India is a country, where new ideas turn into innovations and then it becomes a start-up or business. Corporate law is the legal entity that deals with forming, operating, owning and managing a corporation. A corporation is a legal entity established in accordance with state law, generally for company purposes. A corporation is treated by law as an individual who can sue or be prosecuted. A business is distinct from its owners, or shareholders, who own the company’s shares.
Smaller companies can employ a single lawyer with extensive experience to manage all legal problems of the corporation. However, larger corporations may need a team of attorneys with distinct specialties to deal with day-to-day contracts, jobs, and company problems.
Terms you need to know
- What is a corporation?– A corporation can conduct business in its own name just like any person can. It is owned by shareholders, who have the legal authority to elect a board of directors to supervise the organization’s operations.
- Wha is S Corporation?– A specific type of corporation with a limited no. of members enjoying certain tax advantages but without a typical corporation’s stock options.
- Who is the Chief Executive Officer (CEO)? – The executive with the principal decision-making power for the management of the daily business in a company; appointed by the board of directors of the company.
- Who are the Board of Directors (BOD)?– A group of people elected by a corporation’s shareholders to manage the affairs of the corporation and appoint officers.
Why do corporate laws exist?
Corporate law is meant to be friendly for business. It’s not intended to create things more difficult to get done. Corporation law comes in existence to make business easier. Rules governing the formation of a corporation and laws on how to take corporate actions are intended to assist businesses and make things fair to everyone. They ensure corporations act in predictable ways in which others can depend.
The major component of corporate law
Five principles are common to corporate law
- Legal personality – Corporate owners pool their capital into an independent entity. That entity is able to use and sell the assets. Creditors are unable to take back the assets easily. Instead, they create their own entity that operates alone.
- Limited liability – When a corporation is sued, only the assets of the corporation are on the line. The plaintiff could not follow the owners of the corporation’s private property. Limited liability of a corporation enables owners to take risks and diversify their investments.
- Transferrable shares – If an owner decides that they no longer want a share in the company, the company does not have to shut down. One of a corporation’s unique features is that owners can transfer shares without the same difficulties and hassles resulting from a partnership’s transfer of ownership.
- Delegated management – Corporations have a defined framework to conduct their business. There are a management board and officers. These management bodies share and divide the power for decision-making. Board members employ and supervise officers. They also ratified the significant decisions they make. The board is chosen by the shareholders. Officers manage the company’s day-to-day operations.
- Investor ownership – Owners have a say in making corporate decisions, but they don’t operate the business directly. Investors are also entitled to gains from the corporation. Usually, an owner has decision-making and profit-sharing power in proportion to their ownership interest. Usually, owners vote to elect members of the board.