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Corporate law
Corporate law
(also known as business law or enterprise law or company law) is the body of law that applies to the rights, relations, and conduct of persons, companies, organizations and businesses. It regulates how corporations, investors, shareholders, directors, employees, creditors, and other stakeholders such as consumers, the community, and the environment interact with one another. Corporate law
Corporate law
is a part of a broader companies law (or law of business associations). It is often considered to be a branch of civil law and deals with issues of both private law and public law. The most prominent kind of company, usually referred to as a "corporation", is a "juristic person", i.e. it has separate legal personality, and those who invest money into the business have limited liability for any losses the company makes, governed by corporate law. The largest companies are usually publicly listed on stock exchanges around the world. Even single individuals, also known as sole traders may incorporate themselves and limit their liability in order to carry on a business. All different forms of companies depend on the particular law of the particular country in which they reside. Other types of business associations can include partnerships (in the UK governed by the Partnership
Partnership
Act 1890), or trusts (like a pension fund), or companies limited by guarantee (like some community organizations or charities). Under corporate law, corporations of all sizes have separate legal personality, with limited or unlimited liability for its shareholders. Shareholders
Shareholders
control the company through a board of directors which, in turn, typically delegates control of the corporation's day-to-day operations to a full-time executive. Corporate law
Corporate law
deals with firms that are incorporated or registered under the corporate or company law of a sovereign state or their sub-national states. The four defining characteristics of the modern corporation are:[1]

Separate legal personality of the corporation (access to tort and contract law in a manner similar to a person) Limited liability
Limited liability
of the shareholders (a shareholder's personal liability is limited to the value of their shares in the corporation) Shares (if the corporation is a public company, the shares are traded on a stock exchange) Delegated management; the board of directors delegates day-to-day management of the company to executives

In many developed countries outside the English speaking world, company boards are appointed as representatives of both shareholders and employees to "codetermine" company strategy.[2] Corporate law
Corporate law
is often divided into corporate governance (which concerns the various power relations within a corporation) and corporate finance (which concerns the rules on how capital is used). The law of business organizations originally derived from the common law of England, but has evolved significantly in the 20th century. In common law countries today, the most commonly addressed forms are:

Corporation Limited company Unlimited company Limited liability
Limited liability
partnership Limited partnership Not-for-profit corporation Company
Company
limited by guarantee Partnership Sole Proprietorship

The proprietary limited company is a statutory business form in several countries, including Australia. Many countries have forms of business entity unique to that country, although there are equivalents elsewhere. Examples are the limited liability company (LLC) and the limited liability limited partnership (LLLP) in the United States. Other types of business organizations, such as cooperatives, credit unions and publicly owned enterprises, can be established with purposes that parallel, supersede, or even replace the profit maximization mandate of business corporations. For a country-by-country listing of officially recognized forms of business organization, see Types of business entity. There are various types of company that can be formed in different jurisdictions, but the most common forms of company are:

a company limited by guarantee. 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 insolvent liquidation, 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 company limited by shares. The most common form of company used for business ventures. an unlimited company 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 liquidation.

There are, however, many specific categories of corporations and other business organizations which may be formed in various countries and jurisdictions throughout the world.

Contents

1 Overview 2 History

2.1 Modern company law

3 Corporate legal personality 4 Capacity and powers 5 Corporate governance

5.1 Constitution 5.2 Balance of power

6 Directors' duties 7 Litigation 8 Corporate finance

8.1 Shares and share capital 8.2 Liquidations 8.3 Insider dealing

9 Company
Company
law theory 10 Company
Company
law study 11 Corporate life and death

11.1 Corporate crime 11.2 Mergers and acquisitions 11.3 Corporate insolvency

12 United States

12.1 Delaware

13 See also 14 References 15 External links

Overview[edit] In the United States, a company may or may not be a separate legal entity, and is often used synonymous with "firm" or "business." A corporation may accurately be called a company; however, a company should not necessarily be called a corporation, which has distinct characteristics. According to Black's Law
Law
Dictionary, in America a company means "a corporation — or, less commonly, an association, partnership or union — that carries on industrial enterprise."[3] The defining feature of a corporation is its legal independence from the shareholders that own it. 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 limited liability, and it is why the names of corporations end with "Ltd.". or some variant such as "Inc." or "plc"). Lord Chancellor Thurlow (1731–1806) is reported to have said " Corporations
Corporations
have neither bodies to be punished, nor souls to be condemned; they therefore do as they like."[4] But despite this, under almost all legal systems corporations have much the same legal rights and obligations as individuals. Corporations
Corporations
can exercise human rights against real individuals and the state,[5] and they may be responsible for human rights violations.[6] Just as they are "born" into existence through its members obtaining a certificate of incorporation, they can "die" when they lose money into insolvency. Corporations
Corporations
can even be convicted of criminal offences, such as corporate fraud and corporate manslaughter.[7] History[edit] Main article: History of corporations

