Corporate existence and power: Overview, definition, and example
What is corporate existence and power?
Corporate existence and power refers to the legal status and authority of a corporation to operate as a separate legal entity, distinct from its owners (shareholders). Corporate existence means that the corporation is legally recognized and has the ability to enter into contracts, own property, sue and be sued, and perform other legal activities as a business entity.
Corporate power, on the other hand, refers to the specific legal abilities or authority granted to the corporation by law and its governing documents (such as articles of incorporation or bylaws). These powers outline the scope of activities that the corporation can undertake, including entering into contracts, borrowing money, issuing shares, and other business operations.
Together, corporate existence and power ensure that a corporation can act legally and pursue its business objectives while being governed by its founders, shareholders, and applicable laws.
Why are corporate existence and power important?
Corporate existence and power are important because they establish the foundation upon which the corporation operates. They determine the legal rights and obligations of the corporation and its shareholders. Without corporate existence, a business cannot function as a separate legal entity, and without defined corporate powers, it may lack the authority to conduct necessary business activities.
For business owners, understanding their company’s corporate existence and powers is crucial for managing risks, ensuring compliance with legal requirements, and executing business strategies. For stakeholders, such as investors and creditors, confirming the corporation’s existence and powers ensures that the corporation is properly constituted and can engage in the activities necessary to fulfill its business objectives.
Understanding corporate existence and power through an example
Imagine a company, Company A, is incorporated in the state of Delaware. Corporate existence means that Company A is legally recognized as a separate entity from its founders and shareholders. As a result, Company A can own assets, enter contracts, hire employees, and take legal action in its own name.
In terms of corporate power, the company’s articles of incorporation might grant it the authority to engage in a wide range of activities, such as entering into business agreements, acquiring other companies, issuing stock, or borrowing funds. If Company A wishes to expand its operations internationally, its corporate powers may include the ability to establish foreign subsidiaries or enter into international contracts, provided these activities are within the scope of its charter.
In another example, a startup, Company B, may have corporate power to issue stock to investors, allowing it to raise capital for expansion. However, if the company’s articles of incorporation restrict the issuance of certain types of stock or set limits on the number of shares, the company's corporate power would be limited by those provisions.
An example of corporate existence and power clause
Here’s how a corporate existence and power clause might appear in a corporate agreement or legal document:
“The Corporation is duly organized and existing under the laws of the State of [State], with full corporate power and authority to conduct its business as described in the Articles of Incorporation and as permitted by applicable law. The Corporation is empowered to engage in any lawful activity within its business scope as outlined in its governing documents, including but not limited to entering into contracts, issuing shares, and acquiring assets.”
Conclusion
Corporate existence and power form the legal framework that enables a corporation to operate effectively and engage in a broad range of activities necessary for business success. Corporate existence grants the company its status as a separate legal entity, while corporate power defines the scope of activities the company can legally undertake. For business owners and stakeholders, understanding and ensuring compliance with these principles is essential for the smooth operation and legal standing of the corporation.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.