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Summary Corporate Law - Complete Exam Materials
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Week 1: Corporate Law - Introduction to Corporate LawTOPICS TO BE DISCUSSED
1. Describe what is Corporate Law:
- What falls under it?
- Does it relate to business and business law?
- What legal framework applies?
2. Describe two business forms, other than “company”:
- Sole proprietorship
- Partnership
Who is the wealthiest person on earth? Elon Musk, Marc Zuckerberg, Bill Gates
Persons include companies according to the law. A company is also a legal person. So the answer
looks different if you take into account companies. Amazon, Microsoft, Facebook, SpaceX, Apple,
Saudi Aramaco, Tesla
How does the law distinguish natural person and legal person? A company is as much a person with
rights and abilities to get in trouble and has responsibilities as are you.
Why do we study corporate law?
Has an influential role in society and economies
Understand dynamics (international) business activities
International commercial transactions
International trade, free market
Neo liberalization and globalization
It is important because company law regulates companies and the environment in which they move,
ex. Capital markets. Company is an organizational structure for business. Knowing how it regulates
companies and the environment in which it moves. Businesses play a big role in society since the
olden times.
What does a company encompass? Company = Corporation
Difference between company or corporation – there is no distinction or difference, can be used
interchangeably. It relates to business form that is incorporated form of business. It is a matter of
preference. Origins are to be found from Latin word companio, “bread fellow, messmate”. Business
law is NOT corporate law.
Company or corporation is a business form that was incorporated meaning it is a business form that
had to comply to certain formalities in order to come into existence. Incorporated type of business –
business form with compliance to certain formalities.
Company or corporation difference: all are used interchangeably.
UK - Public or private companies (distinguish the two of them) public – opened up to wider
audience, where the larger audience can decide to invest and take a share. As opposed to
private company, it is reserved to a small group of friends.
US - Corporation
EU - Undertaking
NL - Open or closed corporation (means the same as private or public)
Germany - Private limited or public stock corporation – are corporations admitted to wider
audience, and stock can also be admitted to a stock exchange.
For the purpose of this course, company or corporation is used interchangeably.
,Other terminology:
Capital market – A capital market is a financial market in which long-term debt (over a year)
or equity-backed securities are bought and sold, in contrast to a money market where short-
term debt is bought and sold.
Securities – A security is an investment in a business. It can take the form of shares of stock,
bonds, a package of loans or mortgages offered for sale by a financial institution or a
financial instrument representing investment in a company or an international project.
Share capital or debt – Companies borrow debt capital in the form of short- and long-term
loans and repay them with interest. Equity capital, which does not require repayment, is
raised by issuing common and preferred stock, and through retained earnings. Most
business owners prefer debt capital because it doesn't dilute ownership.
Liquidation assets - it might be decided that the best way to maximise the return for the
company’s creditors is to close the business down and liquidate its assets in a process called
‘liquidation’.
Residual rights - Residual rights are such rights that allow the stockholders to share the
company's profits, as well as recover some of the assets of the company in the event that it
folds, although they generally have the lowest priority in recovering their investment.
Shareholders – A shareholder (also known as stockholder) is an individual or institution
(including a corporation) that legally owns one or more shares of the share capital of a public
or private corporation. Shareholders may be referred to as members of a corporation.
Directors - A corporation is managed by directors and officers. Directors act as a group
known as a board of directors. The board of directors is the corporation's governing body. It
manages the corporation's business and affairs and has the authority to exercise all of the
corporation's powers.
Dividends - A dividend is a distribution of profits by a corporation to its shareholders. When
a corporation earns a profit or surplus, it is able to pay a proportion of the profit as a
dividend to shareholders. Any amount not distributed is taken to be re-invested in the
business (called retained earnings).
Insolvency - Insolvency is a state of financial distress in which a business or person is unable
to pay their bills. It can lead to insolvency proceedings, in which legal action will be taken
against the insolvent person or entity, and assets may be liquidated to pay off outstanding
debts.
What is business law? It is NOT corporate law.
Business law - an umbrella term. It is broader than corporate law. Encompasses all areas that relate
to how to do businesses. Regulates whatever you need to do business (employment law, contract
law, tax law)
Corporate law - the focuses on the formation of business forms, meaning companies (most formal
forms of business). Regulates how companies can come into existence. How it is organized, how it
operates, what the key actors are and their functions – they have certain and different rights. Legal
operation of business for functions rights, and duties of key actors. A distinct area of business law,
focuses on rights and duties of company and people involved. Narrower than business law.
