The Nature and Formation of Corporate Entities - Assignment Example

CORPORATE LAW (Author’s Name) (Institutional Affiliation) Abstract Corporate entities are organizations usually guided by legal rules and regulations. Unlike fictions, they are legal persons that are formed under certain constitution with clearly underlined objectives and enjoy certain rights. Corporations could either be legally or illegally formed. The legally formed corporations usually conform to the legal requirements and are also referred to as de jure corporations. On the other hand, corporations formed on the basic legal requirements are referred to as de facto corporations. A part from being total entities, corporations need human beings for its existence. This is clearly depicted by the fact that organizations are basically formed by different people in chard of the daily running of the company. Corporations are usually formed either for business purposes thus could either become profit making companies or nonprofit making entities. Profit making organizations usually transact with the public through the sale of shares (Tomasic, Bottomley & McQueen 2002). These organizations also transact among themselves for the maximization of their profits. This in turn shows the typical nature of organizations. They are usually active entities that strive to cover the set milestone s within a specific period. Unlike passive entities, corporate entities involve the use of finances in their daily transactions to incur more capital gains. The costs and revenues incurred in this type of entity is usually accounted for through an efficient and up to date financial system. It is also evident that corporation ethics is up held in such institutions. This is whereby all the members of the organization are held responsible for the maintenance and sustainability of the entity’s goals and objectives. The nature of a corporate entity is also defined by the use of different theories. The concession or the fiction theory basically states that corporations are bodies that can not be seen. These bodies are formed on the basis of agreements between different individuals who have the same objectives. These are bodies that are merely formed but can neither be touched nor felt. This theory states that corporate entities are usually an abstract formation of persons guided by the underlying legal requirements. According to this theory, corporate entities could also be classified as artificial bodies that usually seize to exist after the achievement of their goals and objectives. They conduct their activities in a cycle with different stages of development (Tomasic, Bottomley & McQueen 2002). These stages start from the conception of the organizations up to the point at which the organizations achieves all its goals. According to Phillips, the concession theory later developed into the fiction theory. The fiction theory basically implies that intangible organizations formed on the basis of concession are usually guided by an underlying constitution. This is whereby the initially formed entities develops to become an institution with clearly defined offices and protocols. It is at this stage that the corporate entity can also be described as a legal person (Tomasic, Bottomley & McQueen 2002). The fiction theory on the other hand explains that organization transition from its artificial state to a real state with the introduction and utilization of the legal requirements. This is where different organizations heed to the general requirements of the country’s company laws and acts about the formation and regulation of organizations. Aggregate theory on the other hand states that corporations are formed on the basis of different groups coming together. Aggregate which simply means group or a large number of people could also come together to form a corporation. This is whereby different people, say, an aggregate, team up to form a strong entity based on a common objective. This theory was formed in the late 1800s whereby corporations did not only comprise of the shareholders but also other officers and managing directors. The aggregate theory attributes to the fact that corporate entities could also be formed to include the public. This is usually depicted in cases where different organizations launch initial public offers, IPO. It is through the buying and selling of these bonds that the public gain ownership of such corporations (Tomasic, Bottomley & McQueen 2002). The nature of corporate entities could also be described through the entity theory. This theory states that corporations developed from a primitive and less serious organizations to powerful and more organized entities. This shows the corporations could be viewed in terms of the structures and functions attached to the different individuals in different organizations. This therefore implies that corporate entities cannot be referred to in terms of an individual but in terms of the capital ownership and the objectives attached to it (Tomasic, Bottomley & McQueen 2002). Formation of corporate entities is therefore usually tied to a certain vision and mission objective. It is through these goals that different offices are established with different responsibilities. These offices on the other hand hold titles therefore not any single individual can claim a life time ownership of a given office but operate within the tenure system as stipulated in the terms and conditions of the contracts. Entity theory on the other hand shows how corporate entities are organized form of bodies. It also explains that corporations function as the human body system (Tomasic, Bottomley & McQueen 2002). This is attributed to the fact that the body system depends on different units within the body for its efficient function. According to the theory of structuralism, corporations look up to the different structures it has for it to successfully achieve its vision and mission. These structures include the different departments that are formed within the organization. These departments are assigned with different responsibilities to ensure the achievement of the organizations’ goals. Failure of the performance by a single department would in turn lead to the failure of the entire organization and thus the corporate entity would be rendered useless. Discuss the reasoning in the judgments for the differences between the decisions in Percival v Wright with the reasoning in Coleman v Myers and Brunninghausen v Glavanics Percival v Wright case