A corporation is an enterprise engaged in manufacturing and/or buying and selling of goods and services. Just like a sole proprietorship or a partnership firm, it renders its services in many fields. However, it is distinct in the sense that it is a legally registered company with limited liabilities of shareholders (owners of the company). While a corporate entity enjoys several advantages, it has to abide by various rules and regulations laid by the corporate law.
What is a corporate/business law?
A business/corporate law is a legal body that governs the relations, rights and conduct of persons, corporations, companies and businesses. It refers to the legal practice related to corporations. Business law often describes the law related to matters which derive from the life-cycle of a corporation.
The law encompasses the formation, funding, governing and death of a corporation. Although the nature of governance personified by share capital, business culture and share market rules differ from region to region, similar legal characteristics and problems relating to corporations exist across various jurisdictions. Business/corporate law regulates how investors, corporations, shareholders, employees, creditors, directors and other stakeholders such as the community, the consumers and the environment interact with each other.
Characteristics of corporate law
Although the sole proprietorship or partnership firm laws exist, business law is supposed to be very useful all over the world, and for many reasons. Academics identify four unique characteristics that are universal to any corporation. Firstly, corporations get a separate legal entity distinct from their shareholders.
Secondly, the liabilities of shareholders are limited to the value of their shares in the company. In case the company goes into liquidation, the shareholders lose whatever stake they have in the company as a shareholder. They do not have to sell off their personal properties to pay off the dues to the company’s stakeholders, which is the case with a partnership firm and sole proprietorship.
Thirdly, the shares of shareholders are transferable from one person to another. In case the corporation is a public limited company, its shares can be traded on a stock exchange. Lastly, the organization enjoys a delegated management structure. It means the board of directors delegate day to day management of the company to executives, who possess training, certification and experience in handling particular corporate affairs.
Benefits and importance of corporate law
The prime benefit of business law is it is universally applicable with minor differences. User friendly and widely available law enables organizations to transact their business globally without any issues. In case of problems, the law steps in to resolve the matter. The law is a response to three opportunists: conflicts between shareholders and managers, between non-controlling and controlling shareholders; and between shareholders and other counterparts (including employees and creditors).
Under all legal systems, corporations enjoy the same rights and obligations. The law allows corporations to exercise human rights against the state and real individuals for frauds and compensations. Also, any corporation is subject to punishment for human rights and other legal violations as outlined by the corporate law. Just as they come into existence through a certificate of incorporation, they can die after losing money into insolvency.