CORPORATE

WHAT IS CORPORATE LAW?

Corporate law is a body of laws that govern how corporations are formed and maintained. It also covers how they interact with society, the government, and other legal entities, such as individuals and other businesses. These laws affect a range of topics, from how a company should be structured to how contracts should be written and what forms of business activity are legal.

A corporation is a separate legal entity from its owners and shareholders. This means a corporation can own property, enter into contracts, and be sued as a separate legal entity. The advantages of incorporating include limited personal liability for company owners and shareholders, and the ability to have the company outlive its founders.

Some of the most common types of corporations include:

C Corporations: These are the most common type of corporation. They are separate tax entities from their owners, meaning they pay taxes on their profits.
S Corporations: These corporations pass their profits, losses, deductions, and credits to their shareholders.
Professional Corporations (PC): These are corporations formed by licensed professionals, such as doctors, lawyers, and architects.
Non-Profit: These corporations are exempt from paying taxes because the corporation is organized for charitable, educational, scientific, or religious purposes.
Foreign Corporations: These are corporations that are incorporated in another state or country, but conduct business in the state.

Some of the characteristics that define a modern corporate entity include:

Decreased liability for those who invest in corporations;
A separate legal personality that allows the corporation to be treated as its own entity;
Different rules about stock and shares of the corporation; and
Increased rights of directors to make business decisions.

HOW ARE CORPORATIONS FORMED?

The formation of a corporation is the process of creating a new corporation. To form a corporation, a business must file articles of incorporation with the Secretary of State in the state where the business is located. The articles of incorporation will include the following information:

The name of the corporation;
The total number of shares the corporation is authorized to issue;
The names and addresses of the owners of the corporation;
The contributions made by each owner;
The type of business the corporation will be engaged in; and
The management structure of the corporation.

Once the articles of incorporation are approved by the state, the corporation is formed. The owners will then need to create corporate bylaws, which are the rules that govern the internal management of the corporation.

Most states have adopted the Revised Model Business Corporation Act (RMBCA) as a model for their corporation laws. The RMBCA provides a uniform set of rules for the formation and operation of corporations.

WHAT ARE SOME OF THE MOST COMMON LEGAL ISSUES ADDRESSED BY CORPORATE LAW?

There are many different legal issues that may be addressed under the scope of corporate law. Some of the most common examples of legal issues covered by corporate law include:

Incorporation, such as forming the company, the type of business entity to form, and the rights and responsibilities of the company's founders;
Securities, which involves the issuing and selling of stocks and shares in a company;
Member liability, which considers the extent to which individual board members may be held liable for the company's actions;
The rights and responsibilities of board members;
Business disputes between multiple companies;
Mergers and acquisitions; and
Company dissolution.

THE FIVE PILLARS OF CORPORATE LAW

There are generally five core characteristics of corporate law that define how a corporation functions:

Legal Personality: A corporation is a separate legal entity from its owners and shareholders, meaning it can own property, enter into contracts, and be sued as its own entity.
Limited Liability: Shareholders are not personally liable for the debts and obligations of the corporation. Their personal assets are protected.
Transferable Shares: Ownership of a corporation can be easily transferred through the buying and selling of shares.
Delegated Management: Corporations are managed by a board of directors who are elected by the shareholders.
Investor Ownership: Shareholders own the corporation and have the right to elect the board of directors and vote on major corporate decisions.

HOW ARE CORPORATE LAW DISPUTES RESOLVED?

Corporate law disputes can be resolved in a variety of ways, such as through damages awards, breach of contract remedies, court orders, and leadership changes. In serious cases, corporate executives may even face criminal penalties.

Most corporate law disputes are handled in civil court. In these cases, companies can be ordered to pay damages to the aggrieved party. However, if a corporate entity or its officers committed serious crimes, such as securities violations, there can also be criminal consequences, including jail time for the individuals involved.

WHAT ARE CORPORATE BYLAWS?

Corporate bylaws are a set of rules, established by a corporation's founders, that govern the operations of the corporation. These rules are legally enforceable as a contract between the corporation and its shareholders, officers, and directors. Corporate bylaws are typically adopted at the time a corporation is formed, but can be amended or repealed as circumstances change.

