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A defining feature of American corporate law is its decentralized institutional structure. Alone among developed nations, the United States has never adopted a national corporation law, leaving the formation and governance of business organizations to the laws of the individual states. This subnational system may seem quaint in an era of globalized economic activity, but it has given rise to one of the world’s most influential business jurisdictions—the state of Delaware.[1] Indeed, Delaware’s success is widely attributed to the nature of the US system itself, which has incentivized states to tailor their laws in order to attract out-of-state firms.[2] Many scholars argue that state competition has undermined corporate governance standards,[3] while others praise it as an important source of economically efficient legal rules.[4] Regardless of perspective, nearly all agree that jurisdictional competition has profoundly shaped American law.[5]

Superficially, Canadian corporate law appears to share a similar decentralized character. In Canada, the provinces, territories, and federal government each have the power to form corporations, and—as in the United States—corporations are not required to be physically located in their “home” jurisdiction.[6] Despite these structural similarities, significant jurisdictional competition has never emerged in Canada. Indeed, Canadian corporate law has instead been characterized by increasing uniformity, particularly in recent decades.[7] Rather than develop their own distinct legal rules, many provinces have followed the Canada Business Corporations Act, a federal act passed in 1975 to modernize Canadian corporate law.[8]

In the United States, the costs and benefits of state competition have long been subject to academic debate. The question of whether state competition leads to greater or lesser economic efficiency—often referred to as the “race to the top” versus “race to the bottom” debate—is one of the classic research issues in American corporate legal scholarship.[9] Despite the attention it has received in the United States, the possibility of similar competition in Canada remains underexplored. For a time, the only published research on the subject was by Ronald Daniels, then at the University of Toronto. Writing in the early 1990s, Daniels questioned the benefits of standardization, a goal he saw as unduly emphasized by the Canadian corporate legal community.[10] In his article “Should Provinces Compete? The Case for a Competitive Corporate Law Market,” Daniels argued in favour of jurisdictional competition in the model of the United States. Despite his enthusiasm, however, Daniels acknowledged institutional obstacles to greater provincial competition in Canada. According to Daniels, these obstacles included (1) the broad and overlapping jurisdiction of the provincial securities regulators and (2) the centralized appellate authority of the Supreme Court of Canada, both of which served to limit the development of distinctive provincial corporate law.[11]

In response to Daniels, Jeffrey MacIntosh and Douglas Cumming have expressed skepticism as to the viability of Canadian jurisdictional competition.[12] Unlike Daniels, who sees provincial conformity around the CBCA as the product of competitive pressures, MacIntosh and Cumming find little evidence that provinces compete for corporations. Employing a variety of statistical measures, the authors conclude that provincial legislatures have pursued a strategy of uniformity, not competition, and that a number of institutional barriers have discouraged provincial legal innovation.[13] Like Daniels, MacIntosh and Cumming cite provincial securities regulation and the centralized appellate authority of the Supreme Court of Canada as factors undermining provincial competition.[14] But they also point to broader obstacles, including the relatively sparse body of Canadian corporate legal precedent (which encourages provincial courts to rely on cases from other provinces),[15] protectionist regulations of provincial law societies (which have discouraged Canadian lawyers from recommending out-of-province incorporation),[16] and a general lack of “competitive consciousness” among the Canadian legal and policy communities.[17] Writing from the American perspective, Roberta Romano has cited many of these same factors as discouraging jurisdictional competition in Canada.[18] Finally, Christopher Nicholls offers a simpler explanation—given the smaller size of the Canadian economy, there may not be enough revenue at stake to incentivize provinces to actively compete.[19] Ultimately, although perspectives on the issue vary, the existing literature broadly suggests that competition among the provinces has been limited by institutional factors distinctive to Canadian federalism.

Without disputing these factors, this article takes a different approach to the question of Canadian legal competition. Rather than analyzing the current institutional environment, this article provides a historical explanation of how that environment came to exist. More specifically, this article argues that divergent patterns of jurisdictional competition in Canada and the United States can be traced to the corporate merger movements of the late nineteenth and early twentieth centuries.[20] During this period, both Canada and the United States experienced unprecedented industrial consolidation, as thousands of formerly independent firms disappeared into “trusts” or “combines”.[21] Although the merger movements in the two countries shared many similarities, they occurred within very different legal contexts. In the United States, prohibitions on consolidation at both the state and federal levels channeled businesses toward jurisdictions offering an “escape” from corporate merger restrictions. By the time of the Canadian merger movement, neither the federal government nor the individual provinces imposed meaningful limits on consolidation, and companies were generally free to merge and expand as they saw fit. Significantly, Canadian federal company legislation was relatively liberal,[22] such that a majority of the largest Canadian businesses chose to incorporate under federal law.[23] Thus, while legal conditions in the United States led to a “race” to dismantle corporate restrictions, there was less opportunity for Canadian provinces to offer similar advantages. In effect, the permissiveness of federal law precluded provincial competition.

Given current perceptions of Canadian corporate law, this history presents an intriguing irony: today, Canadian law is sometimes criticized as insufficiently attentive to business needs, and a number of scholars have suggested the benefits of a more competitive, US-style system.[24] Though not directly related, these criticisms run parallel to more general conceptions of Canadian law, particularly its greater solicitude for corporate social responsibility. These conceptions—that Canadian jurisprudence has rejected the shareholder primacy norm, that directors’ duties are fundamentally tied to notions of the “good corporate citizen,” and that Canadian courts are increasingly responsive to environmental, social, and community interests[25]—distinguish Canadian law, in the eyes of many scholars, from the more narrow focus on economic profits that has traditionally characterized American law.[26] Recent amendments to the CBCA have only strengthened this impression.[27] But while Canadian corporate law may be moving toward a broader conception of social responsibility, its focus during the early twentieth century could hardly have been more different. At the time of the Canadian merger movement, Canadian law was primarily focused on the interests of the business class, eschewing the restrictive antitrust[28] provisions that were common in the United States. Ironically, it was the restrictive nature of American law—and the resulting economic and political pressures—that eventually led to the United States’ distinctive pattern of jurisdictional competition. As similar restrictions on corporations were largely absent from Canadian law, pressures to eliminate them never organically emerged.

Following this introduction, the remainder of this article proceeds as follows. Part II describes how merger restrictions led to competition among the states. In the context of the industrial consolidation of the late nineteenth and early twentieth centuries—during which many states’ corporate laws prevented or discouraged mergers—the state of New Jersey attracted corporations by facilitating national combinations. New Jersey’s success in drawing corporations (and the associated tax revenues) led to a decades-long period of state competition, in which Delaware was the eventual winner. Part III examines the Canadian experience, in which jurisdictional competition was relatively muted. In Canada, the absence of meaningful antitrust restrictions and the permissiveness of federal company law reduced both demand-side pressure (from the business community) and supply-side pressure (from provincial governments) for major corporate law reform. Part IV concludes, assessing (1) how historical differences between Canada and the United States have influenced the substance of corporate law and (2) whether circumstances exist for increasing competition in Canada today.

I. State Corporate Chartermongering[29] and the Rise of Delaware

American corporate law is often identified with the law of Delaware, the country’s leading jurisdiction for business organizations. Through its dominance of the incorporation market for the largest American firms, Delaware exerts an outsized influence on the American corporate legal landscape.[30] In the academic literature, Delaware’s prominence is often attributed to its accommodating corporate governance standards, which appeal to the managers who control incorporation decisions.[31] Although corporate governance is an important factor in Delaware’s success, the origins of the state’s rise to prominence are actually grounded in antitrust policy. As this Part explains, it was legal restrictions on industrial consolidation at both the state and federal levels that incited the race toward permissive corporation laws. Given the focus of corporate legal scholarship on the relationship between management and shareholders, and its conception of jurisdictional competition almost exclusively in terms thereof, recovering the role of antitrust policy in state competition is an important corrective. Moreover, this history provides a revealing contrast to the Canadian consolidation experience, in which meaningful restrictions on mergers and combinations were largely absent.

