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Encyclopedia > Company (law)

The term company may refer to a separate legal entity, as in English law, or may simply refer to a business, as is the common use in the United States. A legal entity is a legal construct through which the law allows a group of natural persons to act as if it were a single composite individual for certain purposes. ...

Contents

Within the U.S.

In the United States, a company may or may not be a separate legal entity. Any business or for-profit economic activity may be referred to as a company; examples of this include "my company", "our company", "the company", and "their company". A corporation may accurately be called a company; however, a company should not necessarily be called a corporation, which has distinct characteristics. According to Black's Law Dictionary, in the U.S. a company means "a corporation - or, less commonly, an association, partnership or union - that carries on industrial enterprise."[1] Corporate redirects here. ... Blacks Law Dictionary, 7th edition Blacks Law Dictionary is the definitive law dictionary for the law of the United States. ...


Outside the U.S.

In law, a company refers to a legal entity formed which has a separate legal identity from its members, and is ordinarily incorporated to undertake commercial business. Although some jurisdictions refer to unincorporated entities as companies, in most jurisdictions the term refers only to incorporated entities. It has been judicially remarked that "the word company has no strictly legal meaning",[2] but is taken to mean a specific form of entity created under the laws of the relevant jurisdiction. Because of the limited liability of the members of the company for the company's debts and the separate personality and tax treatment of the company, it has become the most popular form of business vehicle in most countries in the world. A legal entity is a legal construct through which the law allows a group of natural persons to act as if it were a single composite individual for certain purposes. ... Wall Street, Manhattan is the location of the New York Stock Exchange and is often used as a symbol for the world of business. ... In United States law, a region of land is unincorporated if it is not a part of any municipality. ... Incorporation (abbreviated Inc. ... Limited liability (LL) is liability that is limited to a partner or investors investment. ... This article is the current Taxation Collaboration of the Month. ... Business organizations is an area of law that covers the broad array of rules governing the formation and operation of different kinds of entities by which individuals can organize to do business. ...


Lacking a concise definition of their own, companies are often defined by reference to what they are not. Companies are separate and distinct from:

Modern companies are generally formed for one of three purposes: A sole proprietorship, or simply proprietorship, is a type of business entity which legally has no separate existence from its owner. ... In the common law, a partnership is a type of business entity in which partners share with each other the profits or losses of the business undertaking in which they have all invested. ... ... A guild is an association of craftspeople in a particular trade. ... A voluntary association (also sometimes called an unincorporated association, or just an association) is a group of individuals who voluntarily enter into an agreement to form a body (or organization) to accomplish a purpose. ... A club is generally an association of people united by a common interest or goal, as opposed to any natural ties of kinship. ... Co-op redirects here. ... Collective can also refer to the collective pitch flight control in helicopters A collective is a group of people who share or are motivated by at least one common issue or interest, or work together on a specific project(s) to achieve a common objective. ...

  • "non-profit companies", formed for social, charitable or quasi-charitable purposes to provide the sponsors with the benefit of limited liability and to form an administratively convenient mechanisms for the administration of the organization.
  • small business companies, usually formed by either sole traders or partners to take advantage of limited liability and (sometimes) as a means of tax avoidance, whilst still retaining overall control in the hands of the founders.
  • public investment companies, formed to enable members of the public to invest in a business or enterprise without actually becoming involved in the running of it (which is left to the board of directors).

However, companies have a number of other uses. They are not normally subject to rules against mortmain or perpetuity, and may have perpetual existence. Companies are often used in tax structuring. Companies, being commercial entities, are often easier to utilise in financing arrangements than partnerships and individuals.[3] Companies have an inherent flexibility which can let them grow; there is no legal reason why a company initially formed by a sole proprietor cannot eventually grow to be a publicly listed company, but a partnership will generally always be limited as to the maximum number of partners.[4] This article contrasts tax evasion, tax avoidance and tax mitigation. ... The Statute of Mortmain were two enactments, in 1279 and 1290 by King Edward I of England aimed at preserving the kingdoms revenues by preventing land from passing into the possession of the Church. ... The rule against perpetuities is a rule in property law which prohibits a contingent grant or will from vesting outside a certain period of time. ...

Further information: Corporation

Corporate redirects here. ...

