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Guide to Corporate Law

Corporate law is concerned with the life of the company or corporate entity, including:

  • its formation and set-up
  • effective management and conduct of its stakeholders
  • any restructures, reorganisations, mergers & acquisitions
  • its eventual dissolution and wind up

What is the difference between corporate and commercial law?

Corporate law is the same as Company or Companies Law, and these terms can be used interchangeably. Importantly (and rather confusingly), though, it is not the same as commercial law, which is a larger body of law dealing with all of the legal rules that regulate the conduct of individuals and companies involved in business, commerce and trade. Corporate law is a subset of commercial law and concerned with the corporate entity itself.

What does corporate law involve?

Firstly, corporate law is concerned with incorporation. It provides an important framework through which business owners can operate their business through a corporate entity.

Why do business owners want to do this? Carrying on a business through a corporate entity - rather than as a sole trader or through an unregistered entity - offers a number of important advantages and protections. These include:

  • Separate Corporate or Legal personality
  • Limited Liability
  • Delegated Management through Directors and a Board Structure
  • Shareholder Ownership

Secondly, corporate law is concerned with corporate governance, which, in simple terms, deals with the system of relationships between the companys different stakeholders – shareholders, directors, creditors, investors, employees, consumers and the communities with which it engages.

Third, corporate law is concerned with corporate finance, which is how the company is financed – whether through the issue of shares (equity finance) or the taking out of loans (debt finance).

What are the main sources of corporate law in the UK?

The Companies Act 2006 is the main source of UK corporate law, and it deals comprehensively with every aspect of the life cycle of a company incorporated in the UK.

A comprehensive piece of legislation stretching to 1300 sections, the Act came into force during a three-year period between November 2006 and October 2009. Prior to this, several disparate pieces of law applied to UK companies.

Important aims of the Act were to:

  • modernise and update corporate law in the UK
  • codify important duties of directors (which previously had been contained only in case law)
  • improve the rights of shareholders
  • simplify the administrative burden of incorporation.

Other important sources of corporate law include the Insolvency Act 1986 (relevant to Corporate Finance), the UK Corporate Governance Code and the Small Business Enterprise and Employment Act 2015. Case Law and various EU directives will also be important.

What does corporate personality mean?

Corporate or legal personality means that companies are recognised as individual persons under the law, can take legal action, can be sued, can own property and can enter into contracts. Business owners and their personal assets are shielded if the company gets into difficulty and cannot pay its debts or has to defend a legal action.

What does limited liability mean?

Arising from its separate legal personality, limited liability for the business owners means that their legal responsibility for the liabilities of the company extends only to the value of their shares in the company.

Who are directors?

In the UK, every limited company must have at least one company director (two is often recommended) that is responsible for ensuring that the company is legally compliant and that annual accounts and statements are promptly filed with Companies House. In larger companies, a Board of Directors (usually with an appointed chairperson) will meet regularly to manage the companys affairs. Directors have important general duties set out in Chapter 2 of the Companies Act 2006.

Who are shareholders?

Shareholders are the beneficial owners (i.e. those entitled to the benefits even if they are not the legal owners) of a limited company. They buy shares in the company in return for the right to vote on issues relating to the direction of the company and the right to receive a proportion of the companys profits. In smaller companies, the same person may be both the shareholder and the director. In larger companies, the stakeholder structure becomes larger and more complex.

What impact has Brexit had on corporate law in the UK?

UK companies that have a cross-border relationship with the EU, and EU companies that are operating in the UK, have been impacted by the UKs exit from the European Union. In brief, UK companies are now third country companies under EU corporate law, and EU companies are overseas companies under UK corporate law. This is a substantial topic in itself, with implications still unfolding.

The information on this website is intended as a guide and does not constitute legal advice. Vardags do not accept liability for any errors in the information on this website, nor any losses stemming from reliance upon the statements made herein. All articles and pages aim to reflect the legal position at time they were published, and may have been rendered obsolete by subsequent developments in the law. Should you require specialist advice, tailored to your situation, please see how Vardags can help you.

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