Unit ist

Basics of CORPORATE law

Corporate law refers to the laws, rules, and regulations that pertain to corporations. The laws
involved regulate the rights and obligations involved with the business activities of a
corporation, including formation, ownership, operation, and management.
Corporations are unique in that they’re seen as completely separate entities in the eyes of the
law. Although they can be made up of large groups of people (investors, owners, employees),
corporations are treated as a single entity, meaning the laws deal with the business directly
rather than the people within it. Essentially, the corporation is treated as a person.

What is a corporation?

To better understand the laws associated with corporations, let’s define the term.

A corporation is a company or group of people that act as a separate legal entity to conduct
business. When someone owns shares of a corporation, they have limited liability. This means
they are only responsible for the money they put into the business. If the business fails, they
only lose the amount they invested and are not personally liable for the company’s debts.

This separation of a company from its members has helped separate the liabilities of a
company from that of its members. Similarly, the assets and capitals of a company are
known as its own assets and capitals and not that of its members.

In the case of New Horizons Ltd v. Union of Delhi[1], Justice Wadhwa of the Delhi High
Court cited the following passage from Palmer’s Company Law –

“The principle that, apart from exceptional cases, the company is a body corporate, distinct
from its members, lies at the root of many of the most perplexing questions, a distinction
which must be firmly grasped.

The principle is thrown into clear relief by contrasting an incorporated company with a
partnership, for under English law (though not under Scottish law or that of most
Continental systems) a firm or partnership is not a separate entity from its members.”

A Corporate is Distinct from its Members

As soon as a corporate is born, it becomes distinct from its members. Its rights, liabilities as
well as assets are its own and not that of its members.

In fact, the case of Salomon v. Salomon & Co. Ltd[2] is a leading case on this topic.

In this case, Salomon created a company under his own name Salomon & Co. Ltd by making
his wife, sons and daughters subscribe themselves to the memorandum of the company. He
then transferred his business to the company for 40000 euros of which he took 20,000
shares of one euro each and debentures worth 10,000 euros.

Features of a Body Corporate

A body corporate has certain features like no other business structure, which are as
follows-

1. Independent Corporate Existence – As we said before, this is the fact that a corporate
exists apart from its constituent members. Although the expression “body corporate” or
“corporation” is defined in Section 2(11) of the Companies Act, 2013, the case of Ashoka
Mktg Ltd.v. Punjab National Bank[4], the Supreme Court helped provide a more detailed
explanation of the term “body corporate”.

However it should be noted that the same act however pierces the independent
existence of the company in cases of certain offences and punishes directors as well
as key managerial personnel of the company for cases of wrong doing, such as
for corporate breach of environmental laws. The reason this is done is because a
company doesn’t act on its own. Its directors are basically its brain and therefore
they are provided with certain duties and responsibilities failing which they are
penalised.

However it has been held by the High Court of Bombay that directors can not be
representatives in a criminal trial.

2. Limited Liability – The members of a company usually frame the company with their
liability limited to unpaid amounts of shares held by them or by guarantee as may be
specified in the memorandum of a company, which is basically the constitution document of
a company.
3. Perpetual Succession – A company never dies. It may get wound up, but its span of living is
entirely independent of the life of its members. Its membership may change hands but it will
remain the same entity with the same priviledges, immunities and possessions.[5]
4. Separate Property and Transferability of Shares – A company being a separate legal person
is capable of holding and selling off property. However since ownership of a company is
denoted by shares, it is capable of changing hands and thus being transferred. Section 44 of
the Companies Act, 2013 provides that “The shares or debentures or other interest of any
member in a company shall be movable property transferable in the manner provided by
the articles of the company.”
5. Capacity to Sue and be sued by others – Again, as we stated before, just like a person can sue
and be sued, the same applies in case of companies. In the case of Union Bank of India v.
Khaders International Construction Ltd[6], it was held that managing director of a
company need not be a necessary party to corporate proceedings.

Kinds of Corporates
We have been talking about companies as a corporate all this while. However, it should be noted
that corporate is not a business structure. It is a form of legal entity. Even LLPs are given a
corporate legal entity.

However, in the main slay of things, when we say a corporate, we usually refer to a company.

Section 3 of the Companies Act, 2013 provides the different structures of companies that may be
formed.