History

Although some forms of companies are thought to have existed during Ancient Rome and Ancient Greece, the closest recognizable ancestors of the modern company did not appear until the second millennium. The first recognizable commercial associations were medieval guilds, where guild members agreed to abide by guild rules, but did not participate in ventures for common profit. The earliest forms of joint commercial enterprise under the lex mercatoria were in fact partnerships. Area under Roman control  Roman Republic  Roman Empire  Western Empire  Eastern Empire Ancient Rome was a civilization that grew from a city-state founded on the Italian Peninsula circa the 9th century BC to a massive empire straddling the Mediterranean Sea. ... Ancient Greece is a period in Greek history that lasted for around one thousand years. ... The Law Merchant is a legal system used by merchants in 13th century England. ...


But with the expansion of international trade, Royal charters were increasingly granted in Europe (notably in England and Holland) to merchant adventurers. The Royal charters usually conferred special privileges on the trading company (including, usually, some form of monopoly). Originally, traders in these entities traded stock on their own account, but later the members came to operate on joint account and with joint stock, and the new Joint stock company was born.[5] A Royal Charter is a charter given by a monarch to legitimize an incorporated body, such as a city, company, university or such. ... Motto: (French for God and my right) Anthem: God Save the King/Queen Capital London (de facto) Largest city London Official language(s) English (de facto) Unification    - by Athelstan AD 927  Area    - Total 130,395 km² (1st in UK)   50,346 sq mi  Population    - 2006 est. ... Holland is a region in the central-western part of the Netherlands. ... In economics, a monopoly (from the Latin word monopolium - Greek language monos, one + polein, to sell) is defined as a persistent market situation where there is only one provider of a product or service. ... A joint stock company is a type of business partnership in which the capital is formed by the individual contributions of a group of shareholders. ...


Early companies were purely economic ventures; it was only belatedly realized that an incidental benefit of holding joint stock was that the company's stock could not be seized for the debts of any individual member.[6]


The development of company law in Europe was hampered by two notorious "bubbles" (the South Sea Bubble in England and the Tulip Bulb Bubble in Holland) in the 17th century, which set the development of companies in the two leading jurisdictions back by over a century in popular estimation. Hogarthian image of the South Sea Bubble by Edward Matthew Ward, Tate Gallery More well known than The South Sea Company is perhaps the South Sea Bubble (1711 - September 1720) which is the name given to the economic bubble that occurred through overheated speculation in the company shares during 1720. ... // Pamphlet from the Dutch tulipomania, printed in 1637 The term tulip mania (alternatively tulipomania) is used metaphorically to refer to any large economic bubble. ...


But companies, almost inevitably, returned to the forefront of commerce, although in England to circumvent the Bubble Act 1720 investors had reverted to trading the stock of unincorporated associations, until it was repealed in 1825. However, the cumbersome process of obtaining Royal charters was simply insufficient to keep up with demand. In England there was a lively trade in the charters of defunct companies. However, prevarication amongst the legislation meant that in England it was not until the Joint Stock Companies Act 1844 that the first equivalent of modern companies, formed by registration, appeared. That legislation shortly preceded the railway boom, and from there the numbers of companies formed soared. The Bubble Act of 1720 was an English act that forbade all joint-stock companies not authorised by royal charter. ... The Joint Stock Companies Act 1844 (7 & 8 Vict. ...


The last significant development in the history of companies was the decision of the House of Lords in Salomon v. Salomon & Co. where the House of Lords confirmed the separate legal personality of the company, and that the liabilities of the company were separate and distinct from those of its owners. Solomon v. ...


In a December 2006 article, The Economist identified the development of the joint stock company as one of the key reasons why Western commerce moved ahead of its rivals in the Middle East in post-renaissance era.[7] The Economist is a weekly news and international affairs publication owned by The Economist Newspaper Ltd and edited in London, UK. It has been in continuous publication since September 1843. ... Raphael was famous for depicting illustrious figures of the Classical past with the features of his Renaissance contemporaries. ...

Further information: Corporation: Origins

Corporate redirects here. ...

