COMPANY LAW - LECTURE NOTES I. 2 the companies law (2018 revision) of the cayman islands company limited by shares amended and restated articles of.
.Corporate law (also known as business law or enterprise law or sometimes company law) is the body of governing the, relations, and of,. It refers to the legal practice relating to, or the theory of.
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.While the minute nature of corporate governance as personified by, and rules differ, similar legal characteristics - and legal problems - exist across many jurisdictions. Corporate law regulates how, and other such as, the, and the interact with one another. Whilst the term company or business law is colloquially used interchangeably with corporate law, business law often refers to wider concepts of commercial law, that is, the law relating to commercial or business related activities. In some cases, this may include matters relating to corporate governance. When used as a substitute for corporate law, business law means the law relating to the business corporation (or business enterprises), i.e.
Capital raising (through equity or debt), company formation, registration, etc. Contents.Overview Academics identify four legal characteristics universal to business enterprises. These are:. of the corporation (access to tort and in a manner similar to a person). of the shareholders (a shareholder's personal liability is limited to the value of their shares in the corporation).
(if the corporation is a ', the shares are traded on a ). under a board structure; the delegates day-to-day management of the company to.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 opportunism: conflicts between managers and shareholders, between controlling and non-controlling shareholders; and between shareholders and other contractual counterparts (including creditors and employees).A 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 synonymous with 'firm' or 'business.' According to, in America a company means 'a corporation — or, less commonly, an association, partnership or union — that carries on industrial enterprise.' Other types of business associations can include (in the UK governed by the Partnership Act 1890), or (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 or their.The defining feature of a corporation is its legal independence from the shareholders that own it. Under corporate law, corporations of all sizes have, with or liability for its shareholders.
Shareholders control the company through a which, in turn, typically delegates control of the corporation's day-to-day operations to a full-time. 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 called, and it is why the names of corporations end with '. Or some variant such as ' or ').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 against real individuals and the state, and they may be responsible for human rights violations. Just as they are 'born' into existence through its members obtaining a, they can 'die' when they lose money into. Corporations can even be convicted of criminal offences, such as.
Corporate Law Background In order to understand the role corporate law plays within commercial law, it is useful to understand the historical development of the corporation, and the development of modern company law.History of the Corporation –. Image of the, by,Although some forms of companies are thought to have existed during and, the closest recognizable ancestors of the modern company did not appear until the 16th century. With increasing international trade, were granted in Europe (notably in and ) to merchant adventurers. The Royal charters usually conferred special privileges on the trading company (including, usually, some form of ). Originally, traders in these entities traded stock on their own account, but later the members came to operate on joint account and with joint stock, and the new was born.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. The development of company law in Europe was hampered by two notorious 'bubbles' (the in England and the in the ) in the 17th century, which set the development of companies in the two leading jurisdictions back by over a century in popular estimation.Modern company law.
'Jack and the Giant Joint-Stock', a cartoon in Town Talk (1858) satirizing the 'monster' joint-stock economy that came into being after the.Companies, almost inevitably, returned to the forefront of commerce, although in England to circumvent the 1720 investors had reverted to trading the stock of unincorporated associations, until it was repealed in 1825. – However, the cumbersome process of obtaining Royal charters was simply insufficient to keep up with demand.
In England there was a lively trade in the charters of defunct companies. However, procrastination amongst the legislature meant that in the United Kingdom it was not until the that the first equivalent of modern companies, formed by registration, appeared. Soon after came the, 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 at the behest of the then Vice President of the Board of Trade, Mr.
That legislation shortly gave way to the railway boom, and from there the numbers of companies formed soared. In the later nineteenth century depression took hold, and just as company numbers had boomed, many began to implode and fall into insolvency. Much strong 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 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.In a December 2006 article, identified the development of the joint stock company as one of the key reasons why Western commerce moved ahead of its rivals in the Middle East in post- era. – Corporate Structure.
Further information:The law of business organizations originally derived from the of, and has evolved significantly in the 20th century. In common law countries today, the most commonly addressed forms are: –.The proprietary limited company is a statutory business form in several countries, including.
Many countries have forms of business entity unique to that country, although there are equivalents elsewhere. Examples are the (LLC) and the (LLLP) in the United States.
Other types of business organizations, such as, and publicly owned enterprises, can be established with purposes that parallel, supersede, or even replace the mandate of business corporations.There are various types of company that can be formed in different jurisdictions, but the most common forms of company are:. a. 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, 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. The most common form of company used for business ventures. an 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.There are, however, many specific categories of corporations and other business organizations which may be formed in various countries and throughout the world.Corporate legal personality.
See also:Historically, because companies are artificial persons created by operation of law, the law prescribed what the company could and could not do. Usually this was an expression of the commercial purpose which the company was formed for, and came to be referred to as the company's objects, and the extent of the objects are referred to as the company's.
