What is corporate law?

Entity choice, and why it is the first decision

• LLC — limited liability with flexible management and pass-through taxation by default; the most common choice for small and mid-sized US businesses.
• S corporation — a tax election rather than a separate entity: pass-through taxation with limits of 100 shareholders, one class of stock and no non-resident alien owners.
• C corporation — taxed separately at the corporate level, with unlimited shareholders and multiple share classes; the structure venture investors expect.
• Partnerships — simple to form, even without paperwork, but general partners carry personal liability. Limited partnerships and LLPs limit that exposure for some partners.
• Sole proprietorship — no separate entity at all, and no liability protection.

The choice affects taxes, personal liability, how easily ownership can be transferred and how money can be raised. Changing it later is possible but can have tax costs.

How a corporation is governed

Shareholders own the company and elect the board of directors; the board sets strategy and appoints officers; officers run daily operations. The rules come from the state corporation statute, the articles or certificate of incorporation and the bylaws, supplemented by any shareholder agreement. LLCs are governed mainly by their operating agreement, which can set almost any arrangement the members choose — which is why a well-drafted operating agreement matters so much.

Fiduciary duties

Directors and officers owe duties of care and loyalty to the company and its owners. The business judgment rule protects informed, disinterested decisions made in good faith even when they turn out badly — the protection falls away for self-dealing, conflicts of interest and bad faith. In closely held companies, many states also impose duties among the owners themselves, and a controlling owner who freezes out a minority owner can face an oppression claim. Most large US public companies are incorporated in Delaware, so Delaware case law effectively sets the national standard, though some companies have recently moved to Texas or Nevada.

Keeping the liability shield

Limited liability is not automatic in practice. Courts “pierce the corporate veil” where owners mix personal and company funds, skip required formalities, or leave the company deliberately undercapitalized. Separate bank accounts, written resolutions or consents for major decisions, contracts signed in the company's name and real capitalization are what keep the shield intact. Owners also remain personally liable for their own wrongful acts and for anything they personally guarantee, such as a lease or bank loan.

Raising money

Any sale of equity or convertible debt is a securities transaction. It must be registered with the SEC or fit an exemption — Regulation D is the usual route for private placements to accredited investors — with state “blue sky” notice filings on top. Getting this wrong can give investors a right of rescission, meaning the money can be demanded back later. Founders should also document vesting of their own shares so a departing co-founder does not keep a large stake.

Mergers, acquisitions and exits

Selling a business can be structured as a sale of assets or of ownership interests, or as a merger, each with different tax and liability results. Transactions involve due diligence, a purchase agreement allocating risk through representations, warranties and indemnities, and often shareholder approval. Large deals may need antitrust clearance before closing.

Ongoing compliance

Annual reports and franchise taxes to the state, a registered agent, required records, and tax filings. Failing to file can lead to administrative dissolution, which can put the liability shield at risk. The federal beneficial ownership reporting rules introduced under the Corporate Transparency Act were narrowed in 2025 to apply mainly to foreign companies registered in the US.

When to involve a lawyer

At formation when there is more than one owner, before taking outside investment, before signing a significant contract or lease, when owners disagree, and before buying or selling a business. A business or corporate lawyer can draft the operating or shareholder agreement that prevents most later disputes.