Types

There are various types of company that can be formed in different jurisdictions, but the most common forms of company are:

  • a company limited by shares. The most common form of company used for business ventures.
  • a company limited by guarantee. Commonly used where companies are formed for non-commercial purposes, such as clubs or charities. The members guarantee the payment of certain (usually nominal) amounts if the company goes into insolvent liquidation, but otherwise they have no economic rights in relation to the company .
  • a company limited by guarantee with a share capital. A hybrid entity, usually used where the company is formed for non-commercial purposes, but the activities of the company are partly funded by investors who expect a return.
  • an unlimited liability company. A company where the liability of members for the debts of the company are unlimited. Today these are only seen in rare and unusual circumstances.

The foregoing types of company are generally formed by registration under applicable companies legislation. Less commonly seen types of companies are: A limited company by shares (limited or Ltd. ... In British or Irish company law, a Limited Company is a person on its own right. ... Liquidation, or winding up, refers to a business whose assets are converted to money in order to pay off debt. ... In the United Kingdom, an unlimited company is a company formed by registration under the Companies Act 1985 where the liability of the members is unlimited - that is, they are liable to contribute whatever sums are required to pay the debts of the company should it go into bankruptcy. ...

  • charter corporations. Prior to the passing of modern companies legislation, these were the only types of companies. Now they are relatively rare, except for very old companies that still survive (of which there are still many, particularly many British banks), or modern societies that fulfil a quasi regulatory function (for example, the Bank of England is a corporation formed by a modern charter).
  • statutory companies. Relatively rare today, certain companies have been formed by a private statute passed in the relevant jurisdiction.
  • companies formed by letters patent. Most corporations by letters patent are corporations sole and not companies as the term is commonly understood today.

In legal parlance, the owners of a company are normally referred to as the "members". In a company limited by shares, this will be the shareholders. In a company limited by guarantee, this will be the guarantors. A Royal Charter is a charter given by a monarch to legitimize an incorporated body, such as a city, company, university or such. ... Headquarters London Governor Mervyn King Central Bank of United Kingdom Currency Pound Sterling ISO 4217 Code GBP Base borrowing rate 5. ... A corporation sole in English law is a legal entity consisting of a single person (sole). This allows the corporation to pass vertically from one holder of a position to the next, giving the position legal continuity. ...


Some offshore jurisdictions have created special forms of offshore company in a bid to attract business for their jurisdictions. Examples include "segregated portfolio companies" and restricted purpose companies. Whilst there is no precise definition of what amounts to an Offshore Financial Centre (or OFC), the term is usually meant to refer to low-tax, lightly regulated jurisdictions which specialise in providing the corporate and commercial infrastructure to facilitate the use of those jurisdictions for the formation of offshore... An offshore company is a company which does not conduct substantial business in its country of incorporation. ... A segregated portfolio company (or SPC), sometimes referred to as a protected cell company, is a company which segregates the assets and liabilities of different classes (or sometimes series) of shares from each other and from the general assets of the SPC. Segregated portfolio assets comprise assets representing share capital...


There are however, many, many sub-categories of types of company which can be formed in various jurisdictions in the world.


Companies are also sometimes distinguished for legal and regulatory purposes between public companies and private companies. Public companies are companies whose shares can be publicly traded, often (although not always) on a regulated stock exchange. Private companies do not have publicly traded shares, and often contain restrictions on transfers of shares. In some jurisdictions, private companies have maximum numbers of shareholders. The initials PLC after a UK or Irish company name indicate that it is a public limited company, a type of limited company whose shares may be offered for sale to the public. ... A private company is a company that is independently owned. ...

Further information: Types of companies

It has been suggested that this article or section be merged into Types of corporations. ...

Corporate constitution

In almost every jurisdiction in the world, a company must have a corporate constitution, which defines the existence of the company and regulates the structure and control of the company. In relation to artificial persons, the constitutional documents (sometimes referred to as the charter documents) of the entity are the documents which define the existence of the entity and regulate the structure and control of the entity and its members. ...


By convention, most common law jurisdictions divide the corporate constitution into two separate documents: This article concerns the common-law legal system, as contrasted with the civil law legal system; for other meanings of the term, within the field of law, see common law (disambiguation). ...