There is an overlap, corporate law is related to business law. Business law does mean anything and
everything needed in order to perform a business.
Corporate law is a distinct area that focuses on the rights and duties of the company and the persons
involved. In order to run a business properly, you can think of ways to better gear your company the
sense of market position, advertisements, or how to efficiently run their businesses. Corporate law
is far narrower and focuses more on the rights and duties of the company involved.
,What can we add to the mix to formulate a definition?
Company law or corporate law (used interchangeably) – focuses on the business forms and their
characteristics, how they operate, what has to be put in place in order to have a business. What type
of person is involved, what legal rights and duties they have, and what the law says about them.
Business forms and their characteristics – part of company law. And also the right and duties and
liabilities a person have forms corporate law.
Which legal framework? Will not focus on the US as a whole. Interesting to involve because it
follows the common law, but each US state has their own statute. We will focus not on the US as a
whole, pick one state – DELAWARE.
Choice for national jurisdictions: dominant jurisdictions for developing Corporate law
Germany: Civil law tradition and MS (EU) – NLs, similar
UK: Common law tradition and MS (EU)
US: Common law tradition: But each State has their own Statute. To be used: Delaware
Delaware state - has designed certain tax laws that are attractive for companies. Harbors many of
most, biggest and successful multinationals. Because they developed into being a State that has very
well-developed company’s law. Much more certainty for company.
Which legal framework applies? Depends on the selected jurisdiction and its statutes. You have to
select the country and then select the basic national framework that they have.
Legislation and company law is spread out between various statutes. But, in a broad sense, you can
recognize a basic act. Ex. UKCA 2006 is the basic act in the UK. – UK Company Act
The concept of partnership and company is laid down and defined in each relevant jurisdiction. Ex
Partnership act 1890 in UK and UKCA2006, respectively.
Civil Law Country National Framework Regional Framework
Germany German Private EU Law
Limited Liability Act
(PLA)
German Stock
Corporation Act (SCA)
Netherlands Dutch Civil Code (Book EU Law
2) (DCC)
United Kingdom UK Companies Act EU Law
2006 (UKCA2006) and
case law
United States US Delaware State Under certain circumstances:
law: Delaware Code other state’s law
General Corporation
Law (DGCL) and case
Law
, National legislation
Relevance of national legislation on corporations
Registered companies can only be created because of national legislation that permits them
to be created. (Legal status and legal consequences are established by law)
Also, primary source on how the companies are operated (legal actions of a company are
determined by law
Hard law is legally binding rule of law to any company established in the territory
Only if business entity is set up followed the rules of a national legislation set up, then it will
be recognized as a legal person. The legal person will decide to move its business activities
elsewhere.
How does the EU Law influence MS national rules of Corporate law?
In case of membership of the EU: Several directives pursuant to Treaty of Rome are relevant
Objectives of: Equality, freedom of establishment of businesses throughout community,
harmonization of domestic company laws
Does have an influence on companies established in the EU, however the hard law rules are
limited in the sense it refrains regulating areas coming into existence because it is preserved
for the national rules
Not many topics to study in EU Company Law during this Course!
Business forms
Business forms: Perform businesses through what medium? Which forms should we study. How
can you perform business activities? Through what medium? Comparative perspective on the
relative merits of each type of organization: distinct types of businesses.
Combination of three aspects, required to “be in business”
1. Capital key question to evaluation business form: does it facilitate investment in the
business. Use your own savings or if you are not that wealthy, then you will have to consider
to involve others – invest in your business format before you start the business. Is it possible
to do it by myself or not? (business format) – pay money as an investment
2. Risk mitigation no form is without risk, so 2nd key question: does it mitigate risks – doge
liability that will potentially appear when you are in business. Consider where you will lose
money, how can I make sure that certain liabilities are covered or beyond me?
3. Clear organizational structure where money, risk and people meet there is a potential for
disagreement, so 3rd key question: does the form provide a clear structure.
Business entities – Differences (from a legal perspective) Each format has their own
structure. Distinct forms of business.
BUSINESS FORMS:
1. Sole proprietorship/trader ship - “A person doing business for himself or herself is a sole
proprietor; the business organization is a sole proprietorship. [It is] the oldest and simplest
form of business organization.” - Reader p. 35 Meiners et al
Simplest and oldest form!
Sole = only, i.e., alone, Proprietor = owner, or trader = person doing business
Controller and owner? of property SP = sole proprietor
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