Company Law and the Rights of Businesses
Understanding Company Law and the Rights of Businesses
Meta Data: Understanding company law isn’t always easy. But it does mean a lot for when you’re trying to navigate the world of business, so here’s a guide that can help you.
What is Company Law, and How Does Corporate Law Affect You?
The world of company law is vast. It encompasses so many different elements. From the company formation to the director’s duties, everything can be contained within this law. Therefore, it’s so important for people to understand how it works and what you need to know to navigate the corporate world safely.
Because the world is so vast, it can be tricky to figure everything out. There’s so much you need to know, and to explain absolutely everything would be impossible. Instead, what we’re going to do is to make sure that we define the basics, and give you a good grounding in corporate law.
So, let’s begin with a definition of company law. Corporate law is an umbrella term for all the processes that make up running a business. So whether you’re an investor, stakeholder, customer or CEO, these rules apply to you. These rules govern how people interact with the world around them, from a business point of view.
What you’ll find is that the main points which make up corporate law are all taken from the common law in England. If you’re any of the following things, you’re going to find yourself dealing with company law:
- A corporation
- A limited company
- A partnership
- A not-for-profit organisation
- A limited partnership
- An unlimited company
- A sole proprietorship
- A company limited by guarantee
Company law affects all of these types of businesses because in essence, it governed what they can and can not do with their power. While this isn’t the case in modern business, for the longest time it meant that all business had to understand how the laws worked and what restrictions it put in place for them.
Why Do You Need to Understand Corporate Law?
So, there’s no doubt that company law can play a big part in how you own a business, but many people still don’t get why they need to understand corporate law and all its many mysteries. Well, you don’t want to wind up in prison, and you don’t want to find yourself accused of something you don’t understand. Things can go wrong in business, and you may come into the office one day to see that someone has taken you to court. As a situation, this can be deeply challenging, and so it’s crucial that you know to protect yourself from whatever problems you may face.
So How is Corporate Law Maintained?
When looking at company law, you have to make sure that you’re aware of one thing, and that’s the Companies Act 2006. This law is the most extended piece of legislation to ever come out of the UK, and it has several purposes. It serves as a way to simplify company law, codify the duties of directors, which recategorised them, makes sure that shareholders have individual rights, and also removes some of the administrative burdens that are faced by companies all across the UK.
The Act changed a lot, and we’re going to summarise the main points here to help you understand:
- The director of a company now has individual rights and obligations they must fulfil, including promotion of the company, being considerate of the environment and customers, and giving shareholders the benefits that they deserve.
- Many of the processes that are required from an admin perspective can now be done electronically to give businesses more time to focus on their projects.
- Indirect shareholders are entitled to more rights than before, including the right to sue a company if they are suspicious that fraud or negligence is going on.
- Companies can provide a service address for the sake of identifying themselves, meaning that their actual headquarters can remain off the public records.
- Shareholders in the company can now choose to have an electronic copy of news and information about the said organisation, and the business must honour this.
Company Rights and Workers
Company law exists to protect everyone and not just the major players in an organisation, which is why corporate law also makes provision for the rights of workers. Understanding what freedoms and benefits your employees are legally entitled to is crucial for avoiding internal conflicts.
A lot of these rights are what you might expect when it comes to giving workers a fair environment – the chance for a good wage, the right to have a pension, to be able to be free of discrimination and having breaks from their work – all pretty standard stuff. However, things like training contracts to advance their skillset and vacation schemes can also fall into this category. A lot of workers are supported by a workers union, which basically ensures that they are looked after, and these are corporations which you will want to keep on side. They won’t hesitate to try and bring you to justice for mistreatment of workers, and that’s damaging in many ways.
Duties of the Director
Directors, listen up because this is about you. When you’re a company which has all of these rights and regulations, company law also plays a big part in the director’s duties. Under UK law, you’re required to do certain things for the good of the company.
