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CHAPTER
HAPTER- 1
- 1
IINTRODUCTION
NTRODUCTIONPersonality is a very vague and wide term and it has a variety of meanings. It is Personality is a very vague and wide term and it has a variety of meanings. It is derived from the Greek word “
derived from the Greek word “ Persona” Persona” which means the actor’s mask through which his which means the actor’s mask through which his voice must be sounded. In philosophical sense personality means ‘the rational substratum of a voice must be sounded. In philosophical sense personality means ‘the rational substratum of a human being’. In law it means a ‘right and duty bearing unit’.
human being’. In law it means a ‘right and duty bearing unit’.
Generally there are two types of persons which law recognizes namely the
Generally there are two types of persons which law recognizes namely the Natural Natural Person
Person and and Artificial Person. Artificial Person. he natural is confined merely to human beings and the he natural is confined merely to human beings and the artificial person is generally referring to any being other than human which the law artificial person is generally referring to any being other than human which the law recognizes as capable of having rights and duties.
recognizes as capable of having rights and duties. !cholars all over have constantly e"plored!cholars all over have constantly e"plored the issue on the recognition of corporation as a “legal person# or “legal entity#. he $ouse of the issue on the recognition of corporation as a “legal person# or “legal entity#. he $ouse of %ords in case
%ords in case Salomon v A Salomon v A Salomon & Co Ltd.Salomon & Co Ltd. held ‘the principle of separate legal entity ofheld ‘the principle of separate legal entity of the corporation distinct from the members.’
the corporation distinct from the members.’
& 'uristic person is sometimes called a legal person( artificial person or legal entity. & 'uristic person is sometimes called a legal person( artificial person or legal entity. <hough the concept of a 'uristic person is more central to western law as well as common <hough the concept of a 'uristic person is more central to western law as well as common law and civil law countries( it is also found in virtually every legal system.
law and civil law countries( it is also found in virtually every legal system.
he idea of legal personality i.e.( artificial person can be traced in )oman and ancient he idea of legal personality i.e.( artificial person can be traced in )oman and ancient $indu law.
$indu law. he ancient )oman societhe ancient )oman society was undeveloped and its organization was y was undeveloped and its organization was not verynot very comple"( therefore the problem of legal personality did not bother them much. he family comple"( therefore the problem of legal personality did not bother them much. he family was the unit of the society. hough family consisted of a number of individuals all the powers was the unit of the society. hough family consisted of a number of individuals all the powers were centered in ‘pater familias’. $e represented the whole family* therefore there was no were centered in ‘pater familias’. $e represented the whole family* therefore there was no theoretical difficulty about his position.
theoretical difficulty about his position.
& 'uristic person is an artificial entity through which the law allows a group of natural & 'uristic person is an artificial entity through which the law allows a group of natural person to act as if it were a single composite individual for certain purposes. +nlike a
person to act as if it were a single composite individual for certain purposes. +nlike a partnership firm( which has no e"istence apart from its members( a company is a distinct partnership firm( which has no e"istence apart from its members( a company is a distinct
legal or 'uristic person independent of its members. %egal persons are real or imaginary legal or 'uristic person independent of its members. %egal persons are real or imaginary beings to whom personality is attributed by law by
beings to whom personality is attributed by law by way of fiction where it does not e"ist inway of fiction where it does not e"ist in fact. ,uristic persons are also defined as those things( mass of property( group of human fact. ,uristic persons are also defined as those things( mass of property( group of human
beings or an institution upon whom the law has conferred a legal status and who are in the eye of law capable of having rights and duties as natural persons.
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HAPTER- 2
HISTORY
In the common law tradition( only a person could sue or be sued. his was not a problem in the era before the Industrial )evolution( when the typical business venture was
either a !ole Proprietorship or Partnership. here( the owners were simply liable for the debts of the business. & feature of the corporation( however( is that the owners-shareholders
en'oyed limited liability. he owners were not liable for the debts of the company. hus( when a corporation breached a contract or broke a law( there was no remedy( because limited liability protected the owners and the corporation wasn’t a legal person sub'ect to the law. here was no accountability for corporate wrong doing. o resolve the issue( legal s cholars proposed a solution. & corporation could instead be considered a person( and could therefore be recognized and held sub'ect to the law. his understanding was not only adopted by the
courts but also by the legislatures. hus( legislatures intentionally used the word ‘person’ to include both natural persons and 'uristic persons.
orporate Personality is the creation of law. %egal personality of corporation is recognized both in /nglish and Indian law. & corporation is an artificial person en'oying in law capacity to have rights and duties and holding property. & corporation is distinguished by reference to different kinds of things which the law selects for personification. he
individuals forming the corpus of corporation are called its members. he 'uristic personality of corporations pre0supposes the e"istence of three conditions1
2. here must be a group or body of human beings associated for a certain purpose. 3. here must be organs through which the corporation functions( and
4. he orporation is attributed will by legal fiction.
