Corporate Law: An Interesting Area of Study for Business Law Scholars
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The corporation at present has become the dominant form of business organization. But with the recent spate of corporate scandals, interest has been kindled in how these organizations are regulated under the law. Corporate law is an area of business law that looks at how stakeholders in the corporation, from its officers and staff, to shareholders and even consumers of its products, interact under the company’s internal regulations.
Interestingly enough, under the law, corporations have a separate legal identity, which effectively turns them into artificial persons. This means that they can sue and be sued under their own names. But many corporations have also used this legal definition to claim certain rights such as the right to political free speech. At the same time, those who hold shares in the company have limited liability, meaning that if the company fails, they are not liable for its debts. The study of corporate law is divided into two major areas: corporate governance and corporate finance.
Corporate governance is the set of policies and laws that determine the way a corporation is controlled. This is a subject that has acquired urgency in recent years due to the high-profile collapse of several big US corporations. Corporate governance also seeks to develop mechanisms in order to ensure accountability among corporate officers and employees for any problems that may arise in the running of a corporation.
Key elements of corporate governance include ethical behavior, which requires the development of a code of ethics to regulate the behavior of a corporation’s officers and board of directors; transparency, which obliges a corporation to implement procedures to ensure the integrity of its financial reporting, as well as clarifying the roles of the board and officers to provide shareholders with a way to demand accountability; and recognizing the interests of other stakeholders, which includes consumers and communities in which the corporation operates.
Corporate finance, on the other hand, concerns the financial decisions corporations make and the methods by which they make these decisions. Such decisions can be divided into long-term capital investment decisions and short-term working capital management. Capital investment concerns decisions regarding in which areas a corporation should invest, how to finance these investments and whether the company should declare dividends to stockholders. Working capital management concerns itself with the management of its capital and liabilities in the short-term.
Thus, there is a tension in the corporation between the need to generate increased profits and the desire to behave ethically. This often results in corporations engaging in questionable practices under the theory that profitability of the company is a responsibility the officers and board owe to shareholders. Concrete examples of these practices include outsourcing their production to sweatshops overseas that exploit their workers and illegal dumping toxic waste into rivers and streams which are used as water sources by local communities.
Thus, there is a legal debate ongoing as to whether erring corporations should be held liable under civil or criminal law. If corporations are held liable under criminal law then the penalties are higher and there can be a deterrent effect as a trial would open a corporation to public condemnation. But the burden of proof is higher, which makes convictions more difficult to achieve. Under civil law, liability is easier to prove as the burden of proof is lighter, and the penalties levied can be preventive as well as punitive (monetary). With the many interesting areas to be explored in corporate law, it is a promising specialization for practitioners of business law.