Hogarthian image of the South Sea Bubble, by Edward Matthew Ward, Tate Gallery

Although some forms of companies are thought to have existed during Ancient Rome
Ancient Rome
and Ancient Greece, the closest recognizable ancestors of the modern company did not appear until the 16th century. With increasing international trade, Royal charters were granted in Europe (notably in England
England
and Holland) to merchant adventurers. The Royal charters usually conferred special privileges on the trading company (including, usually, some form of monopoly). 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 Joint stock company
Joint stock company
was born.[8] 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.[9] The development of company law in Europe was hampered by two notorious "bubbles" (the South Sea Bubble
South Sea Bubble
in England
England
and the Tulip Bulb Bubble in the Dutch Republic) 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[edit]

"Jack and the Giant Joint-Stock", a cartoon in Town Talk
Talk
(1858) satirizing the 'monster' joint-stock economy that came into being after the Joint Stock
Stock
Companies Act 1844.

But companies, almost inevitably, returned to the forefront of commerce, although in England
England
to circumvent the Bubble Act
Bubble Act
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
England
there was a lively trade in the charters of defunct companies. However, procrastination amongst the legislature meant that in the United Kingdom
United Kingdom
it was not until the Joint Stock Companies Act 1844 that the first equivalent of modern companies, formed by registration, appeared. Soon after came the Limited Liability Act 1855, 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 Joint Stock Companies Act 1856
Joint Stock Companies Act 1856
at the behest of the then Vice President of the Board of Trade, Mr Robert Lowe. 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 Salomon v. Salomon & Co. 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, The Economist
The Economist
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-renaissance era.[10] Corporate legal personality[edit] Main article: Piercing the corporate veil One of the key legal features of corporations are their separate legal personality, also known as "personhood" or being "artificial persons". However, the separate legal personality was not confirmed under English law
English law
until 1895 by the House of Lords in Salomon v. Salomon & Co.[11] Separate legal personality often has unintended consequences, particularly in relation to smaller, family companies. In B v. B [1978] Fam 181 it was held that a discovery order obtained by a wife against her husband was not effective against the husband's company as it was not named in the order and was separate and distinct from him.[12] And in Macaura v. Northern Assurance Co Ltd[13] a claim under an insurance policy failed where the insured had transferred timber from his name into the name of a company wholly owned by him, and it was subsequently destroyed in a fire; as the property now belonged to the company and not to him, he no longer had an "insurable interest" in it and his claim failed. However, separate legal personality does allow corporate groups a great deal of flexibility in relation to tax planning, and also enables multinational corporations to manage the liability of their overseas operations. For instance in Adams v. Cape Industries plc[14] it was held that victims of asbestos poisoning at the hands of an American subsidiary could not sue the English parent in tort. There are certain specific situations where courts are generally prepared to "pierce the corporate veil", to look directly at, and impose liability directly on the individuals behind the company. The most commonly cited examples are:

where the company is a mere façade where the company is effectively just the agent of its members or controllers where a representative of the company has taken some personal responsibility for a statement or action[15] where the company is engaged in fraud or other criminal wrongdoing where the natural interpretation of a contract or statute is as a reference to the corporate group and not the individual company where permitted by statute (for example, many jurisdictions provide for shareholder liability where a company breaches environmental protection laws) in many jurisdictions, where a company continues to trade despite foreseeable bankruptcy, the directors can be forced to account for trading losses personally

Capacity and powers[edit] See also: Corporate benefit 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 capacity. If an activity fell outside the company's capacity it was said to be ultra vires and void. 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.[16] 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 "corporate benefit", 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 board of directors, 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 ostensible authority of agents held out by the company to act on its behalf. A line of common law cases reaching back to Royal British Bank v Turquand
Royal British Bank v Turquand
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 torts, but the law relating to crimes committed by companies is complex, and varies significantly between countries. Corporate governance[edit] Main article: Corporate governance Corporate governance
Corporate governance
is primarily the study of the power relations among a corporation's senior executives, its board of directors and those who elect them (shareholders in the "general meeting" and employees). It also concerns other stakeholders, such as creditors, consumers, the environment and the community 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 (Societas Europaea). Recent literature, especially from the United States, has begun to discuss corporate governance in the terms of management science. 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 principal–agent problems. 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[edit] Main article: Corporate constitution

