Summary

Introduction 3

Chapter 1
Basics of Corporate Environment 6

Chapter 2
Before Company´s Formation 12

Chapter 3
The Corporation Was Born 18

Chapter 4
The Destiny of Corporation : Live or Dead 27

Conclusions 34

References 36

Glossary 38
Introduction
Introduction

The principal function of corporate

law is to provide business enterprises
with a common legal form.

Business corporations have a fundamentally corporate law enables entrepreneurs to

similar set of legal characteristics—and transact easily through the medium of the

face a fundamentally similar set of legal corporate entity, and thus lowers the costs

problems— in all jurisdictions. These of conducting business.

characteristics that we will discuss latter,

In this iBook, we explore the patterns of
respond in ways we will explore the
homogeneity and heterogeneity that appear
economic exigencies of the large modern
in US and Spain jurisdictions. This unit seeks
business enterprise. But the remarkable
to give a highly integrated view of the role
fact—and the fact that we wish to stress—is
and structure of corporate law providing
that, in market economies, almost all large-
a clear framework to lead to a better
scale business firms adopt a legal form that
understanding of individual systems, both
possesses the same basic characteristics of
alone and in comparison with each other.
the business corporation.

Moreover, our approach is to focus on

It follows a principal function of corporate
similarities. By doing so, we will illuminate
law that is to provide business enterprises
an underlying commonality of structure that
with a common legal form. By making this
transcends national boundaries.
form widely available and user-friendly,

Back to summary -4-

Basics of Corporate
Environment
Chapter 1
Chapter 1 Basics of Corporate Environment

Basics of Corporate
Environment

1. What is the Goal of Corporate

Law?

As a normative matter, the overall objective

of corporate law—as of any branch of

law—is presumably to serve the interests

Video TCorp 101: The Basics of
of society as a whole. More particularly, Corporate Structure / Source: Business
Roundtable
the appropriate goal of corporate law is to

advance the aggregate welfare of all who

2. What is a Corporation?
are affected by a firm’s activities, including

the firm’s shareholders, employees,

A corporation is a “legal person” who
suppliers, and customers, as well as third
may do business just as a natural person
parties such as local communities and
would do and is liable for its own debts
beneficiaries of the natural environment.
and obligations. Since a corporation is an
This is what economists would characterize
entity in its own right, its shareholders have
as the pursuit of overall social efficiency.
limited liability and will generally not be

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Chapter 1 Basics of Corporate Environment

held personally liable for the debts of 3. Classification of Corporation

the corporation. As a natural person would

do, a corporation enters into contracts In this section related to business

and conducts business, but it does so in organization, we are going to take a close

the name of the business. A corporation look at two classes of corporations which

also has similar legal rights as the natural are the closely held corporation and the

person. It may set up its own bank accounts, publicly held corporation. Additionally, we

hire employees, pay taxes, and sue and be will review the Spanish equivalent of the

sued, etc. corporation, the Sociedad Anónima.

Corporate law is a multi-faceted area of law

concerned with rules of business conduct

which are imposed by governments for

the performance of business transactions.

When we speak of corporation’s law, we are

speaking about business matters ranging

from the birth to the life and then the death

of the corporation. When studying the birth

of a company, formation and financing of

the corporation are key elements. On the

other hand, the life of a company involves

management via directors and officers and

control through its shareholders. The final

component of corporate law is the death of

a company which involves dissolution of a

company either by a merger or acquisition

or other form of dissolution.

Back to summary -7-

Chapter 1 Basics of Corporate Environment

3.1 Closely Held Corporation

The Closely Held Corporation is a

corporation with a small number of

shareholders who usually participate

actively in the management of the business.

Its shares are not traded on the open

market nor has it ever registered shares

to be issued to the public under federal or

state securities laws.

3.2 Publicly Held Corporation

The Publicy Held Corporation is generally

a corporation with a lager number of

shareholders who are members of the

general public. This means that there is

a public market for the shares of a public

corporation and the public may freely

purchase such shares. Distinct from the

closely held corporation, the publicly held

corporation is run a by a professional

management team who may each only hold

a small amount of shares in the company.

