A Detailed Introduction to Corporate Law And Corporate Governance

Published: 13th April 2010
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One of the dominant types of law in today's business world is the corporate law. It can be explained as a study of how shareholders like the employees, employer, creditors, and stakeholders like customers, the environment and the community interact with each other under a set of internal rules of the company.

There are several types of business associations like a partnership, a trust or limited guarantee companies. But corporate law governs big business which usually has a separate and unique legal personality, with or without unlimited liability for all its shareholders. Here depending upon the performance of the board of directors, the shareholders may buy or sell their stocks. Corporate law mainly deals with companies that are registered under the corporate law of the Sovereign or the Sub-national state. Corporate law is often divided into Corporate Finance and Corporate Governance.

Defining Characteristics of a Corporation:

Unique Legal personality of the Corporation - The firm has the right to sue and to be sued under its own name.

Liability of the shareholders - Limited or unlimited, when the company is insolvent, it owes only the money that is subscribed through shares.

Transferable Shares - The Company should be on a listed exchange like NYSE etc.

Board of Directors - The Company should be run by a delegated management.

Ownership - The Company's ownership lies with the investors or shareholders. This may be complicated due to the increase in interdependence of social and economic factors. In most corporate, the firm is owned by both the shareholders and employee representatives.

Corporate Governance
This is mostly defined as the study of relationship between the Board of Directors and the shareholders who elect them. This also concerns the stakeholders like consumers, creditors, suppliers, community and the environment in which the company is situated. One of the major differences in the internal form of the company between many corporate is the one or two tier system.

In US, most of the firms have a single tier Board of Directors. In US, the law discusses this Corporate Governance in terms of Management Science. This discusses the corporate democracy held by both the share and stake holders and also discusses the main problems faced between the principal and agent.
The basic problem of the corporate law in this regard is that when the principal party transfers his property to an agent, there are utmost possibilities that the agent may disregard the interests or wishes of the principal and act according to his own opportunistic beliefs and interests. The central goal of the Corporate Law is to reduce this risk of opportunism which is otherwise called "agency cost".

Corporate Companies derive their rules from two sources. In US it is mainly from the Delaware General Corporation Law or DGCL. Corporate Law usually set out the rules which are mandatory and which can be changed or modified. Mandatory rules include the process of firing the Board of Directors and director's duty when the company nears bankruptcy. Rules that can be derogated include procedure of general meetings and the number of members who can amend the constitution.Jane Cooper writes about Houston business attorney related topics and coporate lawyer Houston subjects.

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