If an activity fell outside the company's capacity it was said to be and.By way of distinction, the organs of the company were expressed to have various corporate powers. If the objects were the things that the company was able to do, then the powers were the means by which it could do them.
Usually expressions of powers were limited to methods of raising capital, although from earlier times distinctions between objects and powers have caused lawyers difficulty. Most jurisdictions have now modified the position by statute, and companies generally have capacity to do all the things that a natural person could do, and power to do it in any way that a natural person could do it.However, references to corporate capacity and powers have not quite been consigned to the dustbin of legal history.
In many jurisdictions, directors can still be liable to their shareholders if they cause the company to engage in businesses outside its objects, even if the transactions are still valid as between the company and the third party. And many jurisdictions also still permit transactions to be challenged for lack of ', where the relevant transaction has no prospect of being for the commercial benefit of the company or its shareholders.As artificial persons, companies can only act through human agents. The main agent who deals with the company's management and business is the, but in many jurisdictions other officers can be appointed too. The board of directors is normally elected by the members, and the other officers are normally appointed by the board.
These agents enter into contracts on behalf of the company with third parties.Although the company's agents owe duties to the company (and, indirectly, to the shareholders) to exercise those powers for a proper purpose, generally speaking third parties' rights are not impugned if it transpires that the officers were acting improperly. Third parties are entitled to rely on the of agents held out by the company to act on its behalf. A line of common law cases reaching back to established in common law that third parties were entitled to assume that the internal management of the company was being conducted properly, and the rule has now been codified into statute in most countries.Accordingly, companies will normally be liable for all the act and omissions of their officers and agents. This will include almost all, but the law relating to is complex, and varies significantly between countries.Corporate crime. Main article:Corporate governance is primarily the study of the power relations among a corporation's senior executives, its and those who elect them ( in the ' and ), as well as other stakeholders, such as, the and the at large. One of the main differences between different countries in the internal form of companies is between a two-tier and a one tier board.
The United Kingdom, the United States, and most Commonwealth countries have single unified boards of directors. In Germany, companies have two tiers, so that shareholders (and employees) elect a 'supervisory board', and then the supervisory board chooses the 'management board'. There is the option to use two tiers in France, and in the new European Companies.Recent literature, especially from the United States, has begun to discuss corporate governance in the terms of. While post-war discourse centred on how to achieve effective 'corporate democracy' for shareholders or other stakeholders, many scholars have shifted to discussing the law in terms of. On this view, the basic issue of corporate law is that when a 'principal' party delegates his property (usually the shareholder's capital, but also the employee's labour) into the control of an 'agent' (i.e.
The director of the company) there is the possibility that the agent will act in his own interests, be 'opportunistic', rather than fulfill the wishes of the principal. Reducing the risks of this opportunism, or the 'agency cost', is said to be central to the goal of corporate law.Constitution. A issued by the, dating from 7 November 1623, for the amount of 2,400The rules for corporations derive from two sources. These are the country's statutes: in the US, usually the (DGCL); in the UK, the (CA 2006); in Germany, the and the The law will set out which rules are mandatory, and which rules can be derogated from. Examples of important rules which cannot be derogated from would usually include how to fire the, what duties directors owe to the company or when a company must be dissolved as it approaches bankruptcy.
Examples of rules that members of a company would be allowed to change and choose could include, what kind of procedure should follow, when dividends get paid out, or how many members (beyond a minimum set out in the law) can amend the constitution. Usually, the statute will set out, which the corporation's constitution will be assumed to have if it is silent on a bit of particular procedure.The United States, and a few other common law countries, split the corporate constitution into two separate documents (the UK got rid of this in 2006). The (or ) is the primary document, and will generally regulate the company's activities with the outside world. It states which objects the company is meant to follow (e.g.
'this company makes automobiles') and specifies the of the company. The (or ) is the secondary document, and will generally regulate the company's internal affairs and management, such as procedures for board meetings, dividend entitlements etc. In the event of any inconsistency, the memorandum prevails and in the United States only the memorandum is publicised.
In jurisdictions, the company's constitution is normally consolidated into a single document, often called the.It is quite common for members of a company to supplement the corporate constitution with additional arrangements, such as, whereby they agree to exercise their membership rights in a certain way. Conceptually a shareholders' agreement fulfills many of the same functions as the corporate constitution, but because it is a contract, it will not normally bind new members of the company unless they accede to it somehow. One benefit of shareholders' agreement is that they will usually be confidential, as most jurisdictions do not require shareholders' agreements to be publicly filed. Another common method of supplementing the corporate constitution is by means of, although these are relatively uncommon outside the and certain. Some jurisdictions consider the to be a part of the 'constitution' (in the loose sense of the word) of the company, but the requirement for a seal has been abrogated by legislation in most countries.Balance of power. Main articles: andIn most jurisdictions, directors owe, as well as duties of care and skill, to safeguard the interests of the company and the members. In many developed countries outside the English speaking world, company boards are appointed as representatives of both shareholders and employees to ' company strategy.