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Chapter 1 Basics of Corporate Environment

4.What is the Spanish Equivalent 5.What is the Difference Between

to a Corporation? a Closely Held Corporation and a
Publicly Held Corporation?
The US equivalent of a corporation in Spain

is called Sociedad Anónima (S.A.) Regardless The most important distinction between the

of whether a corporation is closely or closely and publicly held corporations is the

publicly held; it is classified according to marketability of its shares. In a publicly held

the designation S.A. There are certain corporation, if a shareholder is dissatisfied

requirements that an S.A. must meet such as: with the management of the corporation,

he has the option of selling his shares on

the public market. However, in a closely

held corporation, the shareholder’s only

possible choice may be to sell to other

shareholders who may be willing to buy but

perhaps only at a lower price.

Another difference between the closely and

publicly held corporation is that in the publicly

held corporation it is easier to estimate the

value of the corporate shares because the

public market provides a point of reference

as to what buyers and sellers believe the

shares are worth, while in the closely held

corporation there may be no way to calculate

the value of corporate shares.

A further distinction relates to ownership and

control of the corporation. In a closely held

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Chapter 1 Basics of Corporate Environment

corporation, most of the shareholders are

more than likely employed by the corporation

whereas in a publicly held corporation,

most of the shareholders have no tie to

management and only have limited input as

to the policies adopted by the corporation.

6.Other Modern Business

Alternatives to Corporation

The Limited Liability Company (LLC) is

a modern business alternative to the

corporation, which has increasingly gained

recognition in the US as a cost effective

alternative to the corporation. The cost

of creating a LLC can be as low as $100

with a tax regime similar to that of the

partnership. In addition, the LLC offers

its members limited liability and more

flexibility in management. The LLC is taxed

similarly to the partnership where the

company’s tax consequences pass through

the company to its members who include

their proportionate share of profits, losses,

income and deductions on their personal

income tax return.

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Chapter 1 Basics of Corporate Environment

6.1 What is the Spanish

equivalent?

In Spain, the Sociedad de Responsabilidad

Limitada (S.L.) is the Spanish equivalent of

the Limited Liability Company. In Spain it is

used as an alternative business form to the

S.A. This particular business form affords

members, referred to a participation unit

holders, flexibility in starting up, bylaws and

company governance. The S.L. is intended

to be more closely held than the S.A. and it

has a minimum capital stock requirement of

€ 3.005 which must be fully paid up at the

time the company is created.

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Before Company’s
Formation
Chapter 2
Chapter 2 Before Company’s Formation

Before Company’s
Formation

1. Pre – Incorporation
Transactions

A pre-incorporation transactions are

Transactions between two parties

(promoter of company and third party)

before a company is incorporated. They are

the life-blood of incorporation and a daily

occurrence in the business world. In this

chapter we will review what happens before

the birth of the corporation with a common

legal form between US and Spain - two

traditions the same road.

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Chapter 2 Before Company’s Formation

1.1.1 Promoters

In order to create a corporation, much preliminary work needs to be done. The person who

takes the first steps in creating a new business is known as the “promoter” or Promotor

in Spain. Promoters serve a very important role in promoting a new business venture and

undertake to perform the following functions:

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Chapter 2 Before Company’s Formation

1.2 Promoters Contracts and Liability on Promoters Contracts

Before a business venture is incorporated, there are several contracts which

need to be entered. Although promoters may enter into contracts on behalf

of the company to be formed, problems sometimes arise from these pre-

incorporation contracts because the corporation does not actually exist when

these contracts are signed. The legal consequences of these contracts partially

depend on the form of the contract itself.

Generally pre-incorporation contracts are entered into the name of a

corporation “to be formed”. This type of contract will state on its face that the

corporation has not been formed yet and will be signed as follows:

“ABC Corporation, a corporation to be formed.”

