Texas Court Reporter Practice Exam

Corporations are governed by which level of government?

1. Federal government

2. State government

3. Local government

4. International bodies

The correct answer is: State government

Corporations are primarily governed by state government laws. Each state has its own set of regulations and statutes that dictate how corporations must operate within its jurisdiction. This includes the formation of corporate entities, their governance structures, compliance with state laws, taxation, and the rights and responsibilities of shareholders and directors. States have significant authority over the incorporation process, and businesses often choose to incorporate in states that offer more favorable laws and tax structures, such as Delaware, which is known for its well-developed corporate legal framework. This state-level governance is crucial because it establishes the legal foundation upon which corporate entities operate, including policies regarding liability, corporate charters, and dissolution processes. While federal law has an impact on corporations, particularly in areas such as securities regulation and antitrust laws, the foundational governance and operational framework of a corporation are established by state law. Local governments do not typically govern corporations directly but may influence business operations through zoning and business licenses. International bodies may have an impact in the context of multinational corporations but do not govern corporate law in the same way that state governments do.