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Y1 Corporate Law
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International Bachelor of LAW Program 2018-2019Corporate Law Course Notes by 18024580 Page 1 of 17
Course notes
Lecture 1: Introduction to Corporate Law
▪ Company Law
The body of laws that regulates the internal affairs of a company (the company formation, dissolution,
administration, rights of owners etc.)
- this concept is also termed as law of business organizations, corporate law, or corporations’ law
Business law/ Commercial law: the body of laws that regulate the external affairs of a company i.e. how
the company does its business
▪ Types of business formats
Sole proprietorship
Sole proprietor/ trader is a person doing business for themselves
This is the oldest and simplest form of business organization
- Owns and controls their business;
- Enters into contracts in their own name
- Personally, bear all the risk of the business (unlimited liability);
- Receive all the benefits (profits)
A sole proprietor has a few or no formality for doing business and is generally lightly regulated by law or statute.
Partnership
When two or more people go into business together
Partners share in the decision making; jointly contribute capital; jointly own the business and are jointly
and severally responsible for the risks of the business
- Jointly and severally: they are individually liable for all the obligations of the partnership
e.g. if one partner makes a bad decision, the other will be jointly liable for that bad decision.
Partnerships are regulated by law (e.g. UK Partnership Act 1890) but law can be lacking
Partnerships are (generally) organized according to a partnership deed/agreement that sets out
procedure and rules relating to capital maintenance, profit shares of individual partner, the admission of
new partners and the resignation of existing
Fiduciary duty: partners owe the highest duty of trust and loyalty to each with regards to the partners
Types of Partnership
- General Partnership (GP)
Each partner participates in the business activities and decision making, and is (jointly and severally)
liable for all its debts and obligations
- Limited partnership (LP)
Each partner contribute capital but are silent as to its decision making. Limited partners are not liable
for the debts and obligations of the partnership, but general partner are liable.
- Limited Liability Partnership (LLP)
All partners cannot go beyond the partnership form (limited liability) for the company’s obligations.
e.g. The board cannot ask a partner to sell their property to be able to pay the partnership’s debts.
o This form of partnership is useful for Accountancy and law firms engaged in “risky” advisory
activities (such as company audits)
Company: A legal entity formed according to the action of law.
, International Bachelor of LAW Program 2018-2019
Corporate Law Course Notes by 18024580 Page 2 of 17
Lecture 2: The Company and its core characteristics
▪ Company
Company: a body of persons combined or incorporated for a common object to carry on a commercial or
industrial undertaking.
A company is a new legal entity formed according to the action of law
A company is a legal person. It is a creation of law regulated and with formalities set out by law, formed through the
legal process of “incorporation”.
It is owned by shareholders who contribute capital and managed by directors who make the decisions.
The shareholders are legally separate from it (and its liabilities) but have a right to share in its profits.
Neither the shareholders nor directors are personally responsible but the company itself is responsible for
the obligations of the company. Thus, the company form has limited liability – limiting the liability of its
owners and managers for its debts
An advantage of limited liability: a shareholder can use the capital to take risks and does not have to pay when the
company goes bad, it does not affect the shareholder personally.
▪ Core characteristics of the company
(1) Corporate personality/ Legal personality
Company is a separate legal entity stated by the law (entity doctrine)
• This personality gives companies the right to undertake actions with legal effect (entering into
contracts) and having legal standing in Court (sue and be sued).
• It is separate from its owners (shareholders) which is different to a sole trader or partnership,
where the business is fundamentally linked to the sole trader or partnership
- Creditors of the company have no claim against the assets of its shareholders
(Owner Shielding/ Limited Liability)
- Creditors of a shareholder have no claim against the company’s assets (Entry Shielding)
Although they may have a claim against the shares themselves.
- Shareholders may not withdraw their initial contribution to the company
(Capital Lock/ Liquidation Protection)
(2) Limited liability
The shareholders of the company have their personal assets and liabilities separated from the
company’s assets and liabilities.
Veil of incorporation: a wall between the shareholders and the company created by the separate legal
personality of the company through which liability cannot cross
This differs from a sole proprietorship or partnership where the sole roprietor has unlimited liability for business
and the partners have joint and several unlimited liability for the partnership.
(3) Transferable Shares
:: The ownership of a company is divided among its shareholders whom each own a share in the
company, which in principal freely transferrable
Although that may be limited in a private company by agreement between the shareholders
:: Shares have a nominal (or face) value representing the price invested in the company for the share
However, they may be exchanged (sold) for a higher price than their face value.
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