Corporate law is often divided into (which concerns the various power relations within a corporation) and (which concerns the rules on how capital is used).Directors also owe strict duties not to permit any or conflict with their duty to act in the best interests of the company. This rule is so strictly enforced that, even where the conflict of interest or conflict of duty is purely hypothetical, the directors can be forced to disgorge all personal gains arising from it. In (1854) 1 Macq HL 461 stated in his judgment that. 'A corporate body can only act by agents, and it is, of course, the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting.
Such agents have duties to discharge of a fiduciary nature towards their principal. And it is a rule of universal application that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting or which possibly may conflict, with the interests of those whom he is bound to protect. So strictly is this principle adhered to that no question is allowed to be raised as to the fairness or unfairness of the contract entered into.' However, in many jurisdictions the members of the company are permitted to ratify transactions which would otherwise fall foul of this principle.
It is also largely accepted in most jurisdictions that this principle should be capable of being abrogated in the company's constitution.The standard of skill and care that a director owes is usually described as acquiring and maintaining sufficient knowledge and understanding of the company's business to enable him to properly discharge his duties. This duty enables the company to seek compensation from its director if it can be proved that a director has not shown reasonable skill or care which in turn has caused the company to incur a loss. In many jurisdictions, where a company continues to trade despite foreseeable, the directors can be forced to account for trading losses personally. Directors are also strictly charged to exercise their powers only for a proper purpose. For instance, were a director to issue a large number of new shares, not for the purposes of raising capital but in order to defeat a potential takeover bid, that would be an improper purpose. Company law theory has pointed out, all business organizations represent an attempt to avoid certain costs associated with doing business. Each is meant to facilitate the contribution of specific resources - investment capital, knowledge, relationships, and so forth - towards a venture which will prove profitable to all contributors.
Except for the partnership, all business forms are designed to provide to both members of the organization and external investors. Business organizations originated with, which permits an agent to act on behalf of a principal, in exchange for the principal assuming equal liability for the wrongful acts committed by the agent. For this reason, all partners in a typical general partnership may be held liable for the wrongs committed by one partner. Those forms that provide limited liability are able to do so because the state provides a mechanism by which businesses that follow certain guidelines will be able to escape the full liability imposed under agency law. The state provides these forms because it has an interest in the strength of the companies that provide jobs and services therein, but also has an interest in monitoring and regulating their behaviour.Litigation. Main articles: andMembers of a company generally have rights against each other and against the company, as framed under the company's constitution.
However, members cannot generally claim against third parties who cause damage to the company which results in a diminution in the value of their shares or others membership interests because this is treated as ' and the law normally regards the company as the proper claimant in such cases.In relation to the exercise of their rights, minority shareholders usually have to accept that, because of the limits of their voting rights, they cannot direct the overall control of the company and must accept the will of the majority (often expressed as majority rule). However, majority rule can be iniquitous, particularly where there is one controlling shareholder. Accordingly, a number of exceptions have developed in law in relation to the general principle of majority rule.
Where the majority shareholder(s) are exercising their votes to perpetrate a fraud on the minority, the courts may permit the minority to sue. members always retain the right to sue if the majority acts to invade their personal rights, e.g. Where the company's affairs are not conducted in accordance with the company's constitution (this position has been debated because the extent of a personal right is not set in law).
Macdougall v Gardiner and Pender v Lushington present irreconcilable differences in this area. in many jurisdictions it is possible for minority shareholders to take a representative or in the name of the company, where the company is controlled by the alleged wrongdoersCorporate finance. Further information:Through the operational life of the corporation, perhaps the most crucial aspect of corporate law relates to raising capital for the business to operate.
The law, as it relates to corporate finance, not only provides the framework for which a business raises funds - but also provides a forum for principles and policies which drive the fundraising, to be taken seriously. Two primary methods of financing exists with regard to corporate financing, these are:. Equity financing; and. Debt financingEach has relative advantages and disadvantages, both at law and economically. Additional methods of raising capital necessary to finance its operations is that of retained profits Various combinations of have the capacity to produce fine-tuned transactions which, using the advantages of each form of financing, support the limitations of the corporate form, its industry, or economic sector.
A mix of both debt and equity is crucial to the sustained health of the company, and its overall market value is independent of its capital structure. One notable difference is that interest payments to debt is tax deductible whilst payment of dividends are not, this will incentivise a company to issue debt financing rather than in order to reduce their tax exposure.Shares and share capital. Main article:A company limited by shares, whether public or private, must have at least one issued share; however, depending on the corporate structure, the formatting may differ. If a company wishes to raise capital through equity, it will usually be done by issuing shares. (sometimes called 'stock' (not to be confused with stock-in-trade)). In the common law, whilst a shareholder is often colloquially referred to as the owner of the company - it is clear that the shareholder is not an owner of the company but makes the shareholder a member of the company and entitles them to enforce the provisions of the company's constitution against the company and against other members.
