Corporate law is what keeps the business world humming. It provides the legal framework that governs how companies operate, grow, and interact with stakeholders.
When most people think about lawyers, they typically think of emotionally-charged courtroom dramas like the ones we see on TV.
But there’s a whole other world of lawyering out there – corporate law is no doubt as important as litigation but one the public rarely sees.
If you think about it, corporate law impacts all of us – from policies for managing employees to the ways our favorite companies interact with customers.
In this post, we’ll walk you through five key areas of corporate law that play a pivotal role in the day-to-day functioning and long-term strategy of any corporation.
We’ll also provide real-world examples of how each area has impacted our society in memorable ways.
There’s a lot to cover here, so let’s dive in.
Corporate governance
Corporate governance is at the heart of every company and is a major concern for corporate lawyers. Governance rules shape how businesses are directed and controlled.
At its core, corporate governance is about ensuring that a corporation’s leadership acts in the best interest of its shareholders while balancing the needs of other stakeholders like employees, customers, and the community.
Board of directors
The board of directors is a critical component of corporate governance. These individuals are tasked with setting the strategic direction of the company, overseeing management, and making decisions that affect the company’s future.
Good governance requires that directors act independently and without conflicts of interest, always keeping the company’s long-term health in mind.
Corporate lawyers are charged with guiding the board so that the decisions they make are directly in line with the law.
Shareholder rights
Corporate governance also involves protecting the rights of shareholders, who are the true owners of the company. Shareholders have a say in key decisions, such as electing the board of directors and approving significant corporate actions like mergers or acquisitions.
Corporate lawyers help safeguard these rights by making sure that shareholders have the tools to hold the company’s leadership accountable.
How this plays out in real life: the Enron scandal
The importance of strong corporate governance was tragically highlighted in the early 2000s with the Enron scandal.
Enron’s leadership engaged in unethical and illegal activities that ultimately led to the company’s collapse, causing massive financial losses for shareholders and employees.
This case underscored the need for strong governance structures to prevent corporate mismanagement and protect investors.
Mergers and acquisitions (M&A)
Given that they drive much of the growth and restructuring of the business world, mergers and acquisitions (M&A) are among the most important aspects of corporate law.
M&A activities involve the consolidation of companies or assets through various types of financial transactions, including mergers, acquisitions, and takeovers.
These transactions can reshape industries, create new market leaders, and offer significant growth opportunities for companies involved.
Legal considerations in M&A
One of the most critical phases in any M&A transaction is due diligence. In this process, the acquiring company thoroughly investigates the target company’s legal, financial, and operational status.
It’s a deep dive into everything from contracts and liabilities to intellectual property and compliance issues. The goal is to uncover any potential risks or liabilities that could affect the transaction’s success.
Another vital aspect of M&A work is regulatory approval. Corporate law requires that certain M&A transactions, especially those involving large companies or significant market share, receive approval from regulatory bodies such as the Federal Trade Commission or the Securities and Exchange Commission (SEC).
These agencies ensure that the transaction doesn’t create unfair competition or harm consumers. And guess what? Corporate lawyers are involved in every step along the way.
How this plays out in real life: Disney and 21st Century Fox
A prime example of a high-profile M&A transaction is the acquisition of 21st Century Fox by The Walt Disney Company in 2019.
This $71.3 billion deal was not just a massive business transaction but also a complex legal process involving extensive due diligence, negotiations, and regulatory scrutiny.
The merger allowed Disney to expand its media empire, but it also had to address concerns about market competition and the impact on employees.
Corporate finance and securities law
Corporate finance and securities laws are fundamental to the way businesses raise capital and how they are regulated in the financial markets.
These areas of corporate law govern how companies issue stocks and bonds, how they disclose financial information to investors, and how they comply with regulations that protect market integrity.
Once again, corporate lawyers are integral to this process.
Understanding corporate finance
Corporate finance deals with a company’s financial activities, particularly its methods for funding operations, expansions, and acquisitions.
