Corporation
A corporation is a body formed to conduct any kind of business. This body is a legal entity and is separate from the person or persons who have created it. The formation of this corporation gives it legal rights which are similar to the rights of an actual person. A corporation has directors, shareholders, etc to form the entire corporate system of the company. All of these work together to fulfill the aims and objectives of the business and are protected by corporate law (Fishman, p. 15).
A corporation is separate and has a separate legal identity from the people who have created it. The corporation is in fact, legally independent of these people. If a business fails and the corporation somehow loses money, the shareholders only lose their investment. In other cases the shareholders might also be liable to the loss, however in the case of a ‘no liability’ corporation the shareholders can easily walk off without paying any of the losses however, will not be able to get back their investments. As the business is no longer running and the corporation has closed down, therefore the employees of the corporation are now out of jobs. On the other hand, if the shareholders have some prior agreement to pay some of the dues after the corporation shuts down due to loss, they can pay it off in the end as per their agreement. This rule is known as limited liability and such corporations usually end with ‘Ltd’. Some other variant of Ltd is ‘Plc’ or ‘Inc’ (Fishman, p. 15).
It should be noted here that corporations might not be actual persons, but they do have rights and liabilities like actual persons and like human rights, they have corporate laws. However, corporations can also exercise human rights in many cases and behave like real individuals. (Blumberg, n.p). When corporations are formed they have to obtain a certificate of incorporation. Losing their money to insolvency can result in the ‘death’ of corporations. Hence it can be seen that these corporations behave as normal individuals even exercising human rights along with following the corporate rules and regulations. If these corporations exercise human rights, they can also be accused of criminal offenses such as fraud, etc. (Monks & Minow, pp. 8-15).
Key features of a corporation are listed below:
- A corporation is an artificial person who can exercise human rights and especially the corporate laws i.e. a corporation has a legal personality
- These are owned by shareholders but are not a part of these shareholders and have their existence; these shareholders can have limited liability or no liability at all.
- The shares are transferrable
- A corporation is run by centralized management or a board of governance.
- Fiduciary responsibilities are exercised by managers and directors. This means that these people have to work in the best interest of the shareholders and the corporation. (Crane & Matten, p. 43).
Historical context
The word corporation is derived from the Latin word ‘corpus’ which is means body of people. This word was being extensively used in medieval Europe when churches and the local government were considered corporations. Apart from Rome, India also used this terminology and proper legal rights were formed for these corporations. (Khanna, n.p) The idea of a corporation at that time was derived from the fact that a corporation can live longer than a human being and hence the existence of a particular entity can be guaranteed for a longer period. The oldest corporation in the world is ‘Stora Kopparberg’. It was a mining community in Sweden and became official in 1347. When colonies were being formed in the colonial period, many corporations were created known as ‘chartered companies’ back then. These companies had to obtain charters to run their business. This was the beginning of corporations as known today. (Crane & Matten, p. 43).
Today the corporations are born in the world of limited liability, state, and national deregulation, and the ever-increasing capital markets, therefore the word corporation and how it runs is different from when it was first used in Medieval Europe.
Corporation law
For a corporation to work legally and lawfully there needs to be a proper framework with all the rules and regulations which a corporation has to follow. Corporate law or corporation’s law gives the corporation a legal identity to act as an artificial person and protects the shareholder’s rights and investments. The study of the shareholders, employees, directors, creditors and even consumers is known as corporate law. The corporation law is a part of the company law which deals with big businesses whose names end with ‘Ltd’, ‘Plc’ or ‘AG’. These are limited liability corporations, no liability corporations, law firms, trusts or pension funds and universities, etc. (Crane & Matten, p. 43).
So what does the corporation law includes? All the jurisdictions have at least one law or statute which forms the basic rule for following. The corporations differ from the public companies because they have shared. In Germany, they are known as GmbH, in France SARL, in England Private Corporation, in America close corporation and so as in Japan. The shareholders of the corporation have the right to vote for or against anything in the corporation. (Monks & Minow, 8-15). The most important thing however in corporation law is the balance of power. This balance of power has to be maintained between all the members of the board of directors and other members who have a share in the company. This corporation law provides a certain amount of authority to the board of directors so that they can run the business in the right direction and help in achieving the aims and objectives of the formation of this corporation. The corporation law gives certain rights to the shareholders too as their money and time have been invested in this company and they should have some say. However, the board of directors is the major player in a corporation. According to the statute in DGCL (§141(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 its certificate of incorporation” (Division of Research of Legislative Council of the General Assembly, n.p)
This statute is similar in all countries with just a little change in the wordings; hence the importance of this corporation law can be understood by this fact. On the other hand, the shareholders usually have to call in a meeting before they can vote for a certain decision. This can be any minor decision to even firing a certain director from the board of directors. The shareholders have voting rights depending on their shares. They cannot run the entire corporation nor have the overall control of the company. The majority shareholders have more rights than a minority. However, in many cases, exceptions are made. For example, the court might permit a minority to sue if the majority shareholders are doing something fraudulent. If the majority invades the personal rights of the minority, in this case also the minority has the right to sue the majority. The corporation law gives the following rights to a shareholder; (Monks & Minow, pp. 8-15).
- Voting rights
- Rights to the dividends. These are usually declared by the company
- As the shareholders have invested their time and money in the company, they have the right on the return on capital, or if the company is being liquidated they have the right to have their share
- In many countries, the shareholders also have preemption rights. This means that the shareholders can participate in any future share presented by the company.
Thus it can be seen that corporate law has been expanded to a vast field engulfing various rules, regulations, laws, and statutes to have a resolution to any conflict or problem.
Works Cited
- Blumberg, Phillip I. (1993)The Multinational Challenge to Corporation Law: The Search for a New Corporate Personality
- Crane, Andrew & Matten, Dirk (2007) Business ethics. Oxford university press, USA; 2nd edition
- Division of Research of Legislative Council of the General Assembly (2009); TITLE 8; CorporationsSubchapter IV. Directors and Officer.
- Fishman, Stephan (2008) Working for Yourself: Law & Taxes for Independent Contractors, Freelancers & Consultants. NOLO; 7 edition
- Khanna, Vikramaditya S. (2005). The Economic History of the Corporate Form in Ancient India. University of Michigan
- Monks, Robert A.G & Minow, Nell (2003) corporate governance. Wiley. 3rd edition