Corporate Contracts: Everything You Need to Know
Corporate contracts are entered into between someone who is authorized to do business on behalf of the corporation.3 min read
Corporate contracts are entered into between someone who is authorized to do business on behalf of the corporation. The corporate business structure is a separate and distinct entity from its shareholders. The corporation elects a board of directors who oversee the significant business decisions. The board of directors then appoint officers to oversee the daily operations of the business.
State laws allow corporations to enter into legally binding contracts; therefore, those corporations will have a duty to perform under the contract or else it may be liable for breach of contract. If the corporation does in fact breach the contract, it will face a potential lawsuit from the injured party, and could in fact be forced to either perform under the terms of the contract or pay damages to the injured party for the breach. Shareholders usually cannot be held personally liable for corporate contracts. However, exceptions do exist here, particularly if a shareholder comingles corporate and personal assets or commits fraud.
The U.S. Supreme Court upholds the validity of forum-selection provisions in contracts, so long as it is fair and allows both parties to decide where and how to address a legal dispute.
Furthermore, the bylaws can be amended many times throughout the life of the corporation to change the process for certain business areas.
The Constitution usually doesn’t permit any states to adopt a forum selection statute that hinders someone’s right to sue in neighboring states or in federal court.
However, several states, including the State of Delaware, have amended their laws to allow businesses to include forum selection clauses in the company’s state of incorporation. Such information is to be included in the company’s bylaws.
Some corporations have even adopted bylaw provisions that indicate that once a shareholder has purchased stock from the business, the shareholder has consented to personal jurisdiction in the forum in which the business identified in its bylaws. Therefore, if the shareholder subsequently brings a suit in another jurisdiction not approved by the company, then the company can certainly communicate that the forum chosen is not the appropriate forum for the legal dispute to be heard.
Regarding legal disputes brought by shareholders against a corporation, Delaware courts have begun specifying that a corporation cannot choose a forum that might be known for providing little recovery to its shareholders, substantial fees for plaintiffs, and a release of claims. With that said, the State of Delaware does in fact allow corporations to include forum-selection clauses in their corporations that require all potential plaintiffs to bring a suit in that particular jurisdiction. While this benefits the corporation, it also benefits the courts in Delaware, as it promotes self-interest of the local bar. Furthermore, the Commerce Clause might even provide specific grounds for when a neighboring state can refuse to enforce the forum-terms.
Before a court decides to hear a legal dispute, it should determine whether the entire dispute would be efficient if heard in that forum. For example, does the court have subject matter jurisdiction over all claims identified in the complaint? Would that particular forum be more beneficial for one of the parties over the other?
For internal affairs disputes, i.e. disputes between an employee or stakeholder of the corporation and the business, the forum of the corporation’s in-home statement will suffice.
Similarly, for representative suits, such as class action lawsuits, most courts allow for a forum clause to prevent several lawsuits being brought in various jurisdictions.
Common Terms Used in Corporates Contracts
There are some common terms that are used in corporate contracts, and it is important for those entering into a contract with a corporation to be mindful of such terms. These include:
- R.F.P., which stands for request for proposal. This is a document that companies utilize to obtain bids from vendors who might be interested in doing work with the other party
- D.B.E., which stands for Disadvantaged Business Enterprise. This is a designation that a disadvantaged business can receive on a federal level. The requirement is that the business must have some sort of social or economic disadvantage.
- W.B.E., which stands for Women Business Enterprise. This is a specific designation that someone can earn through the Women’s Business Enterprise National Council, which is a certifier of women-owned businesses.
If you need help drafting a corporate contract, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.