These are primarily-

1. One Person Company- This is a form of company with only one member, as is defined in Section
2(62) of the Companies Act, 2013. An investment opportunity in this company is not possible as
shares can not be transferred unless the company is changed to that of a private company.
2. Private Company – These types of companies can be formed with two members. However,
membership is restricted to 200 members. A private company is defined under Section 3(1)(b) of
the Companies Act, 2013. A private company needs to have only two directors and has several
flexibilities in its operations as compared to OPCs or public companies. However it can not issue
a prospectus for asking for shares from the public.
3. Public Company – A public company has 3 or more members. It may ask for shares from the
public by issuing a prospectus. Although there are a lot of restrictions in its operations, large
businesses which require a lot of capital often use this business structure to conduct business. It
is defined in Section 2(71) of the Companies Act, 2013.

There are a lot of other forms of companies such as a small company as defined in Section 2(85),
foreign company, which for the purpose of Section 2(42) and 379 means a company though
incorporated outside India carries business and has a place of business in India.

A Government company, as defined in Section 2(45) is also a form of corporate.

Basics of corporate law

Corporate law is a legal framework that governs the formation, operation, and dissolution of
corporations and other business entities. It is essential for establishing and regulating the rights
and responsibilities of various stakeholders, including shareholders, directors, officers,
employees, and creditors. Here are some basic concepts of corporate law:
1. **Corporations and Business Entities**: A corporation is a legal entity that exists separately
from its owners (shareholders). It can sue or be sued, enter into contracts, and conduct business
in its own name. Other business entities, such as limited liability companies (LLCs) and
partnerships, also have their own distinct legal structures and liabilities.
2. **Incorporation**: The process of forming a corporation involves filing legal documents with
the appropriate government agency, usually the Secretary of State. This creates a separate legal
entity that enjoys limited liability for its shareholders, meaning that shareholders' personal
assets are generally protected from the company's debts and liabilities.
3. **Corporate Governance**: Corporate governance refers to the system of rules, practices,
and processes by which a corporation is directed and controlled. It involves the relationships
among a company's management, its board of directors, its shareholders, and other
stakeholders.
4. **Shareholders**: Shareholders are the owners of a corporation. They hold shares of stock
representing ownership interests in the company. Shareholders typically elect the board of
directors and may have certain voting rights and entitlement to dividends.

5. **Board of Directors**: The board of directors is a group of individuals elected by the

shareholders to oversee the management of the corporation. They have the fiduciary duty to
act in the best interest of the company and its shareholders.
6. **Officers and Management**: The officers of a corporation, such as the CEO, CFO, and COO,
are responsible for day-to-day operations and executing the decisions made by the board. They
are appointed by the board and often have broad decision-making authority.
7. **Fiduciary Duties**: Fiduciary duties are legal obligations that board members and officers
owe to the corporation and its shareholders. The main fiduciary duties are the duty of care
(exercising reasonable prudence) and the duty of loyalty (acting in the best interest of the
company).
8. **Corporate Transactions**: Corporate law governs various transactions, including mergers,
acquisitions, restructurings, and divestitures. These transactions may require shareholder
approval and must comply with relevant laws and regulations.

9. **Securities Regulation**: Corporate law includes securities regulations to protect investors

and ensure transparency in the trading of corporate securities, such as stocks and bonds.
10. **Corporate Compliance**: Corporations must comply with various laws and regulations,
including tax laws, environmental regulations, employment laws, and more. Compliance helps
prevent legal issues and potential liabilities.
Remember that corporate law can vary significantly depending on the jurisdiction, and it is
essential for businesses to seek legal counsel to ensure compliance with the specific laws and
regulations that apply to their operations.

What is Corporate Finance?