A share is an item of property, and can be sold or transferred. Shares also normally have a nominal or par value, which is the limit of the shareholder's liability to contribute to the debts of the company on an insolvent liquidation. Shares usually confer a number of rights on the holder.
Main article:Liquidation is the normal means by which a company's existence is brought to an end. It is also referred to (either alternatively or concurrently) in some jurisdictions as winding up or dissolution. Liquidations generally come in two forms — either compulsory liquidations (sometimes called creditors' liquidations) and voluntary liquidations (sometimes called members' liquidations, although a voluntary liquidation where the company is insolvent will also be controlled by the creditors, and is properly referred to as a creditors' voluntary liquidation). Where a company goes into liquidation, normally a is appointed to gather in all the company's assets and settle all claims against the company.
If there is any surplus after paying off all the creditors of the company, this surplus is then distributed to the members.As its names imply, applications for compulsory liquidation are normally made by of the company when the company is unable to pay its debts. However, in some jurisdictions, regulators have the power to apply for the liquidation of the company on the grounds of public good, i.e., where the company is believed to have engaged in unlawful conduct, or conduct which is otherwise harmful to the public at large.Voluntary liquidations occur when the company's members decide voluntarily to wind up the affairs of the company. This may be because they believe that the company will soon become, or it may be on economic grounds if they believe that the purpose for which the company was formed is now at an end, or that the company is not providing an adequate return on assets and should be broken up and sold off.Some jurisdictions also permit companies to be wound up on 'just and equitable' grounds. Generally, applications for just and equitable winding-up are brought by a member of the company who alleges that the affairs of the company are being conducted in a prejudicial manner, and asking the court to bring an end to the company's existence.
For obvious reasons, in most countries, the courts have been reluctant to wind up a company solely on the basis of the disappointment of one member, regardless of how well-founded that member's complaints are. Accordingly, most jurisdictions that permit just and equitable winding up also permit the court to impose other remedies, such as requiring the majority shareholder(s) to buy out the disappointed minority shareholder at a fair value.Insider dealing. Main article:Insider trading is the trading of a 's or other (e.g., or ) by individuals with potential access to non-public information about the company. In most countries, trading by corporate insiders such as officers, key employees, directors, and large shareholders may be legal if this trading is done in a way that does not take advantage of non-public information.
However, the term is frequently used to refer to a practice in which an insider or a related party trades based on non-public information obtained during the performance of the insider's duties at the corporation, or otherwise in breach of a or other relationship of trust and confidence or where the non-public information was misappropriated from the company. Illegal insider trading is believed to raise the cost of capital for securities issuers, thus decreasing overall economic growth.In the United States and several other jurisdictions, trading conducted by corporate officers, key employees, directors, or significant shareholders (in the United States, defined as beneficial owners of ten percent or more of the firm's equity securities) must be reported to the regulator or publicly disclosed, usually within a few business days of the trade. Many investors follow the summaries of these insider trades in the hope that mimicking these trades will be profitable. While 'legal' insider trading cannot be based on, some investors believe corporate insiders nonetheless may have better insights into the health of a corporation (broadly speaking) and that their trades otherwise convey important information (e.g., about the pending retirement of an important officer selling shares, greater commitment to the corporation by officers purchasing shares, etc.)United States. The examples and perspective in this article may not represent a of the subject. You may, discuss the issue on the, or, as appropriate.
( August 2010) In the, most corporations are, or organized, under the laws of a particular. The laws of the state of incorporation normally governs a corporation's internal operations, even if the corporation's operations take place outside that state. Corporate law differs from state to state. Because of these differences, some businesses will benefit from having a corporate determine the most appropriate or advantageous state in which to incorporate.Business entities may also be regulated by and in some cases by and ordinances.
Delaware A majority of publicly traded companies in the U.S. Some companies choose to incorporate in Delaware because the offers lower corporate taxes than many other states. Many prefer to invest in Delaware corporations. Also, the is widely recognized as a good venue for the litigation of business disputes. See also.
^ 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., 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., 8th edition (2004),. e.g. Art.8, especially Art.(4). 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.
e.g. In England the first joint stock company was the, which received its charter in 1600.
The 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. In England, see Edmunds v Brown Tillard (1668) 1 Lev 237 and Salmon v The Hamborough Co (1671) 1 Ch Cas 204. 'Long ago, the region's failure to develop joint-stock companies was one reason why it fell behind the West.' The Economist. 1897 AC 22. Although it did attach to documents within the husband's custody or control.
1925 AC 619. 1990 Ch 433.
Goode Principles of Corporate Insolvency Law (3rd Edn, Sweet & Maxwell 2013). Williams v Natural Life 1998 1 WLR 830.
See the frustration expressed by the House of Lords in 1918 AC 514. Lin, Tom C. W., (December 1, 2018). 98 Boston University Law Review 1535 (2018). (1885) 30 Ch D 376. Shalfoon v Cheddar Valley 1924 NZLR 561.
