Corporate Law — Legal glossary

Legal glossary · Corporate law

Corporate law deals with all aspects of a company, from its formation, functioning, operations, mergers, acquisitions, etc., to its winding up. It lays down provisions for business transactions and regulatory compliance, which a corporation must adhere to for smooth operations while addressing all corporate legal issues.

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Corporate law definition

Essential elements

What is a corporation?

What corporate lawyers do

Types of corporate law

Corporate laws by state

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Corporate law definition

As per Black’s Law Dictionary:

Corporate law in the U.S. is regulated at both state and federal levels. Each state has its corporate laws, usually based on a set of general principles, but they can vary significantly. State laws govern how a corporation is formed, structured, and managed, covering areas like shareholder rights, board responsibilities, and internal governance.

Federal laws, on the other hand, ensure that corporations operate fairly and responsibly. This includes overseeing securities, protecting investors, preventing monopolies, regulating corporate taxes, handling bankruptcies, and guaranteeing transparency from public companies.

Essential elements

Corporate law is the rulebook that governs how corporations are formed and operate in a jurisdiction. Here are some essential elements of corporate law:

Formation of the company

Each state has its laws regarding the incorporation of the company. Most states require the owners to file articles of incorporation with the state before issuing shares or electing the board of directors.

Shareholder Rights

Shareholders are the owners of a corporation, and their rights are part of corporate law as they get to vote on important company matters, like electing board members or approving major corporate decisions. They have financial interests as they receive dividends.

The Board of Directors

Although shareholders own the corporation, the board of directors handles its management and strategic decisions. They are elected by the shareholders to oversee the company’s management and ensure that it is run in their best interests.

Management

Management defines the hierarchy within a corporation, where the board of directors oversees overall strategy and performance, while officers like the CEO and CFO manage day-to-day operations and implement the board’s decisions.

Securities regulation

If a corporation wants to raise money by offering stocks or bonds to the public, it has to abide by the rules of the Securities and Exchange Commission. The SEC ensures that corporations provide full and honest disclosure to investors before selling securities. It mandates companies to file annual and other periodic reports and be transparent about their financial position so investors can make an informed decision.

Mergers and Acquisitions (M&A)

M&A governs the legal process through which companies combine or transfer control, typically for expansion, restructuring, or asset acquisition. It sets the procedures for M&A due diligence, approvals, and compliance, ensuring such transactions are valid and lawfully executed.

Bankruptcy

If the corporation goes into bankruptcy, then corporate laws provide for statutory provisions that would come into play. These would provide for further steps including settling the claim of the creditors during liquidation, etc.

What is a corporation?

Corporations are legal entities that act like a single fictional person. They can sign contracts, own property, take loans, and even get sued.

Legally, a corporation is treated as its entity, separate from the people who own or run it. This unique feature allows businesses to operate smoothly without being tied to the personal finances of their owners or anyone related.

There are five major features that set corporations apart from other types of businesses.

Legal personality

A corporation has a separate legal entity, meaning it exists independently from the people who own it. In Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518, 636 (1819), Chief Justice Marshall said:

Limited liability

It ensures that if the corporation ever runs into financial trouble, its owners and shareholders aren’t personally responsible for its debts. This protection makes investing in corporations much less risky than investing in partnerships or sole proprietorships, where personal assets could be on the line.

In Walkovszky v. Carlton, 18 N.Y.2d 414 (1966), the issue was whether the Defendant could be held personally liable for the injuries suffered by the Plaintiff. It was held that due to the limited liability principle, the defendant could not be held liable personally for the injuries unless there was any proof of fraud or personal benefit.

Transferable shares

The transferability of the shares allows the firm to conduct business uninterruptedly as the identity of its owners changes. This enhances the liquidity of shareholders’ interests while making it easier to maintain diversified investment portfolios.

Delegated management with a board structure

Corporations have a board of directors who make key decisions. They are separate from the executive officers and operational management.

