Theories of Corporate Personality
The article 'Theories of Corporate Personality' is an extensive study of the corporation's separate legal entity, distinct from the members.
The article 'Theories of Corporate Personality' is an extensive study of the corporation's separate legal entity, which is distinct from the members. Natural person and legal person are the two categories of people. The Latin word “persona,” which refers to several roles a man may play in a drama, is where the English word “person” first appeared. The term “person” began to refer to a living thing with rights and obligations after the sixth century. Corporate personality is one such legal entity. Corporate personality is a legal concept.
Introduction
Legal individuals and natural individuals are the two kinds of people envisioned by the law in the statute and lawful hypothesis. It is considered a counterfeit character for a company to have a corporate personality. In juristic terms, organizations are groups of individuals gathered together for a particular purpose. A company functions through organs.
Organs have a legal resemblance to will (enmities). Corporate personality refers to a company's capacity to act in its name, bring claims against third parties in its name, and purchase, sell, lease, and mortgage real estate. Also, property owned by a corporation cannot be taken away from it without following the legal procedure. A corporation or company is a made-up or imaginary person that is established by personifying a group of people or several people. Under the Companies Act 2013, the company has been defined in Section 2(20) as
“a company incorporated under the Companies Act 2013 or any previous company law".[1]
Corporate Aggregate and Corporate Sole is two sorts of Corporate Personality. According to common law, a company is a legal person or entity that is distinct from its members and can endure the lives of members. A business is an entity distinct from its members, with rights and obligations and a perpetual succession, just like a legal person. According to the idea of corporate personality, a firm has a separate legal entity distinct from its members. A company has a separate legal entity distinct from its members, as per the concept of corporate personality. The landmark Salomon v. Salomon[2], decision, in which it was declared that a business has a separate legal entity from its members and rejects the idea of corporate personality, established that idea as being false.
Corporation Aggregate
Limited corporations are the best illustration of a corporation aggregation since they are a group of people who have come together to promote their specific interests. A group of people form a corporation of this type by pledging to contribute to the capital of the firm as shareholders to achieve a common goal. Their responsibility is restricted to the number of shares they own in the business. As a result, the personification of the shareholders creates a limited company. The company's assets and liabilities are distinct from those of its shareholders and are its property rather than those of the shareholders.
The shareholders are eligible to collect dividends from the profit but not its assets. The company exists independently of its members for some purposes. Because of this, the company may go bankrupt yet its owners may continue to be extremely wealthy. On the other hand, the corporation is unaffected by the insolvency of the members and may continue to run a successful business. The company continues to exist even when one or more of its members pass away.
In the landmark judgment of Salomon v. Salomon, Saloman was running the manufacturing business of boots and shoes. The name of the company was “Saloman & Co. Ltd.” with seven subscribers consisting of himself, his wife, four sons and one daughter. Saloman received 20,000 shares of £1 each, debentures for £10,000 with a charge on the company's assets, and the remaining £38,782 in cash in exchange for the firm purchasing his personal business assets. His wife, four sons, and one daughter each received £1. Due to the subsequent overall economic downturn, the company entered liquidation. Many unsecured creditors argued that Saloman could not be considered a secured creditor of the company in relation to the debenture he held because he was the managing director of a one-man company that was not different from Saloman and the company's facade was nothing more than a charade and fraud.
The Salomon case is an example of how a company's relationship with its shareholders can become hazy. Salomon had complete influence over how the business was run because he held the majority of the company's shares. The concept of corporate personality was ruled out in this case. The idea that a company is a separate legal entity from its members was stated.
Utility of Corporate Aggregate
- Through municipal partnerships, local bodies, panchayats, welfare organisations, and so on, assist and support the government of the nation.
- Through foundations, institutions offering specialised, logical, designing, clinical law, and other specific courses, promote demonstrated talents.
- By including rigorous trusts, sheets, learning focuses, altruistic houses, etc., maintain and progress stringent amicability.