A bond issued by the Dutch East India Company, dating from 7 November 1623, for the amount of 2,400 florins

The rules for corporations derive from two sources. These are the country's statutes: in the US, usually the Delaware General Corporation
Corporation
Law
Law
(DGCL); in the UK, the Companies Act 2006
Companies Act 2006
(CA 2006); in Germany, the Aktiengesetz (AktG) and the Gesetz betreffend die Gesellschaften mit beschränkter Haftung (GmbH-Gesetz, GmbHG). 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 board of directors, 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 general meetings 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 model articles, 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 memorandum of Association (or articles of incorporation) 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 authorised share capital of the company. The articles of association (or by-laws) 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[17] and in the United States
United States
only the memorandum is publicised. In civil law jurisdictions, the company's constitution is normally consolidated into a single document, often called the charter. It is quite common for members of a company to supplement the corporate constitution with additional arrangements, such as shareholders' agreements, 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.[18] 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 voting trusts, although these are relatively uncommon outside the United States
United States
and certain offshore jurisdictions. Some jurisdictions consider the company seal 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[edit]

Adolf Berle
Adolf Berle
in The Modern Corporation
Corporation
and Private Property argued that the separation of control of companies from the investors who were meant to own them endangered the American economy and led to a mal-distribution of wealth.

The most important rules for corporate governance are those concerning the balance of power between the board of directors and the members of the company. Authority is given or "delegated" to the board to manage the company for the success of the investors. Certain specific decision rights are often reserved for shareholders, where their interests could be fundamentally affected. There are necessarily rules on when directors can be removed from office and replaced. To do that, meetings need to be called to vote on the issues. How easily the constitution can be amended and by whom necessarily affects the relations of power. It is a principle of corporate law that the directors of a company have the right to manage. This is expressed in statute in the DGCL, where §141(a)[19] states,

(a) The business and affairs of every corporation organized under this chapter shall be managed by or under the direction of a board of directors, except as may be otherwise provided in this chapter or in its certificate of incorporation.

In Germany, §76 AktG says the same for the management board, while under §111 AktG the supervisory board's role is stated to be to "oversee" (überwachen). In the United Kingdom, the right to manage is not laid down in law, but is found in Part.2 of the Model Articles. This means it is a default rule, which companies can opt out of (s.20 CA 2006) by reserving powers to members, although companies rarely do. UK law specifically reserves shareholders right and duty to approve "substantial non cash asset transactions" (s.190 CA 2006), which means those over 10% of company value, with a minimum of £5,000 and a maximum of £100,000.[20] Similar rules, though much less stringent, exist in §271 DGCL[21] and through case law in Germany
Germany
under the so-called Holzmüller-Doktrin.[22] Probably the most fundamental guarantee that directors will act in the members' interests is that they can easily be sacked. During the Great Depression, two Harvard scholars, Adolf Berle
Adolf Berle
and Gardiner Means wrote The Modern Corporation
Corporation
and Private Property, an attack on American law which failed to hold directors to account, and linked the growing power and autonomy of directors to the economic crisis. In the UK, the right of members to remove directors by a simple majority is assured under s.168 CA 2006[23] Moreover, Art.21 of the Model Articles requires a third of the board to put themselves up for re-election every year (in effect creating maximum three year terms). 10% of shareholders can demand a meeting any time, and 5% can if it has been a year since the last one (s.303 CA 2006). In Germany, where employee participation creates the need for greater boardroom stability, §84(3) AktG states that management board directors can only be removed by the supervisory board for an important reason (ein wichtiger Grund) though this can include a vote of no-confidence by the shareholders. Terms last for five years, unless 75% of shareholders vote otherwise. §122 AktG lets 10% of shareholders demand a meeting. In the US, Delaware lets directors enjoy considerable autonomy. §141(k) DGCL states that directors can be removed without any cause, unless the board is "classified", meaning that directors only come up for re-appointment on different years. If the board is classified, then directors cannot be removed unless there is gross misconduct. Director's autonomy from shareholders is seen further in §216 DGCL, which allows for plurality voting and §211(d) which states shareholder meetings can only be called if the constitution allows for it.[24] The problem is that in America, directors usually choose where a company is incorporated and §242(b)(1) DGCL says any constitutional amendment requires a resolution by the directors. By contrast, constitutional amendments can be made at any time by 75% of shareholders in Germany
Germany
(§179 AktG) and the UK (s.21 CA 2006).[25] Directors' duties[edit] Main articles: Board of directors
Board of directors
and Directors' duties In most jurisdictions, directors owe strict duties of good faith, as well as duties of care and skill, to safeguard the interests of the company and the members. 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. 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.[26] Directors have a duty to exercise reasonable skill care and diligence. 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.[27] Directors also owe strict duties not to permit any conflict of interest 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 Aberdeen Ry v. Blaikie
Aberdeen Ry v. Blaikie
(1854) 1 Macq HL 461 Lord Cranworth 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.

