What is company law?

Company law is, broadly speaking, the rules, regulations and legislation that act to govern the conduct of companies operating in the UK economy. This is an important area of law because corporations now own more wealth than any other type of organisation, and this bestows a disproportionate amount of power upon them.

What is a company?

Anyone attempting to answer the question ‘what is UK company law’ must begin with a definition of the modern company.

The ‘company’ or ‘corporation’ has become the dominant mode of generating wealth in the UK, with companies hiring more people than any other kind of organisation.

A company, otherwise known as a corporation, is a formal type of business association in which a publicly registered company charter ensures that it has a ‘separate legal personality’ from its members and it has its own privileges and liabilities, distinct from its members.

Companies are governed by corporate law and have a unique structure.

A company is typically made up of a management structure that oversees the day to day running of the company as well as shareholders who own the shares of stock of the company and employees who sell their labour to the company in return for a wage.

Most companies operate on the basis of ‘limited liability.’ This means that if the company should fail or go bankrupt then the shareholders will lose money and the employees their jobs but they will not be liable for any further debts that the company has.

A company is also defined by the law as a legal person. This means they have the rights and obligations of a natural person including human rights. This facet of the modern company is known as its legal personality and represents the fact that is the subject of rights and obligations. This means that companies can be sued and even convicted of criminal offences such as manslaughter or fraud.

Despite UK company law considering companies to possess this legal personality, they can still only act through the employees that make up the day to day operations of the company. The law thus sets up a distinction between the company itself and the people who make up its composition. This distinction is legally known as the rules of attribution. This will allow for aggrieved third parties to sue the company itself rather than the employees and acts as a practical application of limited liability.

United Kingdom company Law

The UK was the first country in the history of the world to draft modern company statutes.

As a result, modern companies can trace their history back to the industrial revolution, and UK company law has become widely influential throughout the Commonwealth and Europe. This model of company law has always given emphasis to the rights of companies to create their own internal rules and procedures on the condition that certain minimum rights are complied with.

UK company law can be roughly divided into two areas:

  • Corporate Governance – this area of company law is concerned with obligations and rights that directors, shareholders and employees have within the company. UK company law is generally considered to be ‘shareholder friendly’ in that it is shareholders and not employees who typically have sole voting rights in meetings to change the company constitution, remove board members and create resolutions.
  • Corporate Finance – this area of company law is concerned with how companies raise money. They can choose to issue shares for sale which will increase the company’s capital, called equity finance. As an alternative to this the company can obtain money through taking out loans and paying off the interest, referred to as debt finance.