New thoughts on corporate law principles for emerging market Advocate Matrika Niraula LL.M. (Commercial Law) Supreme Court, Nepal The concept of corporation itself is a strange and unique one. It is a creation and imagination of common law. It has to create, function and long run on the basis of legal philosophy. Laws relating to its creation and performance are only the procedure which are explicit and lay down in letter but the basic backbone is the philosophy of law which may not be found in law in black and white. All the philosophy as well as the procedural law in black and white those are co-related. Any literate person can read the black and white letter of laws but he will be unable to understand the philosophical part of the corporate law, which is very important in good corporate governance. Whether the corporation is an imagination of law there must be corporate lawyers to support breathing of corporation and corporate actors like a director, CEO or Auditors in a corporation. The concept of the corporation and corporate management was well established in English law in about 14th century. In the 16th and 17th centuries the idea of a legal unity of a group was fused with financial device of joint stock trading companies to bring forth the birth of what ultimately becomes the business corporation. The birth and death of legal person are determined not by nature but by the laws. They come into existence at the will and procedure of the law and they endure during its good pleasure. Corporation were established by Royal Charter earlier, by Statute by immemorial custom and in recent years by agreement of their members expressed in statutory forms and subject to statutory provision and limitation. The name "Company" was applied for the first time when it was adopted by the merchant adventures for trading overseas. They obtained Royal Charters conforming monopoly to trade and certain other privileges in many parts. As an illustration the East India Company’s charter was granted in 1600 (AD) granting monopoly of trade with the India , finally the East India Company acquired the India’s empire in the moment of inadvertence. From 1614 onward the joint stock transaction was introduced and until 1653 permanent joint stock was introduced by which private trading was forbidden to the members and these new types of company was called "Joint Stock Company". Until the earlier part of the 17 century there was no clear distinction between in unincorporated partnerships and incorporated company. At that time many joint stock companies were formed as partnership by agreement under the seal. The process of incorporation during the 17th and 18th centuries was by Royal charter or special Act of parliament. Consequently to meet the growing commercial needs of nation large incorporated partnership came into existence. The membership of each such concern being very large, the management of business was left to a few trustees, by which created divorce of ownership from management. "Rule of law" was not developed in such companies. Fraudulent promoters had a unique opportunity of exploiting public money. Many companies were created only to disappear after collect the public money, just like in Nepal now. It is most debatable question that the goal of corporate creation is for society or individual? But the human history has witnessed that the society itself is human composition obviously that any corporation is for the satisfaction of human need. The corporation is liable to fulfill human wants but the society is not liable to the same in case of societal harm. The corporation must be liable and responsible to not only the society but to the future generation in terms of natural resources consumption and preservation. We have limited natural resources and have to handover at par what we have acquired. The corporate investment should always be responsible to the others and coming generation. Traditionally the only motive of incorporation was profit making for the investors. If we recall the starting of company from Netherlands in 14th century it was only for return to the investors. The company was considered as of contribution of Capital by investor. From starting to 19th century social interest theory of the corporation was neglected. Famous jurist Bentham and Savigny were in better conflict on origin of law. Earlich has created a bridge between them. According to Earlich norms observed by the people whether in the matter of religious habits family life or corporate relation is law even if they are never recognized or formulated by the norms of the state. The philosophy of Earlich has been recognized time to time from modern jurists. Lord Denning has said: if a fact exists in society it must ultimately be recognized in law. Likewise law is not omnipresence in the sky but a social order depends on value of society which is purports to regulate the change of social dimension. The greatest profounder of sociological thought prof. Roscoe Pound has said that the law is a tools of social engineering in which conflicting pulls of political philosophy , economic interest and ethical values constantly struggle for recognition against a background of history, tradition and legal technique. After emergence of sociological school especially by Roscoe Pound the social engineering and balance of interest theory led the society towards social benefit from every movement of social – corporate actors. From the beginning of incorporation corporation constantly have getting direct and indirect benefits from state and society. Main lucrative benefit is recognition of separate personality and limited liability which are genuine to promote personal investment for the common and triangular benefits to capital investors, human resources investors and the society at large. Corporate existence and performance is depends upon the Corporate personality, Capital Investment and Human resource. It is quite appropriate to formulate a equation that, well preformed corporation is, the whole sum of Corporate personality + Capital investment + Human resource investment ( CP + CI + HRI = WPC). All businesses are run for the benefits and the benefit is a driving engine and fuel to hold the corporate destination. The instigating gear ‘benefit’ should be distributed to the triangular contributors as social and individual. One of the basic principles of the corporation is proportionate distribution of the benefits to the contributors. The legal personality and existence of the corporation is created and developed from the national policies, domestic laws, international practice and established principles of the laws. The corporation in any country now has to obey the National laws (legal codes), International laws (treaties, agreements, directives), Sub national legislation (state or provincial laws), Regulations, Listing rules, Standards, guidelines, and codes of best practice, Organic documents of the corporation (company charter) Corporate rules and provisions (company by-laws by which the