We’re all used to abiding by the law on a daily basis. Obeying traffic signals, wearing our seatbelts, picking up after our pets, and not trading a company’s stock with individuals who have access to non-public information about the corporation are some examples.
But wait a minute. The last example doesn’t look like something that would occur daily in the life of an average person (unless they work in a business where they have to abide by corporate law). Right?
And if you’re confused about what that even means, don’t worry. This article will explain everything about corporations and corporate law.
Corporate law can be defined as all the rules, regulations, laws, and practices that concern corporations.
These laws regulate the obligations and rights concerned with an existing company’s activities such as formations, operations, and management.
What’s the difference between business and corporate law?
There’s often a fair bit of confusion when it comes to differentiating between corporate and business law.
While corporate law handles the legal aspects of sales, buying decisions, and distribution of goods, business law covers other important aspects such as acquisitions, mergers, and the rights of shareholders.
It’s also important to note that corporations are unique in the sense that they are seen and treated as a single entity by the law despite being made up of large groups of individuals (owners, employees, investors).
This means the law deals directly with the business rather than the individuals within it. Essentially, the entire corporation is treated as a single person.
To really understand corporate law, you must understand what a “corporation” is.
A corporation is a group of individuals or a company that acts as a single legal entity to run a business.
When an individual owns a share of a corporation, they have limited liability. This means they are only accountable for the money they invested in the business.
If the corporation fails, they only lose the invested amount and are not held liable for the firm’s debts.
Here’s more information on the different types of corporations.
A business becomes a corporation when it “incorporates”, which is essentially a legal process that separates the company’s assets from the personal assets of its investors and owners.
Many businesses choose to incorporate because it helps protect their assets, makes transfers of ownership easier, lowers tax rates, and makes raising capital significantly easier.
All corporations are companies, but not every company is a corporation. The thing that makes corporations unique is their independence from owners and shareholders.
To qualify as a corporation, a company needs to have all of the following characteristics.
All resources from owners and investors are placed in a separate legal entity, which can then use these assets to perform business activities.
Owners and investors have limited liability and are only responsible for the money they invested in the corporation.
If the business has legal action taken against it, the investors and owners are not held personally liable — the business is treated as a separate entity.
If investors or owners no longer wish to be a part of a corporation, they can simply transfer their business shares to someone else with little to no effect on the corporation.
The make-up of a corporation includes officers and a board of directors. The board employs and monitors the officers while the officers take charge of day to day activities.
Investors may help make certain decisions for the corporation, but they are not directly involved in running the company.
Corporate laws may seem as if they’re only in place to serve as hoops for big corporations to jump through to conduct business. But in reality, it is quite the opposite.
Corporate laws were made and enforced to help maintain a fair market and allow new businesses to enter and compete.
They help keep all corporations on a level playing field by prohibiting unpredictable and unfair business practices and behaviors.
Just like individuals struggle to move up the corporate ladder during their careers, corporations struggle to dominate other businesses.
For example, certain big corporations are notorious for raking in vast amounts of money and holding a great deal of power in a particular market.
If these corporations are not held in check, they may start monopolizing markets, meaning they may become the exclusive providers of a specific trade, service, or product.
But fortunately, corporate antitrust laws prevent large monopolies from forming and help protect consumers from such predatory business practices.
In criminology, corporate crime refers to any crime committed by either a corporation or individuals acting on behalf of a company.
Because of the substantial influence corporations can have on the national economy, the laws that dictate the way they function (corporate laws) are taken very seriously.
The worst corporate crimes can even lead to judicial dissolution — also known as the “corporate death penalty” — which is the legal process of dissolving a corporation.
Here are a few examples of corporate crimes:
Antitrust violations: Abusive trade and commerce practices such as price-fixing, price discrimination, restraints, and monopolisation efforts.
Insider trading: Illegal practice of trading stocks for one’s own advantage through the use of non-public and confidential information.
Bribery: Offering valuable items as a means of gaining favors from an individual holding a legal or public duty.
Corporate fraud: Illegal activities (undertaken by a corporation or individual) done in an immoral and fraudulent manner. This kind of fraud is often designed to benefit the perpetrating corporation or individual. It is also important to note that fraud doesn’t always have to be of a corporate nature, as outlined by LY Lawyers.
False claims: When an individual knowingly presents false or fraudulent information to the government in an effort to get money or property in return. Basically, individuals who seek to cheat the government out of its money often make use of false claims.
If all of that sounds interesting to you and you want to study corporate law, here are the top 20 law schools in the US.
Jason is the Marketing Manager at a local advertising company in Australia. He moved to Australia 10 years back for his passion for advertising. Jason recently joined BFA as a volunteer writer and contributes by sharing his valuable experience and knowledge.