  • the Memorandum of Association (in some countries referred to as the Articles of Incorporation) is the primary document, and will generally regulate the company's activities with the outside world, such as the company's objects and powers and specify the authorised share capital of the company.
  • the Articles of Association (in some countries referred to as the by-laws) is the secondary document, and will generally regulate the company's internal affairs and management, such as procedures for board meetings, dividend entitlements etc.[8]

In many countries, only the primary document is filed, and the secondary document remains private. In other countries, both documents are filed. Some countries provide statutory forms of basic corporate constitution which a company may adopt (for example, Table A in the United Kingdom, or Replaceable Rules in Australia). A Memorandum of Association is one of the documents required in the United Kingdom to incorporate a company, also seen in many jurisdictions of the British Commonwealth. ... The Articles of Incorporation (sometimes also referred to as the Certificate of Incorporation or the Charter) are the primary rules governing the management of a corporation, and are filed with a state or other regulatory agency. ... Authorised share capital From Wikipedia, the free encyclopedia. ... Articles of Association are a requirement for the establishment of a company under United Kingdom and in most other countries company law. ... A bylaw (sometimes also seen as by-law or Byelaw) was originally the Viking town law in the Danelaw. ... In English company law, Table A refers to the default form of Memorandum of Association and Articles of Association for companies limited by shares incorporated in England and Wales where the incorporators do not choose to use modified forms. ...


In civil law jurisdictions, the company's constitution is normally consolidated into a single document, often called the charter. Civil law or continental law is the predominant system of law in the world, with its origins in Roman law, and sets out a comprehensive system of rules, usually codified, that are applied and interpreted by judges. ... It has been suggested that this article be split into multiple articles accessible from a disambiguation page. ...


It is quite common for members of a company to supplement the corporate constitution with additional arrangements, such as shareholders' agreements, whereby they agree to exercise their membership rights in a certain way. Conceptually a shareholders' agreement fulfills many of the same functions as the corporate constitution, but because it is a contract, it will not normally bind new members of the company unless they accede to it somehow.[9] One benefit of shareholders' agreement is that they will usually be confidential, as most jurisdictions do not require shareholders' agreements to be publicly filed. A shareholders agreement (sometimes referred to in the U.S.A. as a stockholders agreement) is an agreement between the shareholders of a company relating to the ownership and management of the company. ...


Another common method of supplementing the corporate constitution is by means of voting trusts, although these are relatively uncommon outside of the United States and certain offshore jurisdictions. A voting trust is a trust whereby the shares in a company of one or more shareholders and the voting rights attached thereto are legally transferred to a trustee, usually for a specified period of time (the trust period). In some voting trusts, the trustee may also be granted additional... Whilst there is no precise definition of what amounts to an Offshore Financial Centre (or OFC), the term is usually meant to refer to low-tax, lightly regulated jurisdictions which specialise in providing the corporate and commercial infrastructure to facilitate the use of those jurisdictions for the formation of offshore...


Some jurisdictions consider the company seal to be a party of the "constitution" (in the loose sense of the word) of the company, but the requirement for a seal has been abrogated by legislation in most countries. A company seal (sometimes referred to as the corporate seal or common seal) is an official seal used by a company. ...


Shares and share capital

Main article: Stock

Companies generally raise capital for their business ventures either by debt or equity. Capital raised by way of equity is usually raised by issued shares (sometimes called "stock" (not to be confused with stock-in-trade)) or warrants. It has been suggested that shareholder be merged into this article or section. ... In finance, a bond is a debt security, in which the issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed maturity. ... For other uses of the term Warrant, see Warrant (disambiguation) A warrant is a security that entitles the holder to buy or sell a certain additional quantity of an underlying security. ...


A share is an item of property, and can be sold or transferred. Holding a share makes the holder a member of the company, and entitles them to enforce the provisions of the company's constitution against the company and against other members. Shares also normally have a nominal or par value, which is the limit of the shareholder's liability to contribute to the debts of the company on an insolvent liquidation.


Shares usually confer a number of rights on the holder. These will normally include:

  • voting rights
  • rights to dividends declared by the company
  • rights to any return of capital either upon redemption of the share, or upon the liquidation of the company
  • in some countries, shareholders have preemption rights, whereby they have a preferential right to participate in future share issues by the company

Many companies have different classes of shares, offering different rights to the shareholders. For example, a company might issue both ordinary shares and preference shares, with the two types having different voting and/or economic rights. For example, a company might provide that preference shareholders shall each receive a cumulative preferred dividend of a certain amount per annum, but the ordinary shareholders shall receive everything else. // This article is about corporate dividends. ... Capital has a number of related meanings in economics, finance and accounting. ...


