Capital Stock, its Shares and Their Holders: A Comparison of India and Delaware
Worldwide Junior Corporate Scholars Forum Conference, March 2007
36 Pages Posted: 5 Jul 2006
The paper explores the origin of "shareholder supremacy" in Anglo-American corporate law and the present legal position of corporate capital stock, its shares and their holders. The study is comparative, and the statutes of India and Delaware are selected for comparison. The paper argues that Indian company law, which is based on English law, adopts the "business model" of corporations that gives at least as much importance to the business of companies as it does to their finances. But American corporate law, as it has evolved over the last two hundred years and exemplified by the Delaware statute, creates a "financial model" in which corporations are treated mostly as issuers of securities, and the statute treats the securities as commodities in which corporations deal. The Delaware statute has a bias in favour of the stock market and adopts the policy of encouraging trade in the securities.
The paper traces the process of development of corporate law in the two jurisdictions, and attempts to explain the divergence in their philosophies in the context of the respective developmental processes. The implications of the two philosophies for corporate behavior and governance are also examined. The comparison also illustrates how Indian company law is converging towards the American financial model, since the government of India adopted the policy of economic liberalization and globalization in the 1990s.
Keywords: Corporations, shareholder supremacy, corporate law, stock market, corporate governance
JEL Classification: G35, K22
Suggested Citation: Suggested Citation