A. Mounting Industrial Consolidation

During the late nineteenth century, technological, economic, and demographic developments led to a major increase in American industrial consolidation.[32] By the late 1880s, improvements in transportation, communication, and manufacturing technologies significantly increased returns to scale across a range of emerging industries.[33] Combined with rapid population growth, this “second industrial revolution” led to profound economic change—creating new markets, increasing productivity, and giving rise to ever larger firms.[34] In the 1890s, these changes culminated in a sudden, sweeping wave of industrial mergers. During the ten-year period of 1895–1904, more than 1,800 independent firms disappeared into business combinations.[35] Many of the firms resulting from these mergers—commonly referred to as “trusts”—obtained dominant positions within their respective industries.[36]

Several factors contributed to this “Great Merger Movement,” the most extensive period of business consolidation in American history. The leading explanation is that of economic historian Naomi Lamoreaux, whose monograph The Great Merger Movement in American Business, 1895–1904 provides a theoretical and empirical account of why and how the movement occurred.[37] According to Lamoreaux, while the movement reflected fundamental changes in the structure of the American economy, it was triggered by a “particular conjunction” of specific historical circumstances: (1) the rapid expansion of capital-intensive (and thus high-fixed-cost) industries in the early 1890s, (2) the financial panic of 1893, which caused a sudden reduction in aggregate demand and a subsequent increase in price competition, and (3) efforts to combat falling prices through anti-competitive business combinations.[38] This conjunction of high fixed costs and depressed economic conditions in the 1890s created an environment of “ruinous” price competition (i.e., pricing below average cost) that businessmen were desperate to alleviate.[39] However, given the size, diversity, and competitiveness of the American economy, cartel and other price-fixing arrangements proved difficult to enforce.[40] To make matters worse, price fixing was declared illegal by the Sherman Act of 1890.[41] Given these practical and legal constraints on agreements among independent firms, mergers became the favoured means of reducing competition.[42]

Although Lamoreaux’s account is foundational, other scholars have offered additional explanations for the Great Merger Movement. Business historians such as Alfred Chandler have explained the merger movement primarily in terms of the efficiency of large-scale management processes.[43] According to Chandler, the development of modern business management was critical to the success of integrated firms, as it facilitated the harnessing of new technologies and the resultant economies in production and distribution.[44] Another explanation for the Great Merger Movement is the development of a national equity market, which first emerged for “industrial” corporations (i.e., manufacturers) in the 1890s.[45] As financial markets recovered from the panic of 1893, increasing demand for industrial securities encouraged “promoters”[46] to organize large business combinations financed by public shares.[47] Due to the monopoly profits available from merging competing firms (as per Lamoreaux), the greater economic efficiency of large, integrated businesses (as per Chandler), or simply the market speculation of the late 1890s and early 1900s, stock offerings by industrial combinations sold readily and at high premiums.[48] Finally, federal tariff policy—which impeded foreign price competition—also encouraged the merger movement by protecting domestic monopolies.[49] Ultimately, each of these various factors played a role, providing firms with a number of reasons to merge with their competitors.

Consolidation was hindered, however, by state and federal antitrust law. At the federal level, the Sherman Act of 1890 prohibited a range of anticompetitive activity. Section 1 of the act barred “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States.”[50] Section 2 spoke to monopoly directly, declaring “[e]very person who shall monopolize, or attempt to monopolize, ... any part of the trade or commerce” to be guilty of a misdemeanor.[51] Despite this broad language, however, the act’s practical significance was limited. Private and government enforcement was minimal, meaning few cases were brought to clarify the act’s provisions.[52] Due to weak enforcement by the federal government and the inherent ambiguity of the act’s language, voluntary compliance on the part of businesses was indifferent, at best.[53] In the years following the act’s adoption, many firms continued to engage in anticompetitive business practices.[54]

Moreover, under the historical conception of the division of power between the federal government and the states, federal prosecutors had greater scope to attack price fixing among independent firms (which Lamoreaux refers to as “loose” combinations) than monopolies organized as single, integrated corporations (which Lamoreaux refers to as “tight” combinations).[55] According to the constitutional understanding of the time, the regulation of corporations—no matter how large or powerful—was properly reserved to the state governments responsible for their creation.[56] This conception of the states’ role in regulating corporations was strengthened by the US Supreme Court’s early Sherman Act decisions. In a series of cases in the 1890s, the US Supreme Court interpreted the Sherman Act to prohibit “restraints of trade,”[57] but to allow the formation of monopolies by directly acquiring competitors.[58] This legal result—in which price fixing was illegal but mergers to monopoly were not—incentivized mergers as a means of reducing competition.[59] Ironically, the practical effect of the Sherman Act was to encourage combinations, which significantly increased in size and number in the decade following its enactment.[60]

Federal law was not the only obstacle to consolidation, however. During the late nineteenth century, state corporation acts placed major limits on the size and structure of corporations.[61] These acts, reflecting the historical legacy of Jacksonian democracy and an enduring suspicion of concentrated power, imposed substantial limits on corporate capitalization, duration of corporate existence, and the scope of corporations’ business activities.[62] By the late 1880s, public concern over the emergence of trusts had become a major political issue, and state lawmakers and Attorneys General became increasingly aggressive in attacking combinations.[63] These attacks came in two forms—legislative and prosecutorial. On the legislative front, a common approach was to add antitrust provisions directly to corporate or criminal statutes, a measure taken by twenty seven states as of 1890.[64] Many of these provisions forbade corporations from purchasing or holding other corporations’ stock, thereby preventing the “holding company” structure as a means of effecting corporate mergers.[65] With respect to litigation, several states brought successful actions against large combinations, claiming they had exceeded their powers under the state’s corporate franchise.[66] These cases were generally predicated on one of two legal doctrines: (1) the common law principle of ultra vires or (2) statutory grants to state Attorneys General of the power to bring quo warranto proceedings.[67] In light of these corporate law devices—and notwithstanding the weakness of the Sherman Act—state law served as a major impediment to large-scale industrial mergers.

