What is corporate law?

The days of a corporate lawyer are filled with transactions related to corporate law’s several major areas of practice: mergers and acquisitions, real estate, corporate finance, and insolvency and banking.  A typical day includes incorporating companies; acting on mergers and acquisitions; restructuring of corporate entities; drafting documents for shareholder agreements; conducting due diligence by researching past company filings and disclosure documents; and drafting documents, such as director’s resolutions, material change reports, articles of association, or securities memorandums.

A corporation is a legal entity that is separate and distinct from its owners. The technical definition of a corporation is "an artificial creation of the law existing as a voluntary chartered association of individuals that has most of the rights and duties of natural persons but with perpetual existence and limited liability." In other words, a corporation exists as a separate legal structure, almost as if it were a person under the law. Corporations enjoy most of the rights and responsibilities that individuals possess: they can enter contracts, loan and borrow money, sue and be sued, hire employees, own assets, and pay taxes

The benefits of incorporation are limited liability, separate legal entity, perpetual existence, and free transferability.

In the event a corporation becomes insolvent, the owner and shareholders are not liable for the debts or other obligations incurred by the corporation. Yes, the shareholders will lose their investment, but they will not be responsible for its debt.

Separate legal entity refers to a corporation’s operating as distinct from its shareholders, directors, and officers.  A corporation (like a person) can own property, enter into a contract, sue and be sued, and be convicted of a criminal offense (corporations pay fines in lieu of imprisonment.) A corporation exists as its own entity, regardless of what happens to the individuals involved in the business.

Perpetual existence refers to a corporation’s continued existence until it is liquidated, dissolved, or acquired by another entity. When a business is incorporated, the owners, officers, and shareholders (the organizers) can choose to give it an end date when the mission of the corporation has been fulfilled. More commonly, a corporation acts in perpetual existence; that is it will continue to exist, until the organizers decide to end it. Even if the executive team and employees were to quit, the business corporation as an entity would continue to exist, and new employees could take their place.

Free transferability refers to the shareholders’ ability to sell shares without the consent of the directors, officers, or other shareholders, unless otherwise restricted in the corporate constitution. That being said, shareholders of privately held corporations often will want to prevent unrestricted transfer of shares and thus may provide transfer restrictions in the articles of incorporation or enter into shareholders’ agreements, further limiting transferability. There are separate rules and restrictions governing the transfer of shares in a private versus a public corporation.