Summary of the course, Corporate Law, taught in quarter 3 of the International and European Law degree at the Hague University which includes notes of the reader, necessary legislation and cases.
, Week 1
A sole proprietorship or tradership is a person doing business for themselves as a sole proprietor; the
business organization is a sole proprietorship. There are no formalities needed like a license or permit.
However, in some jurisdictions registration of the name of your sole tradership is needed and the form is
not regulated. The disadvantage of a sole proprietorship is that limited alternatives exist for raising capital
(Reader, p. 36).
A partnership is an agreement between parties which is a form of contract. The owners of the property are
you and the partner. Some formalities are attached before the start of the agreement. In the US there is an
independent entity. In some jurisdictions, this form is regulated. In the UK Partnership Act 1890 a
partnership is defined as a collection of individuals in business with a view to a profit.
- A general partnership is a partnership of two or more people in a business as co-owners for a
profit. Each partner contributes to business activities and has their freedom to a certain extent.
Each partner can make business decisions and have personal liability for business debt (Reader,
p. 36).
- A limited partnership is a special form of general partnership where there could be silent partners
that have no say in decisions but general partnerships do have a say in decisions (Reader, p. 37).
- A limited liability partnership is a form of general partnership in which the partners are equal
unless stated otherwise in the partnership agreement but have limited liability to the company.
A company or corporation is incorporated and special formalities need to be fulfilled to result in legal
consequences. There is a director appointed based on corporate law and shareholder which is an investor
who has to put money into a corporation and has taken shares in return.
It was held in Carella v Scholet that general partners owe a fiduciary duty to limited partners and are
obligated not to engage in self-dealing unless the partnership agreement permits such self-dealing (Foster,
p. 40).
It was held in Clark v Lubritz that partners not being paid equally as other partners based on agreements is
a breach of fiduciary duty as there is a duty to disclose to partners (Reader, p. 38).
,It was held in Latta v Kilbourn that partners must act in good faith for the benefit of the partnership
(Reader, p. 37).
Legislation
Dutch Civil Code article 2:3
Open corporations are the equivalent of public limited companies under English law, i.e. companies with
free tradable shares.
Closed corporations are the equivalent of private limited companies under English law, i.e. companies
with restricted tradable shares.
Limited Liability Companies Act § 1
A company with limited liability (GmbH) may be formed by one person or several persons pursuant to
the provisions of this Act for any purpose permitted by law.
Limited Liability Companies Act § 4
The name of the company must include the designation (GmbH).
Stock Corporation Act § 1
(1) The company is a stock corporation that constitutes a separate legal entity. Liability to creditors
with respect to obligations of the company shall be limited to the company’s assets.
(2) The company shall have a capital divided into shares.
Stock Corporation Act § 3
(1) The company shall constitute a commercial enterprise even if the purpose of the enterprise does
not comprise commercial activity.
(2) Stock exchange listed within the meaning of this law are those corporations whose shares have
been admitted to a market that is regulated and supervised by state recognized authorities and that
is directly or indirectly accessible to the public.
,Stock Corporation Act § 4
The business name of the company shall contain, even if it is continued according to § 22 of the
Commercial Code or similar legal provisions, the designation ‘Aktiengesellschaft’ or a generally
understood abbreviation of this designation.
Delaware General Corporation Law § 101
(a) Any person, partnership, association or corporation, singly or jointly with others, and without
regard to such person’s or entity’s residence, domicile or state of incorporation, may incorporate
or organize a corporation under this chapter by filing with the Division of Corporations in the
Department of State a certificate of incorporation which shall be executed, acknowledged and file
in accordance § 103 of this title.
(b) A corporation may be incorporated or organized under this chapter to conduct or promote any
lawful business or purposes, except as may otherwise be provided by the Constitution or other
law of this State.
, Week 2
Legal Personality
A company that has a legal personality means that a company can be regarded as a person who can
participate in trade and economic markers as a legal person. This is distinct from its owners
(shareholders) which means it’s different from a sole trader or partnership where the business is
fundamentally linked to the sole trader or partnership. This means that the company is a separate legal
entity, the entity doctrine (Reader, p. 45).
The term owner shielding or limited liability refers to rules that protect shareholder’s assets from the
personal creditors of the company.
The term entity shielding refers to the rules that protect a company’s assets from the creditors of a
shareholder (Reader, p. 48).
Limited Liability
Limited liability refers to the owners (shareholders) of the company whose personal assets are separated
from the company’s assets. This way their liabilities are separated from the company’s liabilities.
The separate legal personality of the company creates a veil between the owners and the company
through which liability usually doesn’t cross, this is sometimes referred to as the veil of incorporation.
This way shareholders cannot be held liable for the company’s conduct or debt.
However, this is different from a sole trader or partnership where the sole trader has unlimited liability for
the business and the partners have joint and several unlimited liabilities for the partnership.
Transferable Shares
The ownership of a company is divided among its owners (shareholders) to which each of whom owns
shares in the company. These company shares are freely transferable, although they may be limited in a
private company by agreement between the shareholders.
, Shares have a nominal value representing the price invested into the company for the share which may be
sold for a higher price than their face value.
Delegated Management
The responsibility of managing the company is assigned to directors. These directors are typically
professional managers who owe a fiduciary duty to the shareholders whose company they are managing
and themselves who may also be shareholders.
In a one-tier board, all directors (executive and non-executive) form one board referred to as the board of
directors. Countries that have one-tier board systems are the UK and the US.
In a two-tier board, there is an executive board and a separate supervisory board. German cooperation law
requires all public companies to have a two-tier board with a management and supervisory board. The
supervisory board of large corporations is composed of 20 members which 10 of them are elected by the
shareholder while the other 10 are representatives of employees.
The supervisory board oversees and appoints the members of the management board and must approve
major business decisions.
Shared Ownership
Ownership of the company is distributed amongst the shareholders in proportion to their shareholding.
Although this form of ownership is limited, they have no rights of possession or use of the company’s
assets.
Shareholders do have a right to share the profits of the company and the residual upon the liquidation of
the company.
Purpose of the Company
The main purpose of a company is to take money from investors (creditors and shareholders) to generate
profits on their investments.
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