“By __________“

In most cases a promoter will be found personally liable on contracts. Here

we have a clear example; O’Rourke enters into a contract to build a bridge with

“D.J. Geary for a bridge company to be organized and incorporated.” O’Rourke

is to commence work within 10 days and payments are to be made to him

periodically after work is commenced. Geary, as the promoter, is personally

liable on the obligation: the fact that payments are required to be made

(presumably by Geary personally) before the bridge company is formed indicates

intent that Geary be personally. O’Rourke v. Geary, 56 A. 541 (Ps. 1903).

Back to summary - 15 -
Chapter 2 Before Company’s Formation

In the other hand the promoter may be able to avoid personal liability on pre-

incorporation contracts by including a provision in the contract that states that

s/he will incur no liability regardless of whether the corporation adopts the

contract.

Here a corporation does not automatically become liable on promoter’s

contracts. Upon incorporation, a corporation may accept or reject pre-

incorporation contracts made by the promoter. Once a corporation approves

these contracts it is bound by them and must comply with their terms.

Example: Quaker Hill, Inc. sells nursery stock to a corporation to be formed by

Parr and Presba. At the urging of Quaker Hill’s representative, the contract is

entered into the name of “Mountain View Nurseries, Inc. by Parr, President” even

though Quaker Hill’s representative knows no corporation has been formed.

Parr and Presba are not personally liable to Quaker Hill because Quaker Hill, by

its conduct, clearly indicated its intention to look for payment only to the newly

formed corporation. Quaker Hill, Inc. v. Parr, 364 P.2d 1506 (Colo. 1961).

In the previous example, before the corporation is formed, Quaker Hill changes

its mind and refuses to ship the nursery stock. Quaker Hill is not liable for

breach of contract since no contract exists. Since Parr and Presba are not

personally liable on the contract, and no corporation has been formed, no one

is bound to purchase the nursery stock, and Quaker Hill has been effectively

revoked its offer to ship the nursery stock.

Back to summary - 16 -
Chapter 2 Before Company’s Formation

2. Issuance of Stock

Before a corporation is formed, agreements to buy its stock will generally be made before

the incorporation. In a purchase agreement or subscription agreement, an offer to buy is

made by prospective shareholders or investors who are called subscribers. Subscribers may

revoke their offer any time before it is accepted. The corporation, however, cannot accept the

subscription until it is officially incorporated.

3. Articles of Incorporation

The written document, which sets out the legally required facts regarding the corporation,

and states that the corporation has fulfilled all legal requirements, is called the articles of

incorporation equivalent a Escritura de Constitución in Spain. Once the corporation files it with

the government and it is approved, the articles of incorporation determine the authority of the

corporation. Afterwards, the corporation’s directors meet to create bylaws that govern the

Back to summary - 17 -
Chapter 2 Before Company’s Formation

internal functions of the corporation, such as

meeting procedures and officer positions. In

US and Spain jurisdictions, certain minimum

information is required to appear in the

articles of incorporation such as:

Back to summary - 18 -
The Corporation
Was Born
Chapter 3
Chapter 3 The Corporation Was Born

The Corporation Was

Born

ISO is an independent, non-governmental

membership organization and the world’s

largest developer of voluntary International

Standards Glossary: make things work. They

give world-class specifications for products,

Corporate Management
and Spanish Variations

As an artificial person, a corporation conducts

business through actual persons, acting as

agents. The board of directors makes the

policies which govern the corporation. he/

she selects the officers, who manage the

corporation by carrying out its policies. The

shareholders indirectly control the corporation

since they elect the board of directors.

In this section we are going to look at how

a corporation is managed. First we will

examine the roles of directors and officers

as well as their duties and liabilities. We will

then review the role of shareholders in the

control of the corporation.

