Alter Ego And The Internal Affairs Doctrine

The internal affairs doctrine is a conflict of laws principle that recognizes that only one state should have the authority to regulate a corporation’s internal affairs. Under the internal affairs doctrine, that special state is the state of incorporation. But what exactly constitutes a corporation’s ”internal affairs”? Many lawyers, particularly those in Delaware, take a broad view of what constitutes an internal affair. However, the U.S. Supreme Court has actually enunciated a rather narrow view: “matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders”. Edgar v. MITE Corp., 457 U.S. 624, 645 (1982).

One might assume that the liability of shareholders for corporate obligations is an internal affair. However, the Nevada Supreme Court has permitted piercing the corporate veil of a Washington corporation. McCleary Cattle Co. v. Sewell, 317 P.2d 957 (Nev. 1957). In Plotkin v. Nat’l Lead Co., 482 P.2d 323 (1971), the Supreme Court assumed that the alter ego doctrine could be applied to a Wisconsin corporation (although it declined to conclude that the owners were in the alter ego).