Specific examples illustrate these laws’ general character. New York and Illinois—along with twenty-five other states—expressly prohibited combinations for the purpose of reducing competition.[68] New York’s Stock Corporation Law barred mergers “for the creation of a monopoly or the unlawful restraint of trade or for the prevention of competition in any necessary of life,”[69] while Illinois’ Trusts and Conspiracies Against Trade act provided that any corporation guilty of fixing prices, restricting output, or otherwise reducing competition “shall thereby forfeit its charter and franchise, and its corporate existence shall cease.”[70] Pennsylvania and Massachusetts limited corporate size and capital structure, another common approach. In both states, industrial corporations were prohibited from having more than one million dollars’ capital stock, along with other restrictions.[71] Finally, quo warranto laws were a powerful means of attacking monopolistic trusts, as demonstrated by the dramatic prosecution of the Standard Oil Company of Ohio (discussed below). Armed with statutory proscriptions, quo warranto powers, and the common law doctrine of ultra vires, states were equipped with a variety of tools for combatting corporate consolidation.[72]

Many states used these tools aggressively. Each of the states listed in Annex A pursued major legal actions against the large combinations that began to emerge in the late 1880s and early 1890s. To give but a few prominent examples, the Attorney General of Illinois brought a successful quo warranto proceeding against the Chicago Gas Trust Company in the late 1880s, challenging the company’s strategy of buying out its major competitors.[73] Deciding the matter on appeal in 1889, the Illinois Supreme Court held, as a matter of Illinois law, that corporations were not permitted to acquire the stock of other corporations, particularly if their motive was to reduce competition.[74] A year later, the New York Court of Appeals approved a similar quo warranto action against a constituent corporation of the infamous Havemeyer “Sugar Trust.”[75] After holding that the corporation had exceeded its legal authority by joining a horizontal combination, the Court invoked the “extreme rigor of the law,” sentencing the defendant to “corporate death.”[76] As a final example, the famous attempt by the Attorney General of Ohio to destroy the Standard Oil Trust provides evidence of both the strengths and weaknesses of state corporate law as a means of imposing antitrust restrictions.[77] Although the Ohio Supreme Court ruled in favour of Standard Oil Company on statute of limitations grounds, it also prohibited the corporation from continuing to participate in the larger trust.[78] This prohibition proved ineffective—following the ruling, Standard Oil abandoned its trust structure and reorganized as a New Jersey corporation.[79] Standard Oil was not alone in its decision to reincorporate.[80] By the 1890s, New Jersey had emerged as a protective haven from the “extreme rigor” of its sister states.

B. New Jersey Chartermongering

As American industry consolidated, New Jersey took advantage of the obstacles imposed by other states. Even before the 1890s, New Jersey was a welcoming home to corporations—its 1875 corporation act was relatively permissive for its time[81] and its conservative judiciary was well regarded by the Wall Street bar.[82] Capitalizing on its reputation, New Jersey embarked on a series of reforms that made it more attractive to out-of-state firms.[83] New Jersey’s liberal policy toward corporations—motivated by a desire to attract corporate tax and franchise revenues—precipitated the race in corporate law reform, as legislators in other states sought to replicate New Jersey’s strategy.[84]

The ability of New Jersey to draw businesses from other states was a result of the peculiar status of corporations under American federalism. Since the US government had never enacted a federal corporation act, corporations could only be formed under the laws of individual states.[85] In addition, the Commerce Clause[86] limited states’ power to discriminate against “foreign” (out-of-state) corporations, preventing state governments from excluding corporations organized in other states.[87] Finally, under the “internal affairs” doctrine, a corporation’s internal governance was regulated by its state of incorporation, not the laws of other states in which it did business.[88] Together, these principles allowed corporations to avoid unfavourable legal rules through jurisdictional selection. Having dispensed with any legal requirement that shareholders or directors be state residents, and having explicitly empowered corporations to do business in other states, New Jersey emerged as a favoured destination for large industrial combinations.[89]

Beginning in the late 1880s, New Jersey revised its corporation act specifically to attract out-of-state capital. In response to lobbying efforts by James B. Dill, a talented and ambitious Wall Street attorney, New Jersey enacted a number of reforms presumably for the purpose of attracting New York promoters.[90] Among these reforms, the most significant was an 1889 amendment allowing corporations to freely purchase the stock and/or assets of out-of-state firms.[91] Attracted by these reforms, industrialists and promoters fearing legal attack in their home states began to incorporate in New Jersey.[92] In 1896, the entirety of the New Jersey corporation act was comprehensively rewritten by a revision commission chaired by Dill.[93] This 1896 act is widely credited by US scholars as the first modern, “enabling” corporation act.[94] Its logical organization and minimal legal requirements were a far cry from other state corporation statutes of the time, which were needlessly complex and arbitrarily restrictive by modern standards. Even more important to corporate promoters—and in keeping with New Jersey tradition—the act included no prohibitions on trusts, monopolies, or combinations.[95]

As the merger movement accelerated in the mid-1890s, New Jersey reaped the fiscal benefits of its liberal corporation act. By several measures, the state quickly became the dominant corporate jurisdiction in the United States: between 1895 and 1904, 50% of combinations by number and nearly 80% of combinations by value were incorporated in New Jersey.[96] Between 1896 and 1901, New Jersey incorporations increased nearly 200%, eventually providing more than 60% of the state’s total tax revenue.[97] By 1904, all seven of financial analyst John Moody’s “greater industrial trusts”—the largest corporations in the country—were incorporated in New Jersey, as were 162 of 311 “lesser” (but still significant) trusts.[98] Despite its much smaller industrial base compared to wealthier states such as New York, New Jersey became infamous as “the cradle of monopolies.”[99]

As the merger movement peaked, other states attempted to emulate New Jersey’s success. A number of states, including Delaware, Maine, South Dakota, and West Virginia, attempted to compete with New Jersey by passing similar corporation acts and/or charging lower corporate franchise taxes.[100] Even leading industrial states such as New York and Massachusetts were forced to reform their corporation acts to avoid losing corporations to New Jersey or “one of the chartering states.”[101] By the first decades of the twentieth century, American corporate law was being transformed by the pressures of jurisdictional competition.[102] Ironically, it was the traditional rigour of American corporate law and its hostility toward monopolies that created the opportunity for a race toward corporate laxity.

C. State Law Competition and the Rise of Delaware

Given its first-mover advantage, New Jersey was the original leader of the American incorporation market. Other states attempted to compete, but New Jersey’s leadership position remained secure. Incorporators had little reason to venture into untested waters given the predictability and reliability of the New Jersey legal system.[103] As New Jersey had invested heavily in its corporate-friendly reputation, businesses could be reasonably assured it would not engage in radical reform.[104] These assurances evaporated in the second decade of the twentieth century, however, when the New Jersey legislature suddenly passed a series of strict antitrust provisions.[105] Following this unwelcome political development, the nation’s largest corporations migrated to the state of Delaware—where, by and large, they remain today.

Prior to New Jersey’s political reversal, Delaware was its most active competitor. In 1899, Delaware enacted a corporation act that was substantially similar to the New Jersey statute.[106] The biggest difference between the two states was that Delaware charged lower franchise taxes.[107] Given these lower taxes, Delaware lawyers and corporate service providers could essentially compete on price, marketing their state as a lower-cost alternative to New Jersey.[108] This strategy saw some, albeit limited, success. By the end of the Great Merger Movement, Delaware had attracted thirteen of the country’s major industrial trusts—more than its small state competitors such as Maine and West Virginia, but far fewer than New Jersey or even traditional industrial states such as New York.[109] Although Delaware earned a reputation as a corporate-friendly jurisdiction, New Jersey continued to lead the incorporation market.[110]

This state of affairs continued until the presidential election of 1912, an unusual three-way contest among Woodrow Wilson, the Democratic governor of New Jersey, William Howard Taft, the incumbent Republican president, and former Republican president Theodore Roosevelt, who ran on an independent progressive party ticket.[111] Wilson campaigned on a Democratic platform of progressive economic reform, a position at odds with his home state’s image as the “mother of trusts.”[112] When Wilson called for stronger antitrust laws on the campaign trail, Roosevelt—who was popularly regarded as a “trust buster” for his administration’s prosecution of antitrust cases—taunted Wilson for his inaction against the trusts during his tenure as New Jersey governor.[113] Although Wilson won the election, the trust issue remained a source of political embarrassment. In his final annual message as governor of New Jersey, Wilson called for legislation to bring corporations under stricter control.[114] The Democrat-controlled state legislature obliged, passing seven broad antitrust provisions in early 1913.[115] Among other restrictions, these provisions prohibited any “combination or agreement between corporations, firms, or persons” in restraint of trade; the purchase, holding, or disposition by any corporation of the securities of any competing corporation; and price discrimination between different buyers, markets, or areas within the state.[116] These enactments, known popularly as the “seven sisters,” were an abrupt and unexpected shift in New Jersey’s policy toward corporations,[117] imposing many of the same antitrust restrictions that firms came to New Jersey to avoid. Virtually overnight, New Jersey transformed from a corporate haven to a minefield of legal and political risk.