Smith v. Van Gorkom

Litigation[edit] Main articles: Derivative suit and Unfair prejudice Members 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 "reflective loss" 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[28] 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 derivative action in the name of the company, where the company is controlled by the alleged wrongdoers

Corporate finance[edit] Main article: Corporate finance Shares and share capital[edit] Main article: Stock Companies generally raise capital for their business ventures either by debt or equity. Capital raised by way of equity is usually raised by issued shares (sometimes called "stock" (not to be confused with stock-in-trade)) or warrants. A share is an item of property, and can be sold or transferred. Holding a share makes the holder a member of the company, and entitles them to enforce the provisions of the company's constitution against the company and against other members. 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. These will normally include:

voting rights rights to dividends (or payments made by companies to their shareholders) declared by the company rights to any return of capital either upon redemption of the share, or upon the liquidation of the company in some countries, shareholders have preemption rights, whereby they have a preferential right to participate in future share issues by the company

Many companies have different classes of shares, offering different rights to the shareholders. For example, a company might issue both ordinary shares and preference shares, with the two types having different voting and/or economic rights. For example, a company might provide that preference shareholders shall each receive a cumulative preferred dividend of a certain amount per annum, but the ordinary shareholders shall receive everything else. The total number of issued shares in a company is said to represent its capital. Many jurisdictions regulate the minimum amount of capital which a company may have, although some countries only prescribe minimum amounts of capital for companies engaging in certain types of business (e.g. banking, insurance etc.). Similarly, most jurisdictions regulate the maintenance of capital, and prevent companies returning funds to shareholders by way of distribution when this might leave the company financially exposed. In some jurisdictions this extends to prohibiting a company from providing financial assistance for the purchase of its own shares. Liquidations[edit] Main article: Liquidation 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 liquidator 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 creditors 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 insolvent, 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.[29] 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 which 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[edit] Main article: Insider dealing Insider trading is the trading of a corporation's stock or other securities (e.g. bonds or stock options) 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 material non-public information obtained during the performance of the insider's duties at the corporation, or otherwise in breach of a fiduciary or other relationship of trust and confidence or where the non-public information was misappropriated from the company.[30] Illegal insider trading is believed to raise the cost of capital for securities issuers, thus decreasing overall economic growth.[31] In the United States
United States
and several other jurisdictions, trading conducted by corporate officers, key employees, directors, or significant shareholders (in the U.S., 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 material non-public information, 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.) Company
Company
law theory[edit] “A corporation is described to be a person in a political capacity created by the law, to endure in perpetual succession.”[32] Americans in the 1790s knew of a variety of corporations established for various purposes, including those of commerce, education, and religion. As the law of corporations was articulated by the Supreme Court
Court
under Chief Justice
Justice
Marshall, over the first several decades of the new American state, emphasis fell, in a way which seems natural to us today, upon commercial corporations. Nonetheless, Wilson believed that, in all cases, corporations “should be erected with caution, and inspected with care.” The actions of corporations were clearly circumscribed: “To every corporation a name must be assigned; and by that name alone it can perform legal acts.” For non-binding external actions or transactions, corporations enjoyed the same latitude as private individuals; but it was with an eye to internal affairs that many saw principal advantage in incorporation. The power of making by-laws was “tacitly annexed to corporations by the very act of their establishment.”[32] While they must not directly contradict the overarching laws of the land, the central or local government cannot be expected to regulate toward the peculiar circumstances of a given body, and so “they are invested with authority to make regulations for the management of their own interests and affairs.”[32] The question then arises: if corporations are to be inspected with care, what - if not the commercial or social conduct, or the by-laws - is to be inspected – and by whom? Do corporations have duties? Yes: “The general duties of every corporation may be collected from the nature and design of its institution: it should act agreeably to its nature, and fulfill the purposes for which it was formed.”[32] Who sees that corporations are living up to those duties? “The law has provided proper persons with proper powers to visit those institutions, and to correct every irregularity, which may arise within them.”[32] The Common Law
Law
provided for inspection by the court of king’s bench. In 1790, at least, “the powers of the court of king's bench [were] vested in the supreme court of Pennsylvania.”[32] As for the dissolution of corporations, there seems not to have been much question that a corporation might “surrender its legal existence into the hands of that power, from which it was received. From such a surrender, the dissolution of the body corporate ensues.”[32] Nor does there seem to have been much question that by “a judgment of forfeiture against a corporation itself, it may be dissolved.”[32] However, Supreme Court
Court
Justice Wilson, lecturing in his unofficial capacity, at least, suggests not his displeasure with the doctrine that corporate dissolution cannot be predicated “by a judgment of ouster against individuals. God forbid ― such is the sentiment of Mr. Justice
Justice
Wilmot ― that the rights of the body should be lost or destroyed by the offenses of the members.”[32] As theorists such as Ronald Coase
Ronald Coase
have 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 limited liability to both members of the organization and external investors. Business
Business
organizations originated with agency law, 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 behavior. Company
Company
law study[edit] Law
Law
schools typically offer either a single upper level course on business organizations, or offer several courses covering different aspects of this area of law. The area of study examines issues such as how each major form of business entity may be formed, operated, and dissolved; the degree to which limited liability protects investors; the extent to which a business can be held liable for the acts of an agent of the business; the relative advantages and disadvantages of different types of business organizations; and, the structures established by governments to monitor the buying and selling of ownership interests in large corporations. The basic theory behind all business organizations is that, by combining certain functions within a single entity, a business (usually called a firm by economists) can operate more efficiently, and thereby realize a greater profit. Governments seek to facilitate investment in profitable operations by creating rules that protect investors in a business from being held personally liable for debts incurred by that business, either through mismanagement, or because of wrongful acts committed by the business.[citation needed] Corporate life and death[edit] Corporate crime[edit] Main articles: Corporate liability and Corporate crime

