Corporate Law – Law

3303
Workshop 1
Jann Tosatto – J.Tosatto@hhs.nl – RZ3.69

With thanks to:

Hyun-Ju Park - Slides
Miera Montero – Co-lecturer

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Welcome …
• There are a lot of us (one hundred -ish) … so …
• Mobile phones on silent, Facebook, Whatsapp, etc. can wait.
• By general consensus - we’ll skip a break and finish up early
• Quick Show of Hands – who’s done the readings? – All the readings?
• Students who don’t do the readings make me sad 
• I’ll upload the slides to BlackBoard after the workshop

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We’ll basically be revising the
contents of the Lecture!
• Because many of you weren’t there
• And many of you who were there hadn’t done the readings!
• And I think you will profit most from revising the material
• So we’ll go through the lecture quickly, and end with some discussion
time

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Aims of the course – from the CD
• At the end of the course, students:
• Show their basic knowledge on the scope and subject matter of corporate law
• Show their basic knowledge on new trends in corporate law;
• Identify and/or describe the purpose and/or the core characteristics of a company or
corporation;
• Describe the function and core responsibilities of the main key actors in a corporation;
• Recognize and/or reproduce core principles applying to a company or corporation;
• Identify and/or describe the main legal issues relating to companies or corporations;
• Read and/or apply the relevant provisions of company law in legal systems under discussion;
• Solve non-complex legal issues relating to companies or corporations.
• This will be tested by one Assignment and one Exam (30% and 70%)
• This course prepares you for Advanced Corporate Law in Y2/B2

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Organisation of the Course
• Theme 1: Introduction to Corporate Law: the UK, Germany, the
Netherlands, and the US
• Theme 2: The Company and its core characteristics
• Theme 3: The role of the Shareholders – the relationship between the
organs of a corporation
• Theme 4: Decision Making: Representation and the role of the Directors
• Theme 5: Director’s Duties and Liability
• Theme 6: Incorporation or establishment
• Theme 7: Insolvency, Winding-up and Dissolution

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Advice on how to pass the course …
In no specific order …
• Buy the reader(s)
• Otherwise it will be difficult to do your readings
• Attend the lectures
• Attend the workshops
• Do your readings before the lectures
• That way the lectures and workshops are revision of concepts you are already familiar with
• Take written notes
• My powerpoints are not equal to your written notes!
• Revise after the lecture, a little each week, all the way to the exam
• Cramming before the exam is inefficient! And stressful!
• Ask if you don’t understand
• I don’t read minds and I don’t bite
• Plan to sit and pass the 1st chance assignment and exam
• When the material is fresh in your memory – resits are a bad deal for you! 6
This week:
• Subjects
• Corporate Law – what is it and how does it relate to other fields of law?
• Types of business formats: ‘sole proprietorship’, ‘partnership’ and
‘limited partnership’
• Questions for class discussion (show of hands?)
• Can you describe what body of law is covered by ‘corporate law’ or
‘company law’?
• Can you describe what a ‘sole trader’ or ‘sole proprietor’ is or does?
• Can you describe what a ‘partnership’ is or does?

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Required Readings
• J. Lowry & A. Reisberg, ‘The nature of company law’, Pettet’s Company Law: Company Law &
Corporate Finance, Pearson, (2012) (hereinafter: “Pettet’s Company Law”), pp. 3 – 5 & 9 – 15
• D. Kershaw, ‘An Introduction to the Context and Consequences of Incorporation’, Company
Law in Context, Oxford University Press (2012) (hereinafter: “Kershaw,Company Law in
Context”), pp. 2
• Dignam & Lowry, ‘Introduction to company law’, Company Law, Oxford University Press
(2012), pp. 1-10
• Not in the reader??? Try: http://www.dphu.org/uploads/attachements/books/books_3958_0.pdf pp 13 -
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• Meiners R.E. et al, Legal Environment of Business, Mason (Ohio, USA): Thomson Reuters,
2006, 9th edition, p. 347-352.
• http://www.cm-murray.com/wp-content/uploads/2016/03/LIttleBookOfPartnershipLaw.pdf
pp. 1-8
• Sorry about some of the reader being a poor photocopy!
• I’m not responsible!

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What is a company?
• A body of persons combined or incorporated for some common
object; esp. to carry on some commercial or industrial undertaking
• Oxford Shorter English Dictionary
• The English word company has its origins in the Old French military
term compagnie (first recorded in 1150), meaning a "body of
soldiers",
• which came from the Late Latin word companio ("one who eats bread
with you")
• Com – Together
• Panis - Bread

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(brief) History of the company
• The “corporation” comes from the latin corpus – for body of people – specifying a business
performed by people but separate from the actual people performing the function
• Thus governments and religious functions might “incorporate” to give them a legal standing
• E.g. the “City of London Corporation”
• Chartered companies, associations of investors incorporated and often granted exclusive
rights by royal decree, were formed for the purpose of trade, exploration, and colonisation
• Joint Stock Companies, where the company's stock can be bought and sold by shareholders,
evolved
• Famously including the Dutch East India Company (VOC), British East India Company , South Sea
Company (which ended badly!)
• the Dutch East India Company issued shares that were tradable on the Amsterdam Stock Exchange.
That invention enhanced the ability of joint-stock companies to attract capital from investors, as they
could now easily dispose of their shares. In 1612, it became the first 'corporation' in intercontinental
trade with 'locked in' capital and limited liability.
• The birth of the “modern public company”

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What is Company Law?
• Also termed law of business organisations, corporate law, or
corporations law
• It is the body of laws that regulates the internal affairs of a company
• Company formation, dissolution, administration, rights of owners / shareholders etc.
• As distinct from business law or commercial law
• Which is the body of laws that regulate the external affairs of a company
• How the company does its business: Contract law, employment law, tax law, etc.