The reaction was foreseeable. Following enactment of the seven sisters, New Jersey incorporations declined as firms opted for other states. Delaware was the primary beneficiary of this shift, likely because its corporation act was so similar to New Jersey’s.[118] During the period 1912–1920, annual incorporations in Delaware increased more than 400% (from 1,427 to 5,747), while annual corporation revenues increased over 900% (from $168,244 to $1,570,620).[119] Over the same period, New Jersey’s corporation revenues gradually declined, as new corporations shunned the state and existing corporations choose to leave it.[120]

Realizing the consequences of its actions, the New Jersey legislature attempted to reverse course by weakening the seven sisters in 1917.[121] The damage had already been done, however. By enacting the seven sisters, New Jersey irreparably damaged its pro-corporate reputation.[122] Reversing its decision could not restore the business community’s trust.[123] Delaware, New Jersey’s closest competitor, was able to capture its leadership position.[124] In the decades since, the corporate laws of most American states have become increasingly similar to that of Delaware—itself originally based on the 1896 New Jersey act. In this fashion, the Great Merger Movement played an important role in the direction of US corporate law. By placing intense economic and political pressure on legal restrictions upon corporate power, it gave rise to the jurisdictional competition that led to those restrictions’ eventual repeal.

II. Industrial Consolidation and Canadian Corporate Law

The demographic, technological, and economic developments that led to the Great Merger Movement were not unique to the United States. Similar developments also occurred in other industrialized countries—including Canada, Great Britain, and Germany—though the timing and intensity of merger activity varied.[125] In Canada, the pattern of industrial consolidation was similar to that of the United States. Although the merger movement in Canada was much smaller in absolute size, it was comparable in proportion to the size of the national economy.[126] The greatest difference between the two countries is when their merger movements occurred. While the Great Merger Movement in the United States lasted from 1895 to 1904 (peaking in 1899),[127] the first Canadian merger wave occurred roughly a decade later, from 1909 to 1913 (peaking in 1910).[128] The reasons for this lapse were primarily economic—the Canadian movement arrived later due to the country’s smaller economy, slower pace of industrialization, and less-developed capital market.[129] It was not until the “Laurier boom” of the first decade of the twentieth century, and the resulting flow of foreign capital into Canadian equity securities, that “tight” combinations became financially viable.[130] The legal environment was also a factor. In general, Canadian businesses faced fewer constraints on price fixing and cartelization, reducing their incentives to merge. As discussed below, the delayed onset of the Canadian merger movement had important consequences—by the time of the 1909–1913 merger wave, Canadian law had already experienced significant liberalization, precluding the jurisdictional competition witnessed in the United States.

The American and Canadian merger movements make for a particularly useful historical comparison due to the similarity of their economic causes and the differences in their legal effects. Although the American economy was much larger, the two countries’ merger movements were otherwise similar from an economic perspective. Both countries featured (1) expansive geographic territories, (2) diversified economies based on agriculture, commodities, and industrial manufacturing, and (3) a shared Anglo-Saxon commercial tradition. These similarities influenced the industries that were most likely to consolidate, including rail transportation; food processing; agricultural and transportation equipment; and cement, steel, and other heavy manufacturing industries.[131] In the United States, this consolidation was primarily financed by a growing domestic capital market, while Canadian mergers relied much more heavily on foreign (primarily British) capital.[132] In both countries mergers took similar forms, with promoters arranging combinations of large numbers of smaller competitors.[133] Although the specific economic events that precipitated the movements were different—the American movement being a direct response to the financial panic of 1893—the broader economic motivations in both countries were similar: to organize firms large enough to meaningfully reduce market competition.[134]

Notwithstanding these similarities, the American and Canadian merger movements occurred in different legal and political contexts. In the United States, a long tradition of political hostility toward concentrated economic power meant that state law often tightly restricted corporations.[135] In Canada, the situation was less antagonistic. Although populist “anti-combines” sentiment certainly existed, it failed to influence government policy to the same extent as in the United States. For this reason, the wide variety of antitrust provisions common in US state corporation laws never appeared in Canadian federal and provincial incorporation acts. As discussed in this Part, the permissiveness of Canadian law during the first Canadian merger wave had important institutional consequences: given the absence of major legal obstacles to consolidating mergers, there was little pressure on Canadian jurisdictions to engage in regulatory competition, and thus little likelihood of the organic emergence of a “Canadian New Jersey.”

A. Canadian Anti-Combines Law

Many of the same political factors that led to antitrust legislation in the United States were also present in Canada. Throughout the late nineteenth century, Canadian businesses actively sought to limit competition through the use of cartels, industry agreements, and other forms of pricing collusion.[136] These practices were encouraged by Canada’s “National Policy” of protective tariffs, which facilitated domestic price fixing by limiting foreign competition.[137] As many businesses engaged in open restraints of trade, Canadian consumers—facing artificially high prices—grew increasingly resentful.[138] Echoing political developments in the United States, the strongest opposition to anticompetitive business practices came from western farmers, who blamed the railways, industrial cartels, and eastern capital generally for their high input and distribution costs.[139] Nevertheless, western agricultural populism was weaker in Canada than the United States, where it grew into a national political movement.[140] In Canada, despite widespread resentment toward large corporations, legal reform was staunchly (and successfully) opposed by business interests, with which the Canadian political elite was broadly sympathetic.[141]

Although Parliament passed a series of anti-combines acts in the late nineteenth and early twentieth centuries, their purpose and effect were largely symbolic.[142] In response to public outcry over a particularly noxious grocers’ cartel, combines became a parliamentary issue in the late 1880s. In 1888, Conservative MP Nathaniel Clarke Wallace called for the creation of a parliamentary committee to investigate the “nature, extent and effect of certain combinations.”[143] Once formed, the committee conducted extensive hearings and issued a voluminous parliamentary report documenting the existence of anticompetitive cartels in at least eleven major industries.[144] Although the committee determined that the evils of combines were not yet as advanced as in the United States, it nevertheless recommended parliamentary action to prevent existing combines from growing any stronger.[145] Following the report, Wallace introduced an anti-combines bill which became law (in amended form) in early 1889.[146]

The material language of the anti-combines act was contained in section 1:

  • 1. Every person who conspires, combines, agrees or arranges with any other person, or with any railway, steamship, steamboat or transportation company, unlawfully—

    • (a) to unduly limit the facilities for transporting, producing, manufacturing, supplying, storing or dealing in any article or commodity which may be a subject of trade and commerce; or—

    • (b) to restrain or injure trade or commerce in relation to any such article or commodity; or—

    • (c) to unduly prevent, limit, or lessen the manufacture or production of any such article or commodity, or to unreasonably enhance the price thereof; or—

    • (d) to unduly prevent or lessen competition in the production, manufacture, purchase, barter, sale, transportation or supply of any such article or commodity, or in the price of insurance upon person or property—

  • Is guilty of a misdemeanor and liable on conviction, to a penalty not exceeding four thousand dollars and not less than two hundred dollars, or to imprisonment for any term not exceeding two years; and if a corporation, is liable on conviction to a penalty not exceeding ten thousand dollars and not less than one thousand dollars.[147]