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Chapter 3 The Corporation Was Born

1.1 Directors certain that her/his dissent is put into the

corporate records or that a written notice

Chairman of the Board of is submitted soon after the meeting. A

Directors director must still file a written dissent even

if he/she resigns during the meeting or

He/she is the person who is elected shortly thereafter.

annually and presides over the meetings

of the board of directors. Generally, the 1.2 Officers

principal chairman’s duties entail presiding

at the meetings of the board, deciding on Officers are an employee of a corporation

the agenda for the meeting and sometimes who holds a management-level position.

preparing informational materials before They are responsible for the management

meetings for directors. A chairman also and day-to-day operations of a corporation.

has certain powers such as calling special

meetings of the board as well as to decide The above officer designations are

who will serve on committees of the board. traditionally reserved for US corporations

In the absence of the chairman, a vice- whereas in Europe the term Managing

chairman may be appointed to handle her/ Director is used along with Vice-presidents,

his functions. but the function remains the same.

Directors Liability for Actions

Taken at Meetings

A director will be viewed as having

consented to an action taken at a meeting

where he/she was present if her/his dissent

is not in writing. In order to avoid liability, it

is the responsibility of the director to make

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Chapter 3 The Corporation Was Born

1.3 Directors and officers Duty of Disclosure

Fiduciary Duties
This duty consist of provide reasonably

Directors have three principle fiduciary complete disclosure to shareholders in

duties such as the duty of loyalty; the duty two cases: when shareholders are asked to

of care; and the duty of disclosure. vote, and when the company completes a

conflict of interest transaction. The reason

Duty of Loyalty for such disclosure in the first situation is to

simply provide shareholders with sufficient

The most important fiduciary duty is the information to assist them in voting. In The

duty of loyalty. The concept is simple: the Case Where There Is a conflict of interest

decision makers within the company should transaction disclosure is required to deter

act in the interests of the company, and not such transactions from being completed.

in their own interests.

Duty of Care

The duty of care is a director’s duty to inform

herself/himself of all significant information

reasonably available to him before making a Video The Duties of a Fiduciary /

Source: AssocGovBoards
business decision and act with requisite care

in performing her/his duties. An example

of a violation of this duty would be, where a

board of directors approves a merger of the

corporation at a short quickly held meeting,

without receiving adequate and sufficient

information required to make an informed Video Types of Stocks / Source:

decision. Zions TV

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Chapter 3 The Corporation Was Born

2.2 Registered and Bearer Shares

2. Shares and
Shareholders
Under Spanish law, the shares of an S.A. are

categorized as either registered or bearer

2.1 Shares
shares. A registered share has the owner’s

name imprinted on the face of the stock

A unit of ownership interest in a corporation
certificate and is kept in a record of current
or financial asset. While owning shares
owners by the company. When a stock is
in a business does not mean that the
transferred it is recorded in the company’s
shareholder has direct control over the
register of shareholders. In Spain, shares
business’s day-to-day operations, being a
must be registered if:
shareholder does entitle the possessor to

an equal distribution in any profits.

They are not fully paid in.

They have share transfer restrictions.

In today’s financial markets, the difference
If they are subject to ancillary obligations.
between stocks and shares is somewhat
If required by special regulations such as in
unclear. The word “stock” is mainly used
the case of shares of banks and insurance
to describe the ownership certificates
companies.
of any corporation in general while the

word “shares” is used when referring to a

particular company’s ownership certificates.

When someone says he has stocks, he is

generally referring to his ownership in one

or several companies. On the other hand,

shares technically refer to, for example

“shares in Company X”. This being said, the Video What are shares? The
basics of stock trading |
minor distinction is usually ignored and both tradimo / Source: tradimo.com -
learn to trade
terms are used to mean the same thing.

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Chapter 3 The Corporation Was Born

A bearer share, on the other hand, is a share that is not registered in a name and is a

negotiable stock that can be transferred between owners without endorsement. This

means that the bearer share does not appear on the books of an issuing company as being

registered to a particular owner. Quite simply, the person holding the certificate at the

moment is the legal owner. Bearer stock is popular in Europe but not in the US.

