Importance of Corporate Law: Everything You Need To Know

The importance of corporate law is the establishment of laws that govern how corporations are formed and operated. This area is closely related to the practice areas of contract and commercial law.

Characteristics of a Corporation

State laws are responsible for governing corporations, as they are legal business entities created at the state level. Laws about corporate creation, management, and dissolution vary by state. However, all states recognize a corporation as a separate legal entity from its owners. As such, it can sue others, be sued by others, enter contracts, open bank accounts, apply for loans, and independently conduct other business functions.

Corporations provide limited personal liability for debts and obligations of the business, which provides protection for shareholder assets. Exceptions include cases of fraud and unpaid business taxes. Corporations also have the advantage of a lower tax rate than the individual tax rate.

A corporation continues to exist until it is formally dissolved under the procedures established by the state of formation. This is even true if owners and officials die and/or leave the business.

If your corporation wants to do business in another state, you are usually required to incorporate as a foreign entity in that state.

Federal Corporate Law

Certain industries, including but not limited to public transportation and telecommunications, are subject to federal laws, licensing, and regulations. For example, your corporation must adhere to the federal Securities Act of 1933, which governs the issue and sale of bonds, stocks, and other corporate securities.

Changing federal laws can make it challenging for corporate directors to keep up with these regulations. You must strive for awareness of new proposed laws and existing laws that affect your business to ensure that you remain in legal and commercial compliance. Steps to take include:

  • Creating articles of association for your corporation that reflect company needs and industry best practices while adhering to federal guidelines.
  • Seeking technical and legal assistance with mergers, acquisitions, buyouts, and reorganizations.
  • Appointing a company secretary who is responsible for ensuring corporate law compliance and advising the board of directors on recommended changes.
  • Establishing procedures through which mandatory filings are made as required by the secretary and that due diligence is completed.

Reasons To Hire a Corporate Lawyer

An experienced, trustworthy corporate lawyer can help protect your business from serious legal consequences and advocate for your interests if disputes and litigation arise. Some of the areas in which he or she can offer expertise include:

  • Choosing the right entity type for your company.
  • Negotiating and signing leases, contracts, and other agreements.
  • Receiving investor financing.
  • Administering a merger and/or acquisition.
  • Establishing a fair hiring system that complies with legal regulations.
  • Protecting intellectual property (IP).

Keep in mind that hundreds of county, city, state, and federal laws will apply to your business. These vary by industry and may even contradict each other. They are also in a state of constant evolution, which makes it nearly impossible for a small business owner to remain in compliance without legal assistance.

Categories of Corporate Law

Common areas within corporate law include:

  • Business formation laws, which establish the steps to form a corporation, partnership, or LLC.
  • Consumer protection laws that prevent fraud and the sale of misleading or faulty products or services.
  • Contract laws that govern legal agreements with other businesses, suppliers, and your clients.
  • Employment and hiring laws that protect current and potential employees, make it illegal to discriminate based on sex, religion, and race, and regulate employee safety and health.
  • Environmental laws.
  • IP laws that protect the original creative works and inventions of your business.
  • Laws governing licenses and permits.
  • Zoning laws that govern the use of business property.

Corporate Governance

Corporate governance describes the operational policies and procedures established by a business. This area is separate from corporate law although it must work in conjunction with legal regulations to keep your business in compliance.

Some examples of issues covered by good corporate governance include regular board of director meetings, strong control of business direction, existing risk management system, and a clear division of labor. The company secretary is responsible for making sure these guidelines are followed.

If you need help with the importance of corporate law, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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