clearly states that directors of different organizations usually act independently of the shareholders. This is whereby the directors only carry out the activities of the organizations without the consent of the shareholders. Percival and Wright case can be observed in a situation whereby directors plan to execute a critical task, say, purchase of new assets without consulting the shareholders (Tomasic, Bottomley & McQueen 2002). This case stipulates that it is the directors who are held responsible with the daily management of the organization’s plans and duties. In as much as shareholders usually feel out of place when such plans are executed without their consent the overall judgment usually dictates that the directors are the sole managers of different organization. The shareholders overall position in the organization is not affected. Coleman v Myers on the other hand state that the directors are usually in charge pf thhhe overall running of the organization. In this case, the shareholders largely depend on directors for the organization’s policy making and implementation. The respective shareholders do not need information on the direction given by the directors. A typical case is seen whereby a given family privately owns a firm and totally depends on the directors for the functioning of the organization. All the wrong decisions made or in cases where the organization runs at a loss then the shareholders would put all the blame on the sole decision makers who are the directors. According to the Coleman v Myers, the overall owners of a given entity do not have the basic management skills required. This becomes the reason why the overall responsibility solely lies on the directors. Brunninghausen v Glavanics case typically states that both the shareholders and the directors are the major drivers of an organization. According to this case, both the parties have independent responsibilities within the organizations. There is the division of labor in this situation after which each both the directors and the shareholders separately focus in the achievement of the organizations goals. Consequently, the shareholders in this perspective are not dependent on the directors for the decisions made. This is whereby the organization’s shareholders have all the basic skills and requirements required in the execution of critical decisions needed within the organization (Tomasic, Bottomley & McQueen 2002). The ultimate interests of both the shareholders and the directors are also adequately considered. What are some of the issues with nominee directors? Nominee directors include such persons that take up the duties of managing different organizations after an appointed by the institution or the shareholders. These are usually qualified personnel who are in charge of the running of the organization. Nominee directors usually use their names to represent the organizations in which they are working for (Tomasic, Bottomley & McQueen 2002). They are held accountable for the losses and profits made and above all, they are usually answerable to the shareholders and other appointing authorities within the organization. The rights and freedoms of different nominee directors are usually protected by the companies act. It is this act that clearly stipulates the roles and responsibilities of such individuals. Consequently, unlike other directors in different organizations, nominee directors are usually protected by a tenure system. This is whereby the nominee directors get appointment to the office for certain duration of time. They do not need to face retirement as the other directors are entitled to. It is also observed that the nominee directors are usually independent of the organization’s shareholders. Ones they have been appointed into office, the shareholders rely on them for the policy formulation and implementation of the organizations activities (Tomasic, Bottomley & McQueen 2002). This is whereby the nominee directors would assume ownership of the organization while they are still in office. Overreliance on shareholders and the other directors usually reduce the efficiency of the nominee directors. It is therefore required that most of the duties within a given institution are performed by the nominee directors. What are the arguments for and against the proposal to change the Corporations Act to require (or allow) directors to take into account the interests of stakeholders and the broader community when making corporate decisions. According to the corporations act, most of the policy formulation and implementation of different organizations is done by the directors. These include both the institutions’ directors and the nominee directors. These directors are usually qualified to undertake the different responsibilities of the firm. Changing this system would in turn have both positive and negative impact on the general performance of the organizations activities. Most organizations have ruled out the basic idea of changing the corporations act to include the stakeholders’ interests. These directors usually leave out shareholders in the organization’s decision making due to the fact that most of the shareholders lack the relevant skills and qualifications in handling such tasks. To maintain professionalism and ethics in the institution’s transactions, directors usually rely on their own ideas and skills. Since most of the shareholders and the larger community are only interested in the positive returns of the firm, they would only make decisions without taking into consideration other crucial factors. Such partial decisions would only lead to the fall of the organizations (Tomasic, Bottomley & McQueen 2002). It is also required by the corporation act that the daily activities and representation of the firm be done by the nominee directors. Inclusive of the shareholders and the broader community would mean sabotaging the duties of the appointed nominee directors. Since the nominee directors are employed and paid by the shareholders funds and contributions it would turn out to be a burden to the shareholders when they are also involved in the management. However, due to the fact that organizations are run and owned by the shareholders and the broader community, it is therefore advisable that the interests and needs of such owners be satisfied by the organizations. This therefore supports the changing of the corporation act to include the interests of the shareholders. Have the judgments in the James Hardie cases involving directors