In the past, directors generally were the face of the company and left a lot of the internal affairs to their staff. However, the Companies Act 2006 meant that this was no longer the case. Typically, it is the case that a director must demonstrate sufficient understanding of the law and enough business sense to lead the corporation into its many endeavours. They are unbiased, and can not allow personal interest to dictate how the company is run. They aren’t allowed to make choices that might benefit them but instead must operate on the basis that is for the good of the company.
Company law also means that if a director has failed in their goal of providing proper leadership, and has instead steered the business into a noticeable loss, you will find that the actual company can personally hold the director accountable. It’s also the case that as a director, you can not use your power for anything other than a proper purpose. So for example, changing who owned shares in the company to stop a takeover bid would be seen as improper use of power, and thus banned.
Corporate Lawyers
Now that we’ve mentioned company law, we can begin to talk about corporate lawyers and the role that they play within an organisation and their aid when it comes to case law. They’re a vital part of company law because of no matter which side of a dispute you happen to find yourself on. They’re going to be there to make sure that you’ve got the support you need. They represent a small group of lawyers which are the elite – there’s nothing a corporate lawyer can get involved with at this level.
Knowing about the corporate lawyers is so important because they really can help you. Their training is the best it can be, and they represent clients with millions of pounds in the balance. You have to know a good one and make sure you’re aware of what they’re prepared to do for you.
Legalities
Hopefully, you’re on top of everything that we’ve mentioned here. There’s a lot to process, so we’re going to try and introduce just a few more basic principles here to try and help you understand company law even more.
What you might not fully appreciate about corporate law is that it divides the entire concept of owning a company into two distinct categories. The company is, in essence, an entirely different entity to the director and is legally treated as such. This means that the property of the company belongs to it, and the goods and assets do not belong to the director, founder or shareholders. Even people who own the entirety of a company can be tried for stealing from it. So many different people forget that when it comes to your company, you can’t just conduct shady business deals on the site, or try and deceive some extra money, because if you’re caught, you can be put on trial and lose everything.
Another key principle to understand is that as a company, the debts and liabilities that they have are entirely their problem. Shareholders, directors or any other third party are not legally required to pay a penny, and it’s all down to the company to make sure that all of their debts and bills are paid.
Limited Companies – What They Need to Know
Okay, so. There’s a bit about limited companies and how their finances work, and it’s important enough to go over. Limited corporations will often issue limited liability to their shareholders, as a form of protection.
What this means is that once a shareholder has paid in full for their shares, they have no liability to the company. So even if everything went wrong and the company is sued until it has no usable assets anymore, and there’s absolutely nothing a shareholder is accountable for. You can’t ever have someone hold you to ransom for the rest of the payment, so everything is protected. It’s something that both shareholders of limited companies and indeed the organisation themselves need to make sure that they’re aware of before anyone enters into an agreement concerning shares.
Company Law and Shareholders
The relationship between corporations and their shareholders is an important one, and so it is obviously something that falls within the umbrella term of company law. We’re going to be looking into their rights and regulations a little more, because it’s an important part of everything.
So, any company that issues shares to someone is automatically classed as a separate legal entity from the shareholder. Typically, as a shareholder, you’re only liable for the amount of money that you still owe on your shares, and nothing more. You’ll probably be required to sign a company constitution, which is basically a document that will outline your relationship with the company and what you have to do when things go wrong, or what you’re entitled to as part of your shareholder agreements.
The actual rights of shareholders will vary from one person to the next, and the amount they own. Different shareholders will have different powers, whether this means that they can influence the appointment of directors, have the prerogative to be notified if there’s a significant business decision being made, and a whole host of other options. However, regardless of what you’re going to do as a shareholder, remember that you can not be liable for anything more than the amount you’ve not yet paid.
Five Parts of Corporate Law
Now that we’ve looked at everything else, we can get into some of the good stuff. We’re going to be examining the five different parts of corporate law that are agreed on by most of the world. These tenets help to make up a lot of what you’ll be dealing with, so it’s so important to get to know them.