Corporate finance is a branch of finance that focuses on how corporations approach capital
structuring, funding sources, investments, and accounting decisions. 1 Its primary goal is to
maximize shareholder value while striking a balance between risk and profitability. It
entails long- and short-term financial planning and implementing various strategies, capital
investment, and tax considerations.
Corporate finance refers to the area of finance that deals with the financial
decisions and activities of corporations or businesses. It involves managing the
financial resources of a company to achieve its financial goals and optimize
shareholder wealth. Corporate finance encompasses a wide range of activities
related to funding, investment, and financial management within a business.
In a broader sense, corporate finance includ Corporate finance involves various financial
analyses, such as company valuation, financial statement analysis, and cost-benefit analysis of
investment decisions.es the planning, analysis, and management of financial
resources to achieve the following key objectives:
1. Investment Decisions

2. Financing Decisions
3. Working Capital Management
4. Dividend Decisions
5. Risk Managementi

6. Valuation and Financial Analysis

7. Capital Budgeting
8. Mergers and Acquisitions (M&A)
Corporate finance is essential for the strategic growth and success of a business. Financial
managers and analysts in this field use various financial tools and techniques to make informed
decisions that aim to maximize the company's value and achieve its financial objectives. They
also need to consider the company's risk tolerance, market conditions, regulatory environment,
and other external factors that can influence financial decisions.

The Importance of Corporate Finance

Corporate finance evaluates how companies obtain funding to support their
operations.2 It involves determining how to allocate the funds appropriately to
help a company achieve its goals. Corporate finance is a broad subject comprised
of many topics, including capital structure, capital financing, risk management,
capital budgeting, and the time value of money.
What is corporate finance? It’s a concept that plays an essential role in businesses
because it’s the metric upon which companies can decide how to use their
financial resources. For example, it’s the guiding factor when a company wants to
invest in new equipment or expand its operations.
Corporate finance is crucial because it enables corporations to manage their
financial risks—by, for example, hedging against stock market or interest rate
fluctuations. Enterprises can also control their exposure to currency risk. In the
long run, corporate finance provides the necessary tools to enable businesses to
make sound financial decisions for growth and success.

Corporate finance is an essential part of any organization's success. It is a

field of finance that deals with the financial decisions of businesses and
corporations. This includes analyzing financial data, creating financial plans,
and making financial decisions that will help the organization achieve its goals.
In this blog post, we will discuss the importance of corporate finance in detail.

1. Managing finances effectively

Corporate finance helps organizations manage their finances effectively.

Financial management is crucial for any business as it helps in keeping track of
the cash flow and making informed financial decisions. A good corporate
finance strategy involves budgeting, forecasting, and managing financial risks
to ensure the organization's long-term success.

2. Maximizing shareholder value

Corporate finance also helps in maximizing shareholder value. A company's

value is determined by its ability to generate profits and growth. Corporate
finance helps in identifying and analyzing investment opportunities that can
help increase the company's profitability and shareholder value. By making
sound financial decisions, organizations can attract more investors and
increase their overall value.

3. Improving business operations

Corporate finance also plays a crucial role in improving business operations.

Financial data analysis can help identify inefficiencies in business processes
and suggest areas where cost savings can be made. By optimizing operations,
organizations can increase profitability and reduce costs, resulting in better
financial performance.

4. Securing capital

Corporate finance is also responsible for securing capital for the organization.
This includes identifying and evaluating potential sources of financing, such as
debt financing or equity financing. A good corporate finance strategy can help
organizations obtain the necessary capital to expand their business
operations, invest in new products or services, or acquire other companies.

5. Mitigating financial risks

Finally, corporate finance helps in mitigating financial risks. Every business

faces financial risks, such as economic downturns or unexpected expenses. A
good corporate finance strategy involves identifying and assessing these risks
and creating contingency plans to mitigate them. By effectively managing
financial risks, organizations can safeguard their financial stability and protect
themselves against potential losses.

In conclusion, corporate finance is crucial for the success of any organization.

It helps in managing finances effectively, maximizing shareholder value,
improving business operations, securing capital, and mitigating financial risks.
By implementing a sound corporate finance strategy, organizations can ensure
long-term success and growth

Scope of corporate finance

Scope of corporate finance refers to the various business
responsibilities and objectives that are dealt with under the corporate financing ambit.
These objectives are related to maximising wealth creation and the scope for business
expansion through sustainable methods. Some of the objectives under corporate
financing include:
• Prepare a budget for the expenses and allocate the funds in different
projects and business areas tactfully to increase profit margins.
 • Analyse the market regularly to keep pace with the fast-evolving
business trends and implement new practices in the business.
• Making critical decisions about raising capital through reliable and
effective sources based on in-depth market research.
• Analyse different investment options by using the fundamentals of
corporate finance.
• Take timely and effective decisions to expand and diversify the company
as per the growth trajectory.

Prepared by Sanabel uzma