.Corporate law (also known as business law or enterprise law or sometimes company law) is the body of governing the, relations, and of,. It refers to the legal practice relating to, or the theory of. 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.While the minute nature of corporate governance as personified by, and rules differ, similar legal characteristics - and legal problems - exist across many jurisdictions. Corporate law regulates how, and other such as, the, and the interact with one another. Whilst the term company or business law is colloquially used interchangeably with corporate law, business law often refers to wider concepts of commercial law, that is, the law relating to commercial or business related activities.
In some cases, this may include matters relating to corporate governance. When used as a substitute for corporate law, business law means the law relating to the business corporation (or business enterprises), i.e. Capital raising (through equity or debt), company formation, registration, etc. Contents.Overview Academics identify four legal characteristics universal to business enterprises.
These are:. of the corporation (access to tort and in a manner similar to a person). of the shareholders (a shareholder's personal liability is limited to the value of their shares in the corporation). (if the corporation is a ', the shares are traded on a ). under a board structure; the delegates day-to-day management of the company to.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 opportunism: conflicts between managers and shareholders, between controlling and non-controlling shareholders; and between shareholders and other contractual counterparts (including creditors and employees).A 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 synonymous with 'firm' or 'business.'
According to, in America a company means 'a corporation — or, less commonly, an association, partnership or union — that carries on industrial enterprise.' Other types of business associations can include (in the UK governed by the Partnership Act 1890), or (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 or their.The defining feature of a corporation is its legal independence from the shareholders that own it. Under corporate law, corporations of all sizes have, with or liability for its shareholders. Shareholders control the company through a which, in turn, typically delegates control of the corporation's day-to-day operations to a full-time.
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 called, and it is why the names of corporations end with '. Or some variant such as ' or ').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 against real individuals and the state, and they may be responsible for human rights violations.
Just as they are 'born' into existence through its members obtaining a, they can 'die' when they lose money into. Corporations can even be convicted of criminal offences, such as. Corporate Law Background In order to understand the role corporate law plays within commercial law, it is useful to understand the historical development of the corporation, and the development of modern company law.History of the Corporation –. Image of the, by,Although some forms of companies are thought to have existed during and, the closest recognizable ancestors of the modern company did not appear until the 16th century. With increasing international trade, were granted in Europe (notably in and ) to merchant adventurers.
The Royal charters usually conferred special privileges on the trading company (including, usually, some form of ). Originally, traders in these entities traded stock on their own account, but later the members came to operate on joint account and with joint stock, and the new was born.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. The development of company law in Europe was hampered by two notorious 'bubbles' (the in England and the in the ) in the 17th century, which set the development of companies in the two leading jurisdictions back by over a century in popular estimation.Modern company law. 'Jack and the Giant Joint-Stock', a cartoon in Town Talk (1858) satirizing the 'monster' joint-stock economy that came into being after the.Companies, almost inevitably, returned to the forefront of commerce, although in England to circumvent the 1720 investors had reverted to trading the stock of unincorporated associations, until it was repealed in 1825. – However, the cumbersome process of obtaining Royal charters was simply insufficient to keep up with demand. In England there was a lively trade in the charters of defunct companies. However, procrastination amongst the legislature meant that in the United Kingdom it was not until the that the first equivalent of modern companies, formed by registration, appeared.
Soon after came the, 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 at the behest of the then Vice President of the Board of Trade, Mr. That legislation shortly gave way to the railway boom, and from there the numbers of companies formed soared. In the later nineteenth century depression took hold, and just as company numbers had boomed, many began to implode and fall into insolvency. Much strong 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 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.In a December 2006 article, identified the development of the joint stock company as one of the key reasons why Western commerce moved ahead of its rivals in the Middle East in post- era.
– Corporate Structure. Further information:The law of business organizations originally derived from the of, and has evolved significantly in the 20th century. In common law countries today, the most commonly addressed forms are: –.The proprietary limited company is a statutory business form in several countries, including. Many countries have forms of business entity unique to that country, although there are equivalents elsewhere.
Examples are the (LLC) and the (LLLP) in the United States. Other types of business organizations, such as, and publicly owned enterprises, can be established with purposes that parallel, supersede, or even replace the mandate of business corporations.There are various types of company that can be formed in different jurisdictions, but the most common forms of company are:. a.
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, 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.
The most common form of company used for business ventures. an 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.There are, however, many specific categories of corporations and other business organizations which may be formed in various countries and throughout the world.Corporate legal personality. See also:Historically, because companies are artificial persons created by operation of law, the law prescribed what the company could and could not do.
