Corporate law refers to the set of rules and regulations that govern the corporations that we see as a regular part of our daily lives. These set of laws are responsible for governing the formation as well as operations of the corporations or companies as well call them in common parlance. Corporate laws and their application work to provide unique characteristics to corporations or companies that distinguish them from other forms of businesses.
Since corporate laws are applicable on corporates, it is essential we understand what exactly is corporate or a company. To put it simply, a corporation is a company which is made up of a few people who run the business. The company in itself is unique since it is a distinct legal personality and is capable of suing and being sued in its own name.
To put it in some perspective, a company X is run by four men and the company breaches on its legal obligation. The victims of the breach can simply sue the Company X instead of suing the humans who run the same.
Purpose of Corporate Laws
It is a common observation that with a growth in size, a corporation starts to gain traction within the market(s) it is serving as it starts to build a huge bank balance which translates into exuding some amount of power. The more profit a company makes, the powerful it gets which allows it the leverage to monopolise the markets it operates in. This is where corporate laws act as a safeguard in preventing any corporation or a company to use its dominant market position to the disadvantage of the public. Corporate laws operate in order to ensure a fair playing ground for all the companies operating within the market and to prevent them from exploiting the consumers.
Advantages of Corporate Laws
- Corporate laws assign a distinct legal personality to the corporation thus allowing them the capability to amass resources in its own name.
- Limited liability within a corporation setup means when a company is being sued for some reason and damages are needed to be paid, it is only the assets that the company owns in its own name that are at the risk of being dissolved to pay back the creditors. The limited liability for the owners of a corporation allows them to innovate and gives them the leverage to take risks and reap huge rewards off the same.
- Ownership is easily transferable. Since corporate ownership is divided into smaller shares that cumulatively make up the entirety of the business ownership rights. The owners of the shares are at their free will to shed the shares as and when they please without any encumbrances. Ownership transfer though can be regulated but it is not restricted, thus allowing greater flexibility.
- Corporate law ensures that accountability is retained. Even though a corporation may be a distinct legal personality, the same cannot be used by the owners to conduct the business however they like and stay away from liability and accountability. Corporate laws ensure that the owners remain liable in the event of misconduct.