” beyond the power of the corporation. If recognized, this theory would allow a shareholder to sue the company to enjoin its violation of international law. The chapter first examines whether corporations have a duty to obey the law. It then discusses the ultra vires doctrine, illegal activities by corporations and the duty to obey the law as ultra vires, and why a firm's stakeholders would not want the corporation to break the law. The chapter also examines two serious problems in applying the ultra vires doctrine as outlined here: the problem of unclear law and the problem of “law-as-price.”

Keywords: corporate law; corporate crime; illegal activities; corporations; ultra vires doctrine; international law; shareholders; law-as-price; unclear law; lawsuit

Chapter.  13963 words. 

Subjects: Company and Commercial Law

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