& corporation is distinct from its individual members. It has the legal personality of its own and it can sue and can be sued in its own name. It does not come to end with the death of its individual members and therefore( has a perpetual e"istence. $owever( unlike natural
persons( a corporation can act only through its agents. %aw provides procedure for winding up of a corporate body. 5esides( corporations the banks( railways( universities( colleges(
church( temple( hospitals etc. are also conferred legal personality. +nion of India and !tates are also recognized as legal or 'uristic persons.
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HAPTER- 3
TYPES OF CORPORATIONS
1. Corporate Aggregate:
his kind of corporation is an association of human beings united for the purpose of forwarding their certain interest. & limited ompany is one of the best e"amples. !uch a company is formed by a number of persons who are shareholders of the company and contribute or promise to contribute to the capital of the company for the furtherance of a common ob'ect. heir liability is limited to the e"tent of their share0holding in the company. & limited liability company is thus formed by the personification of the shareholders. he property is not that of the shareholders but its own property and its assets and liabilities are
different from that of its members. he shareholders have a right to receive dividends from the profits of the company but not the property of the company. he principle of corporate personality of a company was recognized in the case of Saloman v. Saloman & Co.1
2. Corporation Soe:
his kind of corporation is an incorporated series of successive persons. It consists of a single person who is personified and regarded by law as a legal person. In other words( a single person( who is in e"ercise of some office or function( deals in legal capacity and has legal rights and duties. & corporation sole is perpetual. Post 6aster( Public rustee( omptroller and &uditor General of India( the rown in /ngland etc. are some e"amples of a corporation sole. Generally( corporation sole are the holders of a public office which are recognized by law as a corporation. he chief characteristic of a corporation sole is its “continuous entity endowed with a capacity for endless duration#. & corporation sole is an illustration of double capacity. he ob'ect of a corporation sole is similar to that of a corporation aggregate. In it a single person holding a public office holds the office in a series
of succession( meaning thereby that with his death( his property( right and liabilities etc.( do not e"tinguish but they are vested in the person who succeeds him. hus on the death of a corporation sole( his natural personality is destroyed( but legal personality continues to be represented by the successive person.
CHAPTER
- !
THEORIES OF CORPORATE PERSONA"ITY
In ,urisprudence( discussion on the nature of corporate personality has always become one of the ma'or focuses. /ven though there are many theories which attempt to e"plain the nature of corporate personality( none of them is said to be dominant. It is contented that while each theory contains elements of truth( none can by itself sufficiently interpret the phenomenon of a 'uristic person.
he acceptance of the corporate personality of a company basically means that another non0human entity is recognized to assume a legal entity. <hough this theory has been accepted as a well0established principle it is actually essentially a metaphorical usage of
language( clothing the formal group with a single separate legal entity by analogy with a natural person.
6a'ority of the principal 'urisprudence theories on corporate personality contented that the legal entity of the corporation is artificial. he separate legal personality of corporation is based upon theories which are concentrated upon the philosophical e"planation of the e"istence of personality in beings other than human individuals. here are various theories of corporate personality which have attempted to theorize the nature and authority of it. his might make one to gather that theoretically all the legal problems regarding persons have been fully e"plored but this is not true. here is a great divergence between theory and practice. &ny one theory alone is not capable of solving the problems fully.
herefore( the courts have not followed any one theory consistently. he reason of gap between theory and practice is that the theorists have kept themselves more occupied with either a philosophical e"plaination of legal personality( or in making it to fit in some political ideology than with the practical problems. /ven though there are many theories
which attempted to e"plain the nature of corporate personality none of them is said to be dominant. It is claimed that each theory contains elements of truth* none can by itself sufficiently interpret the phenomenon of 'uristic person. he following are the principal theories of corporate personality1
2. 7iction heory 3. )ealist heory 4. oncession heory
8. 5racket heory or !ymbolist heory 9. Purpose heory
T#e Fi$tion T#eor%
his theory is firstly promulgated by Pope Innocent I: ;238402398<. &ccording to this theory the legal personality of entities other than human beings is the result of a fiction. $ence not being a human being corporation cannot be a real person and cannot have any personality of its own.
+nder this theory rights and duties attached to corporation as artificial person totally depend on how much the law imputes to it by fiction. he 'uristic personality of the corporation is a fiction and the author is the state. he personality the corporation en'oys is not inherent in it but as conceded by the state. =ue to the close connection made in this theory as regards to relation of legal personality and the power of the state( fiction theory was claimed to be similar to the theory of sovereignty of state which is also known as the concession theory.
his theory is supported by many famous 'urists( particularly( :on !avigny( oke( 5lackstone and !almond. !ir ,ohn !almond is of the view that a corporation is so far distinct from its members that it is capable of surviving even the last of them.
