Courtesy : Bachelors in business administration

Company law theory

Ronald Coase has pointed out, all business organizations represent an attempt to avoid certain costs associated with doing business. Each is meant to facilitate the contribution of specific resources – investment capital, knowledge, relationships, and so forth – towards a venture which will prove profitable to all contributors. Except for the partnership, all business forms are designed to provide limited liability to both members of the organization and external investors. Business organizations originated with agency law, which permits an agent to act on behalf of a principal, in exchange for the principal assuming equal liability for the wrongful acts committed by the agent. For this reason, all partners in a typical general partnership may be held liable for the wrongs committed by one partner. Those forms that provide limited liability are able to do so because the state provides a mechanism by which businesses that follow certain guidelines will be able to escape the full liability imposed under agency law. The state provides these forms because it has an interest in the strength of the companies that provide jobs and services therein, but also has an interest in monitoring and regulating their behavior.# ISO certification in India

Litigation

 Derivative suit and Unfair prejudice

Members of a company generally have rights against each other and against the company, as framed under the company’s constitution. However, members cannot generally claim against third parties who cause damage to the company which results in a diminution in the value of their shares or others membership interests because this is treated as “reflective loss” and the law normally regards the company as the proper claimant in such cases.

In relation to the exercise of their rights, minority shareholders usually have to accept that, because of the limits of their voting rights, they cannot direct the overall control of the company and must accept the will of the majority (often expressed as majority rule). However, majority rule can be iniquitous, particularly where there is one controlling shareholder. Accordingly, a number of exceptions have developed in law in relation to the general principle of majority rule.# ISO certification in India

• Where the majority shareholder(s) are exercising their votes to perpetrate a fraud on the minority, the courts may permit the minority to sue
• members always retain the right to sue if the majority acts to invade their personal rights, e.g. where the company’s affairs are not conducted in accordance with the company’s constitution (this position has been debated because the extent of a personal right is not set in law). Macdougall v Gardiner and Pender v Lushington present irreconcilable differences in this area.
• in many jurisdictions it is possible for minority shareholders to take a representative or derivative action in the name of the company, where the company is controlled by the alleged wrongdoers

Corporate financ

 Corporate finance

 Financial law

Through the operational life of the corporation, perhaps the most crucial aspect of corporate law relates to raising capital for the business to operate. The law, as it relates to corporate finance, not only provides the framework for which a business raises funds – but also provides a forum for principles and policies which drive the fundraising, to be taken seriously. Two primary methods of financing exists with regard to corporate financing, these are:

• Equity financing; and
• Debt financing

Each has relative advantages and disadvantages, both at law and economically. Additional methods of raising capital necessary to finance its operations is that of retained profits Various combinations of financing structures have the capacity to produce fine-tuned transactions which, using the advantages of each form of financing, support the limitations of the corporate form, its industry, or economic sector.A mix of both debt and equity is crucial to the sustained health of the company, and its overall market value is independent of its capital structure. One notable difference is that interest payments to debt is tax deductible whilst payment of dividends are not, this will incentivise a company to issue debt financing rather than preferred stock in order to reduce their tax exposure.

Shares and share capital

 Stock

A company limited by shares, whether public or private, must have at least one issued share; however, depending on the corporate structure, the formatting may differ. If a company wishes to raise capital through equity, it will usually be done by issuing shares (sometimes called “stock” (not to be confused with stock-in-trade)) or warrants. In the common law, whilst a shareholder is often colloquially referred to as the owner of the company – it is clear that the shareholder is not an owner of the company but makes the shareholder a member of the company and entitles them to enforce the provisions of the company’s constitution against the company and against other members. A share is an item of property, and can be sold or transferred. Shares also normally have a nominal or par value, which is the limit of the shareholder’s liability to contribute to the debts of the company on an insolvent liquidation. Shares usually confer a number of rights on the holder. These will normally include:

• voting rights
• rights to dividends (or payments made by companies to their shareholders) declared by the company
• rights to any return of capital either upon redemption of the share, or upon the liquidation of the company
• in some countries, shareholders have preemption rights, whereby they have a preferential right to participate in future share issues by the company# ISO certification in India

Companies may issue different types of shares, called “classes” of shares, offering different rights to the shareholders depending on the underlying regulatory rules pertaining to corporate structures, taxation, and capital market rules. A company might issue both ordinary shares and preference shares, with the two types having different voting and/or economic rights. It might provide that preference shareholders shall each receive a cumulative preferred dividend of a certain amount per annum, but the ordinary shareholders shall receive everything else. Corporations will structure capital raising in this way in order to appeal to different lenders in the market by providing different incentives for investment. The total value of issued shares in a company is said to represent its equity capital. Most jurisdictions regulate the minimum amount of capital which a company may have,^{[citation needed]} although some jurisdictions prescribe minimum amounts of capital for companies engaging in certain types of business (e.g. banking, insurance etc.).^{[citation needed]} Similarly, most jurisdictions regulate the maintenance of equity capital, and prevent companies returning funds to shareholders by way of distribution when this might leave the company financially exposed. Often this extends to prohibiting a company from providing financial assistance for the purchase of its own shares. # ISO certification in India