From a legal standpoint, little in the act was actually new. It was essentially a reformulation of the common law doctrine of restraint of trade, with the addition of criminal penalties.[148] Arguably, the act weakened existing common law prohibitions, as it was conditioned throughout by qualifying language such as “unlawfully,” “unduly,” and “unreasonably.”[149] It also provided no resources for investigation or prosecution, begging the question of enforcement. The act appears to have been passed primarily for its expressive value, Wallace proclaiming that “the Parliament of Canada have put on record their condemnation of [restraints of trade].”[150] Whatever Parliament’s intent, the language of the act rang hollow as a source of effective criminal prohibitions. In the words of Richard Gosse, “not only did a criminal offence have to be committed, it had to be committed ‘unduly.’”[151]

Unsurprisingly, the act had little effect. Its greatest weakness was its lack of an enforcement mechanism. As a general criminal statute, prosecutions under the act were the responsibility of provincial Attorneys General, who—likely recognizing the act’s infirmity—simply ignored it.[152] Only a single indictment was brought in the entire first decade of the act’s existence, resulting in an acquittal.[153] Although Wallace and other like-minded MPs sought to strengthen the act in the 1890s, Wallace’s proposed amendments were defeated by the business lobby. Canadian business interests, which wielded significant influence in Parliament, claimed “reasonable” restrictions on competition were necessary for their viability.[154] Following several failed attempts, the federal anti-combines act was finally strengthened in 1900,[155] but enforcement remained limited.[156] Into the early twentieth century, Canadian business continued to be characterized by “loose” combinations among competing firms.

Circumstances changed, however, with the arrival of the Canadian merger movement, roughly a decade after the United States. Suddenly, mergers became the dominant means of limiting competition. Although comprehensive data on Canadian mergers are unavailable, Gregory Marchildon has estimated that during the years 1909−1913, at least 195 industrial firms disappeared in at least seventy-one distinct transactions.[157] Many of these transactions combined multiple competing firms into a single industry-wide monopoly, the same pattern observed in the United States. The logic behind consolidation in the two countries was the same—by combining competing firms, promoters could offer outside investors the promise of monopoly profits.[158]

Despite similar motivations, the specific events triggering the movements in Canada and the United States were different. The American movement began in the wake of a serious economic depression, in a legal environment in which antitrust policy discouraged agreements to maintain prices. In Canada, the merger movement was an organic response to the inherent instability of such agreements, made possible by the economic boom of the early twentieth century. As the economy grew, it became increasingly apparent to Canadian businesses that “loose” combinations such as cartels and trade associations were difficult to enforce. As economic theory would predict, the higher a cartel attempted to set prices, the greater the temptation for its members to cheat. Unsanctioned price cutting by cartel members was rampant, undermining cartels’ effectiveness and often leading to their dissolution. “Tight” combinations eliminated this problem by bringing competition within a single firm. It was not until the economic boom of the early twentieth century, however, that promoters gained access to the large amounts of capital required to finance mergers. Once this capital became available, mergers arose as a natural evolution of long-standing efforts to limit competition.[159]

These differences in competition policy between Canada and the United States had important consequences for the development of corporate law. In the United States, antitrust law was an important factor in jurisdictional selection. When early decisions under the Sherman Act struck down “loose” pricing and output agreements, corporations gravitated to the jurisdiction most amenable to “tight” combinations—New Jersey. In Canada, on the other hand, competition law had little bearing on the structure of the merger movement. As discussed above, cartels had shown their practical limitations as a means of controlling competition.[160] At the same time, tariff increases in 1907 further disadvantaged foreign imports, increasing potential monopoly profits and encouraging domestic consolidation.[161] Most importantly, buoyant conditions in the securities markets and greater availability of foreign capital—both results of Canada’s ongoing economic boom—provided the necessary financing.[162] Together, these multiple factors set the stage for the 1909–1913 merger movement.

When it finally arrived, the sudden wave of industrial consolidation led to renewed calls for stronger anti-combines law.[163] The Liberal government of Wilfrid Laurier responded by proposing a new bill “to provide for the investigating of combines, monopolies, trusts and mergers which may enhance prices or restrict competition to the detriment of consumers.”[164] This bill, introduced in 1910 by Minister of Labour (and future Prime Minster) William Lyon Mackenzie King, addressed the enforcement problem that had plagued previous anti-combines acts by empowering private citizens to initiate judicial investigations of combinations.[165] The bill was also broader in scope than previous anti-combines acts, encompassing “all forms of combination” including “monopolies, trusts, mergers and combines.”[166] This language was more expansive than the act of 1889, which, by its terms, was arguably limited to “loose” arrangements among independent companies. Notwithstanding these reforms, the bill’s policy ambitions were limited. According to King, the bill was “not aimed against combines or mergers as such,” but merely against their exercise of power “in an unfair manner.”[167] Like many Liberals, King believed industrial consolidation was a natural aspect of economic progress, which so long as it was properly regulated, stood to benefit society as a whole. King therefore declined to follow the Sherman Act, which some Canadian lawmakers considered overly restrictive.[168] King’s bill, successfully passed in 1910 as the Combines Investigation Act, reflected the ambivalence at the heart of Canadian competition policy. Despite the act’s broader language and its inclusion of judicial investigations, it provided no effective mechanism for enforcement of its terms.[169] The act was successful from a political standpoint, in that it signaled the government’s ostensible concern, but it had almost no practical impact. It was invoked only once (against an American company) before being repealed in 1919.[170]

This is all to say that Canadian competition law had little effect on industrial organization. Although Canadian businesses eventually adopted the “tight” organizational structures common in the United States, their reasons for doing so were primarily related to exogenous economic factors, rather than changes in competition law.[171] Indeed, given the timing of the initial merger wave (beginning in 1909) and the passage of the Combines Investigation Act (adopted in 1910), it is more likely economic changes influenced legislation than the other way around. Of course, anti-combines legislation was only one aspect of the regulatory environment—company law, discussed below, played an equally important role.

B. Canadian Company Law

Beyond anti-combines legislation, company law played a major role in Canadian merger activity. Two characteristics of Canadian law stand out: first, unlike the United States, Canada enacted federal legislation regarding the creation of limited companies. Canadian promoters therefore had access to a national body of corporate law. Second, by 1909, Canadian law was less restrictive than the traditional corporate law of most American states. Since federal company law—available anywhere across the country—imposed few restrictions on mergers, neither corporate promoters nor the provinces themselves had reason to advance an alternative system. More than any other factor, it was the permissive nature of company law at the time of the Canadian merger movement that precluded the jurisdictional competition experienced in the United States.

Canada’s tradition of parallel federal and provincial corporate law emerges from the Confederation period. By its terms, the British North America Act, 1867 granted the power of incorporation solely to the provinces, providing them exclusive authority to form “Companies with Provincial Objects.”[172] However, the federal division of power under the Canadian constitution system—by which the provinces are granted plenary authority over specific enumerated subjects, and all subjects not so enumerated are reserved to the national government—left open the possibility that the Dominion government could incorporate companies with national objects.[173] Although the existence of this power was uncertain, the Parliament of Canada passed a joint stock companies act shortly following Confederation.[174] The federal act was largely based on preexisting legislation of the Province of Canada, itself derived from a combination of English and American influences.[175] The federal act was amended several times over subsequent decades, but its structure remained grounded in Confederation-era legislation.

