Corporate order

Corporate order is a set of regulations referring tothe functioning of large companies, mainly those which operate as share capital partnerships, limited partnerships, or PLCs.

This branch of law regulates internal relations within the company, but when properly organized, it also influences issues of liability of members of the management board, the supervisory board, and shareholders with regard to third parties and to the partnership itself. In some situations, it may also influence the perception of the company’s activities by state organs, in particular – courts.

Corporate order is legislated by national law. The fundamental documents involved are Articles of incorporation of a companyor the Articles of Associationof the partnership, which call forth the basic organs of the partnership, regulate the way they function both within and outside of the partnership, and which specify regulations of the Code concerning the issuance of lower-order legislation. Next, the organization of the partnership and its way of functioning may be defined by the regulations of the supervisory board and the management board. How closely these regulations are followed in the daily work of the partnership, particularly as regards the work of the board, may influence the assessment of the activities of the board members, and how they have fulfilled their obligations vis-a-vis the partnership, shareholders, and the creditors of the company. These regulations primarily define the ways in which resolutions are made by the supervisory and management boards. In this respect, both the way in which resolutions are made and the time at which they are made are significant, and often decisive in questions of subsidiary liability of board members for the liabilities of the partnership.

Board members are responsible for the liabilities of the partnership up to and including the value of their personal estates, provided that they have released themselves from such liability in a manner outlined in the relevant legislation. A basic condition is the timely declaration of the bankruptcy of the partnership. For the demonstration of the timeliness of submission of this declaration, the content and date on which the relevant resolution was adopted by the board is significant, and should be reflected in an appropriate protocol from the meeting of the board. A common mistake in partnerships is that appropriate protocols from board meetings or resolutions adopted by the board are not drafted.

This situation has especially painful consequences in limited liability partnerships with restricted ownership, in other words in closely held companies, in which shareholders are simultaneously members of the board. This can lead to a situation in which liability for the partnership’s debts is transferred to members of the board, which releases these individuals from liability for the partnership’s debts as shareholders. In this way, the entire very expensive construction of the partnership – expensive because of its tax liabilities – ceases to bring any benefits, and becomes a burden Instead.

Regulations are not adopted for the assembly of partners; this is a result of the composition of this body, which is competent to make all legally allowed decisions, and controls the organization of its own work on a day-to-day basis. Shareholders may introduce restrictions in this respect in the Articles of Incorporation of a Company, whose amendment is governed by separate requirements – the shareholders themselves, however, are more limited by the regulations of the Code.

The relevant resolutions of the board are the deciding factors in the regulation of the organization the work of the employees of the partnership, the hierarchy of positions, the creation and elimination of positions, the regulation of remunerations, the ways of using employee funds, and work regulations. These resolutions are the basis for the acquisition of rights and responsibilities in relation to employees of the partnership, and they are subject to monitoring by courts in terms of their legality, and also how faithfully they are observed.