Corporate Law Firm In Dhaka

Q: “A Corporation is an artificial being , invisible, intangible and existing only in contemplation of law. It has neither a mind nor a body of its own.”- Explain & illustrate.

Introduction:

A corporation is an association recognized by civil law and regarded in all ordinary transactions as an individual. It is an artificial person. Chief Justice Marshall of the Supreme Court(1819) of the United States of America, in the course of a formal judicial utterance, thus defined the term corporation:A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence. By these means, a perpetual succession of individuals are capable of acting for the promotion of the particular object, like one immortal being.”Chancellor Kent of New York, one of the most famous jurists of modern times, defines a corporation asA franchise possessed by one or more individuals, who subsist, as a body politic, under a special denomination, and are vested, by the policy of the law, with the capacity of perpetual succession, and of acting in several respects, however numerous the associations may he, as a single individual. The object of the institution is to enable the members to act by one united will, and to continue their joint powers and property in the same body.”

A corporation is a nonhuman entity. A corporation is defined as a legal entity or structure created under the authority of a state’s laws, consisting of a person or group of persons who become shareholders.

The entity’s existence is considered separate and distinct from that of its members. Like a real person, a corporation can enter into contracts, sue and be sued, pay taxes separately from its owners, and do the other things necessary to conduct business. [1]

Chronicle of Corporation:

Although some forms of companies are thought to have existed during Ancient Rome and Ancient Greece, the closest recognizable ancestors of the modern company did not appear until the second millennium. Among the ancient Greeks a kind of association called etairia corresponded in its characteristics very closely with the modern corporation. Solon is said to have encouraged the formation of such bodies, and in his legislation permitted them to be instituted freely and to engage in any transactions not contrary to law. The Roman prototype of the corporation as it came into existence under the common law of England, and from England was transplanted into America, was the collegium. This kind of association, called also corpus, was required to consist of at least three persons (Dig., L, tit. xvi), and persons who had regularly and legally constituted a collegium were said corpus habere (to have a body), i. e. to have been, as we say, duly incorporated.

Corporate Charisma:

One of the key legal features of corporations are their separate legal personality, also known as “personhood” or being “artificial persons“. However, the separate legal personality was not confirmed under English law until 1895 by the House of Lords in Salomon v. Salomon & Co. Separate legal personality often has unintended consequences.

There are certain specific situations where courts are generally prepared to “pierce the corporate veil“, to look directly at, and impose liability directly on the individuals behind the company. The most commonly cited examples are:

  • where the company is a mere façade[2]
  • Where a representative of the company has taken some personal responsibility for a statement or action.
  • Where the company is engaged in fraud or other criminal wrongdoing.
    • In many jurisdictions, where a company continues to trade despite foreseeable bankruptcy, the directors can be forced to account for trading losses personally.
  • Where the natural interpretation of a contract or statute is as a reference to the corporate group and not the individual company.
  • Where permitted by statute (for example, many jurisdictions provide for shareholder liability where a company breaches environmental protection laws).

Exponent & Capacity:

Historically, because companies are artificial persons created by operation of law, the law prescribed what the company could and could not do. Usually this was an expression of the commercial purpose which the company was formed for, and came to be referred to as the company’s objects, and the extent of the objects are referred to as the company’s capacity. If an activity fell outside of the company’s capacity it was said to be ultra vires and void.

As artificial persons, companies can only act through human agents. The main agent who deals with the company’s management and business is the board of directors, but in many jurisdictions other officers can be appointed too. The board of directors is normally elected by the members, and the other officers are normally appointed by the board. These agents enter into contracts on behalf of the company with third parties.

Compartmentalization of Corporation:

Corporations can be private, nonprofit, municipal, or quasi-public. Private corporations are in business to make money, whereas nonprofit corporations generally are designed to benefit the general public. [3]

Municipal corporations are typically cities and towns that help the state to function at the local level. Quasi-public corporations would be considered private, but their business serves the public’s needs, such as by offering utilities or telephone service.

Now, the type of business corporations also depends upon the specific needs of the business. The business partners or promoters will choose the corporation types that best suits their need. There are 4 types of corporations for them to choose from. Here are those:
1. General Corporation: The most common of the corporation types is the general corporation. A general corporation may have unlimited shareholders, who are the owners of the company. Since they can sell and buy the shares on the stock market, the ownership of a corporation is said to be transferable. The advantage of this corporation type is that the liability of the owners.

2. Close Corporation: A close corporation is similar to a general corporation. The only differences between the two corporation types is that shareholding of a close corporation can only be between 30-50 people. Hence, many close corporations may have a lower capitalization than the general corporations.

3. LLC Corporation: The United States laws allows forming a special type of corporation, known as a Limited Liability Company (LLC). What an LLC basically means is that, it is a sole proprietorship company that enjoys some benefits.

4. S Corporation: With the Tax Reform Act of 1986, existing corporate bodies in the United States were given an offer to convert themselves into ‘S Corporations‘. This new type of corporation enjoyed advantages related to the payment of taxes. [4]

But, there are also several restrictions on this type of organization with respect to number of shareholders, classes of stock, types of shareholders (business entities are not allowed as shareholders, only particular individuals) and the type of business operations that they can run.