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First … Some terminology:
• UK – Company (PLC, LTD)
• US – Corporation (LLC)
• EU – Undertaking
• NL – Corporation (BV / NV) – Bedrijf / Onderneming
• DE – Corporation (AG / GMBH) - Unternehmen / Geschaft

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Jurisdictions we discuss
• UK – Common law jurisdiction with EU influences (directives)
• US - Common law, predominantly state level legislation with some
federal jurisdiction
• Therefore 50 separate state corporations laws
• Delaware is the dominant state for company incorporations
• DE – Civil law jurisdiction with EU influences (directives)
• NL – Civil law (but somewhere between DE and UK in style)

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Company Forms – How can we do
business?
• There are various common business entities which we will discuss in
the course:
• Sole Trader or Sole Proprietorship
• Partnership
• Company (public and private limited companies)
• There are others – but not covered by this course – see “company” on Wikipedia!
• All deal differently with questions of how business is done:
• How capital is allocated
• How risk is allocated
• How the business is internally organized/structured

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Sole Trader / Proprietor
• A person doing business for themselves is a sole trader
• It is the oldest and simplest form of business organization
• The sole trader IS the business. They own and control the business,
they enter into contracts in their own name, they personally bear all
the risk of the business (unlimited liability). They also receive all the
benefits (profits).
• A sole trader typically has few or no formalities for doing business
• (they may be required to register their business name, register for tax, keep
certain records, etc.)
• The form is generally lightly regulated
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Bob the Baker – is a sole trader
• Bob is a baker
• Bob buys wheat from Fran the farmer
• Bob pays Max the miller the turn the wheat in flour
• Bob buys wood from Wally the woodsman to power his ovens
• Bob bakes bread every night
• Bob’s wife Barb sells the bread during the day to the townsfolk
• Pretty Straight forward!
• The money Bob receives from his bread sales pays Fran, Max, and Wally (his suppliers)
• Any profits he makes are his own
• But Fran’s wheat is harvested in Autumn – and Bob agrees to buy her entire harvest then
(to secure his year’s supply!) for 120 guilders
• Bob agrees to pay her for 1/12th of the wheat every month (as he makes his sales) – and
stores his wheat in his storeroom.

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Bob the Baker – Calamity Strikes
• Bob’s storeroom floods in December and the wheat is ruined.
• Bob has no wheat to turn into bread – so Bob can’t make any money.
• But at the end of the month Fran still expects to be paid her agreed monthly fee of 10
guilders
• Bob has personal savings of 10 guilders – what does he do?
• In January – Bob still has no wheat – so he can’t bake bread – but Fran still expects to
be paid!
• Bob’s house is worth 20 guilders
• What does he do? Where will he live?
• February – March – April – May …..
• This is the problem of unlimited liability!!!
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Partnership
• A partnership is formed when two or more people go into business together
• Partners share in the decision making and jointly contribute capital
• Partners jointly own the business, and are jointly and severally responsible for the
risks of the business
• unlimited liability … in most cases!
• What is jointly and severally?
• Partnerships are regulated by law (e.g. UK: Partnership Act 1890) but that law can be
lacking … so
• Partnerships are (generally) organized according to a partnership deed … setting out
procedures and rules relating to capital maintenance, profit shares of individual
partners, the admission of new partners and the resignation of existing ones.
• Partners owe a the highest duty of trust and loyalty to each other wrt the partnership
• A so-called “fiduciary duty”

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Types of Partnership
• General Partnership (GP)
• Each partner participates in the business activities and decision making, and is (jointly and
severally) liable for all its debts and obligations
• Limited Partnership (LP)
• As in a General Partnership, but also with limited partners, who contribute capital but are
silent as to its decision making. Limited partners are not liable for the debts and obligations
of the partnership.
• Limited Liability Partnership (LLP)
• A relatively modern invention, whereby all partners can have so-called “limited liability” for
the company’s obligations
• Useful for Accountancy and Law firms engaged in “risky” advisory activities (such as
company audits)
• Some professions (like lawyers and accountants) are not allowed to be incorporated into companies.