This involves decisions about issuing equity (selling shares) or debt (issuing bonds) and managing the financial risks associated with these choices.
Corporate lawyers see to it that these activities are conducted in a transparent and legally compliant manner, protecting both the company and its investors.
Securities law and regulatory oversight
Securities law, on the other hand, focuses on the regulation of securities markets and the protection of investors.
It establishes the rules for issuing and trading securities and mandates that companies provide accurate and timely information to the public.
The SEC is the primary regulatory body enforcing these laws, ensuring that companies do not engage in fraudulent activities like insider trading or misleading financial disclosures.
How this plays out in real life: Martha Stewart and insider trading
A well-known case in securities law is the insider trading case involving Martha Stewart. In 2001, Stewart sold shares of a biotechnology company based on non-public information, leading to her conviction for conspiracy, obstruction of justice, and making false statements.
This case highlights the importance of strict adherence to securities laws and the severe consequences of violating them.
Compliance and regulatory law
Compliance and regulatory law is another critical aspect of corporate operations. This area of law ensures that companies adhere to the myriad of laws and regulations that govern their industries.
Whether it’s environmental regulations, labor laws, or consumer protection statutes, compliance is about following the rules – and the consequences for failing to do so can be severe.
Key areas of compliance
One of the most prominent areas of compliance is environmental regulation. Corporate law imposes strict requirements on companies to minimize their environmental impact.
This can include everything from reducing carbon emissions to managing waste disposal.
Companies must also adhere to industry-specific regulations, such as those governing food safety, pharmaceuticals, or financial services.
Employment law is another critical area of compliance. Companies have to be ethical and follow labor laws, which include everything from fair wages and working conditions to anti-discrimination policies.
Corporate lawyers advise businesses on these laws, with the aim of protecting employees while maximizing profits – something that is often easier said than done.
Real-world example: Volkswagen emissions scandal
A notorious example of compliance failure is the Volkswagen emissions scandal.
In 2015, it was revealed that Volkswagen had installed software in diesel vehicles to cheat emissions tests, making the cars appear more environmentally friendly than they were.
This violation of environmental regulations led to massive fines, legal actions, and significant damage to the company’s reputation. It serves as a stark reminder of the importance of compliance in corporate operations.
Corporate litigation
Although the above-listed areas of corporate law are primarily transactional, we’d be remiss if we didn’t remind you that some corporate lawyers do practice litigation.
Corporate litigation involves the legal disputes that arise in the course of a company’s business activities.
These disputes can range from internal conflicts, such as shareholder disagreements, to external issues like contract breaches or intellectual property (IP) infringements.
Common types of corporate litigation
One of the most common types of corporate litigation is breach of contract. This occurs when one party fails to fulfill its obligations under a contract, leading to a legal dispute.
Corporate litigators prosecute these cases on behalf of their companies, with the goal of making sure the company ultimately gets what it bargained for.
Intellectual property disputes are another frequent source of corporate litigation. As companies increasingly rely on IP, such as patents, trademarks, and copyrights, the potential for disputes has grown.
Whether it’s a case of trademark infringement or patent violations, corporate litigators are charted with protecting a company’s valuable assets.
How this plays out in real life: Apple vs. Samsung
A landmark case in corporate litigation is the long-running battle between Apple and Samsung over smartphone patents.
Beginning in 2011, Apple accused Samsung of infringing on its patents related to the design and functionality of the iPhone.
The case spanned several years and multiple countries, resulting in billions of dollars in settlements and a significant impact on the tech industry.
This case illustrates the high stakes involved in corporate litigation, especially in industries where innovation is key.
Conclusion
While some people may view it as boring, corporate law is actually a vast and complex field that dictates much of the business world’s operations.
From the way companies are governed and financed to how they merge, comply with regulations, and handle disputes, corporate law exists to promote fairness, transparency, and accountability.
So, if you’re a new legal professional considering which career path you’ll take, don’t count out corporate law. You may find there’s just as much intrigue and drama in the boardroom as there is in the courtroom.