Like the provincial statute on which it was based, the first federal companies act featured a distinctive “letters patent” system, by which companies were formed under the executive authority of the Governor-in-Council.[176] Although the letters patent system was unique to Canada, it was similar to English law in its approach to corporate governance.[177] Both English and Canadian law permitted wide discretion in organizing company affairs and imposed relatively few restrictions on substantive business activities. This was in contrast with many American states, which generally imposed stricter limits on size, structure, and business practices. These differences are evident from comparing (1) the Canadian Companies Act, 1902,[178] (2) the English Companies Acts, 1862 to 1907,[179] and (3) the state corporation acts described in Annex A. Although their details varied, English and Canadian company law were broadly similar in that neither included the antitrust provisions that were common in American statutes.[180] If anything, the Canadian act was even more permissive than English legislation.

None of this to say Canadian law was a model of corporate liberalism, however. Prior to the Companies Act, 1902, incorporating a business was an onerous, time-consuming process, requiring application to the Secretary of State and a full month’s prior notice in the Canada Gazette.[181] Early Canadian law also made consolidation difficult. As in many US states, the pre-1902 stock companies act prohibited intercompany stock purchases, preventing companies from using their funds to acquire the shares of other companies.[182] The federal act also required that a majority of directors be resident Canadians and subjects of the Crown, which likely discouraged foreign investment.[183] Indeed, although the delay in the Canadian merger movement was primarily due to economic factors, restrictions in Canadian company law may have also played a role.

As the years passed, the federal joint stock companies act was amended several times, but major changes to its core provisions did not arrive until 1902, with the passage of the revised and restated Companies Act, 1902. These revisions significantly liberalized Canadian company law. The most important changes “assimilated the law of Canada to the law of England, and removed many obstructions to the obtaining of charters which formerly existed under [the] old statute.”[184] Parliament’s intentions in revising the act were unmistakably pro-business. The goal of the revisions was to maximize the freedom of “private enterprises to unite together” and to remove “any obstructions or obstacles” to the formation of joint stock companies.[185] In this spirit, the act simplified the incorporation process and removed any requirement of prior public notice.[186] According to Liberal Senator and Secretary of State Richard Scott, the primary drafter of the act, the reforms greatly simplified federal law, reducing the incorporation process from a matter of months to a matter of days.[187] The act also included broader reforms intended to attract companies to Canada. For example, the act expressly provided that foreign companies could reincorporate under Canadian law, a provision meant to attract British and American capital.[188] For similar reasons, the requirement that company directors be Canadian residents or British subjects was removed.[189] Finally, although the act adopted the English rule allowing shareholders to initiate judicial inspections, the Canadian legislation—unlike the English companies acts—did not require full public disclosure.[190] Canadian lawmakers felt that public disclosure was overly burdensome, especially for smaller firms.[191]

Under the revised act, companies enjoyed a variety of means of combining into larger firms. Some of these methods already existed, while others were introduced by the 1902 revisions. Under existing law, Canadian companies had long been able to purchase the assets of other firms,[192] a common means of transferring a business from one corporate owner to another.[193] Under the 1902 act, companies were also empowered to purchase and hold company stock, if authorized by their letters patent or by-laws.[194] This power allowed holding companies to purchase the stock of independent firms, consolidating separate businesses under a single corporate ownership structure. Companies were also permitted to issue shares in exchange for property, allowing them to finance acquisitions by issuing their own stock.[195] Together, these powers enabled promoters to organize combinations by (1) forming a holding company (or using an existing firm as a holding company) and (2) acquiring competing businesses, using the holding company’s shares as consideration.[196] This acquisition process was similar to the merger structure used by New Jersey corporations.[197] Indeed, James B. Dill was cited in Parliament as an instructive American authority.[198] A final method of combining firms was legal “amalgamation,” the melding of two companies into one. Although the Companies Act, 1902 did not specifically address amalgamation, it was apparently permitted under general law if both companies claimed the power in their letters patent.[199] That said, true amalgamations were rare. Instead, combinations were typically organized as stock or asset purchases.[200]

The legislative history of the 1902 act reveals its pro-business orientation. The parliamentary debates surrounding the act showed strong support for joint stock companies.[201] Senator Scott stated explicitly that the goal of the legislation was to attract joint stock companies to Canada, particularly those financed by British and American capital.[202] He specifically praised English law for attracting “enormous sums of money” to that country in the form of corporate investment.[203] In the House of Commons, Clifford Sifton, the minister of the interior, expressed a similar view, stating that “in respect to that class of companies which can be described as industrial companies every possible facility should be given for incorporation” and that “incorporation should be made as speedy, as free from unnecessary difficulty and as inexpensive as possible.”[204]

Equally as significant as these positive views was the notable absence of anti-corporate political rhetoric. Unlike the United States—where leading figures in the Democratic Party sought harsh restrictions on corporations, and even the most pro-business Republicans felt compelled to denounce corporate excesses—there was little discussion in the Parliament of Canada of limiting the power of joint stock companies. At a time when fear of corporate monopoly was at a high point in American politics, Canadian politicians were instead concerned with encouraging capital formation. What can explain these differences? First, in 1902, Canada had not yet experienced the massive combinations that dominated the US economy.[205] For this simple reason, controlling combinations was less of a concern among the Canadian electorate.[206] Although Canadians certainly resented cartels, the economy had not yet experienced the outright monopolization of entire industries.[207] Second, to a greater extent than in the United States, Canadian politics was dominated by a conservative, patrician political elite which was generally sympathetic to the country’s business and financial community.[208] Not only were the parliamentary debates on the Companies Act, 1902 marked by general pro-business sentiment, but several lawmakers discussed the bill in terms of their own involvement in forming companies.[209] This sympathy toward the business class was reflected throughout Canadian economic policy, as illustrated by the lack of effective prohibitions on price and output collision, the awarding of public “bonuses” for private economic development, and—last but not least—the National Policy itself, which benefited Canadian producers at the expense of Canadian consumers.[210] A final factor may have been the peripheral status of Canada itself, which remained less developed than both the British metropole and the rapidly developing United States.[211] Although Canada was a prosperous country by world standards, its relative underdevelopment compared to its two primary trading partners may have contributed to a political culture particularly amenable to industrial support. Whatever the exact reasons, the Canadian government was primarily concerned with helping, not hindering, joint stock companies.[212]

Although Canadian lawmakers’ major concern was encouraging business development, revenue considerations were also important. In fact, the politics surrounding the Companies Act, 1902 display elements of the jurisdictional competition witnessed in the United States. By the turn of the century, Ontario had surpassed the federal government in enacting company law reform, such that it had become easier to incorporate under Ontario law than under federal legislation.[213] During the years 1895−1900, Ontario’s incorporation revenues grew nearly 500% as an increasing number of businesses chose to incorporate in the province.[214] Given the rapid increase in provincial incorporations, there was concern within Parliament that the slow, cumbersome nature of the federal incorporation process was discouraging its use by businesses. During the debates on the 1902 act, Senator Scott argued that Ontario law had become more attractive than federal incorporation. To make his point, Scott gave the example of “[o]ne of the largest companies recently established” in Canada, which, although based in Quebec, had chosen to incorporate in Ontario.[215] According to Scott, the company would have preferred to “come to Ottawa,” but the existing federal legislation was inadequate to its needs.[216] It appears that Scott and other officials believed the federal government was failing to provide an important service. There was even concern that Canadian companies might be leaving for the United States. In the words of Clifford Sifton, the Minister of the Interior:

The effect of the law as it exists at the present time has been to drive the business away from the federal government. Persons have been compelled to go to the various provinces and the various states of the Union for the purpose of getting charters of incorporation. It will be agreed by the House that we should have our law in such a state that persons would not have to go somewhere else to get a charter to do business in Canada.[217]

