When corporations and companies are established, there is an interaction among stakeholders (consumers and the community) and shareholders (owners of stocks in corporations). These two parties make the existence of a corporation possible: the stakeholders providing the profit of a corporation, and the shareholders providing capital to corporations. Without one or the other, a corporation will not exist. These two have to form a relationship and interact with one another.
Corporate Law: A legal form to corporations
Corporate law is defined and established to add a legal form to the relationship of corporations and their consumers. Without a legal form, it would be impossible for corporations to be established in a state and operate with structure and efficiency. This form allows the structure of corporations to be organized, clearly defined, and well-understood by all concerned parties.
The set of rules, terms and conditions, and state laws related to corporations and companies make up the broader corporate law.
Legal and Corporate Identity
Corporate law allows entrepreneurs to transact as a corporate entity. As shareholders, entrepreneurs build a corporation by providing capital via shares and stocks, and by nominating and voting directors and executives who will run the company. In this sense, entrepreneurs become one entity – a corporation. How this corporation will manage to interact as a compact, legal and corporate identity is then defined by corporate law.
Interaction of companies and corporations
Under the corporate law, companies can interact among consumers as a legal entity. Their interactions are bound by pre-defined corporate and state laws. Corporations can be compared to human beings, considering the responsibilities and obligations given to them.
Corporations can be guilty of crimes that individuals can commit, such as violation of human rights, fraud, and even manslaughter. When a company dies, it also has to file for a death certificate. This is to make sure that corporations operate with moral duties and obligations, with respect to both corporate laws and state laws.
Associations and business relationships
Business relationships such as liabilities, partnerships, and trusts are also defined and governed by corporate law. Among shareholders in a corporation, corporate law allows either limited liability or unlimited liability to the shareholders. These two kinds of liabilities provide different fates to the shareholders, when faced with debt and liability issues.
Limited liability is implemented in “Limited” corporations, or those ending with an “Ltd.” This relationship defines that a shareholder’s financial liabilities is only equal to the value of his/her current investment to the corporation or company.
When a limited company faces charges or is sued, the shareholders are deemed independent of the company’s charges. A shareholder is only liable for the value of his/her investment in the company.
However, companies and corporations with unlimited liability extend the liabilities and debts of the company to each shareholder. By virtue of the corporate law, any of these two laws are observed by corporations, to ensure understanding and consent among shareholders.
Establishment and Security
In general, corporate law is concerned in the internal and external relations of a company or corporation. Internal relations include that of the shareholders amongst themselves, and external relations involve the corporation in relation to the consumers.
Corporate law aims to establish organization and structure among corporations and the state, to make sure that there is security and reliability on the end of both corporations and consumers.