Internalization:

Incorporators must follow the mechanics that are set forth in the state’s statutes. Corporation statutes vary from state to state, every statute requires incorporators to file a document, usually called the articles of incorporation, and pay a filing fee to the secretary of state’s office, which reviews the filing. If the filing receives approval, the corporation is considered to have started existing on the date of the first filing.

The articles of incorporation typically must contain (1) the name of the corporation, which often must include an element like Company, Corporation, Incorporated, or Limited,” and may not resemble too closely the names of other corporations in the state; (2) the length of time the corporation will exist, which can be perpetual or renewable; (3) the corporation’s purpose, usually described as “any lawful business purpose”; (4) the number and types of shares that the corporation may issue and the rights and preferences of those shares; (5) the address of the corporation’s registered office, which need not be the corporation’s business office, and the registered agent at that office who can accept legal Service of Process; (6) the number of directors and the names and addresses of the first directors; and (7) each incorporator’s name and address.

Advantages:

  • Limited liability. One of the key reasons for forming a corporation is the limited liability protection provided to its owners. Because a corporation is considered a separate legal entity, the shareholders have limited liability for the corporation’s debts.
  • Corporate tax treatment. Since a corporation is a separate legal entity, it pays taxes separate and apart from its owners (at least in the typical C corporation). Owners of a corporation only pay taxes on corporate profits paid to them in the form of salaries, bonuses, and dividends. [5]
  • Capital incentive. The stock structure also allows corporations to attract key and talented employees by offering them an ownership interest in the form of stock options or stock.
  • Owner/employee. A business owner who works in his or her own business may become an employee and thus be eligible for reimbursement or deduction of many types of expenses, including health and life insurance.
  • Operational structure. Corporations have a set management structure. The owners of a corporation are shareholders, who elect a Board of Directors, which then elects the officers. The Board of Directors is responsible for managing and exercising the rights and responsibilities of the corporation.
  • Perpetual existence. A corporation continues to exist until the shareholders decide to dissolve it or merge with another business.
  • Freely transferable shares. Shares of corporations are freely transferable, because as a separate entity, the existence of a corporation is not dependent upon who the owners or investors are at any one time..

Disadvantages :

  • Fees. It costs money to incorporate. There are four types of fees: a fee to file the Articles of Incorporation with the Secretary of State, a first-year franchise tax prepayment, fees for various governmental filings, and attorneys’ fees.
  • Formalities. The proper corporate formalities of organizing and running a corporation must be followed, to receive the benefits of being a corporation.
  • Paperwork. Paperwork is a huge component of the corporate formalities that must followed. Business bank accounts and records must be maintained and kept separate from personal accounts and assets; records must be kept of corporate actions, including meetings of shareholders and Board of Directors; and licenses must be maintained. [6]
  • Tax consequences. C corporations have potential double-tax consequences — once when the company makes its profit, and a second time when dividends are paid to shareholders. S corporations can mitigate this tax issue.
  • Disclosure of names of corporate officers and directors: Many states require that the names and addresses of corporate officers and directors be listed on one or more documents.
  • Dissolution. Dissolution does not happen automatically. A corporation can be dissolved voluntarily or involuntarily.

Ratiocination:

A corporation is a separate legal entity. As such it allows a group of people to pool their energy, time, and money for profit or nonprofit activities. The corporation comes into legal existence when its founders comply with their state’s incorporation process.

A corporation is treated by the law as a separate “person” it has neither a mind nor a body of its own, distinct from the people who own or manage it. The corporation can enter into contracts, incur debts, and pay taxes. Corporations can be set up as for-profit purposes or for nonprofit purposes.

A corporation is an institution that is recognized as a separate legal entity with detached accountability.  It has its own rights, privileges, and liabilities distinct from those of its members or individual owners.  There are different types of corporations, most of which are used to conduct business.

Bibliography

1.      Bromberg, Alan R. Crane and Bromberg on Partnership. St. Paul, Minn.: West Publishing, 1968.

2.      Conard, Alfred F. Corporations in Perspective. Mineola, N.Y.: Foundation Press, 1976.

3.      Easterbrook, Frank, and Daniel Fischel. The Economic Structure of Corporate Law. Cambridge: Harvard University Press, 1991.

4.      Hessen, Robert. In Defense of the Corporation. Stanford, Calif.: Hoover Institution Press, 1979.

5.      Hovenkamp, Herbert. Enterprise and American Law, 1836–1937. Cambridge: Harvard University Press, 1991.

6.      Manning, Bayless. Legal Capital. Mineola, N.Y.: Foundation Press, 1977.

7.      Roe, Mark J. Strong Managers, Weak Owners: The Political Roots of American Corporate Finance. Princeton: Princeton University Press, 1994.