2.3 Common and preferred Stock

Common stock is the most common type of stock that is issued

by companies. It entitles shareholders to share in the company’s

profits through dividends and/or capital appreciation. Common

stockholders are usually given voting rights, with the number of

votes directly related to the number of shares owned. Of course,

the company’s board of directors can decide whether or not to

pay dividends, as well as how much is paid.

Preferred stock is generally considered less volatile than

common stock but typically has less potential for profit.

Preferred stockholders generally do not have voting rights,

as common stockholders do, but they have a greater claim

to the company’s assets.

Preferred stock shareholders receive their dividends before

common stockholders receive theirs, and these payments

tend to be higher. Under Spanish law, there are different

regulations which govern the issue of preference shares,

depending on whether a company is listed or not on the

stock exchange.

Back to summary - 24 -
Chapter 3 The Corporation Was Born

Make strategic Strategy &

Management
decisions that
Do not manage maximize expected
earnings or provide value, even at the
earnings guidance expense of lowering
near-term earning

Make acquisitions that

Provide investors with maximize expected
value-relevant value, even at the
information expense of lowering
near term earnings

Require senior
executive to bear the Shareholder Carry only assets that

Value
risk of ownershipjust as maximize value
shareholders do

Reward middle
managers and frontline Return cash to saher
employees for holders when there
delivering superior are no credible value
performance on the key creating opportunities
value drivers to invest in the
business

Reward Reward CEOs and

Reward & operating-unit
executives for adding
other senior
axecutives for Shareholders
Compensation superior multiyear
value
delivering superior
long-term returns

The date of the meeting is set out in the

3. Shareholders
bylaws but must take place within the first

six months of the fiscal year. The reason

3.1 Shareholders meetings
for this is that at the shareholders’ meeting,

management’s performance is reviewed

In Spain, the S.A. shareholders’ meeting is
and approval granted, if appropriate, for
the highest governing body of the company.
the previous year’s financial statements.
There are two types of meetings: ordinary
In addition, the proposed distribution of
and extraordinary.
the prior year’s earnings is presented for

approval as well. If the meeting is not held

Ordinary Shareholders’ Meeting
within the legal requisite time frame, the

shareholders, subsequent to a prior hearing

An ordinary shareholders’ meeting is held
of the directors, may petition the court in
in accordance with the company bylaw.
order to have it call the meeting.

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Chapter 3 The Corporation Was Born

Extraordinary Shareholders’ Meeting

An extraordinary shareholders’ meeting is a special meeting different than the ordinary

shareholders’ meeting. There are various reasons why an extraordinary meeting would be

held such as:

3.2 Quorum, voting rules and Voting Agreement

Quorum is the minimum number of members necessary in order to conduct business at a

shareholders meeting. The legal requirement under Spanish law, for quorum to exist, is the

presence or representation of at least 25% of shareholders who own voting capital stock. On

certain matters of great importance like; capital increase or reduction, debenture issuance,

significant changes in the company, mergers, and adoption of resolutions amending the

bylaws requires special quorums of 50% of voting capital stock are required by law.

Back to summary - 26 -
Chapter 3 The Corporation Was Born

The shareholder may vote by proxy which

means that he may appoint someone to

attend the meeting for him and vote on his

behalf unless the bylaws state otherwise.

Shareholders’ Voting Agreement is a legally Video SIFMA Proxy Voting

valid and enforceable contract governed by Resource Center: What is Proxy
Voting? / Source: SIFMA
general contract law.

