What is corporate law?
The article analyzes the concept of corporate law and the history of corporate law in the United States. Around mid-1800s corporate law was very restrictive and very closely regulated by the states. Forming a corporation back then usually required an act of the legislature. Eventually, state governments started to understand the economic value of providing more permissive legislation towards corporate laws.
Corporate law deals with the formation and operation of companies and the people involved in running and/or financing them. Corporate law is a legal field related to commercial and contract law. The practice of corporate law involves general corporate matters such as the incorporation of companies, directors’ and shareholders’ rights and obligations, articles of incorporation, bylaws, board meetings, corporate modifications, dissolution and liquidation, equity and bond transactions, change of ownership, administrative issues, mergers and acquisitions and public listing of companies. Corporate law is a foundation of economic activity.
Corporate law is generally a civil body of law with civil remedies; it is not, typically, a criminal body of law. When there is a dispute, the corporations’ officers, directors, or shareholders can go to the appropriate civil court in order to resolve the dispute. However, officers, directors, employees and agents can be held criminally liable in case of fraud or other illegal actions.
In the United States, most corporate law comes from state statutes. Every corporation is governed by the law of the state in which it is incorporated or formed. Because there is a difference between the states’ legislation, many people choose to have their corporations incorporated in business-friendly states. The state best known in this respect is Delaware. Even if the states’ statutes are different, some of them still follow the structure of the Model Business Corporation Act. This is a “model statute” drafted by the American Bar Association. However, it is usually associated with smaller states. On the other hand, economically important states such as New York and California have unique corporate statutes, and, therefore, incorporate rules from many sources.
Regardless of the differences across jurisdictions, there are five characteristics covered by the corporate law of each state and they include: legal personality, limited liability, transferable shares, delegated management under a board structure, and investor ownership.
A corporation is a legal entity that is created under state law for the purpose of conducting business activities as prescribed by law. A corporation is treated by law as a “legal person” and therefore similar to an individual. A corporation is a legal entity that has standing to sue and be sued, enter into contracts, and perform other duties necessary to conduct business activities. The corporation is separate from the shareholders (owners) of the corporation.
Aside from state law, corporations may also be subject to federal law. For example, publicly traded corporations must comply with federal securities laws. Some of the most important securities laws are the Securities Act of 1933 and the Securities Exchange Act of 1934. Corporations also have to comply with federal laws governing employment, environmental protection, food and drug regulation, intellectual property and others.
In the United States, most corporate law comes from the common law. This is the judge made law. Common law principles of agency, contracts and torts are important in the corporate law context. Besides common law as a source for corporation law, corporations also make their own internal rules. They do this through two important documents –the articles of incorporation and the bylaws of the corporation. The articles of incorporation are the constitution of a corporation and they contain provisions that are usually required by the state statute. These requirements can contain the name of the corporation, principal place of business and other provisions regarding the operation of the corporation. The articles of incorporation can only be changed with the approval of the shareholders. Further, bylaws are adopted by the board of directors and can be sometimes changed without the consent of the shareholders. The bylaws direct the board of directors in their work to oversee the corporation. The articles of incorporation must comply with the state statute and the bylaws must comply with both the state statute and the articles of incorporation.
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