Corporate personality is a creation of law. Legal personality of corporation is recognized both in English and Indian Law. A corporation is an artificial person who can
- Enjoy rights
- Perform duties
- Holding property
- It can sue
- It can be sued
It has perpetual existence because It does not came to an end with the death of its individual members
Juristic personality of corporations pre-supposes the existence of three conditions
- There must be a group or body of human beings associated for certain purpose
- There must be organs through which the corporation functions
- The corporation is attributed will (animus ) by legal fiction .
Rights of Corporations
- Right of holding property
- Right of Disposing of property
- Right of entering into contracts
- Right to sue
In nutshell, artificial , conventional or juristic persons are such masses of property or groups of human beings as are in the eyes of the law capable of rights and liabilities that is to which the law gives a status.
Theories of Corporate Personality
Persons are of two kinds namely, Natural Persons and Legal Persons. There are three kinds of Legal persons i.e. Corporations institutions and fund or estate. Corporate personality is a fiction of law. It is an artificial personality given to corporation whereby certain rights and duties are attributed to it.
A corporation or Company is an artificial or fictitious Person created by the personification of a group or a series of individuals. The individuals forming the corpus of the corporation is called its members. there are two kinds of Corporation or a Company. 1) Corporate sole and 2) Corporate Aggregate.
Theories of Corporation
There are many theories of Corporate Personality. Different Jurists propounded different theories to explain the nature of Corporate personality, but the best-known theories of a Corporate Personality are as follows :-
1) Fiction Theory:
The Fiction theory was propounded by Savigny. According to Savigny “a personality is attached to corporations, institutions and funds by a pure legal fiction. The Personality of Corporation is different from the personality of its members, that means there is a double fiction in the case of Corporation. Salmond and Holland are the supporters of this theory. According to Salmond, corporation is nothing more than the outcome of metaphor and fiction. The main defect of this theory is that it exists in the eyes of law only.
2) Realist theory:
Realist Theory was propounded by the great German Jurist Gierke. It was followed by Sir Fredrick Pollock, Geldart, Maitland etc. According to Gierke, Corporation is a real but mysterious entity, every group has a real mind, a real will and real power of action. According to this theory, every group comes to have personality of its own whether that group is social or political one.
3) Concession Theory:
Salmond, Savigny and Dicey are the main supporters of this theory. According to this theory, the only realities are sovereign and individual. the other groups cannot claim recognition as persons. they are treated as persons merely by a concession and the part of the sovereign. Legal personality is conferred only by law.
Corporate personality is nothing but a concession given to group or body of individuals by law to act as one body.
4) Purpose Theory:
According to this theory, Personality is only enjoyed by human being. German jurist Brinz and Bekker are the main supporter of this theory.
Salmond criticised this theory, According to him, it is not applicable to a corporation sole.
5) Bracket Theory:
Ihering is the chief exponent of Bracket theory. Bracket theory is also known as symbolise theory. According 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 It is not always practicable or convenient to refer to all the innumerable members of a corporation. A bracket is placed around them to which a name is given. That bracket is the corporation.
The weakness of this theory lies in the fact that it is not able to indicate when the bracket may be removed and the mask lifted for the purpose of taking note of the members constituting the corporation.
Kinds of Corporation
It has two Kinds:-
- Corporation Aggregate
- Corporation Sole
A corporation aggregate is an association of human beings united for the purpose of forwarding their own interest. Limited companies are the best example of corporation aggregate.
Following are the features of corporation aggregate
- It is formed by a number of persons who as shareholder of it
- Liability of shareholder is limited to the extent of their share holding in the company . Thus limited company is the personification of the shareholders .
- Property of the company is not the property of its shareholders but it’s own property
- It’s assets and liability are different from its members
- The shareholders have right to receive dividends from the profits of the company but not the property of the company
- Company has an independent existence from those of its members that’s why in the case of its insolvency members of the company may still be rich and wealthy
- The death of members does not finish the existence of the company
Gower cites a unique example of this and writes that in the General meeting of a company all the members died due to bomb explosion but it did not affect existence of the company and it continued functioning as before.
- It is however be noted that Partnership firm is not a company in the eyes of law. It represents only aggregate of the individual members.There cannot be one man firm but there can be one man company as held in the historic Saloman’s case 1897 facts of which are as follows.
Brief facts of the case:
This case was titled as Salomon vs Saloman. In this case Saloman was carrying the business of boot and shoe manufacturing . He incorporated a company named “Saloman & Co.Ltd.” with seven subscribers consulting of himself , his wife and four sons and one daughter. The company took over the personal business assets of Saloman for huge amount. Soloman took shares and debenture for huge amount of the company. Subsequently when company went into liquidation due to general trade depression. The question of the decision was weather this debenture holder that Soloman himself was entitled be paid in preference to the unsecured creditors. The question was answered in affirmatives. Court held thay a corporate body has its own existence or personality separate and distinct from its members and therefore a share holder cannot be held liable for the act of the company even though he holds virtually the entire share capital .
Utility of Corporation Aggregate
The various purposes which artificial corporation aggregate may promote and preserve may briefly be stated as follows :-
- Help and assist in governance of the country through Municipal Corporation , local bodies , panchayts , welfare organisations etc.
- Promote professionalism through institutions, colleges imparting technical, scientific , engineering , medical ,law and other specialized courses.
- Preserve and promote religious harmony By constituting religious trusts , Boards , charitable homes etc.
- Promotion of scientific and artistic fervour through appropriate trusts , organisations , institutions etc.
- Promote trade commerce and industries through corporate houses , public sector utility and private business houses etc.
- General public services through Medic hospitals , trusts , orphanages , rescue homes etc.
Corporation sole is a incorporated series of successive persons. It consist of a single person who is personified and regarded by law as a legal person.In corporation sole there is single person who peforms his public functions through office in legal vcapacity and has some rights and duties. Its perpetual in nature and can only be created by statute.
In India, different workplaces like the Prime Minister Office, Governor of Reserve bank of India, The State Bank of India, The Post Master General, the General Manager of the rail line, the Registrar of Supreme Court, Comptroller and Auditor-General of India and so forth are made under various sculptures are the instances of enterprise sole.
Case: Govid Menon v. Association of India
The Supreme Court called attention to the fundamental attribute of company sole. The court noticed the partnership sole isn’t invested with a different lawful character. It is made out of one individual who is joined by law. a similar individual has a double person one is normal and the other is corporate sole. “There are restricted qualities of organization sole” this view was perceived for the situation Power v. Bank.
- A corporation aggregate is a group of people who connect together for one specific entity which has an identity of its own
- It is a separate and independent legal body which is created and consists of different individuals
- The corporate aggregate can only work on tasks or activities through legal deeds which have a “common seal”
Difference between Corporate Sole and Corporate Aggregate Corporate sole
- A corporation sole is a single person who are successful in their own right and they are a part of the same office or “title”
- A corporation sole can only be made through a legal process and the rights are given to them for the job title they hold
- A corporation sole are individuals who do not require a special authority and they have the right to grant, keep or buy certain property
It is abundantly clear from the article that incorporation has great importance because it attributes legal personality to non-living entities such as companies, institutions and group of individuals which helps in determining their rights and liabilities. Its importance of jurisprudence that its doctrine of corporate personality can been seen in Penal Code as well. Under Indian Penal Code 1860 in section 11 , The word “person” includes any Company or Association or body of persons, whether incorporated or not.
Even under Section 3(42) of the General Clauses Act defines person as a Company or Association or body of individuals. Supreme Court of India.