Back to summary - 27 -
Chapter 4 The Destiny of Corporation : Live or Dead

The Destiny of
Corporation : Live or
Dead
Chapter 4

Back to summary - 28 -
Chapter 4 The Destiny of Corporation : Live or Dead

1.1 Mergers
The Destiny of
Corporation : Live or
A merger is when two or more companies
Dead
voluntarily decide to combine their assets

and liabilities and move forward as a jointly

1. Corporate
owned and operated new larger company.
Transactions
In this type of transaction, both companies

surrender their stock and new stock is

When we speak about corporate
issued in the name of the new company.
transactions there are four major
Many times companies will combine the
transactions that dominate newspaper
names of both companies to form the
headlines. These include mergers,
name of the new company.
acquisitions, takeovers bids, and initial
There are many different types of mergers some
public offerings (IPOs). Mergers and
of which are listed below. Click each image:
acquisitions involve the strategy, finance

and management of a company. They are

often referred to M&A. Both transactions

involve the buying; selling and combining

of different companies in order to assist a

company grow quickly without having to

create a new business.

The last of the concepts we will review is the

initial public offering (IPO). Generally when a

company wants to raise capital it can do so by

issuing either equity or debt. If a company is

issuing equity to the public for the first time it

is then called an initial public offering.

Back to summary - 29 -
Chapter 4 The Destiny of Corporation : Live or Dead

The reasons why companies would decide to

merge differ but some of the main reasons

are:

●● A reduction in staff which signifies a

significant savings for the companies. Video United and Continental to

●● Expansion of the companies’ marketing merge / Source: Reuters

and distribution into other sectors.

●● Increased market share, especially in the

case where a major competitor is absorbed

allows companies to increase prices.

●● Tax savings.

1.2 Acquisitions

An acquisition is a corporate action in

which a company buys most, if not all, of

the target company’s ownership stakes in same agreement from the target firm and

order to assume control of the target firm. the acquiring firm needs to actively purchase

Acquisitions are commonly made as part large stakes of the target company in order

of a company’s growth strategy, and paid to have a majority stake.

in cash, the acquiring company’s stock or a

combination of both. In either case, the acquiring company often

offers a premium on the market price of the

Acquisitions can be either friendly or hostile. target company’s shares in order to entice

Friendly acquisitions occur when the target shareholders to sell. For example, News Corp.’s

firm expresses its agreement to be acquired, bid to acquire Dow Jones was equal to a 65%

whereas hostile acquisitions don’t have the premium over the stock’s market price.

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Chapter 4 The Destiny of Corporation : Live or Dead

Example Hostile acquisitions: “Larry the

Liquidator”, Other People’s Money (1990) – A

self-absorbed corporate raider “Larry the

Liquidator” (Danny DeVito), sets his sights on

New England Wire and Cable, a small-town Video pretty woman

screwpeopleformoney / Source:
business run by family patriarch Gregory 1000antonius
Peck who is principally interested in

protecting his employees and the town. 1.3 Takeover Bid

The process begins with a “tender offer”

which is an offer to purchase some or all

of shareholders’ shares in a company. The

tender offer is then usually advertised

in a business newspaper where it sets

out the offer price and the time period

the shareholders have in which to accept

the offer. There are a variety of different

takeover bid strategies, including friendly,

hostile.

Video other peoples money danny In a friendly takeover, the bidding company
devito / Source: barnseyoz
or individuals inform the board of directors

of the target company. Depending on the

offer made, the directors then recommend

to stockholders whether to accept or reject

the takeover bid. In small companies, it is

easier to approve a friendly takeover, as

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Chapter 4 The Destiny of Corporation : Live or Dead

the board of directors often makes up the 1.4 Initial Public Offerings (IPOS)
majority shareholders. However, if the board

feels it is not in the interest of the company The first time a company sells its stock to

to accept the terms, they may reject the the public is commonly known as an initial

takeover bid, which sets the stage for a public offering (IPO). This is also known as

hostile takeover of the target company. “going public” because it is the first time

the public may buy stock in that particular

A hostile takeover bid is one that is made company on the open market. Once a

despite the opposition expressed by the company goes public it must follow strict

directors of the target (the company that rules and regulations, such as filing quarterly

would be taken over). financial reports, imposed upon it by the

securities regulatory body. In the US the

There are a number of ways in which the securities regulatory body which a public

directors of the target may attempt to company must report to is the Securities

block the takeover (beyond simply advising and Exchange Commission (SEC) and in

shareholders against it) including: Spain it is the Comision Nacional del Mercado

de Valores (CNMV).