corporation can acquire the perfect legal personality, and all these are ample contribution from the nation. Thus the first share goes to the society at large. The next contributor to the corporation is human resources. He may be the founder of the secret formula or industrial property, managing team, labor force who are liable to get the next share of the benefits. The next contributor is share investors who are ready to trust the national mechanism and personal wealth investment for the triangular sharing of benefits, which is generated only by his wealth. He has sacrifice a lot for common benefits and his investment is in high risk. His investment is to be highly appreciated and he is liable to gate the next share of the benefits. Obviously the corporate investment is major contribution from promoters side, human contribution to gear up the business is another major contribution from human resources. Likewise the mechanism and environment for corporate enhancement from state is another major contribution from the side of state and society. Thus the triangular contribution and triangular benefit sharing is major characteristics of modern corporation. Obviously man is social animal, beyond society human existence can not alive meaningfully. Human creation - the Corporation can not run beyond the society. The responsibilities of ensuring a minimum life standard for their human resources has also increased social interest in what theoretically are still privately owned enterprises. All corporations are having been articulated for social benefit. Now private property has been accepted even in socialist country – even in China but traditionally, the concept of private property came through the capitalism, and the corporate ownership came through the private property concept, ‘which is based on a system of private property ownership. Private ownership is recognized even in the production methods of companies, and companies are also recognized as being owners. The private property system is one in which all property is recognized as being owned by someone who has the right to control that property, but who must also bear the responsibility for any consequences of that control. The owner must bear responsibility for all such eventualities, for better or worse which is called ownership risk. In a stock corporation system, the shareholders who provide capital and equity are recognized as owners from an economic point of view, and are entrusted with the control, namely governance, of the company that they own. Capitalism is premised on a free economy and therefore people have the freedom to establish companies and undertake a variety of projects using companies. State or Government or the public sector has to provide basic support to the corporate sector. Indeed government as well as public sectors roles in strengthening corporate activities through: • Mandating: Domestic and international Laws has to mandate and foster regulations, penalties, and associated public sector institutions that relate to the control of some aspect of corporate investment or operations is essentials. • Facilitating: Setting clear overall policy frameworks and positions to guide corporate business investment in society , development of binding or nonbinding guidance and labels or codes for application in the marketplace, laws and regulations that facilitate and provide incentives for business investment in corporate social responsibilities by mandating transparency or disclosure on various issues, tax incentives, investment in awareness raising and research, and facilitating processes of stakeholder dialogue. • Partnering: Combining public resources with those of corporate business and other actors to leverage complementary skills and resources to tackle issues within the corporate social responsibility agenda, whether as participants, conveners, or catalysts. • Endorsing: Showing public political support for particular kinds of corporate responsibility practice in the marketplace or for individual companies; endorsing specific award schemes or nongovernmental metrics, indicators, guidelines, and standards; and leading by example, such as through public procurement practices and so on. Every company has to develop the system of discipline, transparency, independency, accountability, responsibility, fairness, and social accountability which are basic and inevitable ornaments and responsibilities of the company. Corporate legislation is a social need to protect and promote the corporate ornament responsibilities. Now it is must important need to formulate new approaches of company law which is neglected from company law draftsman in emerging market like Nepal. In emerging markets we are not able and liable to fallow the approaches of developed economic countries, distinct and workable approaches are our rights to protect the national and stakeholders’ interest. So emerging and transitional markets economies has to formulate separate principles and practices considering as: 1. Benefits sharing among triangular contributors (Government, Capital and Human resources) go to the society at large, capital contributors, and the corporate manpower. 2. National legislation compatible to the international, bi-lateral treaties and principles, seeking national benefits. 3. Privatization has been must to protect the wealth of state owned enterprises and foster private sectors business activities, corporate development. 4. Pro-consumers legal and regulatory mechanism is neglected in emerging market which is must needed in ours context. 5. Investor protection law and practice is also important and the policy and law should not be changed untimely, the investment and its returns should be protected. 6. Economic liberalization is must important tools to develop national economy which must be enhance to the destination. 7. Corporation should support and respect the protection of internationally proclaimed human rights; and make sure that they are not cause of human rights abuses. 8. Corporation should uphold the freedom of association and the effective recognition of the right to collective bargaining; the elimination of all forms of forced and compulsory labour; the effective check of child labour; and elimination of discrimination in respect of employment and occupation. 9. Corporation should support a precautionary approach to environmental challenges; undertake initiatives to promote greater environmental responsibility; and encourage the development and diffusion of environmentally friendly technologies 10. Corporate businesses should work against all forms of corruption, including extortion and bribery. It is quite obvious that corporate principles are the engine of the corporate development and we should adopt and follow the principles those principles are to be appropriate to our economic condition which are not appropriate we ourselves have to developed appropriately on the selective basis of the various international principles.
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