made any changes to the law in this area? The James Hardie case involved the breach of the directors’ duties by giving wrong information to the market. According to the Australian Security Exchange, James Hardie’s violation of law was supposed to be used as a learning experience to the other companies and organization prone to giving wrong information about the market (Tomasic, Bottomley & McQueen 2002). The falls information given by this company in turn misled the entire market and the consumers within the market. According to this case, it was established that both the members of the board in different companies and the counsel were held responsible for the daily running of the organization. In cases where the directors gave wrong information to the market, it is evident from this case that the entire company would also be held responsible. On the other hand, the judgments made from the James Hardie case required that general counsel should also be involved in the correct statements made by different firms. This is whereby, the general counsel is held responsible for the legal risks that organizations are faced with in different regions. According to section 180 (1) of the corporation act it is stipulated that the general counsel should closely supervise all the activities of a given firm before it ultimately releases volatile analysis about the market. This case basically helps to warn the directors as well as the general counsel of the likely repercussions of the circulation of wrong information about the market. Consequently, it helps remind the different institutions involved of their duties and responsibilities pertaining to the dissemination of reports about the analysis of different markets. Statutory and Case Law Laws are basically divided into either the legislative or the judicial laws. Legislative laws are those that are solely formulated by the law making body usually the parliament. On the other hand, judicial laws are usually created within the different judicial systems including the courts and the respective judges. Statutory law refers to all the written laws that have been legislatively created. These laws are formulated through the different acts of the legislature and organized as a written document. Statutory law is usually founded on the ancient policies used by the historical persons (Tomasic, Bottomley & McQueen 2002). The establishment of such laws requires a lot of stages to be followed before their ultimate existence. Before laws are established, they usually go through several stages within the legislative body before they are presented before the judges for implementation. This becomes the sole reason why changing such rules ones they become law is usually difficult. Case law on the other hand is the unwritten type of rules that are usually formed on the basis of past judgments made in the courts of law. These laws are usually very flexible and are used to handle the current related cases. Due to their flexibility, Case law usually face periodic alteration depending on the needs and urgency of the judgments to be made. Case law is usually the major source of the stare decicis in the courts of law (Tomasic, Bottomley & McQueen 2002). This is whereby different judges apply previous rulings made by other judges as precedents to make other current judgments. These laws are also used in cases where judges are faced with major decision to make. They therefore use the case laws to help them make the adequate and sober judgments required of them. Discretion among the different courts of law highly depends on the types of the laws used. Courts that usually depend on the statute laws find more constraints in the judgment making process as compared to courts that use the case laws. It is therefore evident that case laws are better to use in making decisions than the legislative laws. Judges who utilize statute laws are always required to strictly follow all the laws as stipulated in doctrines. This in turn usually leaves the judges with no option in their judgment process. It is due to this constraint that the use of statutory law is held efficient (Tomasic, Bottomley & McQueen 2002). The use of Case law on the other hand usually gives the judges sufficient room in which they can base their judgments. This is seen incases whereby judges use previous judgments to make the current judgments without any alteration of the law. Use of case laws as precedents on the other hand saves time and builds the trust of the public on the judicial system. It is clearly depicted that in cases where judges use their own might to make up decision usually lead to loss of trust from the public. It also allows courts to make both the easy and complex judgments. This could clearly be depicted in, say, an individual is accused of killing his brother while they were playing (Tomasic, Bottomley & McQueen 2002). The complexity of the case arises in a case whereby the accused is said to be psychologically unstable. Due to the fact that such a case had existed in the past, the current judge would simply refer to how the previous judge handled the case and use those judgments to make his ruling. However, it is observed that most of the courts that use the case laws are usually aligned towards the use of more complex than easier decision. This is seen in cases whereby more than half of the judges would ignore researching into cases but simply use previously solved cases as precedents. This in turn makes the judge’s responsibilities easier by largely depending on the Case law to make current judges. Prolonged use of case laws would therefore lead to an establishment of a lazy kind of judicial system. This is clearly depicted through the fact that most judges would only depend on the past judgments made by other judges and forget to make their own judgments on the currently emerging cases. Unlike the statute laws, the case laws are usually faced by the time inconsistency problems. Time inconsistency generally known as present bias is usually depicted in two basic ways. Initially, judges use precedents based on the past cases to determine the present judgment of a given case (Tomasic, Bottomley & McQueen 2002). This is whereby different judges refer to the earlier decisions that had ones been made by other judges in the formulation of a judgment to handle a current similar case. On the other hand, present bias could mean that the judgments could be made independent of the past requirements of the laws. Judge would only need