Corporate Law

- Overview

Corporate law is the body of laws, rules, regulations and practices that govern the formation and operation of corporations. It’s the body of law that regulates legal entities that exist to conduct business. The laws touch on the rights and obligations of all of the people involved with forming, owning, operating and managing a corporation.

There are five principles that are common to corporate law:

• Legal personality: Corporation owners pool their resources into a separate entity. That entity can use the assets and sell them. Creditors can’t easily take the assets back. Instead, they form their own entity that acts on its own. 
• Limited liability: When a corporation gets sued, it’s only the corporation’s assets that are on the line. The plaintiff can’t go after the personal assets of the corporation’s owners. A corporation’s limited liability allows owners to take risks and diversify their investments. 
• Transferrable shares: If an owner decides they no longer want a share in the corporation, the corporation doesn’t have to shut down. One of the unique features of a corporation is that owners can transfer shares without the same difficulties and hassles that come with transferring ownership of a partnership. There can be limits on how shareholders transfer ownership, but the fact that ownership can be transferred allows the corporation to go on when owners want to make changes. 
• Delegated management: Corporations have a defined structure for how they conduct their affairs. There’s a board of directors and officers. These groups share and split decision-making authority. Board members hire and monitor officers. They also ratify their major decisions. The shareholders elect the board. Officers handle the day to day operation of the company. They’re the leaders for conducting transactions and making the business run each day. With a defined leadership structure, parties that do business with the corporation have the assurances that actions of officers and the board of directors are legally binding on the corporation. 
• Investor ownership: Owners have a say in making decisions for the corporation, but they don’t directly run the company. Investors also have the right to the corporation’s profits. Usually, an owner has decision-making authority and profit sharing in proportion to their ownership interest. Owners typically vote to elect board members.

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