Usually this was an expression of the commercial purpose which the company was formed for, and came to be referred to as the company's objects, and the extent of the objects are referred to as the company's. If an activity fell outside the company's capacity it was said to be and.By way of distinction, the organs of the company were expressed to have various corporate powers. If the objects were the things that the company was able to do, then the powers were the means by which it could do them. Usually expressions of powers were limited to methods of raising capital, although from earlier times distinctions between objects and powers have caused lawyers difficulty. Most jurisdictions have now modified the position by statute, and companies generally have capacity to do all the things that a natural person could do, and power to do it in any way that a natural person could do it.However, references to corporate capacity and powers have not quite been consigned to the dustbin of legal history. In many jurisdictions, directors can still be liable to their shareholders if they cause the company to engage in businesses outside its objects, even if the transactions are still valid as between the company and the third party. And many jurisdictions also still permit transactions to be challenged for lack of ', where the relevant transaction has no prospect of being for the commercial benefit of the company or its shareholders.As artificial persons, companies can only act through human agents.
The main agent who deals with the company's management and business is the, but in many jurisdictions other officers can be appointed too. The board of directors is normally elected by the members, and the other officers are normally appointed by the board. These agents enter into contracts on behalf of the company with third parties.Although the company's agents owe duties to the company (and, indirectly, to the shareholders) to exercise those powers for a proper purpose, generally speaking third parties' rights are not impugned if it transpires that the officers were acting improperly. Third parties are entitled to rely on the of agents held out by the company to act on its behalf.
A line of common law cases reaching back to established in common law that third parties were entitled to assume that the internal management of the company was being conducted properly, and the rule has now been codified into statute in most countries.Accordingly, companies will normally be liable for all the act and omissions of their officers and agents. This will include almost all, but the law relating to is complex, and varies significantly between countries.Corporate crime. Main article:Corporate governance is primarily the study of the power relations among a corporation's senior executives, its and those who elect them ( in the ' and ), as well as other stakeholders, such as, the and the at large. One of the main differences between different countries in the internal form of companies is between a two-tier and a one tier board. The United Kingdom, the United States, and most Commonwealth countries have single unified boards of directors. In Germany, companies have two tiers, so that shareholders (and employees) elect a 'supervisory board', and then the supervisory board chooses the 'management board'. There is the option to use two tiers in France, and in the new European Companies.Recent literature, especially from the United States, has begun to discuss corporate governance in the terms of.
While post-war discourse centred on how to achieve effective 'corporate democracy' for shareholders or other stakeholders, many scholars have shifted to discussing the law in terms of. On this view, the basic issue of corporate law is that when a 'principal' party delegates his property (usually the shareholder's capital, but also the employee's labour) into the control of an 'agent' (i.e. The director of the company) there is the possibility that the agent will act in his own interests, be 'opportunistic', rather than fulfill the wishes of the principal. Reducing the risks of this opportunism, or the 'agency cost', is said to be central to the goal of corporate law.Constitution. A issued by the, dating from 7 November 1623, for the amount of 2,400The rules for corporations derive from two sources. These are the country's statutes: in the US, usually the (DGCL); in the UK, the (CA 2006); in Germany, the and the The law will set out which rules are mandatory, and which rules can be derogated from. Examples of important rules which cannot be derogated from would usually include how to fire the, what duties directors owe to the company or when a company must be dissolved as it approaches bankruptcy.
Examples of rules that members of a company would be allowed to change and choose could include, what kind of procedure should follow, when dividends get paid out, or how many members (beyond a minimum set out in the law) can amend the constitution. Usually, the statute will set out, which the corporation's constitution will be assumed to have if it is silent on a bit of particular procedure.The United States, and a few other common law countries, split the corporate constitution into two separate documents (the UK got rid of this in 2006). The (or ) is the primary document, and will generally regulate the company's activities with the outside world. It states which objects the company is meant to follow (e.g. 'this company makes automobiles') and specifies the of the company. The (or ) is the secondary document, and will generally regulate the company's internal affairs and management, such as procedures for board meetings, dividend entitlements etc. In the event of any inconsistency, the memorandum prevails and in the United States only the memorandum is publicised.
In jurisdictions, the company's constitution is normally consolidated into a single document, often called the.It is quite common for members of a company to supplement the corporate constitution with additional arrangements, such as, whereby they agree to exercise their membership rights in a certain way. Conceptually a shareholders' agreement fulfills many of the same functions as the corporate constitution, but because it is a contract, it will not normally bind new members of the company unless they accede to it somehow. One benefit of shareholders' agreement is that they will usually be confidential, as most jurisdictions do not require shareholders' agreements to be publicly filed. Another common method of supplementing the corporate constitution is by means of, although these are relatively uncommon outside the and certain.
Some jurisdictions consider the to be a part of the 'constitution' (in the loose sense of the word) of the company, but the requirement for a seal has been abrogated by legislation in most countries.Balance of power. Main articles: andIn most jurisdictions, directors owe, as well as duties of care and skill, to safeguard the interests of the company and the members. In many developed countries outside the English speaking world, company boards are appointed as representatives of both shareholders and employees to ' company strategy.
