What Is Corporate Law (Explained: All You Need To Know)

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What is Corporate Law?

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What Is Corporate Law

Corporate law is a broad term referring to all laws, statutes, rules, and regulations dealing with legal entities, their formation, management, functioning, and legal structure.

In other words, corporate law refers to the laws that govern legal entities and their conduct.

For example, a corporation is a legal entity that is separate and distinct from its shareholders.

In the context of corporations, corporate law refers to the laws based on which a corporation is legally formed, how it must be managed, its rights and obligations, how it administers the corporation, record-keeping obligations, and so on.

Individuals, entrepreneurs, and businesses will need to deal with corporate law matters to ensure that their legal entity remains in good standing, respects its legal obligations, and ensures it is properly managed.

The main principles governed by corporate law relating to a company’s legal personality, owner’s liability, transfer of shares, the delegation of management, and investor ownership.

Keep reading as I will further break down the meaning of corporate law and tell you why it’s important.

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Why Is Corporate Law Important

The main objective of corporate law is to ensure that everyone has a fair chance in doing business and can operate on a level playing field.

Although some consider that corporate laws are complicated and create an unnecessary burden on entrepreneurs and businesses, the reality is that the fundamental reason why these laws exist is to ensure everyone has a fair chance when doing business.

Otherwise, larger companies and wealthy individuals could impose their will on others leading to unfair outcomes.

By adopting corporate laws, the government’s objective is to provide clear rules so that everything is fair for everyone involved.

Business owners will know the extent of their rights and obligations in relation to legal entities, company directors and officers will have clear duties, company creditors will know how to do business with the legal entity, and so on.

Without clear laws governing corporations, it can be very difficult for business owners to do business with other institutions, legal entities, or other parties.

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What Corporate Law Includes

Generally speaking, corporate law has five main elements: legal personality, limited liability, share transfer, delegated management, and business funding.

Legal Personality

Legal personality refers to the fact that companies are separate legal entities from their founders or business owners.

As a separate legal entity, the company is given the right to acquire assets, sell assets, exercise legal rights, sue others, and be sued.

Limited Liability

A company is also attractive for business owners as it allows shareholders and owners to have limited liability for business debt.

As such, if the company is sued or owes money, creditors will not be able to go after the shareholders’ personal assets.

Transfer of Shares

Corporate law also deals with the rules relating to the transfer of shares in case one business owner wishes to sell his or her shares to another or no longer wants to remain in the company.

When transferring shares, companies are required to comply with corporate laws to ensure that the current owner can transfer the shares and that the transfer of shares is done properly.

Delegated Management

Another element of corporate law is with regard to the management of the company.

In a corporation, you typically have shareholders appoint the members of the board, who in turn will appoint the officers, who will then appoint the managers, and so on.

The board of directors is responsible for the overall direction of the company and its high-level objectives.

The board of directors will then appoint the executive leadership team who will have the responsibility to run the company on a day-to-day basis.

Business Funding

Another aspect that is handled by corporate law is investor ownership and company funding.

For example, corporations are owned by shareholders who invest in the company hoping to see the company grow over time.

Although shareholders actually own the corporation, they are not involved in the day-to-day decision-making of the company.

The investors and shareholders appoint the board of directors who are responsible for managing the company in the shareholders’ best interest.

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Examples of Corporate Law Matters

Let’s look at a few examples of matters that fall under the corporate law umbrella.

Some common matters or issues relating to corporate law are:

• Incorporation of a corporation 
• Creation of company by-laws
• Shareholder meetings
• Director meetings 
• Special resolutions
• Shareholder liability 
• Shareholder dispute 
• Voting on shares
• Issuance of stocks
• Transfer of stocks
• Mergers and acquisitions 
• Dissolution of a corporation 
• Payment to shareholders 
• Board of directors’ duty
• Corporate officer duties 
• Articles of incorporation 
• Corporate name 

When speaking of corporate laws, keep in mind that we are referring to the set of laws that govern corporations, a specific type of legal entity.

There are different types of legal entities such as limited partnerships, limited liability companies, or others that are governed by specific laws.

Corporate laws are those governing corporations and corporate entities.

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Corporate Law FAQ

What is the purpose of corporate law?

The main purpose of corporate law is to provide rules and regulations relating to corporate entities, particularly as to their formation, ownership, operation, management, and dissolution.

Corporate law is intended to make things easier for all parties involved, such as business owners, shareholders, investors, directors, officers, creditors, and other stakeholders dealing with corporations.

What are the characteristics of a corporation?

A corporation is a specific type of legal entity that has the following key characteristics:

• It is a separate legal entity
• It can exercise legal rights and can have obligations
• It can sue and be sued
• It can issue shares to different shareholders
• It can exist perpetually 
• It will pay its own taxes 
• Shareholders have limited personal liability 
• Shares can be transferred to others 
• Shares can be issued to the public 

What are the five principles of corporate law?

Fundamentally, corporate law is based on five principles: legal personality, limited liability, transfer of shares, delegated management, and investor ownership.

Corporations are separate legal entities from their owners, owners have limited personal liability, owners can transfer shares, shareholders delegate corporate management to the board of directors, and shareholders are the owners of the corporation.

Who are the people involved in a corporation?

We can classify people involved with corporations into five categories: owners, directors, officers, employees, and creditors.

Owners are the shareholders.

Directors are those appointed by the shareholders to steer the company in the right direction.

Officers are hired by the directors to run the company.

Employees are those that carry out the company’s day-to-day operations.

Creditors are those who provide money and resources to the company so it can operate.

Is corporate law part of civil law?

Corporate law is a subsection of civil law specifically dealing with corporations. 

Corporate law issues and legal matters are generally presented before civil courts and those involved are private parties such as employees, shareholders, directors, officers, and others.

It’s possible that certain corporate conduct is considered criminal acts but that represents a very small percentage of the overall cases.

Corporate laws are civil in nature and the parties involved typically obtain relief in the form of monetary compensation or specific performance.

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Takeaways 

So there you have it folks!

What does corporate law mean?

In a nutshell, corporate law refers to the laws governing the rights, obligations, conduct, and relationship between individuals and companies.

Many business owners and entrepreneurs will consider doing business using a legal entity for various reasons, such as to limit their personal liability, increase their chances of finding investors, or have the ability to operate a business that survives the life of its owners.

Ultimately, corporate law refers to all the laws, statutes, and regulations relating to the formation of a legal entity, its ongoing management, governance, funding, and dissolution.

There are different types of legal entities and a large body of corporate laws dealing with corporations, professional corporations, public entities, private entities, foreign entities, non-profit entities, and so on.

Now that you know what corporate law is all about and how it works, good luck with your research!

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