Legal arbitrage can be defined as taking advantage of differences between legal regimes governing the same economic activities (or close substitutes). In the case of company law, legal arbitrage may occur especially when firms can choose to incorporate in different jurisdictions without having to relocate their business activities. Corporate law arbitrage is a demand-side precondition for charter competition among jurisdictions: if firms to not react to differences in company law, there is no point for jurisdictions in competing for incorporation. Legal arbitrage, therefore bears on the longstanding academic debate on charter competition.
The self-regulating corporation I suggest here turns the usual analysis upside down. That usual analysis posits the distinctive regulatory problem posed by [multinational corporations] is their ability to operate an integrated command and control system through two disaggregated institutional structures. The first of these structures is the collection of discrete corporate units parent, subsidiary, sister, and cousin companies that make up the Multi-National Corporation group. The second disaggregated structure housing the Multi-National Corporation is the global system of separate nation-states in which those corporations are registered and do business. . . . Where a corporation can distribute its operations in a sufficiently complete way, it has turned the tables on the state. . . . By carefully choosing the place, form, and method of operation, it can effectively decide the manner in which it will be regulated. States may legislate to their hearts’ content, but the enterprise will submit to those regulations only to the extent it is either unavoidable or profitable. The tables have been turned on the state in another important way. From the perspective of the self-regulating corporation, the role of states has changed. No longer holders of a monopoly power to regulate the enterprise, states are now mere producers of a good—regulation—that can be characterized as a cost of operations. Like other operating costs, the costs of law can be modified or reduced through avoidance. Where the entity cannot avoid regulation, it is limited as regulation increases the price of goods. But where there is no monopoly on regulation, then avoidance, and the substitution of one legal regime for another becomes possible. In effect, entity and state have changed