What Is Corporate Law?

What is the Difference Between Business Law and Corporate Law?

Business law governs taxes, employment, and contracts. Corporate law governs bigger operation matters such as shareholders’ rights, mergers and acquisitions, and buying decisions.

Corporate law is the practices, rules, regulations, and laws that dictate the formation and operation of corporations.


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What is a Corporation?

A corporation is a legal entity that allows its owners to be legally separate from their business. Therefore, if a business faces litigation, the owners’ liability is limited to their investment in the corporation. In the eyes of the law, a corporation is completely separate to its owners and treated as a single entity regardless of the number of owners.

The Major Characteristics of Corporate Law

There are five common principles in corporate law:

  1. Corporation is Dinstinct “Person” – Owners pool their resources into the corporation. The corporation acts independently to the owners and can use the resources and sell them. Creditors for the corporation can only access the assets of the corporation, not those of the owners. The same goes in reverse; creditors for one of the owners cannot access the assets of the corporation.

  2. Limited liability – When a corporation faced litigation, the plaintiff can only seek damages from the corporation’s assets. Therefore, a corporation reduces the risk for its owners.

  3. Transferrable shares – If an owner sells their share, the corporation can continue. Unlike other types of business entities, an owner can transfer their shares easily without dissolving the corporation.

  4. Delegated management – Corporations have a strict structure they must follow. Shareholders nominate a board of directors to make major operational decisions. The board of directors hire officers to run the daily operations. The actions of the board of directs and officers are legally binding on the corporation.

  5. Investor ownership – Owners have a say in the decisions of the corporation, but they rarely run the company. Instead, they, along with other shareholders, nominate a board of directors. An owner will have profit shares and decision-making capability in direct proportion to the percentage of ownership.

Why Do Corporate Laws Exist?

Corporate laws exist to keep all corporations on an even playing field. It makes things fair rather than allowing a handful of businesses to dominate the market. It also protects consumers by ensuring corporations act predictably and can be relied on.

Who Is Involved in a Corporation?

There are several players in a corporation aside from the owners. These are the key players of a corporation:

  • Owners – anyone who invests in the corporation is an owner. Their percentage of ownership is in direct relation to their percentage of control you have over the business. An owner might also be called a shareholder.

  • Directors – A director oversees the corporation but has no ownership in the business. Directors will vote on major decisions but are not bound by the owners’ interests in their voting.

  • Officers – The officers will take direction from the board of directors on major decisions but have the autonomy to make decisions on daily operations.

  • Employees – Employees will carry out the corporations function in exchange for payment.

  • Creditors and Debtors – These are people and companies who do business with the corporation. Creditors are people who lend money, and debtors are people who borrow money.

Corporate Law is Civil Law

Corporate law falls under the civil law umbrella, and disputes are handled in a civil court. If an employee or any person in the corporation commits a criminal act, they may be tried in a criminal court. However, otherwise, most legal actions involving the corporation will be seen in civil court.

Corporate Attorney

Corporate lawyers can assist corporations in their formation and operations. An experienced corporation attorney can foresee issues before they become problematic and assist the corporation in trying to rectify the situation.

In general terms, a corporate attorney will help a corporation to do business better. They will ensure a corporation complies with laws and help solve business or employment problems in a legally sound manner. Depending on the corporation’s needs, they may employ a corporate lawyer on a short-term, or long-term basis, throughout the corporation’s lifespan. A long-term relationship will ensure legal advice that is applicable to your corporation and its circumstances. A short-term relationship can be beneficial to seek expert help to deal with specific issues.

The corporation should consider its size and its needs before hiring legal counsel. A large law firm will have several attorneys who specialize in certain areas of law. A small law firm or individual lawyer may need to seek consultation with specialist attorneys for issues outside of their expertise. Discuss your business needs and the law firm’s offerings before committing to a legal relationship.

In House Counsel

Some corporations prefer to employ lawyers to work exclusively for the company. These lawyers will be hired based on their knowledge of law applicable to the corporation and will advise on any legal issues that arise. Officers and employees may consult in house counsel on any work-related legal issues that may arise. Many corporations prefer this approach as the legal team are invested in the interests of the company and view the issue in the context of the corporation and its activities.

Solo and Small Firm Corporate Lawyers

There are several corporate lawyers who have their own solo business or work in a small law firm. These corporate attorneys can be helpful for the formation of a corporation or the operations of a smaller corporation. With a track record for working with a number of other corporations, these attorneys offer expertise and in some cases, industry knowledge. However, as the business grows, a corporation may require a bigger law firm or in house counsel to handle the many and varied legal needs.

Common Corporate Law Matters

Corporate lawyers can provide any legal advice the business requires; however, these are the two places a corporate lawyer’s advice will help your business most.

Mergers and Acquisitions

Mergers and acquisitions is the term describing a transfer of ownership or merging of two businesses. These actions can cause a business to change in nature, downsize, or grow significantly. There are also complex merges of the ownership, assets, and liabilities of the businesses. A corporate lawyer will help you navigate this process and protect your business’s interests.

Corporate Insolvency

Corporate insolvency is when a company can no longer pay off its debts because its assets are less than their payments. When this occurs, a business can liquidate its assets to pay off the debt. Liquidation simply means selling assets such as real estate in exchange for cash. It is best to talk through your options with a corporate lawyer to ensure you make the best possible decision for your business and its circumstances.