Corporate Manslaughter and Corporate Homicide Act 2007

Mergers and acquisitions[edit] Main article: Mergers and acquisitions

Reconstruction (law)

Corporate insolvency[edit] Main article: Insolvency law

Corporate Rescue and Insolvency Journal

United States[edit] Main article: US corporate law

The examples and perspective in this article may not represent a worldwide view of the subject. You may improve this article, discuss the issue on the talk page, or create a new article, as appropriate. (August 2010) (Learn how and when to remove this template message)

In the United States, most corporations are incorporated, or organized, under the laws of a particular state. 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
Corporate law
differs from state to state.[33] Because of these differences, some businesses will benefit from having a corporate lawyer determine the most appropriate or advantageous state in which to incorporate. Business
Business
entities may also be regulated by federal laws[34] and in some cases by local laws and ordinances.[35] Delaware[edit] A majority of publicly traded companies in the U.S. are Delaware corporations.[36] Some companies choose to incorporate in Delaware because the Delaware General Corporation
Corporation
Law
Law
offers lower corporate taxes than many other states.[37] Many venture capitalists prefer to invest in Delaware corporations.[38] Also, the Delaware Court
Court
of Chancery is widely recognized as a good venue for the litigation of business disputes.[39] See also[edit]

United Kingdom company law
United Kingdom company law
and the Companies Act 2006 United States
United States
corporate law, the Delaware General Corporation
Corporation
Law
Law
and the Model Business
Business
Corporation
Corporation
Act German company law, the Aktiengesetz (AktG) and the Gesetz betreffend die Gesellschaften mit beschränkter Haftung (GmbH-Gesetz, GmbHG) European company law
European company law
and the Societas Europa State-owned enterprise Enterprise Act 2002 Labour law Competition law Insolvency law Consumer
Consumer
law Public service law List of company registers List of company name etymologies List of companies named after people Types of companies Quasi corporation Securities regulation in the United States Race to the bottom Delaware Journal of Corporate Law Business
Business
ethics Corporate crime Corporation
Corporation
sole European Company
Company
Statute

References[edit]