A poison pill is an attempt to discourage an

acquisition by making it more expensive to

acquire a company, or by reducing the value

of the acquired business.

Finding a white knight (a bidder the directors

prefer).

A white knight is a bidder who makes an

Video What does poison pill
agreed takeover bid as an alternative to (Finance) mean? / Source:
B2Bwhiteboard
a hostile takeover bid that is already in

progress.

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Chapter 4 The Destiny of Corporation : Live or Dead

Video JC Penney Adopts ‘poison

Pill’ / Source: Wochit Business

2. What Makes a
Company Actually Want
to go Public?

There are many reasons why a company

would want to go public, but the biggest is

the need for capital. Unlike when you buy

a stock that trades on the stock market,

when you buy a stock in an IPO, the money

actually goes to the company. Public

offerings are the only time this happens.

There are other reasons though, and here

they include:

Back to summary - 33 -
Chapter 4 The Destiny of Corporation : Live or Dead

Back to summary - 34 -
Conclusions
Conclusion

The globalization of business over the

past decade is impacting every area of

economic, social and technological activity.

It is having an enormous influence on

international structures, governance and

the legal systems of individual nations,

posing challenges in all fields of the law.

The globalisation of the law as we saw

in this iBook is producing a tremendous

increase in international and regional

regulation, global litigation and cross-

border legal dialogue. Whether to serve

multinational enterprises or indeed to

control and regulate their activity, law

firms, governments and international

organisations alike are in growing need

of professionals who understand the

complexities of globalisation and law.

Back to summary - 36 -
References
References

●● Armour, J., Hansmann, H. and Kraakman, R. (2009). The Essential Elements of Corporate

Law. Discussion Paper No. 643 Harvard University.

●● Ashcroft, J.D. & J.E. (2002). Law for Business. West Legal Studies-Thomas Learning.

●● Brown, I., & Chandler, A. (2005). Blackstone’s Questions and Answers. Oxford University

Press.

●● Chartrand, M. & Wiltshire (2003). English for Contract and Company Law. Sweet & Maxwell

Limited.

●● Gifts, S. H. (1996). Barron’s Law Dictionary. Hauppauge, Barron’s Educational Series, Inc.

●● Hamilton, R.W. (2000). The Law of Corporations in a Nutshell. West Group

●● ICEX (2012). A Guide to Doing Business in Spain

●● Investopedia.

●● Kahan, M. and Rock, E.B. (2007). Hedge Funds in Corporate Governance and Corporate

Control. University of Pennsylvania Law Review.

●● Krois-Linder, A., & TransLegal (2006). International Legal English. Cambridge University

Press.

●● Ratner, D.L. & Hazen,T.L. (2002). Securities Regulation in a Nutshell. West Group

●● Scott, D.L. (1997). Wall Street Words. Houghton Mifflin

Back to summary - 38 -
Glossary

Glossary

Back to summary - 39 -
Glossary

dissolution of an organization.
Bidder
Contractor, supplier, or vendor who
Commission
responds to an invitation to bid (ITB). Also
The Securities and Exchange Commission
called offeror or quoter.
(Filipino: Komisyon sa mga Panagot at

Palitan, commonly known as SEC) is

Breach of contract
the agency of the Government of the
Breach of contract is a legal cause of action
Philippines responsible for regulating the
in which a binding agreement or bargained-
securities industry in the Philippines. The
for exchange is not honored by one or
SEC is an agency within the Office of the
more of the parties to the contract by non-
President of the Philippines.
performance or interference with the other

party’s performance. If the party does not

Committees
fulfill his contractual promise, or has given
A committee (or “commission”) is a type of
information to the other party that he will
small deliberative assembly that is usually
not perform his duty as mentioned in the
intended to remain subordinate to another,
contract or if by his action and conduct he
larger deliberative assembly—which when
seems to be unable to perform the contract,
organized so that action on committee
he is said to breach the contract.
requires a vote by all its entitled members,

is called the “Committee of the Whole”.

