Introduction
A corporation is defined as a legal entity or structure created under the authority of the laws of a state, 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. Since a corporation is an entity in its own right, it is liable for its own debts and obligations. As a result, providing that corporate formalities are followed, the corporation’s owners (the shareholders) enjoy limited liability, and are legally shielded from the corporation’s liabilities and debts.
The existence of a corporation is not dependent upon who the owners or investors are at any one time. Once formed, a corporation continues to exist as a separate entity, even when shareholders die or sell their shares. A corporation continues to exist until the shareholders decide to dissolve it or merge it with another business.
Corporations are subject to the laws of the state of incorporation, and to the laws of any other state in which the corporation conducts business. Corporations may thus be subject to the laws of more than one state. All states have corporation statutes that set forth the ground rules as to how corporations are formed and maintained. [1]
Nature of Corporations
A corporation, or body politic, or body incorporate, is a collection of many; individuals united in one body, under a special denomination, having perpetual succession under an artificial form, and vested by the policy of the law with a capacity of acting in several respects as an individual, particularly of taking and granting property, contracting obligations and of suing and being sued; of enjoying privileges and immunities in common and of exercising a variety of political rights, more or less extensive, according to the design of its institution or the powers conferred upon it, either at the time of its creation or at any subsequent period of its existence.
In the case of Dartmouth College against Woodward, 4 Wheat. Rep. 626, Chief Justice Marshall describes a corporation to be ‘an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law,’ continues the judge, ‘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 properties by which a perpetual succession of many persons are considered, as the same, and may act as the single individual, They enable a corporation to manage its own affairs, and to hold property without the perplexing intricacies, the hazardous and endless necessity of perpetual conveyance for the purpose of transmitting it from hand to hand. It is chiefly for the purpose of clothing bodies of men, in succession, with these qualities and capacities, that corporations were invented, and are in use.’
The words corporation and incorporation are frequently confounded, particularly in the old books. The distinction between them is, however, obvious; the one is the institution itself, the other the act by which the institution is created.
Corporations are divided into public and private.
Public corporations, which are also called political and sometimes municipal corporations, are those which have for their object the government of a portion of the state and although in such case it involves some private interests, yet, as it is endowed with a portion of political power, the term public has been deemed appropriate.
Another class of public corporations are those which are founded for public, not for political or municipal purposes, and the whole interest in which belongs to the government. The Bank of Philadelphia for example, if the whole stock belonged exclusively to the government, would be a public corporation; but inasmuch as there are other owners of the stock, it is a private corporation. [2]
Defining Features of a Corporation
A corporation has four defining characteristics that differentiate it from other business structures. It provides limited liability to its owner or owners, a feature not found in proprietorships and general partnerships. Its lifespan – unlike that of a limited liability company – is limitless. It is further defined by a centralized management and the capacity of its owners to feely transfer interests to others.
Limited Liability: Unlike proprietorship and partnership, a corporation is recognized as a separate and distinct entity from its owners. Its legal and financial obligations are of its own and are not the same with that of its owners. The owners are exposed to financial risks to the corporation only to the extent of their investment. In case a corporation goes bankrupt, creditors can only call on the company’s assets and not that of its owners. If it is sued, the suit is against the organization or the office of those responsible for it and not against the owner.
Indefinite Life: As a corporation is considered independent of its owners, its life does not depend on the ownership of a particular business entity or individual. Its owners could change as often as it wants, but the business continues until all of them agree to dissolve the company or merge it with another. Due to its unlimited lifespan, it is able to accumulate capital through the years to be used for future investments.
Transferability of Interest: A for-profit corporation is owned by people who have bought shares or interest in the company. Shareholders can sell their ownership or interest in it by selling their stocks. If there are no stockholders, the organization is a non-stock corporation, which may or may not operate for profit.
Centralized Management: A corporation usually has a board of directors elected by shareholders. The board makes important decisions for the company, hires officers, and sets company policies. [3]
Laws Initiating Corporation in Bangladesh in focus
(1) This Act may be called the Companies Act, 1994.
(2) It shall come into force on such rate as the Government may, by notification in the Official, Gazette, appoint.
(3) For the purposes of sub-section (2), the composition of a company’s Board of Directors shall be deemed to be controlled by another company if, that other company, by the exercise of some power exercisable by it at its discretion without the consent or concurrence of any other person, can appoint or remove the holders of all or a majority of the directors, and for the purposes of this sub-section that other company shall be deemed to have power to appoint to a directorship with respect to which any of the following conditions is satisfied, that is to say–
(a) that power of appointment cannot be exercised except in favour of an individual,
(b)) that an individuals appointment thereto follows necessarily from his appointment as director, managing agent, secretary or manager of or to any other office of employment in, that other company; or
(c) that the directorship is held by an individual nominated by that other company or a subsidiary thereof.
