lecture 1
1. Introduction to Corporate Law
What is corporate law?
Corporate law consists of legal norms relating to certain types of business organisations. It
provides the legal structure of a business enterprise.
A company is an association of people who combine for the purpose of joint activity.
Every corporation is a company, but not every company is a corporation.
Types of business organisations
- Sole trader / proprietor
A business owned and managed by one person.
Characteristics:
● no separate legal personality,
● owner has unlimited liability.
Examples: local shop owner, freelancer, self-employed worker…
- Partnership
A partnership is the coordination of economic activity between two or more persons who
decide to work together.
Often used by:
builders, lawyers, accountants, medical practices…
- General partnership (GP)
Characteristics:
● unlimited liability,
● all partners usually manage the business.
Examples: Belgian maatschap, UK General Partnership (GP).
, - Limited partnership (LP)
Some partners are only investors (“silent investors”).
Characteristics:
● limited liability for silent investors,
● restricted management rights.
Examples: Belgian CommV, UK Limited Partnership (LP).
- Limited Liability Partnership (LLP)
Characteristics:
● liability limited to invested capital,
● combines partnership flexibility with limited liability.
Example: UK LLP.
1.4 Private Company
Designed for small and medium-sized enterprises that need:
● limited liability,
● legal personality,
● but no access to public capital markets.
Characteristics:
● shares are usually not freely tradable,
● ownership is often concentrated.
Examples: Belgian BV/SRL, Dutch BV, German GmbH, French SARL, UK Ltd., Italian srl…
1.5 Public Company
Designed for large enterprises that need financing through capital markets.
Characteristics:
● ownership through shareholders,
● shareholders can be numerous and diverse,
● shareholders do not directly manage the company,
● shares can often be publicly traded.
Examples: Belgian NV/SA, Dutch NV, German AG, French SA, UK Plc, Italian S.p.A…
,2. Main Legal Characteristics of a Corporation
Corporate law across jurisdictions generally contains 5 important characteristics:
● legal personality,
● limited liability,
● transferable shares,
● delegated management with board structure,
● investor ownership.
2.1 Legal Personality
Nexus of contracts
A corporation can be seen as a “nexus of contracts”.
Meaning:
● the firm is a network of contractual relationships,
● the corporation acts as the common contracting party,
● the corporation is separate from the individuals who own or manage it.
Relationships often exist with:
employees, suppliers, customers, investors, managers…
Separate patrimony
The corporation has its own pool of assets separate from shareholders’ personal assets.
The corporation:
● owns the assets,
● can use and sell them,
● can make them available to creditors.
Shareholders’ personal creditors cannot claim these corporate assets.
, Entity shielding
Entity shielding protects the corporation’s assets from the personal creditors of shareholders.
Two important rules:
1. Priority rule
Corporate creditors have priority over corporate assets before shareholders’ personal
creditors.
2. Liquidation protection rule
Shareholders:
● cannot freely withdraw corporate assets,
● cannot dissolve the corporation whenever they want.
Also: personal creditors of shareholders cannot seize corporate assets.
3. Authority rule
Determines who may:
● act in the name of the corporation,
● sign contracts for the corporation.
Usually delegated to directors or managers.
4. Procedure rule
Determines: how lawsuits involving the corporation are handled.
Separate legal personality
Legal personality is based on:
● entity shielding,
● authority rules,
● procedure rules.
Together, these create a corporation as a separate legal entity.
1. Introduction to Corporate Law
What is corporate law?
Corporate law consists of legal norms relating to certain types of business organisations. It
provides the legal structure of a business enterprise.
A company is an association of people who combine for the purpose of joint activity.
Every corporation is a company, but not every company is a corporation.
Types of business organisations
- Sole trader / proprietor
A business owned and managed by one person.
Characteristics:
● no separate legal personality,
● owner has unlimited liability.
Examples: local shop owner, freelancer, self-employed worker…
- Partnership
A partnership is the coordination of economic activity between two or more persons who
decide to work together.
Often used by:
builders, lawyers, accountants, medical practices…
- General partnership (GP)
Characteristics:
● unlimited liability,
● all partners usually manage the business.
Examples: Belgian maatschap, UK General Partnership (GP).
, - Limited partnership (LP)
Some partners are only investors (“silent investors”).
Characteristics:
● limited liability for silent investors,
● restricted management rights.
Examples: Belgian CommV, UK Limited Partnership (LP).
- Limited Liability Partnership (LLP)
Characteristics:
● liability limited to invested capital,
● combines partnership flexibility with limited liability.
Example: UK LLP.
1.4 Private Company
Designed for small and medium-sized enterprises that need:
● limited liability,
● legal personality,
● but no access to public capital markets.
Characteristics:
● shares are usually not freely tradable,
● ownership is often concentrated.
Examples: Belgian BV/SRL, Dutch BV, German GmbH, French SARL, UK Ltd., Italian srl…
1.5 Public Company
Designed for large enterprises that need financing through capital markets.
Characteristics:
● ownership through shareholders,
● shareholders can be numerous and diverse,
● shareholders do not directly manage the company,
● shares can often be publicly traded.
Examples: Belgian NV/SA, Dutch NV, German AG, French SA, UK Plc, Italian S.p.A…
,2. Main Legal Characteristics of a Corporation
Corporate law across jurisdictions generally contains 5 important characteristics:
● legal personality,
● limited liability,
● transferable shares,
● delegated management with board structure,
● investor ownership.
2.1 Legal Personality
Nexus of contracts
A corporation can be seen as a “nexus of contracts”.
Meaning:
● the firm is a network of contractual relationships,
● the corporation acts as the common contracting party,
● the corporation is separate from the individuals who own or manage it.
Relationships often exist with:
employees, suppliers, customers, investors, managers…
Separate patrimony
The corporation has its own pool of assets separate from shareholders’ personal assets.
The corporation:
● owns the assets,
● can use and sell them,
● can make them available to creditors.
Shareholders’ personal creditors cannot claim these corporate assets.
, Entity shielding
Entity shielding protects the corporation’s assets from the personal creditors of shareholders.
Two important rules:
1. Priority rule
Corporate creditors have priority over corporate assets before shareholders’ personal
creditors.
2. Liquidation protection rule
Shareholders:
● cannot freely withdraw corporate assets,
● cannot dissolve the corporation whenever they want.
Also: personal creditors of shareholders cannot seize corporate assets.
3. Authority rule
Determines who may:
● act in the name of the corporation,
● sign contracts for the corporation.
Usually delegated to directors or managers.
4. Procedure rule
Determines: how lawsuits involving the corporation are handled.
Separate legal personality
Legal personality is based on:
● entity shielding,
● authority rules,
● procedure rules.
Together, these create a corporation as a separate legal entity.