Bylaws
The rules and regulations enacted by an
Company governance
association or a corporation to provide
Company governance broadly refers to the
a framework for its operation and
mechanisms, processes and relations by which
management.
corporations are controlled and directed.
Bylaws may specify the qualifications,

rights, and liabilities of membership, and

the powers, duties, and grounds for the

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Glossary

Conflict of interest Fiduciary duties

A conflict of interest (COI) is a situation A fiduciary duty is a legal duty to act solely

occurring when an individual or in another party’s interests. Parties owing

organization is involved in multiple this duty are called fiduciaries.

interests, one of which could possibly

corrupt the motivation. Financial asset

A financial asset is an intangible asset that

Debt derives value because of a contractual

A debt is an obligation owed by one party claim. Examples include bank deposits,

(the debtor) to a second party, the creditor; bonds, and stocks. Financial assets are

usually this refers to assets granted by the usually more liquid than tangible assets,

creditor to the debtor, but the term can such as land or real estate, and are traded

also be used metaphorically to cover moral on financial markets.

obligations and other interactions not

based on economic value. Growth strategy

Strategy aimed at winning larger market

Disclosure share, even at the expense of short-term

The act of releasing all relevant information earnings. Four broad growth strategies

pertaining to a company that may influence are diversification, product development,

an investment decision. market penetration, and market

development.

Equity
Equity is the set of maxims that “reign over all Legal person
the law” and “from which flow all civil laws”. Legal person refers to a non-human entity

that is treated as a person for limited legal

purposes--corporations, for example. Legal

persons can sue and be sued, own property,

and enter into contracts.

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Glossary

Limited liability Personally liable

Limited liability is where a person’s A financial obligation for which an individual

financial liability is limited to a fixed sum, is responsible and which may be satisfied

most commonly the value of a person’s out of his or her assets.

investment in a company or partnership. If

a company with limited liability is sued, then Policies

the plaintiffs are suing the company, not its Policy is a principle or protocol to guide

owners or investors. decisions and achieve rational outcomes.

A policy is a statement of intent, and is

Natural person implemented as a procedure or protocol.

A natural person is a human being, with

legal capacity since the time of birth. Pre-incorporation

contracts
Open market A pre incorporation contract is one which

An economic system with no barriers to is purportedly made by or on behalf of a

free market activity. An open market is corporation at a time when the corporation

characterized by the absence of tariffs, has not been incorporated yet.

taxes, licensing requirements, subsidies,

unionization and any other regulations or Profits

practices that interfere with the natural A financial benefit that is realized when the

functioning of the free market. Anyone can amount of revenue gained from a business

participate in an open market. There may activity exceeds the expenses, costs and

be competitive barriers to entry, but there taxes needed to sustain the activity. Any

are no regulatory barriers to entry. profit that is gained goes to the business’s

owners, who may or may not decide to

spend it on the business.

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Glossary

Securities laws Welfare

Securities are documents that merely Is the provision of a minimal level of well-

represent an interest or a right in something being and social support for all citizens,

else; they are not consumed or used in sometimes referred to as public aid. In

the same way as traditional consumer most developed countries welfare is largely

goods. Government regulation of consumer provided by the government, and to a lesser

goods attempts to protect consumers from extent, charities, informal social groups,

dangerous articles, misleading advertising, religious groups, and inter-governmental

or illegal pricing practices. Securities laws, organizations.

on the other hand, attempt to ensure that

investors have an informed, accurate idea

of the type of interest they are purchasing

and its value.

Securities and Exchange

The Securities and Exchange Commission

(Filipino: Komisyon sa mga Panagot at

Palitan, commonly known as SEC) is

the agency of the Government of the

Philippines responsible for regulating the

securities industry in the Philippines. The

SEC is an agency within the Office of the

President of the Philippines.

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