Corporation law (also known as business law, enterprise law, or company law) is the body of law governing the rights, relations, and conduct of persons, companies, organizations and businesses. Corporate law often describes the law relating to matters which derive directly from the life cycle of a corporation. It thus encompasses the formation, funding, governance, and death of a corporation.
What Is Corporate Law?
Corporate law refers to the legal practice of law relating to corporations, or the theory of corporations. This is related to commercial and contract law . Corporate law makes up the rules, practices, regulations, and laws that control the creation and operation of any corporation. This body of law governs legal entities that conduct business.
Corporations are formed under state law and the owners of the corporation are referred to as shareholders. Corporate Law is applicable to an S Corporation , a C Corporation , and a B Corporation .
Corporate law encompasses all the legal issues that a corporation can face. Corporations are subject to numerous regulations they must follow in order to enjoy the tax and other benefits corporations receive. Corporate law has five principles that are common to it. Following are the five principles.
1. Legal Personality
Owners of the corporation put their resources into a different entity. The entity can then utilize their assets and sell them if they wish. Creditors can’t take assets back easily but can form a separate entity that acts on its own accord.
One of the benefits of a corporation is limited liability. Limited liability is when a corporation is sued but only the assets of the corporation are at risk. The plaintiff may not go after any individual assets from the owners of the corporation.
2. Limited Liability
One of the benefits of a corporation is limited liability. Limited liability is when a corporation is sued but only the assets of the corporation are at risk. The plaintiff may not go after any individual assets from the owners of the corporation.
3. Owners May Transfer Shares
If an owner ends up deciding they no longer want to own part of the corporation, it doesn’t mean the business needs to close. A unique part of a corporation is that the owners may transfer shares without the hassles and difficulties that are often related to ownership transferring in a partnership.
4. Delegated Management
There is a defined structure in corporations regarding how they handle their affairs. The officers and board of directors share the responsibilities of making decisions. Board members are in charge of hiring and monitoring officers as well as confirming any big decisions they make.
Shareholders are in charge of electing the board, while officers are in charge of the daily operations of the company. Officers handle transactions and ensure the business runs each day. Having a defined leadership structure, parties that conduct business with the corporation know that any actions of the board of directors and officers are considered legally binding for the corporation.
5. Owners Have a Say When It Comes to Making Decisions for a Corporation
Owners are able to have a say when it comes to making decisions for a corporation, but they are not in charge of running the company directly. Oftentimes, the owner has the authority to make decisions and a part in profit sharing related to their ownership interest.
Key Terms to Know in Corporate Law
If you are not familiar with any other terms, following are some key terms that you should know in corporate law.
- Corporation . A corporation is a legal entity formed to conduct business; can be either a private corporation, where only a few people own the corporation and its stock is not publicly traded, or a public corporation, whose stock is traded on the stock exchange.
- S Corporation . An S corporation is a special type of corporation with a limited number of shareholders that enjoys certain tax benefits but without the stock options of a typical corporation.
- C Corporation . A C corporation (or C-Corp) is a legal structure for a corporation in which the owners, or shareholders, are taxed separately from the entity. C corporations, the most prevalent of corporations, are also subject to corporate income taxation. The taxing of profits from the business is at both corporate and personal levels, creating a double taxation situation.
- B Corporation . Certified B Corporations are businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose. B corps form a community of leaders and drive a global movement of people using business as a force for good.
- Incorporation . Incorporation is the legal process used to form a corporate entity or company.
- Delaware Corporate Law . The Delaware General Corporation Law (Title 8, Chapter 1 of the Delaware Code) is the statute governing corporate law in the U.S. state of Delaware. Adopted in 1899, the statute has since made Delaware the most important jurisdiction in United States corporate law.
- Certificate of Incorporation . A certificate of incorporation is issued by a state’s secretary of state that shows acceptance of a corporation’s articles of incorporation.
- Articles of Incorporation . Articles of incorporation are a set of formal documents filed with a government body to legally document the creation of a corporation. Articles of incorporation are also referred to as the “corporate charter”, “articles of association”, or “certificate of incorporation”.
- Corporate Bylaws . Corporate Bylaws are a set of written rules used by a corporation to organize its internal management. Company bylaws also outline the policies and responsibilities for the shareholders, directors, and officers of a corporation.
- Registered Agent . A registered agent is a person or entity appointed to accept service of process and official mail on your business’ behalf.
- Investors . An investor is any person or other entity (such as a firm or mutual fund) who commits capital with the expectation of receiving financial returns. Investors can analyze opportunities from different angles, and generally prefer to minimize risk while maximizing returns.
- Directors . A group of individuals elected by the shareholders of a corporation to manage the corporation’s affairs and appoint officers.
- Employees . Employees are individuals who are employed for wages or salary, generally at a nonexecutive level.
- Creditors . People or businesses that you owe money to relating to business incurred debt.
For other terms and general information relating to corporate law, here is an article .
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Types of Corporate Law
Following are types of corporate law.
- Contracts
- Mergers and Acquisitions (M&A)
- Corporate Governance
- Venture Capital
- Securities
Role of Corporation Law
Corporate law regulates the rights and obligations involved with the business activities of a corporation, including formation, ownership, operation, and management. Corporate law handles big picture concerns, such as buying decisions, mergers and acquisitions, and shareholders’ rights.
Although they can be made up of large groups of people (investors, owners, employees), corporations are treated as a single entity, meaning the laws deal with the business directly rather than the people within it. Essentially, the corporation is treated as a person.
To read more about the role of corporation law, click here .
Who Knows Corporation Law?
A Corporate Lawyer would know about corporation law. The role of a corporate lawyer is to advise clients of their rights, responsibilities, and duties under the law. When a corporate lawyer is hired by a corporation, the lawyer represents the corporate entity, not its shareholders or employees. This may be a confusing concept to grasp until you learn that a corporation is actually treated like a person under the law.
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