COMMERCIAL LAW
1st mid term
Focus on:
1. Corporate law → law of corporations
2. Securities regulation → securities market
Law to regulate firms which work in a aggregation of people (corporate actors:
investors, employees etc) in order to “create value”.
firms → economic aspect
companies and corporations → legal aspect, it is a legal fiction to efficiently
organize a firm
Theory of the Firm
Firm = aggregation of people and resources (financial and non financial) to carry out a
business activity (produce outputs)
Transactions cost hypothesis → firms are a solution to the problem of making
agreements and transactions for each service which is provided by each party
inside the company (a solution to opportunism, info asymmetries and transaction-
specific assets).
Asymmetries of info and opportunism are in part solved by the aggregation of inputs,
actors → idea of collaboration in order not to destroy the beauty of a venture and
mistrust it
Property rights hypothesis → by providing essential authorities at the top of the
firm (thx to property rights: securities, assets) a firm can do its job (provides
services and goods).
COMMERCIAL LAW 1
, Property rights are stronger (the strongest) than contracts (which expire), they are
almost absolute and permanent.
In a world in which there is a strong competition, it is better to be to the part of the
providers rather than of the buyer to avoid opportunism, exploitation etc (this is what
Tesla is trying to do by looking for mines of lithium).
Firm or Corporation?
A companies exist to run a firm, while a firm can be run without a company by an
individual entrepreneur, a partnership (e.g. small shops, since it is the most intuitive
way to run a firm, a trust, a business corporation, a cooperative corporation, the State, a
municipality, legal institutions)
Creditors = suppliers of cash. They want to make money from the interest in loans
to the firm. More skeptical than shareholders, more conservative
Shareholders = more progressive and risky than creditors, they take the risk to
make things better
Employees = they have their own interests, sometimes sentimentally linked to the
firm
Directors (managers) = they must be protected somehow (reputational risk)
Supervisors = market public authorities, financial authorities, auditors, lawyers (paid
also by the state) who make sure that everything is in compliance with the law
How does a company come to exist?
Charter → corporate contract between shareholders and directors. It contains
provisions regulating the functioning of the company and relations between
constituencies
In the past it was very expensive to set up a firm, now it is more and more cheap.
The first company resembling the modern ones dates back to the 17th cent UK and NL
companies: the crown used to pull all the resources together in order to allow them to
get new territories, but who guarantee that the ventures do not fail (sink, get lost, lose
COMMERCIAL LAW 2
, cargo)? There was a royal Charter (a sort of decree) which protected the merchants
who invested their resources: personal assets were separated by the company’s ones
(new legal entity). There was the invention of the fiction of these kind of new entities: the
Charter indicated who has the power to do what and it was a sort of present given by
the Crown, not an absolute right. With the passing of time this pattern became more and
more automatic: shifting from a concession to a right.
1. Companies come to exist through a contract (company law is a branch of contract
law). The contract is called “charter” (US) or “articles of association” (UK).
2. The Charter is filed with the competent administrative authority (e.g. chamber of
commerce)
3. Registration of the contract in a companies’ register available to everyone for
inspection
4. The company has come to life, acquired the legal personality
It is important that this process is the fastest and most efficient, and that is granted by
the most advanced legal jurisdiction.
Core structural characteristics of the corporation:
1. Legal personality
2. Limited liability
3. Transferability of shares
4. Centralized management under a board structure
5. Shared ownership by contributors of equity
COMMERCIAL LAW 3
, 1. Legal personality → protection of the firm’s assets
from the shareholders’ creditors
Once a company comes to life it is an entity endowed with rights and duties (also
assets) as a human being.
Company’s patrimony is separated → “entity shielding” (shielding the assets of the
entity from the creditors of the entity’s owners)
Strong form entity shielding (business corporation) = priority rule and liquidation
protection rule
Weak form entity shielding (partnership) = only priority rule
Legal Capacity
Be able to acquire rights, perform obligations → can act on its own behalf and has
trading rights and obligations.
The fiction of the law in case of company → all the human beings act on behalf of the
company: shifting to the company rights/obligations even if they arise from human
behaviours.