Corporate law is often divided into (which concerns the various power relations within a corporation) and (which concerns the rules on how capital is used).Directors also owe strict duties not to permit any or conflict with their duty to act in the best interests of the company. This rule is so strictly enforced that, even where the conflict of interest or conflict of duty is purely hypothetical, the directors can be forced to disgorge all personal gains arising from it. In (1854) 1 Macq HL 461 stated in his judgment that. 'A corporate body can only act by agents, and it is, of course, the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting. Such agents have duties to discharge of a fiduciary nature towards their principal. And it is a rule of universal application that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting or which possibly may conflict, with the interests of those whom he is bound to protect. So strictly is this principle adhered to that no question is allowed to be raised as to the fairness or unfairness of the contract entered into.'
However, in many jurisdictions the members of the company are permitted to ratify transactions which would otherwise fall foul of this principle. It is also largely accepted in most jurisdictions that this principle should be capable of being abrogated in the company's constitution.The standard of skill and care that a director owes is usually described as acquiring and maintaining sufficient knowledge and understanding of the company's business to enable him to properly discharge his duties. This duty enables the company to seek compensation from its director if it can be proved that a director has not shown reasonable skill or care which in turn has caused the company to incur a loss. In many jurisdictions, where a company continues to trade despite foreseeable, the directors can be forced to account for trading losses personally.
Directors are also strictly charged to exercise their powers only for a proper purpose. For instance, were a director to issue a large number of new shares, not for the purposes of raising capital but in order to defeat a potential takeover bid, that would be an improper purpose. Company law theory has pointed out, all business organizations represent an attempt to avoid certain costs associated with doing business. Each is meant to facilitate the contribution of specific resources - investment capital, knowledge, relationships, and so forth - towards a venture which will prove profitable to all contributors. Except for the partnership, all business forms are designed to provide to both members of the organization and external investors. Business organizations originated with, which permits an agent to act on behalf of a principal, in exchange for the principal assuming equal liability for the wrongful acts committed by the agent.
For this reason, all partners in a typical general partnership may be held liable for the wrongs committed by one partner. Those forms that provide limited liability are able to do so because the state provides a mechanism by which businesses that follow certain guidelines will be able to escape the full liability imposed under agency law. The state provides these forms because it has an interest in the strength of the companies that provide jobs and services therein, but also has an interest in monitoring and regulating their behaviour.Litigation. Main articles: andMembers of a company generally have rights against each other and against the company, as framed under the company's constitution. However, members cannot generally claim against third parties who cause damage to the company which results in a diminution in the value of their shares or others membership interests because this is treated as ' and the law normally regards the company as the proper claimant in such cases.In relation to the exercise of their rights, minority shareholders usually have to accept that, because of the limits of their voting rights, they cannot direct the overall control of the company and must accept the will of the majority (often expressed as majority rule). However, majority rule can be iniquitous, particularly where there is one controlling shareholder.
Accordingly, a number of exceptions have developed in law in relation to the general principle of majority rule. Where the majority shareholder(s) are exercising their votes to perpetrate a fraud on the minority, the courts may permit the minority to sue. members always retain the right to sue if the majority acts to invade their personal rights, e.g.
Where the company's affairs are not conducted in accordance with the company's constitution (this position has been debated because the extent of a personal right is not set in law). Macdougall v Gardiner and Pender v Lushington present irreconcilable differences in this area.
in many jurisdictions it is possible for minority shareholders to take a representative or in the name of the company, where the company is controlled by the alleged wrongdoersCorporate finance. Further information:Through the operational life of the corporation, perhaps the most crucial aspect of corporate law relates to raising capital for the business to operate. The law, as it relates to corporate finance, not only provides the framework for which a business raises funds - but also provides a forum for principles and policies which drive the fundraising, to be taken seriously.
Two primary methods of financing exists with regard to corporate financing, these are:. Equity financing; and. Debt financingEach has relative advantages and disadvantages, both at law and economically. Additional methods of raising capital necessary to finance its operations is that of retained profits Various combinations of have the capacity to produce fine-tuned transactions which, using the advantages of each form of financing, support the limitations of the corporate form, its industry, or economic sector. A mix of both debt and equity is crucial to the sustained health of the company, and its overall market value is independent of its capital structure. One notable difference is that interest payments to debt is tax deductible whilst payment of dividends are not, this will incentivise a company to issue debt financing rather than in order to reduce their tax exposure.Shares and share capital.
Main article:A company limited by shares, whether public or private, must have at least one issued share; however, depending on the corporate structure, the formatting may differ. If a company wishes to raise capital through equity, it will usually be done by issuing shares. (sometimes called 'stock' (not to be confused with stock-in-trade)). In the common law, whilst a shareholder is often colloquially referred to as the owner of the company - it is clear that the shareholder is not an owner of the company but makes the shareholder a member of the company and entitles them to enforce the provisions of the company's constitution against the company and against other members.