The total number of issued shares in a company is said to represent its capital. Many jurisdictions regulate the minimum amount of capital which a company may have, although some countries only prescribe minimum amounts of capital for companies engaging in certain types of business (e.g. banking, insurance etc.). For other uses, see Bank (disambiguation). ... Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. ...


Similarly, most jurisdictions regulate the maintenance of capital, and prevent companies returning funds to shareholders by way of distribution when this might leave the company financially exposed. In some jurisdictions this extends to prohibiting a company from providing financial assistance for the purchase of its own shares. In law, financial assistance refers to assistance given by a company for the purchase of its own shares. ...


Corporate personality

One of the key legal features of companies are their separate legal personality. However, the separate legal personality was not confirmed under English law until 1895 by the House of Lords in Salomon v. Salomon & Co. [1897] AC 22. However, it is now largely accepted throughout the world that companies are legally separate and distinct entities. The corporate law concept piercing (Lifting) the corporate veil describes a legal decision where an officer, director, or shareholder of a corporation is held liable for the debts of the corporation despite the general principle that those persons are immune from suits in contract or tort that otherwise would only... English law is a formal term of art that describes the law for the time being in force in England and Wales. ... 1895 (MDCCCXCV) was a common year starting on Tuesday (see link for calendar) of the Gregorian calendar (or a common year starting on Thursday of the 12-day-slower Julian calendar). ... The House of Lords, in addition to having a legislative function, has a judicial function as a court of last resort within the United Kingdom. ... Solomon v. ...


Separate legal personality often has unintended consequences, particularly in relation to smaller, family companies.

  • In B v B [1978] Fam 181 it was held that a discovery order obtained by a wife against her husband was not effective against the husband's company as it was not named in the order and was separate and distinct from him.[10]
  • In Macaura v Northern Assurance Co Ltd [1925] AC 619 a claim under an insurance policy failed where the insured had transferred timber from his name into the name of a company wholly owned by him, and it was subsequently destroyed in a fire; as the property now belonged to the company and not to him, he no longer had an "insurable interest" in it and his claim failed.

However, separate legal personality does allow corporate groups a great deal of flexibility in relation to tax planning, and also enables multinational companies to manage the liability of their overseas operations (see Adams v Cape Industries plc [1990] Ch 433). In law, discovery is the pre-trial phase in a lawsuit in which each party through the law of civil procedure can request documents and other evidence from other parties or can compel the production of evidence by using a subpoena or through other discovery devices, such as requests for... A multinational corporation (MNC) or multinational enterprise (MNE) or transnational corporation (TNC) or multinational organization (MNO) is a corporation or enterprise that manages production establishments or delivers services in at least two countries. ... Adams v Cape Industries plc [1990] Ch 433 resolved a number of important issues under English law. ...


There are certain specific situations where courts are generally prepared to "pierce the corporate veil": to look directly at, and impose liability directly on the individuals behind the company. The most commonly cited examples are: The corporate law concept piercing (Lifting) the corporate veil describes a legal decision where an officer, director, or shareholder of a corporation is held liable for the debts of the corporation despite the general principle that those persons are immune from suits in contract or tort that otherwise would only...

  • where the company is a mere fa├žade
  • where the company is effectively just the agent of its members or controllers
  • where a representative of the company has taken some personal responsibility for a statement or action[11]
  • where the company is engaged in fraud or other criminal wrongdoing
  • where the natural interpretation of a contract or statute is as a reference to the corporate group and not the individual company
  • where permitted by statute (for example, many jurisdictions provide for shareholder liability where a company breaches environmental protection laws)
  • in many jurisdictions, where a company continues to trade despite inevitable bankruptcy, the directors can be forced to account for trading losses personally

Environmental law is a body of law, which is a system of complex and interlocking statutes, common law, treaties, conventions, regulations and policies which seeks to protect the natural environment which may be affected, impacted or endangered by human activities. ... The examples and perspective in this article or section may not represent a worldwide view. ...