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Sam and Sally are Stonemasons
• Sam and Sally are Stonemasons
• They want to go in to partnership together – so they agree to work
together as “Sam & Sally Stonemasonry”
• They both contribute 10 guilders to the partnership
• They both make their decisions together, and either can sign contracts
in the name of the partnership
• They both share in the profits equally

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BUT Sam is a terrible
businessperson …
• Sam neglected to mention to Sally that he was expelled from the stonemasons guild for
improperly waterproofing Bob’s storeroom.
• Sam also runs up debts of 100 guilders wining and dining the local dignitaries, including
paying for his own birthday party
• And he buys stone from his brother – who pays him a personal tip as thanks for the order
• Sally discovers that, without both being members of the stonemasons guild, no one will
hire them.
• Sam is poor and has 10 guilders of savings
• Sally is rich, and has 50 guilders of savings
• How do the creditors get paid?
• Do you see the issue with Unlimited Liability AND Jointly and Severally

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How should partners behave
towards one another?
• Can Sam use the partnership funds to pay for his personal birthday
party?
• Did he have a duty to tell Sally about his expulsion from the
stonemasons guild?
• Was Sam buying stone from his brother and receiving a tip a
problem?

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Partners have a duty of good faith
towards the partnership
• Partners must always place the interest of the partnership above their
own personal or business interests
• This is termed a fiduciary duty.
• It imposes upon the partners the highest standards of care, the duty
to act for the common benefit of all partners in transactions relating
to the business, and the duty to refrain from taking advantage of one
another by any misrepresentation, concealment, threat, or adverse
pressure relating to the partnership and its business.

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Partners have a:
• Fiduciary Duty
• Partners stand in a fiduciary relation to one another in all matters pertaining to the partnership.
• Which Means:
• Duty of Good Faith (and Fair Dealing)
• The obligation of good faith and fair dealing begins with the preliminary negotiations in forming the
partnership and continues throughout the life of the partnership, extending to the dissolution and
complete settlement of the partnership affairs. 
• Duty of Loyalty
• Partners must always place the interest of the partnership above their own personal or business interests.
• Duty of Care
• The duty of care requires partners to act in a reasonably prudent manner with regard to their
responsibilities for carrying out the partnership’s business and activities.
• Duty of Full Disclosure
• Partners are required to fully disclose to other partners any information relating to the partnership and its
business that could affect a partner’s interest in the partnership

• For further details see: https://www.lawyers.com/legal-info/business-law/small-business-law/general-partnership-and-

fiduciary-duties.html
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Partnership Questions -
• Latta v. Kilbourne (Reader p37)
• What is a fiduciary duty?
• Clarke v. Lubritz (Reader p38-9)
• If Lubritz was contributing less work than the other partners, why should he
share equally in the profits?
• If the doctors wanted Lubritz out what should they have done?
• Carella v. Scholet (Reader p40-1)
• What if the Scholets turned down a higher price? Would it be fraud or a
breach of fiduciary duty then?
• How could the limited partners have protected themselves?

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Preview of next week – the
Company
• A Company is a new legal entity formed according to the action of law.
• It is a convenient “legal fiction” – as it has no “substance” – it is purely a creation of law. It is a “legal
person”
• As opposed to a natural person!
• It is owned by “shareholders” who contribute capital
• And managed by “directors” who make the decisions
• Its owners (shareholders) are legally separate from it (and its liabilities), but have a right to share in its
profits
• Neither the shareholders nor directors are personally responsible for the obligations of the company –
the company itself is.
• Thus the company form limits the liability of its owners and managers for its debts – it creates “Limited
Liability”
• It is a creation of law regulated by law, with formalities set out by law, formed through the legal process
of “incorporation”

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Lecture 1 – what did we discuss?
• What is corporate law?
• What are the various business forms?
• Sole trader
• Partnership,
• and the Company
• (which we will discuss further as the course progresses)
• Questions:
• Can you describe what body of law is covered by ‘corporate law’ or ‘company
law’?
• Can you describe what a ‘sole trader’ or ‘sole proprietor’ is or does?
• Can you describe what a ‘partnership’ is or does?
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Stay tuned next week for …
The Company and its core characteristics

•  Subjects • Questions for class discussion:

• Can you describe what a ‘company’ or ‘corporation’
• Company’ or ‘corporation’, public is or does?
companies and private companies • Can you describe what ‘limited liability’ of a
• Purposes of the company shareholder is?
• Can you describe what ‘delegated management’
• Core characteristics of the company: means in light of companies?
• (1) ‘corporate personality’ or ‘legal • Can you describe what a ‘supervisory board
personality’ director’ is?
• Can you name core characteristics of a company?
• (2) limited liability
• Can you think of reasons why one would want to
• (3) transferable shares establish or ‘incorporate’ a company?
• (4) delegated management • Can you explain the UK Entity doctrine in light of the
general Corporate Law principle of ‘legal
• (5) shared ownership personality’?

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DO YOUR READINGS …
• Kershaw, ‘Formation basics’, Company Law in Context, pp. 14 – 29
• Kershaw, ‘The Entity Doctrine’, Company Law in Context, pp. 30 – 41.

• It’s, like, 26 pages

• I’ll be very disappointed if any of you don’t do it.
• Seriously! When I was in law school we had 200 pages of readings per week per subject
… you have it easy!!!

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See you at the Lecture on Friday

• Maybe start looking at / thinking about the assignment???

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