>ne of the distinguished followers of fiction theory is oke( who took the view that corporations are invisible( immortal and resting only in intendment and consideration of law.
!almond the principal /nglish fiction theory advocate made it clear that a human being is the only natural person whilst legal person govern any sub'ect matter other than a human being to which the law attributes personality. !tates( corporations and institutions cannot have rights of a person but they are treated as if they are persons. +nder the fiction theory( to e"ist as a legal person it depends upon impediment of law. he fiction theory has a reasonable reasoning to 'ustify the position of unincorporated associations and partnerships.
In !cotland and ontinental /uropean countries( as the law granted partnership a legal entity( then it e"ists as a legal person but the position is not so in /ngland and also in India( even though its partnership have similar attributes to partnership in !cotland and ontinental /uropean countries( it is not an entity because the law of /ngland and of India refused to grant such status to partnership.
he fiction theory reasoning is able to 'ustify that the e"istence of a legal person does not solely belong to corporations. $ence it is possible for other organizations to be treated as an entity provided that the law granted it such recognition. his finding is vital to 'ustify that the concept of separate legal entity in corporation is not an e"clusive right of corporations. o be a legal person( it does not actually depend upon incorporation but on the recognition of
law of the land.
T#e Reai&t T#eor%
&ccording to this theory( a legal person is a real person. he theory assumes that the sub'ects of rights need not belong merely to human beings but to every being which possesses a will and life of its own. &s such being a 'uristic person and as alive as the human being( a corporation is also sub'ected to rights.
+nder this a corporation e"ists as an ob'ectively real entity and the law merely recognizes and gives effect to its e"istence. he realist 'urists also contended that the law has no power to create an entity but merely having the right to recognize or not to recognize an entity.
Gierke the great German 'urist was the main propounder of this theory. $e believed that every collective group has a real mind( a real will and a real power of action. & corporation therefore has a real e"istence irrespective of the fact whether it is recognized by
the !tate or not. he corporate will of the corporation finds e"pression through the acts of its =irectors( employees or agents. he e"istence of a corporation is real and not based on any fiction. It is a psychological reality and not a physical reality.
&part from these two important theories we have the oncession( !ymbolist and Purpose theories which supported the contention that e"istence of corporation as a legal person is not real.
T#e Con$e&&ion T#eor%
his is theory is also called ‘heory of !overeignty of !tate’. &ccording to this theory( the only realities are the sovereign and the individual. he other groups cannot claim recognition as persons. hey are treated as persons merely by a concession on the part of the sovereign. he theory is often regarded as the offspring of the fiction theory as it has similar assertion that the corporations within the state have no legal personality e"cept as it is conceded by the !tate. =ue to the close connection made in this theory as regards to relation of legal personality and the power of the !tate the oncession theory is also known as the theory of sovereignty of !tate.
herefore concession theory is basically linked with the philosophy of the sovereign national !tate. +nder this theory the !tate is considered to be in the same level as the human being and as such it can bestow on or withdraw legal personality from other groups and associations within its 'urisdiction as an attribute of its sovereignty. $ence a 'uristic person is merely a concession or creation of the !tate.
T#e 'ra$(et T#eor% or T#e S%)*oi&t T#eor%
&ccording to this theory the members of a corporation are the bearers of the rights and duties which are given to the corporation for the sake of convenience. he theory is similar to the fiction theory in that it recognizes that only human beings have interests and rights of a legal person. It is not always practicable or convenient to refer to all the
innumerable members of a corporation. & bracket is placed around them to which a name is given. hat bracket is the corporation.
&ccording to Ihering( the propounder of this theory( the conception of corporate personality is indispensable and merely an economic device by which simplify the task of
coordinating legal relations. $ence when it is necessary it is emphasized that the law should look beyond the entity to discover the real state of affairs. his is clearly in line with the principle of lifting of the corporate veil.
T#e P+rpo&e T#eor%
&ccording to this theory 'uristic person is no person at all but merely as a sub'ectless property destined for a particular purpose and that there is ownership but no owner. /ntities other than human is regarded as an artificial person and merely functions as a legal device for protecting or giving effect to some real purpose.
5rinz the German 'urist has propounded this theory which is similar to the fiction and concession theory as it declares that only human beings can be persons and have rights. he theory rationalized the e"istence of many charitable corporations or organizations such as trade unions which have been recognized as legal persons for certain purposes.
