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Summary HTM 3303 Corporate Law
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Corporate LawThe Hague University of Applied Sciences (2020-21)
Contents
Lecture 1................................................................................................................................................1
Lecture- 2...............................................................................................................................................8
Topic The Company and its core characteristics................................................................................8
Lecture 3..............................................................................................................................................13
Topic The role of the Shareholders – the relationship between the organs of a corporation.........13
Lecture 4..............................................................................................................................................16
Topic – Incorporation and Establishment........................................................................................16
Lecture 5..............................................................................................................................................22
Topic – Role of Directors..................................................................................................................22
Lecture 6.............................................................................................................................................28
Topic – Director Duties....................................................................................................................28
Lecture 7..............................................................................................................................................31
Topic Insolvency, Winding-up and Dissolution................................................................................31
Lecture 1
Topic Introduction to Corporate law-
,What is company?
• A body (group) of persons combined or incorporated for some common object; esp. to carry
on some commercial or industrial undertaking
• Oxford Shorter English Dictionary
• The English word company has its origins in the Old French military term compagnie (first
recorded in 1150), meaning a "body of soldiers",
• which came from the Late Latin word companio ("one who eats bread with you")
• Com – Together
• Panis - Bread
History of incorporation and the company- (in brief)
• The “corporation” comes from the latin corpus – for body of people – specifying a activity
performed by people but separate from the actual people performing the activity
• Relates to the word “corporeal” – or having a body – and thus also “incorporeal” – or existing
but having no physical existence.
• Historically, governmental and religious functions might “incorporate” to give them a legal
standing separate from their members or officers
• E.g. the “City of London Corporation” – see the signs as you walk through London!
• Evolved into - Chartered Companies, associations of investors who were incorporated and
often granted exclusive rights by royal decree, and were formed for the purpose of trade,
exploration, and colonization
• Evolved into - Joint Stock Companies, where the company's stock can be bought and sold by
shareholders
• Famously including the Dutch East India Company (VOC), British East India
Company, South Sea Company (which ended badly! See
https://en.wikipedia.org/wiki/South_Sea_Company)
• the Dutch East India Company issued shares that were tradable on the Amsterdam
Stock Exchange. That “invention” enhanced the ability of joint-stock companies to
attract capital from investors, as they could now easily dispose of their shares. In
1612, it became the first 'corporation' in intercontinental trade with 'locked in' capital
and limited liability.
• The birth of the “modern public company” – happened just a short train-ride away
• Fascinating reading:
https://en.wikipedia.org/wiki/Financial_history_of_the_Dutch_Republic
What is company law?
• Also termed “law of business organizations”, “corporate law”, or “corporations’ law”
• It is the body of laws that regulates the internal affairs of a company
, • Company formation, dissolution, administration, rights of owners /
shareholders etc.
• As distinct from business law or commercial law
• Which is the body of laws that apply to the external affairs of a company
How the company does its business: Contract law, employment law, tax law, etc
Some terminology-
• UK – Company (PLC, LTD)
• US – Corporation (LLC)
• EU – Undertaking
• NL – Bedrijf / Onderneming (BV / NV)
• DE – Unternehmen / Geschaft (AG / GMBH)
What's in a name? That which we call a rose by any other word would smell as sweet
Jurisdictions we discuss-
• UK – Common law jurisdiction with EU influences (directives)
• US - Common law, predominantly state level legislation with some federal jurisdiction
• Therefore 50 separate state corporations’ laws
• Delaware is the dominant state for company incorporations
• DE – Civil law jurisdiction with EU influences (directives)
• NL – Civil law jurisdiction with EU influences (directives)
• (but somewhere between DE and UK in style)
Business Forms- How can we do business?
• There are various common business entities which we will discuss in the course:
• Sole Trader or Sole Proprietorship
• Partnership
• Company (public and private limited companies)
• There are others – but not covered by this course as they are uncommon or of
historical interest – see “company” on Wikipedia!
https://en.wikipedia.org/wiki/Company
• All deal differently with questions of how business is done:
• How capital is allocated
• How risk is allocated
• How the business is internally organized/structured
Sole Trader/ Sole Proprietor
, • A person doing business for themselves is a sole trader
• It is the oldest and simplest form of business organization
• The sole trader IS the business. They own and control the business, they enter contracts in
their own name, they personally bear all the risk of the business (unlimited liability). They
also receive all the benefits (profits).
• A sole trader typically has few or no formalities for doing business
• (they may be required to register their business name, register for tax, keep certain
records, etc.)
• The form is generally lightly regulated
• It has disadvantages – can be difficult to raise capital, is risky due to unlimited liability, the
sole trader is the sole manager, it is difficult to scale (grow/expand the business)
What is unlimited Liability?
• Unlimited liability refers to the legal obligations of sole proprietors (and partners) because
they are liable for all business debts if the business can’t pay its debts.
• In other words, sole proprietors (and partners) are responsible for paying off all the business
debts personally if the business can’t make its payments.
• This is a little abstract … an example?
Bill the baker – is a sole trader
• Bill is a baker
• Bill buys wheat from Fran the farmer
• Bill pays Max the miller the turn the wheat in flour
• Bill buys wood from Wally the woodsman to power his ovens
• Bill bakes bread every night
• Bill’s wife Barb sells the bread during the day to the townsfolk
• Pretty straight-forward! Yes?
• The money (income/revenue) Bill receives from selling bread to the townsfolk (his
customers) is used to first pay Fran, Max, and Wally (his suppliers)
• Any excess that remains is his own (his profit – on which he will be taxed)
• Actually … it’s a little more complicated than this … but …
• But Fran’s wheat is harvested in Autumn – and Bill agrees to buy her entire harvest then (to
secure his year’s supply!) for 120 guilders
• Bill agrees to pay her for 1/12th of the wheat every month (as he makes his sales) – and stores
his wheat in his storeroom.
Bill the Baker- part 2- Calamity Strikes
• Bill’s storeroom floods in December and the wheat is ruined.
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