Corporate law (also known as company law or enterprise law) is the body of law governing the rights, relations, and conduct of persons, companies, organizations, and businesses. The term refers to the legal practice of law relating to corporations, or to the theory of corporations. Corporate law often describes the law relating to matters that derive directly from the life-cycle of a corporation.John Armour, Henry Hansmann, Reinier Kraakman, Mariana Pargendler "What is Corporate Law?" in The Anatomy of Corporate Law: A Comparative and Functional Approach(Eds Reinier Kraakman, John Armour, Paul Davies, Luca Enriques, Henry Hansmann, Gerard Hertig, Klaus Hopt, Hideki Kanda, Mariana Pargendler, Wolf-Georg Ringe, and Edward Rock, Oxford University Press 2017)1.1 It thus encompasses the formation, funding, governance, and death of a corporation.
While the minute nature of corporate governance as personified by share ownership, capital market, and business culture rules differ, similar legal characteristics and legal problems exist across many jurisdictions. Corporate law regulates how corporations, investors, shareholders, directors, employees, creditors, and other stakeholders such as consumers, the community, and the environment interact with one another. Whereas the terms company law or business law may be colloquially used interchangeably with corporate law, the term business law in fact refers to wider concepts of commercial law, which is the law governing commercial and business-related activities. Depending on the legal system, this may include matters relating to corporate governance, financial law, contract law and other pertinent areas.
Overview Academics identify five legal characteristics universal to business enterprises. These are: Separate legal personality of the corporation (access to tort and contract law in a manner similar to a person) Limited liability of the shareholders (a shareholder's personal liability is limited to the value of their shares in the corporation) Transferable shares (if the corporation is a public company, the shares are publicly listed and traded) Delegated management under a board structure; the board of directors delegates day-to-day management of the company to executives. shared ownership: people can own stock and it can be distributed either by shareholders selling it or it can be issued by the corporation [Note: this doesn’t mean there can’t be one owner. It just means there can be more than one owner as a result of share distribution or issuing.RC Clark, Corporate Law (Aspen 1986) 2; H Hansmann et al., Anatomy of Corporate Law (2004) ch 1 set out similar criteria, and in addition state modern companies involve shareholder ownership. However this latter feature is not the case in many European jurisdictions, where employees participate in their companies. Widely available and user-friendly corporate law enables business participants to possess these four legal characteristics and thus transact as businesses. Thus, corporate law is a response to three endemic forms of opportunism: conflicts between managers and shareholders, between controlling and non-controlling shareholders, and between shareholders and other contractual counterparts (including creditors and employees).
A corporation may accurately be called a company; however, a company should not necessarily be called a corporation, which has distinct characteristics. In the United States, a company may or may not be a separate legal entity, and is often used synonymously with "firm" or "business." According to Black's Law Dictionary, in America, a company means "a corporation — or, less commonly, an association, partnership or union — that carries on industrial enterprise."Black's Law Dictionary, 8th edition (2004), Other types of business associations can include partnerships (in the UK governed by the Partnership Act 1890), or trusts (such as a pension fund), or companies limited by guarantee (like some community organizations or charities). Corporate law deals with companies that are incorporated or registered under the corporate or company law of a sovereign state or its sub-national states.
The defining feature of a corporation is its legal independence from the shareholders that own it. Under corporate law, corporations of all sizes have a separate legal personality, with limited or unlimited liability for its shareholders. Shareholders control the company through a board of directors, which, in turn, typically delegates control of the corporation's day-to-day operations to a full-time executive. Shareholders' losses, in the event of liquidation, are limited to their stake in the corporation, and they are not liable for any remaining debts owed to the corporation's creditors. This rule is known as limited liability, and it is why the names of corporations typically end with "Ltd." or a similar designation, such as "Inc." or "plc."