The possibility of competition between the federal government and the provinces was a source of controversy within Parliament. Different lawmakers had different views on the appropriate scope of federal legislation, some considering it a source of revenue, others considering it a threat to the provinces.[218] For example, former prime minister Mackenzie Bowell suggested the goal of reform was to “get more money.”[219] Similarly, future prime minister Robert Borden proposed reducing incorporation fees because “the fees secured by the government would be more if they were somewhat lower.”[220] On the one hand, these statements suggest that at least some MPs conceived federal incorporation as a source of revenue. On the other hand, several legislators warned that increasing federal incorporations would deprive the provinces of needed funds. Conservative Senator Josiah Wood opposed federal incorporation altogether, claiming it would “take away from the provinces a source of revenue that is of considerable importance to many of the smaller provinces.”[221] Liberal Senator James McMullen raised similar concerns, warning that a reduction in provincial revenues could destabilize Canada’s provincial revenue transfer system.[222] In response to Senator Wood, Senator Scott, the architect of the bill, assured the Senate that federal incorporation fees would be set “at least as high as, if not higher than the provinces” so as not to cannibalize provincial revenues.[223] As passed, the act’s intent seemed to be that large, national firms would incorporate federally, while smaller, more local firms would incorporate under provincial law.

Such were Parliament’s intentions. What, then, was the practical effect of the Companies Act, 1902? Although the empirical evidence is thin, the act appears to have been successful in encouraging federal incorporation. A 1902 Globe[224] article praising the new act reported that companies could now be formed in as little as 48 hours. According to The Globe, the act’s reforms were “highly appreciated” by the Canadian business and legal communities.[225] A year later, The Globe reported incorporations in Canada had reached unprecedented levels.[226] However, this tally included all joint stock companies—both federal and provincial—making it difficult to determine the extent to which the increase was attributable to federal reform. During the 5-year period of 1899−1903, there were 285 federal incorporations with a total capitalization of over $70 million.[227] Over the same period, there were 339 Ontario incorporations with a total capitalization of over $92 million.[228] News reports from later years suggest the 1902 act may have been succesful in attracting new investment, both from within Canada and abroad.[229] Again, however, the share of companies that incorporated federally as opposed to provincially is unclear.

This proportion becomes clearer in the context of the 1909−1913 merger wave. As Canadian industry consolidated, more than half of Canada’s largest firms incorporated under federal law, suggesting its attractiveness to Canadian promoters. Although comprehensive historical data on federal incorporations are unavailable, I was able to estimate the percentage of large Canadian combinations that incorporated federally by cross-referencing Gregory Marchildon’s 1885−1918 industrial merger series[230] against federal incorporation records from Library and Archives Canada.[231] Based on this estimate, 97 of 174—roughly 56%—of large combinations were incorporated federally.[232] When limiting the analysis to the years 1909–1913, this figure becomes 50 of 71, or roughly 70%. Because the Marchildon series includes valuation estimates for only a small number of combinations, it is impossible to calculate similar percentages based on total transaction value. That said, there is reason to believe that the largest combinations were the most likely to incorporate federally, implying that the share of federal corporations would be even greater on a valuation basis. Judging from an impressionistic review of the companies in the Marchildon series, large, well-known combinations such as Canadian Canners, Limited, the Dominion Bridge Company, and the Dominion Cotton Mills Company tended to use the federal act, while smaller and more obscure combinations such as “Badgerow Faulkner Vinegar Manufacturing Company,” “Berlin Brush Works,” and “Edward Partington Pulp and Paper Company Ltd.” tended to use provincial acts. Although difficult to verify quantitatively, this pattern suggests that larger combinations were particularly attracted to federal law. Moreover, additional evidence suggests federal law maintained its appeal over time. According to C. A. Curtis, between 1921 and 1933, the years encompassing the second Canadian merger wave, the percentage of combinations incorporating federally remained greater than 66%.[233]

There are several reasons corporate promoters may have preferred federal law. First, at the time of the first merger wave, the ability of provincial companies to conduct national business remained uncertain.[234] This issue was not definitively resolved until the 1916 case of The Bonanza Creek Gold Mining Company Limited v. The King and Another.[235] In this case, the Privy Council held that provincial companies could conduct extra-provincial business so long as they received authorization from the hosting jurisdiction.[236] In reality, provincial companies had already been engaging in extra-provincial business for years, but their constitutional authority in doing so was uncertain before 1916.[237]

Canadian promoters may have also seen federal law as a means of marketing their firms to foreign investors. In light of Canada’s marginal status within the British economic empire, many promoters emphasized the “national” scope of their merger projects to assure London-based investors of their credibility and financial soundness.[238] Combinations often had names beginning with “Canada,” “Canadian,” or “Dominion,” highlighting their national reach.[239] This spirit of aggrandizement may have extended to the incorporation process itself, with promoters choosing Dominion incorporation for its national cachet. Even in recent decades, the legitimacy that federal law is believed to communicate to investors has remained a factor in jurisdictional selection.[240] In the early twentieth century, this factor was likely even more important.[241]

Finally, federal law was popular for the simple reason that it facilitated mergers.[242] In this regard, it is important to consider the typical means by which Canadian combinations were formed. According to Curtis’ study, the most common method of forming combinations was through outright purchases of business assets, followed closely by purchases of stock.[243] Out of 374 business consolidations between 1900 and 1933 (a period encompassing the first and second Canadian merger waves), a total of 189, or just over 50%, were structured as asset purchases, a total of 155, or approximately 41%, were structured as stock purchases, and a total of 21, or approximately 6%, were structured as a hybrid of asset and stock purchases.[244] Clearly, stock and asset purchases were the dominant means of forming combinations.

Consummating these purchases was a straightforward process under the federal joint stock companies act. Unlike the corporation acts of most American states (aside from New Jersey and its progeny), the Companies Act, 1902 included no antitrust, anti-combination, or anti-monopoly provisions. Nor did it include limits on maximum capitalization, an important issue for promoters seeking to issue public securities.[245] Aside from railroad, telephony, and financial services companies, which were governed by specific acts of Parliament, companies were not limited to specific lines of business and were free from the quo warranto proceedings faced by corporations in the United States. Finally, Canadian companies were expressly permitted to purchase the stock of other companies,[246] a power that remained uncertain under many state corporation acts.[247] Given the permissiveness of federal law, Canadian promoters had little reason to seek alternative jurisdictions.

Even if they had, the companies acts of the individual provinces were similarly liberal. The Ontario Companies Act, revised in 1897, was itself an important inspiration for the Companies Act, 1902.[248] In 1897, the legislature of Ontario “very nearly assimilated their practice to the English practice”[249] by allowing the creation of joint stock companies without prior public notice.[250] Following earlier Canadian legislation, the Ontario act included no antitrust provisions and few restrictions on business activities. Companies were allowed to purchase other companies’ shares if authorized by a by-law approved by two-thirds of the shareholders.[251] As discussed above, these reforms were associated with a significant increase in Ontario incorporations, which encouraged the federal government to reform its own companies act.[252] Other provinces, including British Columbia and Nova Scotia, adhered even more closely to English law by maintaining the English practice of incorporation by registration.[253] By 1907, even Quebec had enacted companies legislation closely based on the Companies Act, 1902.[254] Thus, although the largest combinations tended to incorporate federally, the substantive content of provincial law was not significantly different.

