Internal Affairs of a Foreign Corporation Law and Legal Definition

Internal affairs of a foreign corporation mean the matters relating to the inner working of a corporation. For example the matters such as dividend declarations and the selection of officers are purely internal affairs of a foreign corporation. Earlier the courts did not entertain suits that involved internal affairs of a foreign corporation. However, nowadays modern courts recognize their jurisdiction to entertain such suits. It is only when the facts make it both feasible and more desirable for the case to be heard by a court of the state of incorporation that the courts exercise their discretionary power to refuse to exercise their existent jurisdiction.

In Tanzer v. Warner Co., 1 Phila. 41 (Pa. C.P. 1978), the court observed that “The internal affairs of a foreign corporation are interfered with where the suit is predicated upon rights derived from some status within the corporate association, and where the suit is brought by or against persons in their capacities as shareholders, officers and directors. This principle is predicated on a rule of discretion; it rests, not on an actual lack of jurisdiction, but rather on policy which dictates a recognition of the want of power to enforce decrees made in such proceedings where, under the facts of any particular case, the power is lacking.” The court further observed that “There are exceptions to the rule against interfering in the internal affairs of a foreign corporation. For instance, that rule is not usually followed in situations where there is an action to compel a foreign corporation to allow inspection of its books and records; or an action to appoint receivers to wind up the business of a corporation; or where the corporation is engaging in unlawful acts; or an action for breach of contract for non-payment of severance money or for failure to transfer stock upon tender of the purchase price. These exceptions to the "doctrine" are based on the premise that by taking jurisdiction the courts will be involved in a minimal interference in the internal affairs of a foreign corporation.”