Corporate law is the body of laws, rules, regulations and practices that govern the formation and operation of corporations. It’s the body of law that regulates legal entities that exist to conduct business. The laws touch on the rights and obligations of all of the people involved with forming, owning, operating and managing a corporation.
What’s a corporation?
A corporation is a legal entity that exists to conduct business. It’s a separate legal entity from the people who make it. A corporation can conduct business in its own name just like any person can. When a person owns a part of a corporation, their liability is limited to their ownership in the corporation. They can’t lose more than their investment in the corporation.
The major characteristics of corporate law
There are five principles that are common to corporate law:
1. Legal personality
Corporation owners pool their resources into a separate entity. That entity can use the assets and sell them. Creditors can’t easily take the assets back. Instead, they form their own entity that acts on its own.
2. Limited liability
When a corporation gets sued, it’s only the corporation’s assets that are on the line. The plaintiff can’t go after the personal assets of the corporation’s owners. A corporation’s limited liability allows owners to take risks and diversify their investments.
3. Transferrable shares
If an owner decides they no longer want a share in the corporation, the corporation doesn’t have to shut down. One of the unique features of a corporation is that owners can transfer shares without the same difficulties and hassles that come with transferring ownership of a partnership. There can be limits on how shareholders transfer ownership, but the fact that ownership can be transferred allows the corporation to go on when owners want to make changes.
4. Delegated management
Corporations have a defined structure for how they conduct their affairs. There’s a board of directors and officers. These groups share and split decision-making authority. Board members hire and monitor officers. They also ratify their major decisions. The shareholders elect the board.
Officers handle the day to day operation of the company. They’re the leaders for conducting transactions and making the business run each day. With a defined leadership structure, parties that do business with the corporation have the assurances that actions of officers and the board of directors are legally binding on the corporation.
5. Investor ownership
Owners have a say in making decisions for the corporation, but they don’t directly run the company. Investors also have the right to the corporation’s profits. Usually, an owner has decision-making authority and profit sharing in proportion to their ownership interest. Owners typically vote to elect board members.
Why do corporate laws exist?
The laws and rules that govern corporations keep all corporations operating on a level playing field. Corporate law is meant to be friendly for business. It’s not meant to make it harder to get things done. The laws exist to make it easier for corporations to do business. Rules that govern forming a corporation and rules for how to take corporate actions are meant to help business and make things fair for everyone. They make sure that corporations act in predictable ways that others can rely on.
Who are the people involved in a corporation?
A corporation has many different players. Not everyone who works for or interacts with a corporation is an owner. Some of the key people involved in the operation of a corporation include:
- Owners – A person who invests in a corporation is an owner. Typically, the larger share of the corporation that you own, the more say and control you have over decisions. Owners are also often called shareholders.
- Directors – Directors oversee the activities of the corporation. Usually, they vote on major decisions. They’re typically elected by the owners, but they don’t necessarily have to follow popular opinion when they vote.
- Officers – The officers in a corporation handle the most significant day to day decision making. They take direction from the board of directors on major decisions.
- Employees – Employees carry out the day to day functions of a corporation for pay.
- Creditors and debtors – When people and other companies do business with a corporation, they’re the corporation’s creditors and debtors.
Corporate law is civil
Corporate law is civil law. It’s not generally not criminal law. When there are disputes, the corporation’s officials can go to the appropriate civil court in order to resolve the dispute. Of course, officers and employees can still face criminal liability for fraud and other criminal acts. However, the laws that govern the formation and operation of corporations are generally a civil body of law with civil remedies.
Who practices corporate law?
Most corporate lawyers work for medium or large law firms. That’s because the legal needs of a corporation of appreciable size are significant. A corporation may need advice and help with a diverse set of issues. A large law firm typically has the resources and attorneys with diverse skill sets in order to meet whatever needs the corporation might have. A corporation might call on their lawyers to know every aspect of the laws that might impact the corporation including the formation of the corporation, governance, contracts, shareholder activity and making the appropriate reports to the Security and Exchange Commission.
Corporation leaders typically prefer to have one-stop shopping for their corporate needs. They also tend to prefer a long-term relationship with the attorneys they work with. Medium and large law firms allow large corporations to meet their needs conveniently through a long-term relationship with their law firm.
With corporations throughout the United States and the world, corporate lawyers work everywhere. It’s also one reason why large firms might have multiple offices throughout many jurisdictions in the country and in the world. Lawyers who focus on corporate law must know the subtleties that might apply in the various jurisdictions where the corporation has offices or conducts business.
In house counsel
Because all corporations of any appreciable size have significant corporate needs, some corporations choose to meet this need by employing lawyers directly with the company. Hiring lawyers to work as employees and work exclusively for the company is called using in-house counsel. A lawyer who works as in-house counsel for a corporation may advise the corporation on a wide variety of matters that relate to corporate law and business activity. A large corporation might find it convenient to have lawyers in offices down the hall who are personally invested in the well being of the corporation.
Solo and small firm corporate lawyers
There are some corporate lawyers who work by themselves or in a small firm. They might focus on the business needs of smaller corporations or start-ups. A corporate lawyer in a small or solo practice might build their client base with smaller corporations who operate in the geographic area. They might help a corporation get started but refer litigation to another firm. A corporation might want to use a smaller law firm if it’s compatible with their needs.
Why become a corporate lawyer?
Corporate lawyers help companies conduct business. They help corporations do business better. Lawyers who like to read and write might enjoy corporate law. Lawyers in this area of practice have to understand and use a complex body of rules and regulations. For lawyers with great reading and reasoning skills, corporate law can be a challenging fit.
A corporate lawyer may represent a corporation throughout the lawyer’s entire career. They might see the corporation through many years of business. Lawyers who prefer a long-term client base might appreciate the long-term working relationships that can form with corporate leaders in this area of practice.
Practicing corporate law
Corporate law is a foundation of economic activity. Corporate lawyers help corporations form and help them do business. A lot of their work is foreseeing problems before they start and helping the corporation take steps to avoid things that can be problematic. Practicing corporate law offers a challenging and sound career for attorneys who can tackle complex concepts and exercise sound judgment.