Influence of Corporate Theory on Company Law-Samples for Students

Questions: 1.Is corporate theory useful in understanding company law? 2.How has it influenced company law? 3.Why is agency problem such a big issue for the corporate theory? Answers: 1.The main subject matter of the paper is based on certain questions on the corporate law. The first question asked about the usefulness of corporate theory to understand the contents of company law. Theories help to understand and critically analyze a matter. Scientifically, it can be stated that a good theory reveal certain hypotheses regarding the subject matter of an issue[1]. According to the general principle of law, corporation or company is a separate legal entity in the eyes of law and therefore, it can be stated that every corporation has certain duties to do. It is important to recognize the nature of the corporation and corporate theories help to develop the base of the corporation and help to evaluate the concept of company law. The corporate theories have two dimensions. The theories have made a distinction in between the separate liabilities of the company from its stakeholders and an attempt has been made to identify the artificial creation of the state law[2]. This t heory is known as natural entity theory. There are certain corporate theories such as concession theory, fiction theory, aggregate theory, corporate realism and economic theory. According to concession theory, a company is an artificial creature and it does not exist without any special concession made by the state. Fictional theory is also focusing on the role of the state. The legal personality of the company has been established through aggregate theory[3]. This theory concentrates on the rights and obligation of the corporation. The separate entity of the company has for the first time engraved under the corporate realism theory. The importance of resource and production of a company has been established in the economic theory. Therefore, it can be stated that certain corporate theories are important to understand the basic nature of the companies[4]. The concept of corporate veil can be understood by the aggregate theory and the rights of the company have understood from corpor ate realism. 2.The corporate theories are influenced the company law to certain extent. Under company law, the scope and definition of the company has been discussed. the corporate theories, to certain point, tried to define the legal capacity of the company and deal with the rights and liabilities of the company. The scholars like Von Savigny, Coke Blackstone and Salmond have supported the fiction theory. This theory has been taken in the case of Salomon v A Salomon Co Ltdwhere the court observed that the existence of an artificial creature can be established separately and it should be separated from the other stakeholders. It has been mentioned in the concession theory that a corporation has no personal existence while acting within a state. The theory of corporate realism has influenced the rights and liabilities of the company. According to this theory, being a juristic person company acquired certain rights[5]. The real entity of the company has been instituted by this theory[6]. Under the purview of dual personality theory, every company has dual nature and if the stakeholders of the company tried to gain illegal profit, separate liability of the company could not be established and the corporate veil of the company will be pierced. However, the theory of corporate realism has certain loopholes. The theory has failed to answer regarding the status of the real person not acting as shareholders. The market segmentation of the company has been established by economic theory. Therefore, it can be stated that the corporate theories are creating certain impacts on the company law and they help to understand certain nature and character of a company. 3.The theory regarding the agency helps to understand the relationship in between the agent and principal. It has been observed that the agents are acting on behalf of the principal and the ultimate aim of the same is to act for the best interest of the principal[7]. However, matter of conflict arises when agent fails to act for the best interest of the principal[8]. Certain theories like fiction theory and corporate realism has been affected by this agency theory. It has been observed that the agency theory has made the company as the principal and the stakeholders as its agent[9]. The main duty of the agents is to act for the best interest of the company. However, to certain extents, it has been observed that the stakeholders have failed to act in good faith. Therefore, a conflict has been made in between the company and stakeholders. In certain times, the company has to pay for the wrongful act of the agents if he does any act due to course of his employment. According to Alan Dig nam A manager can be given a specific job description by the board but of en much of the actual authority is implied by the position held and by the custom in the company or industry. For example, Mike is a purchasing manager who used to work for X Ltd as head of its purchasing department. Mike has just started working with Y Ltd in the same role and has found that although in his previous job the personnel department did all the hiring. Y Ltd has only a small personnel department and thus it is the practice in Y Ltd that all staff related issues are the 12_Dignam_Ch12.indd 278 7/20/2012 5:21:41 PM Agency 279 responsibility of individual department heads. Here Mike has actual authority to hire employees even though his job description contains no such reference, it is purely implied from the internal practice in Y Ltd. In this process, the corporate veil of the company cannot be exercised. In this way, the theory of agency becomes a big issue. References: Cornelissen, Joep, and Joep P. Cornelissen. Corporate communication: A guide to theory and practice. Sage, 2017. Cotterrell, Roger.Law, culture and society: Legal ideas in the mirror of social theory. Routledge, 2017. Kraakman, Reinier, and Henry Hansmann. "The end of history for corporate law."Corporate Governance. Gower, 2017. 49-78. Kraakman, Reinier, and John Armour.The anatomy of corporate law: A comparative and functional approach. Oxford University Press, 2017. Lan, Luh Luh. "Corporate law [Book Review]."Singapore Journal of Legal StudiesMar 2016 (2016): 214. Lowry, John P., and Alan Dignam.Company Law. Oxford University Press, 2016. Rock, Edward B. "Corporate Law Doctrine and the Legacy of American Legal Realism."U. Pa. L. Rev.163 (2014): 2019. Schwartz, Mark S.Corporate social responsibility. Routledge, 2017. Stout, Lynn A., and Margaret M. Blair. "A team production theory of corporate law."Corporate Governance. Gower, 2017. 169-250. Stout, Lynn A., and Margaret M. Blair. "A team production theory of corporate law."Corporate Governance. Gower, 2017. 169-250. Lowry, John P., and Alan Dignam.Company Law. Oxford University Press, 2016. Cornelissen, Joep, and Joep P. Cornelissen. Corporate communication: A guide to theory and practice. Sage, 2017. Kraakman, Reinier, and Henry Hansmann. "The end of history for corporate law."Corporate Governance. Gower, 2017. 49-78. Schwartz, Mark S.Corporate social responsibility. Routledge, 2017. Lan, Luh Luh. "Corporate law [Book Review]."Singapore Journal of Legal StudiesMar 2016 (2016): 214. Rock, Edward B. "Corporate Law Doctrine and the Legacy of American Legal Realism."U. Pa. L. Rev.163 (2014): 2019. Kraakman, Reinier, and John Armour.The anatomy of corporate law: A comparative and functional approach. Oxford University Press, 2017. Cotterrell, Roger.Law, culture and society: Legal ideas in the mirror of social theory. Routledge, 2017.