This article on “ESSENTIAL COMPONENT OF CORPORATE LAW” was written by an intern at Legal Upanishad.
Introduction
In general, corporate law seeks to balance the interests of corporations, their shareholders, and other stakeholders such as employees, customers, suppliers, and the wider community. It aims to promote fairness, transparency, and accountability in corporate dealings, while also allowing corporations to operate in a manner that is economically efficient and promotes growth and innovation. This article explores the meaning, concept, and essential components of corporate law.
What is Corporate Law?
Corporate Law is the legal field that governs the creation, organization, and operations of corporations. It encompasses the rules, regulations, and principles that dictate how corporations are formed how they raise capital, how they govern themselves, how they interact with stakeholders, and how they are dissolved. Corporate law provides the framework for how corporations operate and make decisions and it sets out the rights and responsibilities of directors, officers, shareholders, and other parties involved in the corporate structure.
Essential Components of Corporate Law
Corporate law is a body of law that governs the foundation, operation, and dissolution of corporations. The following are the essential components of corporate law :
- Incorporation: This is the process of creating a corporation, which is a separate legal entity from its owners, with the right to sue and be sued own property, and engage in business activities.
- Corporate Governance: This refers to the system of rules, practices, and processes by which a company is directed and controlled. It involves balancing the interests of a company’s many stakeholders, such as shareholders management, customers, suppliers, financiers, government, and the community.
- Shareholder Rights: Shareholders are the owners of a corporation and are entitled to certain rights such as the right to vote on corporate matters, the right to receive dividends, and the right to inspect corporate books and records.
- Director Duties: Directors are responsible for overseeing the management of a corporation and must act in the best interests of the company and its shareholders. They have a fiduciary duty to the corporation and its shareholders.
- Corporate Financing: This includes the various ways in which a corporation can raise capital such as issuing stock, borrowing money, and retaining earnings.
- Mergers and Acquisitions: Corporate Law governs the process by which one corporation can merge with or acquire another corporation.
- Dissolution: This refers to the process by which a corporation is terminated, and its assets are distributed to its shareholders.
These are some of the essential components of corporate law, but the specific laws and regulations governing corporations can vary by jurisdiction. An understanding of corporate law is essential for anyone involved in the formation, operation or management of a corporation, including entrepreneurs, business owners, executives, and legal professionals.
Companies Act, 2013
In Lok Sabha, the Companies Act of 2013 was proposed and approved. It mostly addresses the establishment and rules governing corporations or companies in India. It makes up a significant portion of Indian Corporate law. Essentially addresses concerns relating to corporate incorporation, obligations, and laws and regulations of a company. The Companies Act of 2013 changed the Companies Act of 1956 which was based on the Bhabha committee’s recommendations. This law was most recently amended in July 2019. the modifications dealt with a number of changes to Schedule VII and as a result, 16 minor offenses were made no longer punishable by law.
Any company that is registered in accordance with the rules outlined in this act is considered a company as defined by the Companies Act of 2013. This law treats a corporation as though it were a distinct, living organism. There are several business structures, including limited liability partnerships, sole proprietorships, public limited companies, joint Hindu family businesses, and private limited companies. These businesses are all governed by this statute. Section 2 of the Companies Act of 2013 provides a definition of a company.
Companies that are not profit-oriented but rather operate on a philanthropic basis are addressed in Section 8 of the Companies Act. As a result, these businesses are known as Section 8 companies. According to the definition given in Section 8 of the Companies Act, these businesses devote their profits to their goals, whether they be in the areas of the arts, sciences, research, education, social welfare, or other goals. These businesses don’t distribute dividends to their shareholders.
These corporations were previously governed by the Companies Act of 1956’s 25th section. Following the change, this section received more objectives. FCCI is a prime illustration of a Section 8 business. By submitting an application to the registrar of companies with the forms pertaining to the purposes listed under Section 8 of the Companies Act, a section 8 company can be formed. Once it has been approved, the fee paid by the applicant registers it. These businesses are restricted companies only. Since the central government controls these businesses and has granted them a work permit, no modifications can be made without the central government’s consent. Additionally, Section 8 details how to revoke the licence.
Corporate Veil
The corporate veil idea protects members from potential liabilities resulting from the company. It distinguishes between the identities of the firm, the members, and both of these holdings. The members are protected from any obligations incurred as a result of company faults. The corporation veil hypothesis views the business as a separate legal entity. By piercing the corporate veil, the court is able to take into account the company’s members rather than its status as a legal entity. A situation like this could arise when courts need to determine a firm’s nature in relation to taxes and obligations, a corporation founded through fraud, or a company that engages in unlawful behaviour.
CONCLUSION
Corporate law, also known as company law or the law of business organizations is the body of law that governs the creation, operation, and dissolution of corporations. This area of law regulates how corporations are formed, how they are managed, and how they interact with shareholders and other stakeholders. Corporate law is also concerned with protecting the rights of shareholders, establishing the responsibilities of corporate directors and officers, and ensuring that corporations comply with all relevant laws and regulations.
REFERENCE
- Shikha Shah, Essential Aspects of Corporate Law, BnW Journal, available at: https://bnwjournal.com/2021/06/19/essential-aspects-of-corporate-law/
- John Armour, Henry Hansmann, and Reinier Kraakman, The Essential Elements of Corporate Law, European Corporate Governance Institute, available at: https://www.ecgi.global/sites/default/files/working_papers/documents/SSRN-id1436551.pdf
- Mary Clare Novak, What Is Corporate Law and Why Is It Important?, G2, 15 November 2019, available at: https://www.g2.com/articles/what-is-corporate-law