Capacity and powers

Historically, because companies are artificial persons created by operation of law, the law prescribed what the company could and could not do. Usually this was an expression of the commercial purpose which the company was formed for, and came to referred to as the company's objects, and the extent of the objects are referred to as the company's capacity. If an activity fell outside of the company's capacity it was said to be ultra vires and void. The capacity of both natural and artificial persons determines whether they may make binding amendments to their rights, duties and obligations, such as getting married or merging, entering into contracts, making gifts, or writing a valid will. ... Ultra vires is a Latin phrase that literally means beyond the power. ... In law, void means of no legal effect. ...


By way of distinction, the organs of the company were expressed to have various corporate powers. If the objects were the things that the company was able to do, then the powers were the means by which it could do them. Usually expressions of powers were limited to methods of raising capital, although from earlier times distinctions between objects and powers have caused lawyers difficulty.[12]


Most jurisdictions have now modified the position by statute, and companies generally have capacity to do all the things that a natural person could do, and power to do it in any way that a natural person could do it.


However, references to corporate capacity and powers have not quite been consigned to the dustbin of legal history. In many jurisdictions, directors can still be liable to their shareholders if they cause the company to engage in businesses outside of its objects, even if the transactions are still valid as between the company and the third party. And many jurisdictions also still permit transactions to be challenged for lack of "corporate benefit", where the relevant transaction has no prospect of being for the commercial benefit of the company or its shareholders. Corporate benefit (sometimes referred to as commercial benefit) is the requirement under some legal systems that the directors of a company must exercise the powers[1] of the company for the commercial benefit of the company and its members. ...

Further information: Corporate benefit

Corporate benefit (sometimes referred to as commercial benefit) is the requirement under some legal systems that the directors of a company must exercise the powers[1] of the company for the commercial benefit of the company and its members. ...

Officers and agents

As artificial persons, companies can only act through human agents. As was once memorably remarked, "It has no soul to damn and no body to kick."[13]


The main agent who deals with the company's management and business is the board of directors, but in many jurisdictions other officers can be appointed too. The board of directors is normally elected by the members, and the other officers are normally appointed by the board. These agents enter into contracts on behalf of the company with third parties. In relation to a company, a director is an officer of the company charged with the conduct and management of its affairs. ...


Although the company's agents owe duties to the company (and, indirectly, to the shareholders) to exercise those powers for a proper purpose, generally speaking third parties' rights are not impugned if it transpires that the officers were acting improperly. Third parties are entitled to rely on the ostensible authority of agents held out by the company to act on its behalf. A line of common law cases reaching back to Royal British Bank v Turquand established in common law that third parties were entitled to assume that the internal management of the company was being conducted properly, and the rule has now been codified into statute in most countries. In law, ostensible authority refers to the apparent authority of an agent (usually a company director) of a company as it appears to others,[1] and it can operate both to enlarge actual authority and to create authority where no actual authority exists. ... It has been suggested that Turquand Rule be merged into this article or section. ...


Accordingly, companies will normally be liable for all the act and omissions of their officers and agents. This will include almost all torts, but the law relating to crimes committed by companies is complex, and varies significantly between countries. In the common law, a tort is a civil wrong for which the law provides a remedy. ... Corporate manslaughter is a term in English law for an act of homicide committed by a company. ...

Further information: Vicarious liability of companies and Corporate liability

Vicarious liability is a form of strict, secondary liability that arises under the common law doctrine of agency – respondeat superior – the responsibility of the superior for the acts of their subordinate and can be distinguished from contributory liability, another form of secondary liability, which is rooted in the tort theory... In the criminal law, corporate liability determines the extent to which a corporation as a fictitious person can be liable for the acts and omissions of the natural persons it employs. ...

Members' rights and majority rule

Members of a company generally have rights against each other and against the company, as framed under the company's constitution. In relation to the exercise of their rights, minority shareholders usually have to accept that, because of the limits of their voting rights, they cannot direct the overall control of the company and must accept the will of the majority (often expressed as majority rule). However, majority rule can be iniquitous, particularly where there is one controlling shareholder.


Accordingly, a number of exceptions have developed in law in relation to the general principle of majority rule.