In sum, the legal environment in Canada during the country’s first merger wave differed from the American environment roughly a decade earlier. During the Great Merger Movement in the United States, both antitrust law and market forces reduced the viability of “loose” combinations. At the same time, many states’ corporate laws also inhibited “tight” combinations. In this environment, New Jersey provided an avenue of escape from the restrictive laws of its sister states. The success of New Jersey (and later Delaware) in attracting corporations eventually led to most other states adopting similarly permissive legal regimes.[255]

In Canada, analogous provincial competition was relatively muted. By the time the Canadian merger movement arrived, promoters enjoyed significant latitude in organizing combinations, mitigating the competitive pressures witnessed in the United States. Since Canadian businesses could easily combine under existing federal company law, there was no opportunity for any single province to capture the incorporation market. Ultimately, the reason there was never a “Canadian New Jersey” is that there was never any need for one—federal law already provided nearly everything New Jersey offered. Had he cast his attentions northward, James B. Dill would have approved.[256]


The industrial consolidation of the late-nineteenth and early-twentieth centuries had lasting consequences in both Canada and the United States. Following New Jersey’s early success in attracting corporations, the US entered a decades-long period of active jurisdictional competition. In the 1920s and 1930s, after Delaware had succeeded New Jersey, many states embarked on comprehensive reforms to modernize their corporation statutes.[257] These reforms were partly driven by the changing needs of modern business, but they were also an attempt by state politicians to halt the “exodus” of corporations to Delaware.[258] As the years passed, this competitive pressure toward legal convergence led to an “S-curve” pattern in corporate reform, as an accelerating number of state governments adopted various features of Delaware law.[259] This process was hastened by promulgation of the Model Business Corporation Act (MBCA), a model corporation statute published by the American Bar Association in 1950, which itself drew heavily on the Delaware-influenced Illinois Business Corporation Act of 1933.[260] Although the MBCA differed from Delaware law in a number of important respects, it was far closer to the Delaware act than to the traditional state acts of the nineteenth century.[261] Today, the similarities among the different states largely outweigh their differences, and American corporate law—despite its diffusion among fifty states—has grown increasingly standardized around the liberal Delaware model.

Canadian corporate law has seen even greater standardization, but unlike in the United States, the major driver of policy convergence has been federal legislation. While state corporate law rapidly evolved during the first half of the twentieth century, Canadian company law remained relatively static until the legislative reforms of the 1970s. These reforms began with the Ontario Business Corporations Act, 1970 and continued with the adoption of the CBCA in 1975.[262] In the decades between the Companies Act, 1902 and the CBCA, the only major revision of federal corporate law was the Companies Act, 1934, which maintained the letters patent system of earlier legislation.[263] According to the 1971 Dickerson Report—the federal expert committee report that led to the CBCA—Canadian corporate law had been “sadly neglected” for much of the preceding century, having not experienced significant change within “the last hundred years.”[264] Breaking from this tradition, the CBCA brought major reforms, most notably by replacing the letters patent system with an American-style incorporation process.[265] The impact of the CBCA has extended beyond federal law. Moreover, in the years following the CBCA’s adoption, a majority of the provinces enacted substantially similar acts, resulting in considerable standardization of Canadian corporate law.[266] Although this standardization was possibly a result of competition,[267] it appears more likely that provincial governments have pursued a strategy of uniformity.[268] Lacking an institutional tradition of competition among the provinces, and with a number of legal and practical obstacles to an active incorporation market, Canadian law has modernized through a collective, consensual process.[269]

These differences in legal reform between the United States and Canada have contributed to substantive differences in American and Canadian corporate law. As a competitive supplier of a specialized legal product, Delaware has been sensitive to the preferences of corporate managers, as conveyed to the state legislature by the Delaware corporate bar. The drafting of the CBCA was a more deliberate, technocratic process, informed by issues broader than the preferences of the business community.[270] These differences are reflected in key aspects of the CBCA today. For example, compared to Delaware, the CBCA provides greater protections to minority shareholders.[271] Similarly, neither the CBCA nor any provincial act includes express anti-takeover provisions of the type adopted by many states (including Delaware) in the 1980s.[272] Finally—and somewhat incongruously, given its strong shareholder protections—Canadian law allows for greater recognition of non-shareholder “stakeholder” interests. While fiduciary duties under Delaware law are generally owed to shareholders,[273] the CBCA specifies that directors’ duties are owed to the “corporation,”[274] a broader concept which has facilitated appeals to corporations’ social responsibilities. In Peoples Department Stores Inc. v. Wise[275] and Re BCE Inc.,[276] the Supreme Court of Canada responded to these appeals by expressly allowing directors to consider a wide range of non-shareholder constituencies, a principle which was recently codified in the CBCA itself.[277] For better or worse, each of these features of Canadian law have been shaped by general policy concerns, rather than by their desirability to business managers. The irony, of course, is that Canadian law’s greater independence from the preferences of the business community is a result of business’ satisfaction at the height of the Canadian merger movement.

In conclusion, American and Canadian corporate law have both been influenced by historical factors. American law changed dramatically as a result of the Great Merger Movement, while Canadian law evolved more slowly until the legislative reforms of the 1970s, but both embody a liberal approach to key issues of corporate governance. Despite the differences described in this article, American and Canadian corporate law are in many respects quite similar, partly due to the ongoing convergence of international corporate law and partly due to the specific influence of American law on Canada, of which the CBCA is an important example. Even at the fundamental institutional level, the distinction between the “competitive” and “uniform” models may be weakening. Given Delaware’s decades-long dominance of the US incorporation market, it is increasingly doubtful whether other states compete for corporations at all.[278] Moreover, considering Delaware’s pervasive influence on the corporate law of other states, it is difficult to characterize the American system as a continuing laboratory of innovation.

In Canada, conversely, provincial competition is increasing. In the years since Cumming and MacIntosh found an absence of provincial competition,[279] several provinces have enacted reforms intended to attract business organizations. Following the discovery in the 1990s that Nova Scotia unlimited liability companies (“ULCs”) could be used as a tax-saving device by firms doing business in both the United States and Canada, Alberta and British Columbia adopted their own ULC legislation to attract cross-border subsidiaries of American corporations.[280] Indeed, Alberta’s and British Columbia’s entrance into the ULC market led to significant price competition in ULC registration fees.[281] Another sign of competition is Quebec’s 2009 Business Corporations Act, which comprehensively restated Quebec corporate law.[282] The new act includes several reforms designed to enhance Quebec’s reputation as a business-friendly jurisdiction and retain domestic corporations that would otherwise incorporate under the CBCA.[283] Finally, in a clear (and apparently successful) attempt to appeal to international investors, British Columbia eliminated all residency requirements for corporate directors, making British Columbia particularly attractive for business entities with foreign ownership.[284] Although the significance of these efforts remains a question for future research, the current literature likely understates the full extent of provincial competition.

Ultimately, this convergence between American and Canadian law is unsurprising. The geographic, economic, and cultural proximity of the two countries has ensured close parallels between their respective approaches to business law. With respect to corporations, these parallels are particularly strong, though they have manifested historically in surprising and unexpected ways. While recent developments in Canadian corporate law have broadened its approach to social responsibility, particularly compared to Delaware law’s more narrow conception of corporate interest, these developments are in fact a historical reversal of the traditional priorities of Canadian law. At the turn of the twentieth century, it was Canadian law that was more attentive to the interests of the business community and American law that was more reflective of social and political concerns. Indeed, this political responsiveness was precisely the problem from the perspective of American business leaders—and the underlying cause of the “race to the bottom” experienced in the United States.[285] As a result of this process, American corporate law abandoned its concern with limiting the power of corporations, thereby becoming increasingly similar to the existing Canadian system.