8.      Cox, James D., Thomas L. Hazen, and F. Hodge O’Neal. 1995. Corporations I, II, III. Boston: Little, Brown.

9.      A. Dignam & J. Lowry, Company Law

10.  Gower and Davies: Principles of Modern Corporate Law

11.  Sealy L.S. Sealy Case and materials In Corporate Law

12.  Hunnigan J.M. Corporate Law.

13.  Modern Law Review (MLR)

14.  Oxford Journal of Legal Studies.

15.  Cambridge Law Journal.

16.   Palmers Corporate law manual.

17.  Companies Act 1994 of Bangladesh.

18.  Dignam & J. Lowry, Company Law

19.  Sealy L.S. Sealy Case and materials In Corporate Law

20.  Gower and Davies: Principles of Modern Corporate Law.

21.  Gower and Davies: Principles of Modern Corporate Law

22.  Dartmouth College v. Woodward, 4 Wheat. 518, 636, 4 L.Ed. 629, 659, 1819.

23.  Essays on the Earlier History of American Corporations, vol. 1 (Cambridge: Harvard University Press, 1917), p. 5.

24.  American Economic History, 2d ed. (Glenview, Ill.: Scott Foresman, 1983), p. 129.

25.  The Economic Transformation of America (New York: Harcourt, Brace, Jovanovich, 1977), p. 99.

26.  Reiner Kraakman, Henry Hansmann, Paul L. Davies, Klaus Hopt, Gerard Hertig, Hideki Kanda, The Anatomy of Corporate Law (OUP 2004)

27.  David Kershaw, Company Law in Context (OUP, Oxford 2009)

28.  LCB Gower, ‘Some Contrasts between British and American Corporation Law’ (1956) 69(8) Harvard Law Review 1369

[1] See RC Clark, Corporate Law (Aspen 1986) 2; H Hansmann et al, Anatomy of Corporate Law (2004) ch 1 set out similar criteria, and in addition state modern companies involve shareholder ownership. However this latter feature is not the case in most European jurisdictions, where employees participate in their companies 1974] 1 WLR 1133; Walton J actually attributes the term to his counsel, Mr Price, quoting Lord Haldane. But Lord Haldane never used such figurative words. They may trace back to Lord Chancellor Thurlow (1731–1806), who is said to have asked rhetorically, “did you ever expect a corporation to have a conscience, when it has no soul to be damned and no body to be kicked?” Though it seems his exact phrase was, “Corporations have neither bodies to be punished, nor souls to be condemned; they therefore do as they like.” John Poynder Literary Extracts (1844) vol. 1, p. 2 or 268.

[2]See”A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence. These are such as are supposed best calculated to effect the object for which it was created. Among the most important are immortality, and, if the expression may be allowed, individuality   South African Constitution Art.8, especially Art.(4) Phillip I. Blumberg, The Multinational Challenge to Corporation Law: The Search for a New Corporate Personality, (1993) has a very good discussion of the controversial nature of additional rights being granted to corporationsEuropean company law and the Societas Europapg-468,para-2The fact that a company has a separate persona is sometimes overlooked in the management of private companies. Thus, in Strathblaine Estates Ltd, Re, in the voluntary winding up of a private company, it was resolved to divide the surplus assets, freehold properties, in equal shares between the shareholders and, after the discharge of its liabilities, the company was dissolved, but the legal estate in the properties was not conveyed to the shareholders who were merely given the title deeds. Further, a company may be a director, a secretary, a manager or a trustee for debenture holders of another company an insolvency practitioner (Insolvency Act 1986 s.390(1) “A company may be a subscriber to the memorandum of, or shareholder in, another company, subject to certain statutory restrictions applying to the holding of shares by a subsidiary in its holding company”

[3] SeeShareholders must approve sale of “all or substantially all assets”, held in Gimbel (1974) to be those “qualitatively vital to the existence and purprose” of the corporation; which in Katz v. Bregman (1981) Corporate Manslaughter and Corporate Homicide Act 2007,pg-269,para-3

[4] Bainbridge, Stephen M. 2001. “Abolishing Veil Piercing.” The Journal of Corporation Law 26 (spring): 479–535.Huss, Rebecca J. 2001. “Revamping Veil Piercing for All Limited Liability Entities.” University of Cincinnati Law Review 70 (fall): 93–135.

[5] SeeThis and other franchises are the ligaments which unite a body of men into one, and knit them together as a natural person (4 Co. 65 a); creating a corporation, an invisible incorporeal being, a metaphysical person (2 Pet. 223); existing only in contemplation of law, but having the properties of individuality (4 Wheat. 636), by which a perpetual succession of many persons are considered the same, and may act as a single individual. . Co. Litt. 132 b; 2 Day’s Com. Dig. 300; 1 Saund. Pg-345.Para-1

[6] See”In this country, every person has a natural and inherent right of taking and enjoying property, which right is recognised and secured in the constitution of every state; bodies, societies and communities have the same right, but inasmuch as on the death of any person without a will, his property passes to his personal representative or heir, a mere association of individuals must hold their real and personal property subject to the rules of the common law. A charter is not necessary to give to a body of men the capacity to take and enjoy, unless there is some statute to prevent it, by imposing a restriction or prescribing a forfeiture, where there is a capacity to take and hold; the only thing wanting is the franchise of succession, so that the property of the society may pass to successors instead of heirs. Termes de la Ley 123; 1 Bl. Com. 368-72,para-2

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