- Promotion of logical and creative fever through appropriate trusts, associations, establishments, etc. Public assistance via hospitals, trusts, halfway houses, salvage homes, etc.
- Corporate organisations, public utility foundations, private business organisations, etc., promote interchange, trade, and businesses.
Corporation Sole
A corporation sole is a series of incorporated people. It is made up of a single entity that the law recognises as a legal person and an individual who is personified. In other words, an individual who acts in the capacity of an office or function engages in legal transactions and has obligations. A singular corporation exists forever. The President of India, Public Trustee, Comptroller & Auditor-General of India, The Crown in England, and others are instances of corporations sole. The people who hold public offices are legally recognised as corporations and are known as corporation sole. A distinguishing feature of corporation solo is that it is a “continuous entity endowed with a capability for the limitless duration.”
The goal of a corporation sole is comparable to a corporation's overall goal. In it, a single individual who occupies public office holds the position in a series of successions, which means that upon his death, his property, rights, and obligations, among other things, remain in force and pass to his successor. As a result, even though a corporation's sole legal personality continues to be represented by the succeeding person, his natural individuality is erased upon death. As a result, the passing of a corporation sole has no negative effects on the interests of the public at large.
Model
Many officials in India, including those of the Prime Minister, the Governor of the Reserve Bank of India, the State Bank of India, the Post Master General, the General Manager of the rail line, the Registrar of the Supreme Court, the Comptroller and Auditor-General of India, and others, are made under different sculptures. In the case of Govid Menon v. Association of India[3], the Supreme Court emphasised the essential quality of a corporation sole. The court observed that the partnership sole is not given a separate legal character. It is composed of a single person who is bound by the law. A person who is identical to them has two personalities, one regular and the other corporate sole.
Theories of Corporate Personality
Fiction Theory
This theory state that only “human beings” have the right to be named “persons.” As per this theory, the firm has a distinctive identity that is separated from its members. A juristic person only has a fictional will, according to this idea. This theory holds that the legal personality of non-humans is a creation of fiction.
Realistic Theory
“Organic Theory” is another name for Realist theory. Gierke proposed this hypothesis, and Maitland agreed with it. According to this theory, a company possesses all the same traits as a human being. He claims that a legal or juristic person is essentially no different from a human being. Also, it states that juristic individuals are real and do not need state acknowledgement.
Bracket Theory
According to this idea, the members of the corporation, who are corporation for convenience only, have rights and obligations under the corporate personality. The corporation is represented by the bracket. The rights and obligations of its members are included within the brackets.
This theory has drawn criticism because the brackets must be eliminated to understand the corporate personality's true portrait and identify its flaws. This idea, also known as the Symbolist theory or Jhering's theory, refers to the rights and obligations of a real person rather than a legal corporation, making it challenging to ascertain the company's actual situation.
Concession Theory
Although this theory and the fiction theory are quite similar, they do not make the same assertions. The establishment and recognition of legal personality is a legal concession or grant. This theory is true up to a point because any acknowledgement of nature would result from the law. Therefore, legal recognition is necessary to validate or recognise any personality.
Purpose Theory
This theory contends that only humans may experience personality. Two great jurists, German jurists Brinz and Bekker, have supported this theory but it was criticised by Salmond, who said that it does not apply to a corporation solely.
Conclusion
Corporate Personality is a construct created by law. A firm has the ability to exercise certain rights and obligations since it is an artificial entity. In contrast to the people who make up its membership, the company has a unique identity. A corporation can therefore be sued and bring a lawsuit in its name, own the land, and have a distinct legal identity from its directors and shareholders. Corporate personality theories are not particularly present in corporate governance in general. However, since the current conception of business is built on these theories, it implies that it is a separate legal entity with a unique identity and an unending line of succession.
References
[1] Companies Act 2013, Available Here
[2] [1897] AC 22
[3] 1967 AIR 1247
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