the trends and the decision is made. Current judgments could also be used to determine future cases that would happen. The use of precedent is usually valid within a certain period which after it elapses they are rendered less effective. Due the current pressures and the constantly evolving world, most individuals would not take historical case laws used in the 18th century as a stare decicis in today’s court (Tomasic, Bottomley & McQueen 2002). Flexibility of the case laws is in turn used to counter such a problem. Judges on the other hand can view both the ex ante and the ex post stages of a case differently and out of emotions. A typical example that involves time inconsistence is seen where a judge fails to heed to the requirement of the laws written but formulates his own ruling out of sympathy. According to the Economic Loss Rule, employees cannot sue their employers in cases of economic loss if their contract had expired or in cases where there was physical evidence, say, accidents or personal injuries. It is therefore considered that in cases where a retired plaintiff tried to sue their employers for a loss that happened while he was still working would ultimately be considered null. Other judges could still treat that case out of sympathy and ensure compensation for such a plaintiff. This being an ex post stage of the problem that had already occurred, the judge avoids following the requirements of the written law and instead makes his own judgments after emotionally listening to the plea of the plaintiff (Tomasic, Bottomley & McQueen 2002). Constant revision of the Case laws should therefore be done to avoid inconsistency and maintain efficiency. Statute law on the other hand only use the written laws in its daily formulation of judgments. It experiences inflexibility in the alteration of the already created laws to meet the current judgments within the courts of law. This inflexibility therefore is used as a constant measure of the courts efficiency to working with the constantly changing world. Judge made laws are usually more efficient with respect to the statute laws. This is due to the fact that judges usually come up with sober decisions that are made after a professional analysis of the different situation and cases handled. These laws are basically made with respect to the inefficient statute laws. It is due to the inconsistency in the statute laws that judges fail to make an all inclusive decision on different cases. This can be explained by the fact that the statute laws made by legislators are simply meant to satisfy their personal incentives and self gratification. Legislators usually aim at leaving huge marks in their office during their tenure. They therefore end up making inefficient laws which constantly face revision through the creation of the case laws (Tomasic, Bottomley & McQueen 2002). The judge made laws were basically meant to correct the flaws encountered during the use of Statute law in the establishment of judgments. This further explains the reason for the increased use of Case law in the United States over the Statutory law. Statute laws are usually created by legislators most of whom have little or totally lack the required knowledge and skills in Law. It is therefore evident that these laws usually have misleading sections and acts that are totally inefficient in the making of decisions. Consequently, the prevalence of the appellate courts further justifies the fact that most individuals are usually unsatisfied with the rulings made by the lower courts. In most cases, it is only the courts of appeal that sufficiently utilize stare decicis and the use of precedents in their ruling. The use of Case law is therefore largely implemented within the courts of appeal as compared to the other lower courts. The increased appeals by individuals from other courts with low jurisdiction therefore are an adequate indication of the lost trust by the public in the decisions made by them. This is also attributed due to the fact that most of the lower courts use the statute law in their day to day formulation of judgments. The written laws usually contain aspects of judicial bias which in turn lower their inefficiency in the formulation of judgments. This is usually depicted in cases where the judges intentionally avoid the written laws in their decision making. Such judges are usually impartial and make judgments out of their own discretion. Judicial bias in turn leads to the dissatisfaction of either the plaintiff or the accused and ultimately the loss of trust in the judicial system (Tomasic, Bottomley & McQueen 2002). It is therefore considered that the Case laws are usually superior to the statutory laws. This is because they not only give sufficient judgments but also show how a similar past case was handled. This usually acts as a proof that the judgments made with respect to the Case laws are usually just and accommodative. Consequently, it is also established that Case laws are usually used in cases where the written laws posed contradiction. These contradictions are explained by the fact that no clear law that specifies the ruling of a given crime. According to the Nicholls v Michael Wilson Limited, it is clearly evident of how the judge involved in this case conducted and upheld judicial bias in his judgment. It is observed that the judge is accused of having taken too much time in the analysis of the different files involved in such a case. The alleged misrepresentation of the witness’s evidence also triggered the judge’s biasness(Tomasic, Bottomley & McQueen 2002). Most of the corporate entities usually experience numerous complex cases. This is usually evident in the employer verses employee cases through the breach of contract. It is clearly evident in a scenario whereby the employee accuses the employer before a court of law of the violation of his rights. According to the Law of Tort, employee’s rights should only be protected for as long as the contract of such a worker is still valid. In cases where the employee is no longer a member of a given company he also losses its identification (Tomasic, Bottomley & McQueen 2002). Here arises a situation in which an employer is accused of violating the right s of an individual whose contract had expired. It is also observed that the judgment made in this case turned out to be in favor of the plaintiff. Bibliography TOMASIC, R., BOTTOMLEY, S., & MCQUEEN, R. (2002). Corporations law in Australia. Sydney, Federation Press. + Read More