Everything about Business Organization totally explained
Companies law is the field of
law concerning business and other organizations. This includes
corporations,
partnerships and other associations which usually carry on some form of economic or charitable activity. The most prominent kind of company, usually referred to as a "corporation", is a "
juristic person", for example it has separate legal personality, and those who
invest money into the business have
limited liability for any losses the company makes, governed by
corporate law. The largest companies are usually publicly listed on
stock exchanges around the world, while private companies choose who their shareholders are. The defining feature of the corporation is that
shareholders own the sole rights to vote under the company constitution and to appoint the directors who control the company. Companies known as
partnerships have a different system of voting, whereby the partners own and vote for who controls the company. Partners may or may not limit their liability for company losses, although this is increasingly popular. Even single individuals, also known as
sole traders may incorporate themselves and limit their liability in order to carry on a business. All different forms of companies depend on the particular law of the particular country in which they reside.
Business entities
The law of business organizations originally derived from the
common law of
England, but has evolved significantly in the
Twentieth Century. In common law countries today, the most commonly addressed forms are:
The
proprietary limited company is a statutory business form in several countries, including
Australia.
Many countries have forms of business entity unique to that country, although there are equivalents elsewhere. Examples are the
Limited-liability company (LLC) and the
limited liability limited partnership (LLLP) in the United States.
Other types of business organisations, such as
cooperatives,
credit unions and publicly owned enterprises, can be established with purposes that parallel, supersede, or even replace the
profit maximization mandate of business corporations.
Other business forms are available in
civil law countries, such as the
German Gesellschaft mit beschränkter Haftung (GmbH) and
Aktiengesellschaft (AG); and the
S.A., a form used in a number of countries which translates from various languages into the equivalent of
anonymous society or
anonymous company.
For a country-by-country listing of officially recognized forms of business organization, see
Types of business entity.
US companies law
In the
United States, corporations are generally
incorporated, or organized, under the laws of a particular
state. The corporate law of a corporation's state of incorporation generally governs that corporation's internal governance (even if the corporation's operations take place outside of that state). The corporate laws of the various states differ - in some cases significantly - from state to state, as a result of which corporate
lawyers are often consulted in an effort to determine the most appropriate or advantageous state in which to incorporate, and a majority of public companies in the U.S. are
Delaware corporations. The
federal laws of the United States and local law may also be applicable sources of corporate law.
Companies law theory
“A corporation is described to be a person in a political capacity created by the law, to endure in perpetual succession.” Americans in the 1790s knew of a variety of corporations established for various purposes, including those of commerce, education, and religion. As the law of corporations was articulated by the Supreme Court under Chief Justice Marshall, over the first several decades of the new American state, emphasis fell, in a way which seems natural to us today, upon commercial corporations. Nonetheless, Wilson believed that, in all cases, corporations “should be erected with caution, and inspected with care.” The actions of corporations were clearly circumscribed: “To every corporation a name must be assigned; and by that name alone it can perform legal acts.” For non-binding external actions or transactions, corporations enjoyed the same latitude as private individuals; but it was with an eye to internal affairs that many saw principal advantage in incorporation. The power of making by-laws was “tacitly annexed to corporations by the very act of their establishment.”
While they must not directly contradict the overarching laws of the land, the central or local government can't be expected to regulate toward the peculiar circumstances of a given body, and so “they are invested with authority to make regulations for the management of their own interests and affairs.”
The question then arises: if corporations are to be inspected with care, what - if not the commercial or social conduct, or the by-laws - is to be inspected – and by whom? Do corporations have duties? Yes: “The general duties of every corporation may be collected from the nature and design of its institution: it should act agreeably to its nature, and fulfill the purposes for which it was formed.”
Who sees that corporations are living up to those duties? “The law has provided proper persons with proper powers to visit those institutions, and to correct every irregularity, which may arise within them.”
The Common Law provided for inspection by the court of king’s bench. In 1790, at least, “the powers of the court of king's bench [were] vested in the supreme court of Pennsylvania.”
As for the dissolution of corporations, there seems not to have been much question that a corporation might “surrender its legal existence into the hands of that power, from which it was received. From such a surrender, the dissolution of the body corporate ensues.”
Nor does there seem to have been much question that by “a judgment of forfeiture against a corporation itself, it may be dissolved.”
However, Supreme Court Justice Wilson, lecturing in his unofficial capacity, at least, suggests his displeasure with the doctrine that corporate dissolution can't be predicated “by a judgment of ouster against individuals. God forbid ― such is the sentiment of Mr. Justice Wilmot ― that the rights of the body should be lost or destroyed by the offences of the members.”
As theorists such as
Ronald Coase have pointed out, all business organizations represent an attempt to avoid certain costs associated with doing business. Each is meant to facilitate the contribution of specific resources - investment capital, knowledge, relationships, and so forth - towards a venture which will prove profitable to all contributors. Except for the partnership, all business forms are designed to provide
limited liability to both members of the organization and external investors. Business organizations originated with
agency law, which permits an agent to act on behalf of a principal, in exchange for the principal assuming equal liability for the wrongful acts committed by the agent. For this reason, all partners in a typical general partnership may be held liable for the wrongs committed by one partner. Those forms that provide limited liability are able to do so because the state provides a mechanism by which businesses that follow certain guidelines will be able to escape the full liability imposed under agency law. The state provides these forms because it has an interest in the strength of the companies that provide jobs and services therein, but also has an interest in monitoring and regulating their behaviour.
Companies law study
Law schools typically offer either a single upper level course on business organizations, or offer several courses covering different aspects of this area of law. The area of study examines issues such as how each major form of business entity may be formed, operated, and dissolved; the degree to which limited liability protects investors; the extent to which a business can be held liable for the acts of an
agent of the business; the relative advantages and disadvantages of different types of business organizations, and the structures established by governments to monitor the buying and selling of
ownership interests in large corporations.
The basic theory behind all business organizations is that, by combining certain functions within a single entity, a business (usually called a by economists) can operate more efficiently, and thereby realize a greater profit. Governments seek to facilitate investment in profitable operations by creating rules that protect investors in a business from being held personally liable for
debts incurred by that business, either through mismanagement, or because of wrongful acts.
Further Information
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