  • Where the majority shareholder(s) are exercising their votes to perpetrate a fraud on the minority, the courts may permit the minority to sue[14]
  • members always retain their personal right to sue if the company's affairs are not conducted in accordance with the company's constitution
  • in many jurisdictions it is possible for minority shareholders to take a representative or derivative action in the name of the company, where the company is controlled by the alleged wrongdoers
Further information: Shareholder and Derivative suit

A Shareholders derivative suit is an action brought by a shareholder not on its own behalf, but on behalf of the corporation, on grounds that the corporation is being cheated by corrupt actions from within. ... A shareholder or stockholder is an individual or company (including a corporation) that legally owns one or more shares of stock in a joint stock company. ... A Shareholders derivative suit is an action brought by a shareholder not on its own behalf, but on behalf of the corporation, on grounds that the corporation is being cheated by corrupt actions from within. ...

Director's duties

Main article: Board of directors

In most jurisdictions, directors owe strict duties of good faith, as well as duties of care and skill, to safeguard the interests of the company and the members. In relation to a company, a director is an officer of the company charged with the conduct and management of its affairs. ... The court of chancery, which governed fiduciary relations prior to the Judicature Acts The fiduciary duty is a legal relationship between two or more parties, most commonly a fiduciary or trustee and a principal or beneficiary, that in English common law is arguably the most important concept within the portion...


The standard of skill and care that a director owes is usually described as acquiring and maintaining sufficient knowledge and understanding of the company's business to enable him to properly discharge his duties.


Directors are also strictly charged to exercise their powers only for a proper purpose. For instance, were a director to issue a large number of new shares, not for the purposes of raising capital but in order to defeat a potential takeover bid, that would be an improper purpose.[15]


Directors also owe strict duties not to permit any conflict of interest or conflict with their duty to act in the best interests of the company. This rule is so strictly enforced that, even where the conflict of interest or conflict of duty is purely hypothetical, the directors can be forced to disgorge all personal gains arising from it. In Aberdeen Ry v Blaikie (1854) 1 Macq HL 461 Lord Cranworth stated in his judgment that: A conflict of interest is a situation in which someone in a position of trust, such as a lawyer, a politician, or an executive or director of a corporation, has competing professional or personal interests. ... Robert Monsey Rolfe, 1st Baron Cranworth (18 December 1790- 26 July 1868), Lord Chancellor of Great Britain, elder son of the Rev. ...

"A corporate body can only act by agents, and it is, of course, the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting. Such agents have duties to discharge of a fiduciary nature towards their principal. And it is a rule of universal application that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting or which possibly may conflict, with the interests of those whom he is bound to protect... So strictly is this principle adhered to that no question is allowed to be raised as to the fairness or unfairness of the contract entered into..." (emphasis added)

However, in many jurisdictions the members of the company are permitted to ratify transactions which would otherwise fall foul of this principle. It is also largely accepted in most jurisdictions that this principle should be capable of being abrogated in the company's constitution.

Further information: Corporate governance and Conflict of interest

Corporate governance is the set of processes, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled. ... A conflict of interest is a situation in which someone in a position of trust, such as a lawyer, a politician, or an executive or director of a corporation, has competing professional or personal interests. ...

Liquidations

Main article: Liquidation

Liquidation is the normal means by which a company's existence is brought to an end. It is also referred to (either alternatively or concurrently) in some jurisdictions as winding up and/or dissolution. Liquidation, or winding up, refers to a business whose assets are converted to money in order to pay off debt. ...


Liquidations generally come in two forms, either compulsory liquidations (sometimes called creditors' liquidations) and voluntary liquidations (sometimes called members' liquidations, although a voluntary liquidation where the company is insolvent will also be controlled by the creditors, and is properly referred to as a creditors' voluntary liquidation).


As its names imply, applications for compulsory liquidation are normally made by creditors of the company when the company is unable to pay its debts. However, in some jurisdictions, regulators have the power to apply for the liquidation of the company on the grounds of public good, i.e. where the company is believed to have engaged in unlawful conduct, or conduct which is otherwise harmful to the public at large. A creditor is a party (e. ...


Voluntary liquidations occur when the company's members decide voluntarily to wind up the affairs of the company. This may be because they believe that the company will soon become insolvent, or it may be on economic grounds if they believe that the purpose for which the company was formed is now at an end, or that the company is not providing an adequate return on assets and should be broken up and sold off. This article is in need of attention. ...


