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Corporate Law All Knowledge Clips lectures summary
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Weekly Module 1 Introduction to Corporate Law● Knowledge Clips:
- What is a corporation? (Video 1)
There are many different types of business forms, we can divide them into 3 categories:
1. Corporations
- The course mainly focuses on this one, it is a term mainly uses in the US; ‘Company’ is
the term that is mainly used in Europe and particularly in the UK
- Corporations and companies are used interchangeably
2 types:
- Private Corporation (Closely-Held)
- Public Corporation (Open)
There is also a hybrid business form: Limited Liability Company (LLC)
- A business form that is commonly used in the US
- Hybrid; combined characteristics for corporation with partnerships and sole
proprietorship
- The owner of such a business is personally not liable for the company’s debt or the
company’s liability; However, they enjoy being taxed through partnerships using passing
through taxation
2. Partnerships (more than one participants)
3 most common types of partnerships:
- 1. General partnership:
→ Simplest
→ An agreement between partners to establish and run a business together
→ All partners are responsible for the business and are subject to unlimited liability of the debt
- 2. Limited partnerships
→ At least one partner possess unlimited liability
→ All other partners are limitedly liable, which are called silent partners (they cannot lose more
than the money they have contributed to the partnership)
→ General partners run the business, determine strategies whereas limited partners are not
involved in the active actions
- 3. Limited Liability Partnerships (i.e. LLP)
→ Often use for law firms or other professional service firms
→ All partners are allowed to be involved in the management
→ All partners enjoy unlimited liability
3. Sole proprietorship
- Simplest form, business own and run by one person
- This business contains one person who forms sole proprietorship
- Entrepreneurs do not have to undertake any actions to form such business
, - Like every business form, these owners need to obtain licenses and permits, comply to
tax rules too
Consider the GDP
- US and China are the largest countries in the world
- If we compare the GDP and revenue, we see the following:
E.g. Walmart is larger than Argentina and all countries that are smaller than Argentina
E.g. Royal Dutch Shell is larger than Israel and all the countries that are smaller than Israel
Corporations
- Corporation/Company: A firm with special legal attributes that can make it capable of
owning property into contracts independently of its owners → Also referred to as Legal
Personality
- Capital of the company or a corporation is owned by the firms and is divided in shares,
which means they are owned by the shareholders→ Share capital
- The share capital but also some other requirements are required before you can
incorporate it into cooperation
- Only when a corporation is correctly incorporated, which is the establishment of a
cooperation, legal personality and limited liability can be fully used
- Another requirement is to formulate the article of association which can be seen as the
core of the corporate contract; the articles of association are always made public
- Within the company, we can find different actors:
→ Corporate board: Directs and supervises the company, also represents the company
although the company has legal personality, it actually needs a representative to actually
engage in business and trajectory
There are two board models used worldwide when we discuss about the corporate board:
one-tier or two -tier board model; also there are different types of board members
→ e.g. executives or management board members who direct the company
→ e.g. CFO, CEO, COO ( Chief operating officer)
→ Some companies have CTO (Chief technology officer) and Chief legal officer
These executive officers determine the corporate strategy
Non-executives or supervisory board members: Monitor the executive/managerial board
members
The officiers all have particular duties to the company
- Duty of loyalty/ duty of care (hold for both executive and non-executives/supervisory
board members)
The capital of a company is divided in shares
- These shares are held by the shareholders
- Also called the investor ownership: The ownership contains control and capital rights
- Control rights→ Appointment rights: The shareholders can appoint a board member
- Decision-making rights
, - Residual claimants: Shareholders are residual claimants, which means they only get
paid when the fixed payment are paid (when the company is bankrupt)
- Shareholders benefited from having limited liability which means they are only liable up
to their committed investment
→ e.g. If apple go bankrupt, as a shareholder, you are not liable for any apple’s claim → Owner
shielding
Third parties: Have a contracting relationship with the corporation
Priority Claim: Usually a fixed claim
Creditors are called fixed claimants
- What are the different jurisdictions that are going to be covered? (Video 2)
There is no global corporate or business law, these legal domain strongly depends on the
country and the situation; therefore, we will have a comparative focus in this course, but mostly
focus on exploring the rationale behind important business law rules
Main jurisdiction:
- UK (Common Law)
- US (Common law )
- Continental European countries (Civil law)
The main differences between common law and civil law:
Civil law: Statues predominate
Common law: Case law in the form of published judicial opinion, is the primary source of law
→ The differences are not that strict, mainly countries have both features
In Corporate law, the common law system is often linked to the shareholder privacy; whereas
the civil law system more constitutional or stakeholder approach
➢ Introduction to the Jurisdiction : US
- Has a federal government, therefore companies are governed by the states
- State governments
Courts:
Federal courts (federal level) on federal subject matters or interstate suits
→ e.g. Security Freuds
States courts: everything else, including corporate law
→ you can say internal corporate law matters, like the internal structure of the company are
parts of the state affairs in the US
E.g. Exception: Dodd-Frank act: Typical internal affair for a company; actually a federal act
- Companies in the US are free to incorporate in any state regardless of whether they are
doing business there or have any contact with this state
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