Corporate legal mechanisms put into practice result in healthy, fundamental and efficient corporate culture. The internal documents regulating our company may have a larger impact on the company’s success than we can first anticipate. So where should we start, what shall we prioritize and how far should we go to shape the corporate culture in our company as we have it in mind? This article will answer those questions in trying to present what corporate law is and why does it matter.
Legal documents in place can regulate every aspect of our company, from general development policies to the smallest details of communication between employees. Depending on the type of your company, its area of business and the social culture it operates in, some of the corporate documents discussed here might be applicable to it, while others might not necessarily be helpful.
The first legal document in a path to starting a company is the shareholder agreement. This agreement can vary from being the written form of the most basic understanding between parties to create a company, to regulating every single detail between those parties before the incorporation of the company, such as decision making, payments of capital and other expenses, rights, responsibilities and liability of the parties. Shareholder agreement is the crucial first step in setting up legal relationships between shareholders.
The most fundamental document of a company is its charter and bylaws (articles of association). Different legislations have different requirements on how the charter should be composed, what it should include and regulate. In practice, a considerable number of companies are so closely built that shareholders prefer putting minimum regulation under the charter by relying more on informal decision making mechanisms. While this might work for some companies for extensive periods of time, other companies will run into a decision making crisis because of such an approach. Putting the agreed upon values, approaches, decision making standards and mechanisms into writing simplifies and smoothens relationships between different stakeholders of the company, makes it transparent, thus easier to understand and work with. Deciding to move along with a more complete and fundamental charter can, in some cases, be game changing for the company’s success.
A running company is composed of a number of key bodies, each playing a crucial role in securing overall success of the company. A few of these bodies are the general meeting of shareholders (GM), board of directors, secretary, internal audit and executive body. Depending on the company’s corporate culture, the roles and responsibilities of each of these bodies can vary. Best corporate practice includes legal regulations on each of these bodies, which help in defining their roles and responsibilities, establishing a clear operational framework.
Among supplementary regulatory documents are regulation on conflict of interest, dividend policy, horizontal and vertical operation procedures, key performance indicators. Incorporation of these documents help the company to establish certain corporate culture and efficiently allocate work and responsibilities.
Every entrepreneur has their own vision and values when starting a company and there is no one clear formula to success. The role of a lawyer is to best pass on these visions and values to legal documents, thus replacing the human factor in establishing corporate culture with smoother and more fundamental legal mechanisms.