Legal personality is something that we’ve covered a bit in here already, but we’re going to talk about it correctly here. When you have a company, they are considered to be an entirely different entity than you. What happens to them doesn’t have to be something you’re accountable for – so if they don’t make a payment, you don’t have to step up and take the personal cost if you don’t want to.
Another vital part of corporate law is limited liability. This protects individuals who are connected to the company, for example, the director or a shareholder. It means that when the company is under threat of a fine, the money can only come from within the organisation, and not come from the people themselves.
The third corporate law is all about transferrable shares. This basically means that if the owner decides that they don’t want the company anymore, they can’t shut it down and walk away. Instead, the shares are given to someone else. What this tenet means is that the rights of the employees are protected, and the company is given a chance to grow under the ownership of another.
The fourth tenet talks about something known as delegated management. In essence, it refers to an agreed structure on how a company is built and maintained. This consistent structure means that no matter where you go, there’s the same strengths. The structure always makes sure that there’s a structure that distributes the various responsibilities, and makes sure that there’s more than one person or group making a choice to prevent any kind of vested interest. There’s usually a group of officers who run the company every day, and the board of directors would typically meet to discuss different problems.
Investor ownership is the fifth and final tenet, and it basically refers to the fact that as an owner of the company, you have a say in how the company is run and what happens, but you don’t have sole control. It protects the company from someone trying to steer the entire company to suit their own agenda.
Everything Else!
So, we’re nearly at the end of the guide here, and so we’re going to cover just a few odds and ends to make sure you’ve got a good understanding of company law.
If you live in the United Kingdom and run a business here, then obviously you’re going to be subject to all of the different legal restrictions and laws that we’ve outlined here because that’s how it is. However, it’s also important to know that there’s a lot of other processes and laws which vary from one country to another, so if you operate on an international basis, you do need to make sure you’re careful. As we previously mentioned, a lot of the laws apply across the world, whether it’s company formation, entering into the stock exchange, or anything else that pertains to a general corporation and it’s everyday running.
When looking into share capital, you should remember that company law means that shareholders are typically entitled to the return of their share capital following the sale of their stake in the company or the liquidation of the company.
It’s also imperative to take notice of your rights as a customer. When you click on the button that says ‘by using this site you agree…’, you’re entering into a contract of sorts with the organisation. They agree to follow all the laws and regulations when it comes to company law, and you, in turn, agree to follow any rules that are laid down by the corporation to ensure your safe use of the site.
Wrapping Up
So here we go, we’ve arrived at the end! As you can tell, there’s a lot to think about when it comes to corporate law, and it’s a pretty big area to get involved in. There’s a reason why corporate lawyers take years training to make sure that they can understand every facet. There’s so many different areas to familiarise yourself with, and it can make all the difference for people who are going to be looking into business and trying to ruin a company. When you own a corporation, you have to operate legally. It’s so critical to follow all the rules and know what you have to do for workers, shareholders, the environment and the community. If you were to disregard your responsibilities, then there would be a lot of corrupt companies.
As a director, there’s a considerable amount of responsibility on you to make the right choices, and in a lot of ways this can help you. It’s so easy to get caught up in all of the different responsibilities and choices that need to be made, so it’s actually quite a relief to have instructions on what to do and how to move forward. As the company is a legally separate entity, you can find yourself in hot water if you don’t look after it properly and safeguard its interests. The world of business can be challenging, and you have to make sure that you’re ready to deal with all of the different challenges and struggles you may face. Things can go wrong and you can make mistakes, and to avoid absolute catastrophe you have to make sure you’re doing the absolute best to learn company law and know how it works. It’ll help if you need to hire out a corporate lawyer, or you need to make decisions for the good of the company. We hope that this has helped you to gleam some understanding of company law, and how it affects a handful of different parts of a business.