Investor ownership

The investors are the owners of the corporation. They buy shares in the company, and the more shares the investor owns, the greater the investor’s influence on the company’s decisions.

What corporate lawyers do

Corporate lawyers advise companies on their legal rights, responsibilities, and obligations. Since a corporation is a separate legal entity, a corporate lawyer represents the company, not its shareholders or employees.

Their work typically includes tasks such as:

• Guide business owners — at the time of incorporation — in selecting the most suitable business structure, such as a corporation, partnership, or forming an LLC for small businesses and startups
• Review and draft contracts on behalf of the corporation while negotiating them for the corporation’s best interest. For example, they ensure that the activities undertaken by the corporation are commercially reasonable for joint venture agreements, licensing agreements for intellectual property, etc.
• Deal with employment law issues, covering aspects of internal management such as training, employee classification, employment contracts, etc.
• Conduct due diligence, negotiating, drafting, and overseeing deals that involve the corporation
• Guide clients in corporate governance matters, such as drafting articles of incorporation, creating bylaws, and advising corporate directors and other officers on their rights and responsibilities, among other things required to manage the corporation
• Advise clients on how to comply with securities laws at the state and federal levels while raising capital effectively.
• Represent the corporation’s interests if it goes into liquidation voluntarily or is forced to do so by the business’s financial collapse.

Types of corporate law

Represent the corporation’s interests if it goes into liquidation voluntarily or is forced to do so by the business’s financial collapse.

Company formation and governance laws

Corporate formation and governance law deals with the rules that govern how a company is incorporated, controlled, managed, and directed, establishing clear frameworks for decision-making power and accountability.

Securities law

Companies issue securities to raise capital for the entity in which they must disclose financial information, risks, and potential returns to investors.

Securities laws are present at the federal and state levels, called Blue Sky laws. They ensure transparency in financial markets and prevent fraud. Any corporation violating these laws can lead to hefty penalties and even civil and criminal charges.

Transactional law

Transactional law addresses the legal framework behind corporate transactions such as asset purchases, share sales, financing, and restructuring. It ensures that each step complies with statutory requirements, mitigates liability, and aligns with the corporation’s strategic and financial interests.

Contract law

Contracts are a major part of any business. Contract law ensures that the agreements between businesses, employees, vendors, and customers are legally enforceable.

M&A

When a company transfers ownership or combines with another company, mergers and Acquisitions law comes into play. Corporate law under M&A includes joint ventures, partnerships, etc.

ESG Compliance

This law requires companies to follow environmental impact, social responsibility, and transparent governance standards. These laws promote sustainable practices, ethical labor policies, and accountability in corporate conduct and aim to align business operations with global sustainability and ethical norms.

ESG is critical for in-house lawyers who oversee compliance with evolving regulations, shape ESG strategy, manage disclosures, and protect the company’s long-term interests.

Employment law

Employment laws exist in the United States at the federal, state, and local levels. They cover aspects related to employment, such as hiring, wages, discrimination, workplace safety, and employee rights.

Restructuring and insolvency law

When a corporation is unable to pay its debts that are owed, then restructuring is the first stage wherein the corporation agrees to a way or a settlement with its creditor for the debts to manage repayments. If that doesn’t happen, then the corporation goes into insolvency.

Corporate laws by state

• Corporation Law: Arizona
• Corporation Law: Delaware
• Corporation Law: California
• Corporation Law: Missouri
• Corporation Law: Michigan
• Corporation Law: Nevada
• Corporation Law: New York
• Corporation Law: Minnesota
• Corporation Law: Pennsylvania

More expert resources

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Practice Notes

• Forming and Organizing a Corporation
• Outside Counsel Conflicts of Interest
• Role of the General Counsel in Executive Leadership
• Navigating the Complex World of Conflicts

Standard Documents

• Certificate of Designation of Preferred Stock (Convertible, Double-Dip Participating)
• Minutes of the Board of Directors

Checklists

• Choosing an Entity Comparison Chart (DE)
• Forming a Corporation Checklist

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