Sign contracts and own properties
Sue and be sued
Delegate management
Priority Rule
General convention (no written law in any jurisdiction) → result of multiple rules: all the
competing claims on the original asset are ruled by this (default rule)
1. First corporate’s creditors
2. Shareholders and their creditors CANNOT seek satisfaction before the corporate’s
creditors
That’s because in this way the credit worthiness of the company is reinforced → e.g.
banks, employees (which work on credit) are paid before than shareholders to
incentivized employees, creditors, banks →→ immediate benefit is given to the creditors
COMMERCIAL LAW 4
1st mid term
Focus on:
1. Corporate law → law of corporations
2. Securities regulation → securities market
Law to regulate firms which work in a aggregation of people (corporate actors:
investors, employees etc) in order to “create value”.
firms → economic aspect
companies and corporations → legal aspect, it is a legal fiction to efficiently
organize a firm
Theory of the Firm
Firm = aggregation of people and resources (financial and non financial) to carry out a
business activity (produce outputs)
Transactions cost hypothesis → firms are a solution to the problem of making
agreements and transactions for each service which is provided by each party
inside the company (a solution to opportunism, info asymmetries and transaction-
specific assets).
Asymmetries of info and opportunism are in part solved by the aggregation of inputs,
actors → idea of collaboration in order not to destroy the beauty of a venture and
mistrust it
Property rights hypothesis → by providing essential authorities at the top of the
firm (thx to property rights: securities, assets) a firm can do its job (provides
services and goods).
COMMERCIAL LAW 1
, Property rights are stronger (the strongest) than contracts (which expire), they are
almost absolute and permanent.
In a world in which there is a strong competition, it is better to be to the part of the
providers rather than of the buyer to avoid opportunism, exploitation etc (this is what
Tesla is trying to do by looking for mines of lithium).
Firm or Corporation?
A companies exist to run a firm, while a firm can be run without a company by an
individual entrepreneur, a partnership (e.g. small shops, since it is the most intuitive
way to run a firm, a trust, a business corporation, a cooperative corporation, the State, a
municipality, legal institutions)
Creditors = suppliers of cash. They want to make money from the interest in loans
to the firm. More skeptical than shareholders, more conservative
Shareholders = more progressive and risky than creditors, they take the risk to
make things better
Employees = they have their own interests, sometimes sentimentally linked to the
firm
Directors (managers) = they must be protected somehow (reputational risk)
Supervisors = market public authorities, financial authorities, auditors, lawyers (paid
also by the state) who make sure that everything is in compliance with the law
How does a company come to exist?
Charter → corporate contract between shareholders and directors. It contains
provisions regulating the functioning of the company and relations between
constituencies
In the past it was very expensive to set up a firm, now it is more and more cheap.
The first company resembling the modern ones dates back to the 17th cent UK and NL
companies: the crown used to pull all the resources together in order to allow them to
get new territories, but who guarantee that the ventures do not fail (sink, get lost, lose
COMMERCIAL LAW 2
, cargo)? There was a royal Charter (a sort of decree) which protected the merchants
who invested their resources: personal assets were separated by the company’s ones
(new legal entity). There was the invention of the fiction of these kind of new entities: the
Charter indicated who has the power to do what and it was a sort of present given by
the Crown, not an absolute right. With the passing of time this pattern became more and
more automatic: shifting from a concession to a right.
1. Companies come to exist through a contract (company law is a branch of contract
law). The contract is called “charter” (US) or “articles of association” (UK).
2. The Charter is filed with the competent administrative authority (e.g. chamber of
commerce)
3. Registration of the contract in a companies’ register available to everyone for
inspection
4. The company has come to life, acquired the legal personality
It is important that this process is the fastest and most efficient, and that is granted by
the most advanced legal jurisdiction.
Core structural characteristics of the corporation:
1. Legal personality
2. Limited liability
3. Transferability of shares
4. Centralized management under a board structure
5. Shared ownership by contributors of equity
COMMERCIAL LAW 3
, 1. Legal personality → protection of the firm’s assets
from the shareholders’ creditors
Once a company comes to life it is an entity endowed with rights and duties (also
assets) as a human being.
Company’s patrimony is separated → “entity shielding” (shielding the assets of the
entity from the creditors of the entity’s owners)
Strong form entity shielding (business corporation) = priority rule and liquidation
protection rule
Weak form entity shielding (partnership) = only priority rule
Legal Capacity
Be able to acquire rights, perform obligations → can act on its own behalf and has
trading rights and obligations.
The fiction of the law in case of company → all the human beings act on behalf of the
company: shifting to the company rights/obligations even if they arise from human
behaviours.
Sign contracts and own properties
Sue and be sued
Delegate management
Priority Rule
General convention (no written law in any jurisdiction) → result of multiple rules: all the
competing claims on the original asset are ruled by this (default rule)
1. First corporate’s creditors
2. Shareholders and their creditors CANNOT seek satisfaction before the corporate’s
creditors
That’s because in this way the credit worthiness of the company is reinforced → e.g.
banks, employees (which work on credit) are paid before than shareholders to
incentivized employees, creditors, banks →→ immediate benefit is given to the creditors
COMMERCIAL LAW 4