Some jurisdictions also permit companies to be wound up on "just and equitable" grounds.[16] Generally, applications for just and equitable winding-up are brought by a member of the company who alleges that the affairs of the company are being conducted in a prejudicial manner, and asking the court to bring an end to the company's existence. For obvious reasons, in most countries, the courts have been reluctant to wind up a company solely on the basis of the disappointment of one member, regardless of how well-founded that member's complaints are. Accordingly, most jurisdictions which permit just and equitable winding up also permit the court to impose other remedies, such as requiring the majority shareholder(s) to buy out the disappointed minority shareholder at a fair value.


Where a company goes into liquidation, normally a liquidator is appointed to gather in all the company's assets and settle all claims against the company. If there is any surplus after paying off all the creditors of the company, this surplus is then distributed to the members. In law, a liquidator is the officer appointed when a company goes into winding-up or liquidation who has responsibility for collecting in all of the assets of the company and settling all claims against the company before putting the company into dissolution. ...


Footnotes

  1. ^ 8th edition (2004), ISBN 0 314 15199 0
  2. ^ Re Stanley [1906] 1 Ch 131 at 134
  3. ^ In England, companies can grant a "floating charge" over all their assets, a popular form of security with banks, but individuals and partnerships cannot because of the prohibition against "general assignments" in bankruptcy law
  4. ^ Although some exceptions exist for large law firms and accountancy firms
  5. ^ In England the first joint stock company was the East India Company, which received its charter in 1600. The Dutch East India Company received its charter in 1602, but is generally recognized as the first company in the world to issue joint stock. Not coincidentally, the two companies were competitors.
  6. ^ In England, see Edmunds v Brown Tillard (1668) 1 Lev 237 and Salmon v The Hamborough Co (1671) 1 Ch Cas 204
  7. ^ "Long ago, the region's failure to develop joint-stock companies was one reason why it fell behind the West."[1] Of course one should not underestimate the effects of early industrialisation either.
  8. ^ In the event of any inconsistency, the Memorandum usually prevails, see Ashbury v Watson (1885) 30 Ch D 376
  9. ^ Shalfoon v Cheddar Valley [1924] NZLR 561
  10. ^ Although it did attach to documents within the husband's custody or control.
  11. ^ Williams v Natural Life [1998] 1 WLR 830
  12. ^ See the frustration expressed by the House of Lords in Cotman v Brougham [1918] AC 514
  13. ^ Attributed to Lord Thurlow LC, although it does not appear in any of his reported decisions. It has been suggested that he actually said "Corporations have neither bodies to be punished, nor souls to be condemned, they therefore do as they like."[2]
  14. ^ Foss v Harbottle (1843) 2 Hare 461
  15. ^ Harlowe's Nominees Pty v Woodside (1968) 121 CLR 483 (Aust HC)
  16. ^ In England, see Ebrahimi v Westbourne Galleries [1973] AC 360

A floating charge is a form of security (i. ... A general assignment is a concept in bankruptcy law that has different meanings in different jurisdictions. ... The British East India Company, sometimes referred to as John Company, was one of the first joint-stock company (preceded only by the Dutch East India Company) which was granted an English Royal Charter by Elizabeth I on December 31, 1600, with the intention of favouring trade privileges in India. ... Dutch colonial possessions, with the Dutch East India Company possessions marked in a paler green, surrounding the Indian Ocean plus Saint Helena in the mid-Atlantic. ... A factory in Ilmenau (Germany) around 1860 Industrialization or an Industrial Revolution is a process of social and economic change whereby a human society is transformed from a pre-industrial (an economy where the amount of capital accumulated per capita is low) to an industrial state (see Pre-industrial society). ... Edward Thurlow, 1st Baron Thurlow (9 December 1731–12 September 1806), Lord Chancellor of Great Britain, was born at Bracon Ash, in the county of Norfolk. ... Foss v Harbottle (1843) 2 Hare 461, 67 ER 189 is a famous decision English decision on corporate law. ...

See also


  Results from FactBites:
 
Company (law) - Wikipedia, the free encyclopedia (357 words)
A company is not necessarily a corporation, and thus may not have a separate existence from its members.
For example, in the law of the United Kingdom, a company is a legal person with a separate identity from its members, and thus would be a form of corporation.
The most important legislation governing company law is found in the Companies Act 1985 and to a lesser extent the Companies Act 1989.
  More results at FactBites »

 
 

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