Under almost all legal systems corporations have much the same legal rights and obligations as individuals. In some jurisdictions, this extends to allow corporations to exercise human rights against real individuals and the state,e.g. South African Constitution Art.8, especially Art.(4) and they may be responsible for human rights violations.Phillip I. Blumberg, The Multinational Challenge to Corporation Law: The Search for a New Corporate Personality, (1993) has a very good discussion of the controversial nature of additional rights being granted to corporations. Just as they are "born" into existence through their members obtaining a certificate of incorporation, they can "die" when they lose money into insolvency. Corporations can even be convicted of criminal offences, such as corporate fraud and corporate manslaughter.e.g. Corporate Manslaughter and Corporate Homicide Act 2007
History
Although some forms of companies are thought to have existed during Ancient Rome and Ancient Greece, the closest recognizable ancestors of the modern company did not appear until the 16th century. With increasing international trade, Royal charters were granted in Europe (notably in England and Holland) to merchant adventurers. The Royal charters usually conferred special privileges on the trading company (including, usually, some form of monopoly). Originally, traders in these entities traded stock on their own account, but later the members came to operate on a joint account and with joint stock, and the new Joint stock company was born.In England the first joint stock company was the East India Company, which received its charter in 1600. The Dutch East India Company received its charter in 1602, but is generally recognized as the first company in the world to issue joint stock. Not coincidentally, the two companies were competitors.
Early companies were purely economic ventures; it was only a belatedly established benefit of holding joint stock that the company's stock could not be seized for the debts of any individual member.In England, see Edmunds v Brown Tillard (1668) 1 Lev 237 and Salmon v The Hamborough Co (1671) 1 Ch Cas 204 The development of company law in Europe was hampered by two notorious "bubbles" (the South Sea Bubble in England and the Tulip Bulb Bubble in the Dutch Republic) in the 17th century, which set the development of companies in the two leading jurisdictions back by over a century in popular estimation.
Companies returned to the forefront of commerce, although in England, to circumvent the Bubble Act 1720, investors had reverted to trading the stock of unincorporated associations, until it was repealed in 1825. However, the process of obtaining Royal charters was insufficient to keep up with demand. In England, there was a lively trade in the charters of defunct companies. It was not until the Joint Stock Companies Act 1844 that the first equivalent of modern companies, formed by registration, appeared. Soon after came the Limited Liability Act 1855, which, in the event of a company's bankruptcy, limited the liability of all shareholders to the amount of capital they had invested.
The beginning of modern company law came when the two pieces of legislation were codified under the Joint Stock Companies Act 1856 at the behest of the then Vice President of the Board of Trade, Mr Robert Lowe. That legislation shortly gave way to the railway boom, and from there the number of companies formed soared. In the late nineteenth century, depression took hold, and just as company numbers had boomed, many began to implode and fall into insolvency. Much stronger academic, legislative and judicial opinion was opposed to the notion that businessmen could escape accountability for their role in the failing businesses. The last significant development in the history of companies was the decision of the House of Lords in Salomon v. Salomon & Co. where the House of Lords confirmed the separate legal personality of the company, and that the liabilities of the company were separate and distinct from those of its owners.
Corporate structure
The law of business organizations originally derived from the common law of England, and has evolved significantly in the 20th century. In common law countries today, the most commonly addressed forms are: Corporation Limited company Unlimited company Limited liability partnership Limited partnership Not-for-profit corporation Company limited by guarantee Partnership Sole proprietorship Privately held company The proprietary limited company is a statutory business form in several countries, including Australia. Many countries have forms of business entity unique to that country, although there are equivalents elsewhere. Examples are the limited liability company (LLC) and the limited liability limited partnership (LLLP) in the United States. Other types of business organizations, such as cooperatives, credit unions and publicly owned enterprises, can be established with purposes that parallel, supersede, or even replace the profit maximization mandate of business corporations.
Various types of company can be formed in different jurisdictions, but the most common forms of companies are: a company limited by guarantee. Commonly used where companies are formed for non-commercial purposes, such as clubs or charities. The members guarantee the payment of certain (usually nominal) amounts if the company goes into insolvent liquidation, but otherwise they have no economic rights in relation to the company. a company limited by guarantee with a share capital. A hybrid entity, usually used where the company is formed for non-commercial purposes, but the activities of the company are partly funded by investors who expect a return. a company limited by shares. The most common form of company used for business ventures. an unlimited company either with or without a share capital. This is a hybrid company, a company similar to its limited company (Ltd.) counterpart but where the members or shareholders do not benefit from limited liability should the company ever go into formal liquidation. There are, however, many specific categories of corporations and other business organizations which may be formed in various countries and jurisdictions throughout the world.
Corporate legal personality