Challenge Your Knowledge of Corporate Law

Corporate Law: What You Need to Know

• Corporate law governs the rights, relations, and conduct of businesses, organizations, and individuals in business.

• Corporate law covers the formation, funding, governance, and death of a corporation.

• Corporate law regulates how stakeholders such as shareholders, creditors, directors, employees, consumers, and the community interact with one another.

• Corporate law is not the same as business law, which refers to the wider concepts of commercial and business-related activities.

• A corporation is a separate legal entity with limited or unlimited liability for its shareholders.

• Shareholders control the corporation through a board of directors, which delegates control of the corporation's day-to-day operations to a full-time executive.

• Corporate law evolved from the common law of England and has developed significantly in the 20th century.

• The most commonly addressed forms of business organizations under corporate law are sole proprietorship, partnership, limited liability company (LLC), and corporation.

• A corporation has separate legal personality, known as "personhood," or being "artificial persons."

• Corporate governance is the study of power relations among a corporation's senior executives, its board of directors, shareholders, and other stakeholders such as employees, consumers, and the environment.

• Corporate governance is the central goal of corporate law, reducing the risk of opportunism or the "agency cost" for shareholders and stakeholders.

• Corporate law derives from the country's statutes, which set out mandatory and non-mandatory rules for corporations, as well as model articles.Corporate Law: Key Points

• A company's constitution is made up of a memorandum of association and articles of association.

• Shareholders' agreements and voting trusts can supplement the corporate constitution.

• Directors manage the company and have specific decision-making rights, but can be removed by the shareholders.

• Directors owe strict duties of good faith, care, and skill, and must not have any conflicts of interest.

• Corporate law is divided into corporate governance and corporate finance.

• Corporations can raise funds through debt or equity financing.

• Shares confer rights on the shareholder, and different types of shares can be issued.

• Most jurisdictions regulate the minimum amount of capital a company must have and the maintenance of equity capital.

• Events like mergers, acquisitions, and insolvency can alter or extinguish a corporation.

• Liquidation is the normal means by which a company's existence is brought to an end.

• Compulsory liquidations are made by creditors, while voluntary liquidations are made by the company's members.

• Regulations can apply for the liquidation of a company on the grounds of public good.Corporate Governance and Insider Dealing

Corporate Governance:

• Just and equitable winding-up is allowed in most jurisdictions on the grounds of prejudicial conduct of the affairs of the company, but it is not the sole remedy and remedies such as requiring the majority shareholders to buy out the minority shareholders at a fair value may be imposed.
• Insider trading refers to the trading of a corporation's stock or other securities by insiders such as officers, key employees, directors, and large shareholders using non-public information. It is illegal and raises the cost of capital for securities issuers, decreasing overall economic growth.
• In the United States, trading conducted by corporate insiders must be publicly disclosed usually within a few business days of the trade.
• The direction of legal reforms is towards addressing issues of shareholder activism, institutional investors, and capital market intermediaries.
• Shareholder activism prioritizes wealth maximization and has been criticized as a poor basis for determining corporate governance rules.
• There are no federal laws regulating shareholders' and corporate officers' relative rights, which is mostly regulated by state laws.

Insider Dealing:

• Insider dealing refers to the trading of a corporation's stock or other securities by insiders using non-public information.
• Trading by corporate insiders may be legal if it is done in a way that does not take advantage of non-public information.
• The term is frequently used to refer to illegal insider trading, where the non-public information was misappropriated from the company.
• Illegal insider trading is believed to raise the cost of capital for securities issuers, thus decreasing overall economic growth.
• Many investors follow the summaries of insider trades in the hope that mimicking these trades will be profitable.
• Corporate governance activities only increase costs for institutional intermediaries, while the benefits would be shared equally with competitor funds.

Delaware:

• A majority of publicly traded companies in the U.S. are Delaware corporations because the Delaware General Corporation Law offers lower corporate taxes than many other states.
• Many venture capitalists prefer to invest in Delaware corporations.
• The Delaware Court of Chancery is widely recognized as a good venue for the litigation of business disputes.