Corporate bylaws set forth the rules for how the corporation will be governed. They are the foundation of a corporation's internal management structure. Corporate bylaws are generally more detailed than the articles of incorporation.

WHO CAN DRAFT CORPORATE BYLAWS?

The founders or owners of the business are typically responsible for drafting the corporate bylaws at the time the business is formed. It is highly advisable to work with a business attorney during this process. The bylaws must be adopted by a majority vote of the board of directors before they can take effect.

WHAT SHOULD BE CONTAINED IN THE CORPORATE BYLAWS?

The provisions of corporate bylaws will vary depending on the needs of the company. However, most corporate bylaws should include the following:

The corporate officers and their responsibilities;
The structure and composition of the board of directors;
The extent of the authority of each corporate officer;
Identifying information about the corporation;
Rules regarding stock and shares;
The rights and responsibilities of shareholders;
Rules for annual shareholder meetings;
The circumstances under which special meetings may be called; and
The formation and duties of committees.

WHAT HAPPENS WHEN CORPORATE BYLAWS ARE VIOLATED?

Violating corporate bylaws can have serious consequences, including:

Removal from office: A corporate officer or director who violates the bylaws may be removed from their position;
Internal liability: The violating party may be held internally liable for any damages caused by the violation;
External liability: In some cases, the corporation itself may be held liable for damages caused by the violation;
Dissolution: In serious cases, the corporation may be dissolved; and
Criminal liability: In some cases, violations of corporate bylaws can result in criminal charges.

WHAT IS CORPORATE CRIMINAL LIABILITY?

Corporate criminal liability is the liability that a corporation may face for criminal acts committed by its employees. A corporation can be vicariously liable for criminal acts of its employees when those acts are committed within the scope of employment and benefit the corporation.

Corporate criminal liability is a relatively new concept. In the past, courts were reluctant to hold corporations criminally liable because corporations are not people and cannot be sent to jail. However, courts have developed a number of ways to hold corporations accountable for the criminal acts of their employees, such as through the use of heavy fines, loss of business licenses, and regulation by government agencies.

HOW CAN A CORPORATION BE LIABLE FOR CRIMINAL ACTS?

In order for a corporation to be held criminally liable for the acts of its employees, two conditions must typically be met:

The criminal act must have been committed within the scope of the employee's employment; and
The criminal act must have benefited the corporation.

When a corporation is found criminally liable, it can face significant penalties, including heavy fines, the loss of business licenses, and increased regulation by government agencies.

WHEN DOES AN EMPLOYEE ACT WITHIN THE SCOPE OF EMPLOYMENT?

For a criminal act to be within the scope of employment, the employee must have had permission or actual authority to act on behalf of the corporation. There must also be a rational relationship between the criminal act and the employee's corporate duties.

IF A CORPORATION IS CRIMINALLY LIABLE, ARE INDIVIDUALS PUNISHED?

Yes. When a corporation is found criminally liable, the individuals involved in the criminal activity can also be held personally liable. This typically includes board of directors members, corporate officers, and other high-ranking officials. In many cases, these individuals can be found guilty using an accomplice liability theory.

WHAT ARE THE PENALTIES FOR A CORPORATION?

When a corporation is found criminally liable, the penalties can include:

Revocation of the corporate charter;
Civil penalties;
Loss of government contracts;
Shareholder suits; and
Loss of deposit insurance for banks and savings institutions.

REASONS FOR AN ANNUAL REVIEW

There are many good reasons to have your corporate documents reviewed annually, including:

Reflecting any changes in leadership or ownership;
Ensuring compliance with New York and Florida state requirements; and
Preparing the corporation for potential investment or acquisition.

CAN AN ATTORNEY ASSIST ME WITH CORPORATE LAW ISSUES?

Navigating corporate law can be a complex and challenging process. A corporate lawyer can help you understand your rights and obligations under corporate law. They can also help you avoid potential legal pitfalls.

Call our office today at (833) 388-7044 or complete the convenient online contact form to set up a consultation.