^ RC Clark, Corporate Law
Law
(Aspen 1986) 2; H Hansmann et al, Anatomy of Corporate Law
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. ^ https://www.law.upenn.edu/journals/jil/articles/volume2/issue2/MertensSchanze2J.Comp.Corp.L.&Sec.Reg.75(1979).pdf ^ Black's Law
Law
Dictionary, 8th edition (2004), ISBN 0-314-15199-0 ^ John Poynder, Literary Extracts (1844) vol. 1, p. 2 or 268 ^ e.g. South African Constitution
South African Constitution
Art.8, especially Art.(4) ^ Phillip I. Blumberg, The Multinational Challenge to Corporation
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. Corporate Manslaughter and Corporate Homicide Act 2007 ^ In England
England
the first joint stock company was the East India Company, which received its charter in 1600. The Dutch East India Company 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." from "Think local". The Economist. ^ Salomon v. Salomon & Co. [1897] AC 22. ^ Although it did attach to documents within the husband's custody or control. ^ Macaura v. Northern Assurance Co Ltd
Macaura v. Northern Assurance Co Ltd
[1925] AC 619 ^ Adams v. Cape Industries plc
Adams v. Cape Industries plc
[1990] Ch 433 ^ Williams v Natural Life [1998] 1 WLR 830 ^ See the frustration expressed by the House of Lords in Cotman v. Brougham [1918] AC 514 ^ Ashbury v. Watson (1885) 30 Ch D 376 ^ Shalfoon v Cheddar Valley [1924] NZLR 561 ^ "TITLE 8 - CHAPTER 1. GENERAL CORPORATION LAW - Subchapter IV. Directors and Officers". delcode.delaware.gov.  ^ See also, Listing Rule 10 for public companies, setting out a scale of transactions requiring shareholder approval and disclosure. ^ Shareholders
Shareholders
must approve sale of "all or substantially all assets", held in Gimbel (1974) to be those "qualitatively vital to the existence and purpose" of the corporation; which in Katz v. Bregman (1981) was held to include assets under 50% of the company's value ^ The Bundesgerichtshof
Bundesgerichtshof
held that shareholders must approve a sale of assets amounting to 80% of the company's value ^ c.f. Bushell v. Faith, and query whether the decision would still be decided the same way. ^ See also, SEC 13d-5, dating from times when groups of investors were considered potential cartels, saying any 5% shareholder voting block must register with the Federal financial authority, the Securities and Exchange Commission. ^ Though the Constitution
Constitution
may allow particular provisions to be further "entrenched", s.22; Furthermore, Art.3 of the Model Articles allows 75% of members in general meeting to give the directors specific instructions. ^ Harlowe's Nominees Pty v. Woodside (1968) 121 CLR 483 (Aust HC) ^ Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd [1983] Ch 258 ^ Foss v Harbottle
Foss v Harbottle
(1843) 2 Hare 461 ^ In England, see Ebrahimi v Westbourne Galleries [1973] AC 360 ^ Insider Trading U.S. Securities and Exchange Commission, accessed May 7, 2008 ^ "The World Price of Insider Trading" by Utpal Bhattacharya and Hazem Daouk in the Journal of Finance, Vol. LVII, No. 1 (Feb. 2002) ^ a b c d e f g h i Wilson, James. Lectures on Law, delivered 1790-91 at University of Pennsylvania, Vol. II, ch. X, “Of corporations.” ^ Larson, Aaron (20 July 2016). "Where To Incorporate Your Business". ExpertLaw.com. Retrieved 3 April 2018.  ^ "Corporations". Wex. Cornell Law
Law
School. Retrieved 3 April 2018.  ^ Salkin, Patricia E. (2008). "Municipal Regulation of Formula Businesses". Case Western Reserve Law
Law
Review. 58 (4): 1251. Retrieved 3 April 2018.  ^ "About the Division of Corporations". Delaware Division of Corporations. Retrieved 3 April 2018.  ^ Tarver, Evan (2015-09-25). "4 Reasons Why Delaware Is Considered a Tax
Tax
Shelter". Investopedia. Retrieved 2017-08-19.  ^ Feldman, Sandra (17 May 2017). "Choice of Entity for Startups Seeking Venture Capital". Wolters Kluwer. CT Corporation
Corporation
System.  ^ Quillen, William T.; Hanrahan, Michael (1992). "A Short History of the Court
Court
of Chancery". Delaware Court
Court
of Chancery. Retrieved 3 April 2018. 

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