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HAPTER- ,
APP"ICA'I"ITY OF THEORIES
7rom the discussion on the two important 'urisprudence theories and the other theories( on corporate personality( it is observed that the main argument is that( the fiction theory claimed that the entity of corporation as a legal person is merely fictitious and only e"ists with the intendment of the law. >n the other hand from the realist point of view the entity of the corporation as a legal person is not artificial or fictitious but real and natural. he realist also contended that the law merely has the power to recognize a legal entity or refuse to recognize it but the law has no power to create an entity.
he personality of the corporation is different from that of its members. It is observed therefore that there is double fiction in the case of a corporation. 5y one fiction the corporation is given a legal entity. 5y the second fiction( the corporation is clothed with the will of an individual person. $ence the fictitious personality of the corporation comes to have a will of its own which is different from that of its members.
It is also observed that fiction theory provide the most acceptable reasoning in 'ustifying the circumstances whereby court lifted the corporate veil of corporation. If the entity of the corporation is real then the court would not have the right to decide the circumstances whereby the separate legal entity of the corporation should be set aside. ?o human being has the right to decide circumstances whereby the entity of another human being should be set aside. >nly law has such privilege. here are many other theories of
corporate personality( but it is not possible here to discuss them in detail. $owever( a few words may be said regarding each of them.
$ohfeld’s theory which is closely related to bracket theory. $e says that only human beings have rights and duties and “a corporate personality is merely a procedural form( which
is used to work out in a convenient way for immediate purpose( a comple" class of 'ural relation.#
@elsen’s theory which makes an analytical and formal approach to the concept of personality. $e says for legal purposes there is no contrast between natural and 'uristic persons. &ccording to him personality is always a matter of law i.e.( totality of rights and
duties.
CHAPTER
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PARTNERSHIP UNINCORPORATED ASSOCIATIONS
5efore concluding the discussion on corporation as a legal personality( it would be desirable to contrast it with unincorporated associations and partnership. he fiction theory has a reasonable reasoning to 'ustify the position of unincorporated associations and partnerships. +nder the fiction theory to e"ist as a legal person it depends upon impediment of the law. herefore( unincorporated associations and partnerships can also be treated as legal persons if the law granted to them such status.
In !cotland and ontinental /uropean countries( as the law granted partnership a legal entity( then it e"ists as a legal person but the position is not so in /ngland and also in India( even though its partnership have similar attributes to partnership in !cotland and ontinental /uropean countries( it is not an entity because the law of /ngland and of India refused to grant such status to partnership.
oday the development of partnership laws has proved that the status of legal person can also be embraced by partnerships. he limited liability partnership ;%%P< structure is an e"ample of partnerships which are treated by law as legal persons. >ther than having separate legal personality from the partners limited liability partnerships also en'oy main attributes of corporation namely limited liability.
&pplying the fiction theory again this is 'ustifiable as the attributes of corporation are not naturally generated by corporation by it but e"ists because they are granted by the law to corporations( then once the law granted the entity as legal person and attributes of corporation to limited liability partnership( it can act similar to corporations.
& corporation is in law Auite different and distinct and also separate from the members who compose it. Its rights and liabilities are different for those of the members. he real position of a company can be understood only if we make a comparison of it with an unincorporated firm.
In an unincorporated firm( there is not much difference between the rights and obligations of the firm and its partners. /ven the separate property of the partners is liable for the debts of the firm.
CHAPTER
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CONC"USION
7rom the foregoing analysis it may be concluded that incorporation has great
importance because it attributes legal personality to non0living entities such as companies( institutions and group of individuals which helps in determining their rights and duties.
lothed with legal personality these non0living entities can own( use( dispose of property and can sue and be sued in their own names. +nincorporated institutions are denied this
advantage because their e"istence is not different from the members.
hus the e"istence of corporation reAuires a special legal framework and body of law that specifically grants the corporation legal personality( and typically views a corporation as a fictional person or a legal person. &s such corporate statutes typically give corporations the ability to own property( sign binding contracts( pay ta"es in a capacity that is separate from that of its shareholders.
7inally e"pressing these views about the two important theories of legal personality( it can be observed that the e"istence of corporation is neither wholly fictitious nor wholly real( instead it is partly fictitious and partly.
$owever this assertion hardly serves any useful purpose in the determination of rights and duties of corporate entities. >n each theory the duties imposed by the !tate are the same and the persons on whose actual wills those duties are enforced are same( hence it would not be incorrect if contended that the difference between the fiction theory and the realist theory
is merely verbal.
.
'I'"IO0RAPHY
'oo(&
2. Salmond ( “,urisprudence#( 8th /dn. 5utterworth’s Publications( ?ew =elhi.
3. V.D. Mahajan( “%egal heory and ,ustice#( >rient %ongman Pub.( ?ew =elhi ;2BB2<. 4. olland ( “,urisprudence#( 8th /dn. !weet C 6a"well Publishers ;%ondon<.
8. !ama "ois( “%egal and onstituional $istory#( +niversal %aw Publishers( ?ew =elhi ;2BDE<.