(4) In determining whether one company is a subsidiary of another the following conditions shall be applicable namely:–
(a) any shares held or power exercisable by that other company in a fiduciary capacity shall be treated as not held or exercisable by it.
(b) subject to the provisions of clauses (c) and (d) any shares held or power exercisable shall be deemed to be the shares held or power exercisable by that other company, if–
(i) the shares are held or the power is excercisable by a person as a nominee and on behalf of that other company, but this clause shall not apply to the holding of such shares or to the exercise of such powers by such person where that other company is concerned in a fiduciary capacity.
(ii) the shares are held or the power is exercisable by a subsidiary of that other company or by a nominee of such subsidiary, but this clause shall not apply to the holding of such shares or to the exercise of such powers by the subsidiary or by its nominee where the subsidiary is concerned in a fiduciary capacity;
(c) any shares held or power exercisable by any person by virtue of the provisions of any debentures of the first-mentioned company or of a trust deed for securing any issue of such debentures shall disregarded;
(d) if any shares are held or power is exercisable, not being held of exercisable as mentioned in clause (c),
(i) by that other company or by its subsidiary or by a nominee of that other or its subsidiary as the case may be, and
(ii) the ordinary business of that other company or as the case may be of its subsidiary includes the lending of money and such shares are held or the power is exercisable by way of security of the loan [then such power shall not be treated as being held or exercisable by such company or its nominee.]
(5) For the purposes of this Act’ a company shall be deemed to be the holding company of another if, and only if, that other is its subsidiary.
Jurisdiction of the Court
(1) The Court having jurisdiction under this Act shall be High Court Division;
Provided that the Government may be notification in the Official Gazette and subject to such restrictions and conditions as it thinks fit, empower any District Court to exercise all or any of the jurisdiction by this Act conferred upon the Court, and in that case such District Court shall as regards the jurisdiction so conferred, be the Court in respect of all companies having their registered office in the district.
Explanation.—For the purposes to wind up companies the expression “registered office” means the place where the registered office of the company, during the six months immediately preceding the presentation of the petition of winding up was situated.
(2) Nothing in this section shall invalidate a proceeding by reason of its being taken in a wrong Court[4]
Certificate of incorporation
A certificate of incorporation is a legal document relating to the formation of a company or corporation. It is a license to form a corporation issued by state government. Its precise meaning depends upon the legal system in which it is used, but the two primary meanings are:
In English and Commonwealth legal systems, a certificate of incorporation is usually a simple certificate issued by the relevant government registry as confirmation of the due incorporation and valid existence of the company.
In other common law legal systems, the certificate of incorporation has less legal significance, although it has been held by the House of Lords in Cotman v Brougham [1918] AC 514 that because the issue a certificate of incorporation is conclusive evidence of the formation of a company, the issuance of the certificate overrides any irregularities which may have occurred during the formation of the company.[5]
Territory of Corporate Laws in Bangladesh
The Companies Act 1994 governs The Companies Act 1994 governs incorporated domestic entities.
Other relevant laws include:
Securities and Exchange Ordinance 1969 – Bangladesh Bank Order 1972
Bangladesh Bank Order 1972 – Bank Companies Act 1991
Bank Companies Act 1991 – Financial Institutions Act 1993
Financial Institutions Act 1993 – Securities and Exchange Commission Act 1993
Securities and Exchange Commission Act 1993 – Bankruptcy Act 1997 [6]
Conclusion
A corporation enjoys the laws of the sovereign country just like a citizen, and often like any citizen, it has the choice of not following the laws, rather exercise it for its own good. Unlike a citizen, a corporation is harder to catch owing to their vast amount of resources. Because their existence is completely entangled in legal terminology, it is much harder to prove their crimes, although they can be spotted.
As a legal and individual entity, a corporation is subjected to a broad spectrum of laws as governed by the sovereign laws, and these laws have to be implemented properly for the corporation to abide by the power of laws.
[1] http://www.allbusiness.com/legal/contracts-agreements-incorporation/529-1.html
[2] http://www.lectlaw.com/def/c135.htm.
[3] http://www.startupbizhub.com/understanding-the-definition-of-corporation.htm
[4] http://www.vakilno1.com/saarclaw/bangladesh/part1.htm
[5] http://en.wikipedia.org/wiki/Certificate_of_incorporation
[6] http://www.oecd.org/dataoecd/61/23/37339535.pdf