A share is an item of property, and can be sold or transferred. Shares also normally have a nominal or par value, which is the limit of the shareholder's liability to contribute to the debts of the company on an insolvent liquidation. Shares usually confer a number of rights on the holder. Main article:Liquidation is the normal means by which a company's existence is brought to an end. It is also referred to (either alternatively or concurrently) in some jurisdictions as winding up or dissolution.
Liquidations generally come in two forms — either compulsory liquidations (sometimes called creditors' liquidations) and voluntary liquidations (sometimes called members' liquidations, although a voluntary liquidation where the company is insolvent will also be controlled by the creditors, and is properly referred to as a creditors' voluntary liquidation). Where a company goes into liquidation, normally a is appointed to gather in all the company's assets and settle all claims against the company.
If there is any surplus after paying off all the creditors of the company, this surplus is then distributed to the members.As its names imply, applications for compulsory liquidation are normally made by of the company when the company is unable to pay its debts. However, in some jurisdictions, regulators have the power to apply for the liquidation of the company on the grounds of public good, i.e., where the company is believed to have engaged in unlawful conduct, or conduct which is otherwise harmful to the public at large.Voluntary liquidations occur when the company's members decide voluntarily to wind up the affairs of the company. This may be because they believe that the company will soon become, or it may be on economic grounds if they believe that the purpose for which the company was formed is now at an end, or that the company is not providing an adequate return on assets and should be broken up and sold off.Some jurisdictions also permit companies to be wound up on 'just and equitable' grounds. Generally, applications for just and equitable winding-up are brought by a member of the company who alleges that the affairs of the company are being conducted in a prejudicial manner, and asking the court to bring an end to the company's existence. For obvious reasons, in most countries, the courts have been reluctant to wind up a company solely on the basis of the disappointment of one member, regardless of how well-founded that member's complaints are. Accordingly, most jurisdictions that permit just and equitable winding up also permit the court to impose other remedies, such as requiring the majority shareholder(s) to buy out the disappointed minority shareholder at a fair value.Insider dealing. Main article:Insider trading is the trading of a 's or other (e.g., or ) by individuals with potential access to non-public information about the company.
In most countries, trading by corporate insiders such as officers, key employees, directors, and large shareholders may be legal if this trading is done in a way that does not take advantage of non-public information. However, the term is frequently used to refer to a practice in which an insider or a related party trades based on non-public information obtained during the performance of the insider's duties at the corporation, or otherwise in breach of a or other relationship of trust and confidence or where the non-public information was misappropriated from the company. Illegal insider trading is believed to raise the cost of capital for securities issuers, thus decreasing overall economic growth.In the United States and several other jurisdictions, trading conducted by corporate officers, key employees, directors, or significant shareholders (in the United States, defined as beneficial owners of ten percent or more of the firm's equity securities) must be reported to the regulator or publicly disclosed, usually within a few business days of the trade. Many investors follow the summaries of these insider trades in the hope that mimicking these trades will be profitable. While 'legal' insider trading cannot be based on, some investors believe corporate insiders nonetheless may have better insights into the health of a corporation (broadly speaking) and that their trades otherwise convey important information (e.g., about the pending retirement of an important officer selling shares, greater commitment to the corporation by officers purchasing shares, etc.)United States.
The examples and perspective in this article may not represent a of the subject. You may, discuss the issue on the, or, as appropriate. ( August 2010) In the, most corporations are, or organized, under the laws of a particular. The laws of the state of incorporation normally governs a corporation's internal operations, even if the corporation's operations take place outside that state. Corporate law differs from state to state. Because of these differences, some businesses will benefit from having a corporate determine the most appropriate or advantageous state in which to incorporate.Business entities may also be regulated by and in some cases by and ordinances.
Delaware A majority of publicly traded companies in the U.S. Some companies choose to incorporate in Delaware because the offers lower corporate taxes than many other states.
Many prefer to invest in Delaware corporations. Also, the is widely recognized as a good venue for the litigation of business disputes. See also.
^ 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., 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., 8th edition (2004),. e.g.
Art.8, especially Art.(4). 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. e.g. In England the first joint stock company was the, which received its charter in 1600.
The 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. In England, see Edmunds v Brown Tillard (1668) 1 Lev 237 and Salmon v The Hamborough Co (1671) 1 Ch Cas 204. 'Long ago, the region's failure to develop joint-stock companies was one reason why it fell behind the West.' The Economist. 1897 AC 22.
Although it did attach to documents within the husband's custody or control. 1925 AC 619.
1990 Ch 433. Goode Principles of Corporate Insolvency Law (3rd Edn, Sweet & Maxwell 2013). Williams v Natural Life 1998 1 WLR 830. See the frustration expressed by the House of Lords in 1918 AC 514. Lin, Tom C. W., (December 1, 2018).
98 Boston University Law Review 1535 (2018). (1885) 30 Ch D 376. Shalfoon v Cheddar Valley 1924 NZLR 561.