Role of Corporate Finance Law in Corporations

This paper has focused on the role of corporate finance law in corporations. Corporations, in Pakistan has been governed by the Companies Act, 2017, aims to maximize the profit by minimizing the risk, possesses a separate legal personality having rights and duties towards the outside world. As the word corpus means body; Companies enjoys separate legal personality from its shareholder, members and directors. British East India Company was the first business corporation that have earned profit for its members. A company is formed by due process of law and not otherwise. Company if is created by limited number of shareholders i.e. two to fifty it is a private company and in other case it is a public company. A public company formulated by due process of law possesses separate corporate personality, the liability of its members is limited and also has many other distinct characteristics.<br><br>Corporate Finance Law is legal aspect of financial management of a public corporation and focuses to manage the finance of a company in legal ways. It governs the decision making process in the company and provide a six step process of financial decision making, it helps to reduce agency cost and transaction cost by tackling agency relations between different limbs of the company i.e. shareholders, managers and third party. By all these means it objects to achieve the basic aim of a company i.e. to earn profit and minimize the risk.


Introduction:
If someone remarks that the modern world is world of corporations than it is a very true statement. Nearly whole of the business of the modern world is carried through the tool of a company. A company is a juristic person created by operation of domestic law in force in the concerned state i.e The Companies Act, 2017 in Pakistan.
Company is a separate legal entity from its members and possesses a corporate personality. It has a perpetual succession and a common seal. It can sue and be sued, possesses assets. The shareholder of the company has limited liability as to company because company has its own personality separated from personality of its members.
Shareholder by their will delegates the managerial authority to directors who manages the affairs of the company.
It is not necessary that liability is always limited but in some special circumstances the virtual veil of incorporation vanishes and the person become liable for liability of the company.
Corporate Finance Law as identifiable from the term is simply the legal aspects of finance of the corporations. Corporate Finance is that area of the finance that deals with financing the company and management of the company finance. It aims to maximize share and shareholder value by making effect plans. Corporate Finance Law is legal rules of financing and financial management.

Methodology:
This paper is based on qualitative research based on physical and online library research.
The online data sources i.e Jstor etc has been used to collect data on the topic of corporate finance, corporate finance law etc. Thus, the secondary data collected from research papers, books, websites etc has been used to analyze and conclude this paper. Online data sources and libraries mainly Central Library of International Islamic University, Islamabad has been used to carry the discussions.

Discussions:
Authors, Lawyers, Jurists, philosophers and many others have defined law in their own ways from many aspects but if one is willing to extract the core idea than "the law" is simply a set of rules and principles governing a specific subject.
Law has certain specified purposes as to its subject. For instance, if we put Human beings as a subject of law than one can summarize more or less the same as are in the case of the law generally but this is to corporations only and not individual but in addition to all those purposes it also emphasis on formation and dissolution of the corporate entities.

1.
Objectives of Corporate

Alternatives:
A decision is taken when management has to cater solution for an issue. Alternatives enables management to take decisions.
Alternatives provide uncertainty that which alternative is perfect for required decision.

Information:
There is always sufficient information to cater a solution for every certainty. It is duty of management to gather such information.
Without proper information no one can make an effective decision.
If all the relevant information is not available than the decision has to be made on the basis of available incomplete information. 14

Decision Making Process:
There are four popular approaches 15 to make a decision. and how it will be solved: the course of action.
One problem is the difference between the current state of affairs and the desired state. 20 Until the problem is identified in a definite Sometimes decisions need to be made without problem: for example, a company must grow rapidly to take advantage of market opportunities and decide which path to take.

Evaluation of alternatives:
The next step is to look at and explore

Choice of alternative:
The next step is to choose the most appropriate one. If, for some reason, none of these options are considered appropriate, the manager should repeat the process over and over again. When there are alternatives and the steps outlined above are handled more efficiently, choosing alternatives can be a daunting task. Other methods may vary greatly from purpose i.e. problem solving.

Implement the decision:
When a decision is made it needs to be implemented. This phase of the process is critical to the success of the decision and is the key to successful decision-making. Some of the best is useless if not used properly. In order to implement the decision effectively, one must ensure that the initiators will know why the decision was made, and the reason for its implementation. 22 Decisions often fail at the implementation stage due to lack of rationality and commitment towards implementation.  Copyright © authors 2021 105 the principal due to the difference between the decisions of the attorney and the decisions that may enhance the welfare of the principal.

General Agency Problems:
There are three general problems of agency relationship. 31

Directors act as agent of the Shareholders:
The owners of the firm i.e shareholder and the managers and directors are contracted to run the company. The problem is that director must be able to assure that they will act in the benefits of the shareholder rather than pursuing their own interest.

2.
Majority shareholder controlling the company: The minority shareholders as principal and the majority shareholder that practically controls the company. The issue lies in ensuring that majority shareholder acts in the best benefit of the company and for their own benefit.  In some cases legal efforts to protect principals may also result in benefits to agents even more than principals. This is because the principal will be willing to pay extra money to the agent where he will ensure that the agent's performance is not only reliable but also of good quality. Lenders operate in much the same way as the aforementioned market process. Both principals and agents can benefit when the legal and enforcement system can effectively penalize corporate business activities, lenders can borrow money at low interest rates and enjoy a low rate of fraud. To manage risk.

Conclusion:
Corporate finance is most important limb of a corporation. Business Corporation cannot operate without capital and finance.
Corporate finance focuses to manage and distribute the finance and capital of the corporation in right way in order to benefit the company and shareholders. The main object of a business corporation is to earn profit and to enhance its value in general public. The corporate finance law focuses to help the corporation to achieve its object.
Corporate Corporate finance law aims to resolve problems that are faced to stakeholders due to agency relation among the corporations by implementing a number of strategies to resolve these problems.
In the end we can conclude that corporate finance law focuses to serve with the purpose of earning profit and minimizing risk by managing cash flow, agency relationship and financial decision making by applying different legal rules and standards.

Funding:
This paper is not funded by any organization.