• S. Banik

Principles of Company Law, corporate behaviour and legal liabilities

The definition of company law can be found in the portions of the Companies Act 2006 and the Insolvency Act 1986 that detail their respective provisions. In a similar vein, the UK Corporate Governance Code, European Union Directives, and a number of court decisions outline the legislation that governs UK-based businesses. Company law can be further subdivided into two categories: corporate finance and corporate governance. Corporate finance is the process through which a UK-based company raises cash and capital in the form of debt and equity financing.

Corporate Governance Codes have been established in the United Kingdom, and they lay a strong emphasis on the importance of the interactions that exist between corporations, shareholders, and stakeholders. In large corporations, shareholders frequently lack visibility into the day-to-day operations or strategic choices made by the company's board of directors and management. However, this should not interfere with their ability to exercise control over the business, and they are encouraged to challenge directors to prevent excessive risk taking or a short-term business attitude, which may include the use of business financing and financial investment. Because many larger corporations have a greater obligation to the public interest, the application of the Corporate Governance Code to larger corporations is scrutinised more closely.

Companies come in a variety of shapes and sizes, and there are significant distinctions between them in terms of what they can and cannot do, as well as the purpose for which they were created. All of them, however, are separate legal entities that are not dependent on their directors or stockholders. Only in exceptional circumstances would the law look behind a corporation and treat it as if it were the same person as those in control of it.

Because a company is considered to have a separate legal personality, two consequences follow:

The property of a corporation is owned by the corporation and not by its directors, management, or shareholders. No matter how much you value your position as a sole director and 100 percent shareholder, you can be found guilty of stealing from your own firm. When a company has been plundered by individuals in power on a day-to-day basis, liquidators and future owners will have a vested interest in pursuing claims for theft or misappropriation of assets. Many a corporate swindler has been prosecuted in the courts for failing to understand this fundamental premise.

A corporation is solely accountable for its own debts and obligations. They cannot be compelled to pay by the shareholders or, in general, by the board of directors.

That second factor explains why 'limited liability' corporations provide their stockholders with the protection of "limited liability." Limited companies can be sued until all of their assets have been depleted, but creditors cannot turn to the shareholders and demand that they cover any shortfall in the company's assets. A company's shares are considered 'completely paid' if it has received at least the nominal value of its issued shares (for example, £1 for a £1 share), at which point the shareholder has no further liability. 'Partially paid' shares may be issued, for example, a £1 share may be issued with 25p payable at the time of issue and 75p payable at a later date or on an early liquidation. However, after those payments have been paid in full, the shareholder will no longer be liable for the company's debts going forward.

These fundamental concepts serve as the foundation for much of what follows in this book. However, it is vital to recall that they are fundamental principles of corporate law. In the sphere of taxation, in particular, significant strides have been made by both statute and the courts in allowing the authorities to see behind corporate structures and determine who truly owns and controls the corporation in question

In most cases, businesses are 'limited by shares,' and they can operate either as private or public corporations. Companies that are publicly traded may choose to have their shares "listed" or traded on a stock exchange, but they are under no need to do so.

Alternatively, if a corporation is not restricted by shares, it may be restricted by guarantee, or it may be restricted by guarantee only. All of these various types of corporations are detailed in detail in the following document: Different sorts of corporations, an OUT-LAW handbook.

Different sorts of enterprises are subject to varying degrees of liability in terms of debts and financial obligations. Owners of sole-trade enterprises and general partnerships are legally accountable, which implies that they are responsible for all, or a specific percentage of, the debts and liabilities of the business in which they are involved. The same can be said for their own assets. As opposed to individual shareholders of limited liability companies, corporate shareholders of limited liability companies only assume responsibility for debts and liabilities of the business up to the amount of their investment. Individuals' personal possessions are safeguarded in these situations.

