Model Business Corporations Act

By David Carnes

The Model Business Corporations Act, first created by the American Bar Association, is a body of statutory law that was designed to govern corporate affairs. Although the MBCA has no legal force unless enacted by a state legislature, all 50 states have enacted at least a portion of the MBCA.

History

The American Bar Association first promulgated the MBCA in 1950 as a successor to the unpopular Uniform Business Corporation Act, which was enacted by only three states. The ABA continued to revise the MBCA over the next three decades to increase its popularity with state legislatures. In 1984 the MBCA underwent a major overhaul of the MBCA, and has has additional minor revisions since then. By 2008 the MBCA had been fully enacted by 24 states, and partially enacted by 26 states and the District of Columbia.

Purpose

Each state has the authority to enact its own corporate law, which leads to unnecessary legal risk and uncertainty when a corporation operates in many different states. The MBCA was designed to provide states with a chance to harmonize their corporation statutes with those of other states, thereby making it easier for corporations to do business in many states. In addition to statutory harmonization, the use of identical statutory language by many different state legislatures encourages a more fundamental harmony -- a court in one state, when interpreting a statute, may borrow the interpretation assigned to identical statutory language by a court in another state.

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Content

The MBCA is a comprehensive body of corporate law covering all aspects of doing business as a corporation. Topics include the steps needed to form a corporation, the effect of limited liability, the structure of corporate governance, corporate formalities required to maintain limited liability, voting rights and shareholder rights. Some of these statutes are default provisions that apply to a corporation only if its bylaws do not address a particular issue -- how many shareholders must be present at a meeting to form a quorum, for example.

Enactment

Because enactment of the MBCA by state legislatures is voluntary, states often enact versions of the MBCA that have been slightly revised to reflect local concerns. A state may also choose to enact only a portion of the MBCA, and complete its body of corporate law by including either locally drafted legislation or legislation that has been borrowed from another state's corporate law. The Delaware General Corporation Law is a major competitor of the MBCA for popularity among state legislatures.

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References

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