Corporate law, also known as company law, started to protect business owners and their personal assets. It allowed them to create separate legal entities for their business and personal assets. This separation gave them protection in the event their business crumbled. It also protected their personal assets from liability, especially when the business went into debt. The corporate lawyers at McLeod Brock Law noted that company law, at the time, helped business owners keep their company active, even after their death. This is done by passing shares on to the next generation.
If you’re researching corporate or company law and looking for a quick summary, you’re in the right place. Find below the 10 essential things you need to know about corporate law.
The features of a corporate entity
Corporate entities or companies have four main features;
- Separate legal entity: The company is distinguished as a separate legal entity from its members
- Limited liability: The members’ liability is limited to the shares they have in the company
- Ownership: Ownership in the form of shares can be transferred or traded
- Management: Corporate entities are managed by a board of directors, separate from the owner.
Corporate law bases its tenets on both common law and legislation. Some areas of the field, like the director’s duties and rights of minority stakeholders, follow precedents rather than legislation.
The different types of corporate entities
- The recognized corporate entities are those formed and registered under company law.
- Companies can be registered at a central registry and not the local registry.
- Companies are separate legal entities from owners.
- Third-party liabilities will be carried by the company, not the owner, shareholders, or members.
Taking the above into consideration, the recognized types of corporate entities include;
- Limited companies: The shareholders’ liability is limited to their shares. This type of company can either be private or public. In the case of companies limited by guarantee, the members will contribute only the guaranteed amount (which is usually small). This type is usually private and is commonly used for clubs, charities, and other nonprofit organizations.
- Unlimited companies: The members have unlimited liability in the company. It is usually private, has a share capital, and is less regulated compared to limited companies.
- Limited Liability Companies (LLC): The liability is limited, and owners are referred to as members, not shareholders. This type of corporate entity is easy to organize as they don’t require constituting a board of directors. They can be managed directly by members.
Are there other forms of business organizations?
Yes. Other forms of business organizations include;
- Limited partnerships
- Limited liability partnerships (LLPs)
- Public companies
- Private companies
Documents a constitute corporate entity must have
A constituted corporate entity must have these documents;
- Article of association which prescribes the regulations to follow in matters of directors’ meetings, stakeholders’ meetings, director removal and appointments, etc.
- Memorandum of association, which carries the company’s constituted name, the office, and its objects and states that it has limited liability. This document also states the share capitals (if any).
How companies are managed
Constituted companies often have a separation between owners and management. It is important to note that owners, shareholders, or members are not necessarily on its management team. The company’s management power is fully devolved to the board of directors.
The important members of the management team include;
How board/general meetings are conducted
Meetings are conducted in three phases;
- Directors’ meetings guided by the company’s articles
- Shareholders’ meetings and resolutions are held annually during the Annual General Meeting (AGM)
- Resolutions are the decisions passed at the meetings.
What are the directors’ duties?
The duties of the directors to the company are usually in three main areas;
- Ensure that there is no conflicting interest between their personal interest, the company, and/or a third party.
- Ensure that no profits are taken for personal gains unless the company allows it
- Ensure that all actions and decisions are in good faith and in the company’s interest.
How shared capital is issued or transferred
Companies usually have one or more classes of shares, including preference shares and ordinary shares. These shares may be transferred using the following vehicles;
- Transfer of shares certificate
- Authorized and issued share capital
- Payment for shares
- Offers of securities
How are minority shareholders protected?
Individual shareholders have a right to intervene by litigation under four instances;
- In instances where the shareholder is recognized to have personal rights that can be enforced as an individual
- In instances where the majority’s conduct is unfairly prejudicial, thus necessitating a court’s intervention
- In instances where it is appropriate to allow individual shareholders to exercise their rights on behalf of the company, and
- In special cases where a shareholder wishes to challenge a majority decision.
Are there any obligations to keep accounts?
Yes. Every company must keep an up-to-date accounting record. This accounting record may include profit and loss accounts, balance sheets, directors’ reports, and content and format. The company may also keep a record of how profits and assets are distributed.