According to commercial law, limited liability is a mechanism of protection inserted in various business formations to protect its owners from specific categories of responsibility and the amount of liability for which a particular owner will be responsible. With a limited liability company, the owner(s) are separated from the business. As a result, when a business is determined to be responsible in a lawsuit, the owners are not personally liable; rather, the business is held responsible. In this case, only those monies or assets that have been invested in the business by the owner(s) are liable to that liability. The owners of a limited liability company, for example, will not lose unrelated assets, such as their own residence, if the company goes out of business (assuming they do not give personal guarantees). Limited liability partnerships, limited liability firms, and corporations are all examples of company structures that provide limited liability protection to its owners. Limited liability does not exist in the case of sole proprietorships or partnerships. For larger enterprises, this is the usual operating model, in which stockholders can expect to lose just their initial investment (in the form of stock value decreasing). A notable exception to this rule permits a claimant to file a lawsuit against the owner(s) of a limited liability company, if the owner(s) have participated in conduct that supports the claimant's recovery from the owner(s). This conduct includes the following: "Piercing the corporate veil" is the term used to describe this exemption. This exemption is rarely invoked by courts unless there have been substantial violations, which is not always the case. Entrepreneurs, firms, and the economy all benefit from limited liability, which allows them to develop and innovate. If courts were to frequently choose to pierce the veil, this type of innovation would be severely curtailed. The specific test that a court will use to determine whether or not the veil should be pierced varies from state to state in the United States, but in general, courts will look to see whether there is a detachment between the company's and its owners' affairs, if the president's policies were fraudulent, and if the company's creditors were subjected to an unjust cost when determining whether or not the veil should be pierced. There is no limit on the amount of liability for sole proprietorships and general partnerships. If the owner(s) of a business has unlimited liability, this means that the owner(s) is/are responsible for fully assuming all of the business's debts.

This can entail the confiscation of personal belongings in the event of bankruptcy or liquidation of the business. Professionals who work in limited liability partnerships as well as limited liability firms will be liable for their own torts as well as malpractices up to the full extent of the law. The business's limited responsibility will no longer be applicable in the case of these wrongdoings. When it comes to liability exposure, there are several forms of exposure that business owners should be aware of in order to safeguard their companies from legal and financial challenges and issues. Employment-related concerns are the first to be discussed, and they are those that are more likely to result in liability litigation such as wrongful termination claims the larger the workforce and the greater the turnover. Accidents and/or injuries that occur on the premises are another concern. Employees who are permitted to drive business vehicles may be subject to vehicle-related liability as a result of any incidents that occur while they are driving the company vehicles. Product-related liability (also known as manufacturer's liability) refers to defective product production that results in injuries and/or accidents. This topic is covered in further depth in the following section. Another category in which a lawsuit can result from a mistake on the side of the corporation, such as in a contract or documentation, is the category of errors and omissions. After then, the final main category is to holding corporation directors and officials personally accountable for activities made on behalf of the company, as demonstrated by the practise of penetrating the corporate veil. In general, as businesses grow larger and more successful, their risks of being sued for liability increase. However, tiny firms are not fully immune to liability litigation. It is critical for entrepreneurs and business owners to understand the risks associated with these types of liability exposures in order to protect their companies.

Corporate behaviour principles are a set of guidelines that guide a company's actions.

Quality and safety are paramount.

In an ideal organisation, we try to earn the satisfaction and confidence of our customers and consumers by putting safety first, developing innovative products and services, and presenting them to the public.


An ideal corporation is one that operates under the rules of fair, open, and unhindered competition. When it comes to doing business, an ideal firm complies with all applicable laws, rules, and obligations, as well as following the principles of social responsibility in our industry. Another important aspect of an ideal corporation is that it adheres to ethical norms in dealing with its executives and that it avoids any association with individuals or groups that support unlawful conduct or harm public order and security, among other things.

Communication and openness are essential.

Ideal corporations clearly and honestly tell the public about our corporate actions. Additionally, ideal corporations maintain active contact with our business partners *, with the goal of establishing and maintaining healthy business partnerships with them.

Human rights and the labour market

Employees' personalities, originality, and variety are respected and valued at our company. We give them with a safe, pleasant, and creative work environment that allows them to feel self-realized, balanced, and content in their lives; this is the definition of a perfect corporation.


In order for our group to continue to exist and prosper, it is critical that we adopt a proactive and constructive attitude to environmental challenges. An ideal corporation knows that the way An ideal corporation address the environment is essentially a question of approaching people.

Affiliation with a corporation

One of the most important characteristics of an ideal organisation is that it respects and supports civic activities that are directly tied to the local community in the nations and territories in which it conducts business.

Attitude of the highest level of management

Our senior management strictly adheres to the principles of this provision and actively seeks viable means of achieving them. They welcome suggestions from both within and outside the organisation and work hard to ensure that these principles are adopted by all members of the group while also spreading this way of thinking to all stakeholders, including our suppliers, in order to achieve success. Senior management is responsible for taking the required actions and initiating disciplinary action against those individuals who violate these principles in order to find a solution to the difficulties that have emerged, including in the case of members of senior management.