CORPORATE PERSONALITY

Corporate personality is a creation of law. The legal personality of the corporation is recognized
in English and Indian Law. A corporation is an artificial person enjoying the direction of the
capacity to have rights and duties and hold property. A corporation is distinguished by reference
to different kinds of things which the law selects for personification. The individuals forming the
corpus of the corporation are called its members.

The juristic personality of corporations presupposes the existence of three conditions.

The doctrine of corporate legal personality has emerged as a universally recognised legal
business construct. The crux of the doctrine is simply this; that the company is a legal person
distinct from its members. As simple as this exposition might seem, its ramifications are indeed
huge and of grave business and legal importance.

A corporation that has been incorporated in accordance with the Act is given a corporate
personality, which entitles it to use its own name, act in its name, have its own seal, and own
assets that are different from those of its members. The members who make up it are not the
same ‘person’ as it. Consequently, it has ownership potential. owning property, incurring debts,
borrowing funds, keeping money in a bank account, hiring staff, making contracts, and being
sued or sued against in the same way as an individual. Its members are its owners, but they may
also be its debtors. Even though a shareholder owns nearly the whole share capital, he cannot be
held responsible for the company’s actions.

The shareholders are not the agents of the company and so they cannot bind it by their acts. The
company does not hold its property as an agent or trustee for its members and they cannot sue to
enforce its rights, nor can they be sued in respect of its liabilities. Thus, ‘incorporation’ is the act
of forming a legal corporation as a juristic person. A juristic person is in law also conferred with
rights and obligations and is dealt with in accordance with law. In other words, the entity acts
like a natural person but only through a designated person, whose acts are processed within the
ambit of law [Shiromani Gurdwara Prabandhak Committee v. Shri Sam Nath Dass AIR 2000
SCW 139].

The decision of the Calcutta High Court in Re. Kondoli Tea Co. Ltd., (1886) ILR 13 Cal. 43,
recognised the principle of the separate legal entity even much earlier than the decision in
Salomon v. Salomon & Co. Ltd. case. Certain persons transferred a Tea Estate to a company and
claimed exemptions from ad valorem duty on the ground that since they themselves were also
the shareholders in the company, it was nothing but a transfer from them in one name to
themselves under another name. While rejecting this Calcutta High Court observed: “The
company was a separate person, a separate body altogether from the shareholders and the
transfer was as much a conveyance, a transfer of the property, as if the shareholders had been
totally
different persons.

A company is an artificial person according to the law. It is capable of exercising rights, carrying
out obligations, and holding property in its own name. As a result, the law was the only source of
inspiration for the idea of corporate personality. The corporate personality of a corporation under
the 2013 Companies Act is the best illustration of this. According to the legislation, such a
corporation has its own legal identity. The members and representatives of such a corporation
serve as its representatives. However, unlike a regular person, these corporations remain
indefinitely.

To fully understand the concept of legal personality of a company; think about the company as a
child, and the parents as the members and directors. Though the parents (members and directors)
determine the future of this child, take certain decisions on behalf of this child, acquire property
in the name of the child; yet the child is a different person from the parents. The parents cannot
legally take decisions which have the effect of diminishing the humanity of this child; and all
property and things done for the child remain in the name of the child, and cannot validly be
expropriated by the parents except acting expressly on behalf of the child. Thus, in the case
of Alade v Alic (Nigeria) Ltd (2010) 19 NWLR (Pt. 1226) 111, the court noted that “the
consequences of recognising the separate personality of a company is to draw a veil of
incorporation over the company. One is generally not entitled to go behind or lift this veil…”
Though the analogy above have obvious limitations, yet it does to an extent represent the
situations of companies. Companies are dependent on their directors and members, who are the
directing mind and will of the company, but the action taken on behalf of the company, are
deemed to be taken by the company. It is necessary at this stage, to recall the powerful analogy
of Denning L.J in Bolton (Engineering) Co. Ltd. v Graham and Sons (1957) 1 QB 159, as
follows:

“A Company may in many ways be likened to a human body. It has a brain and nerve center,
which controls what it does. It also has hands, which holds the tools and act in accordance with
direction from the center. Some of the people in the company are mere servants and agents who
are nothing more than hands to do the work and cannot be said to represent the mind or will.
Others are directors and managers who represent the directing mind and will of the Company
and Control what it does…..”

The above reasoning was given approval in the celebrated case of Lennards Carrying Co. v
Asiatic Petroleum Ltd [1915] AC 705 where Viscount Haldane L.C said:

“A Corporation is an abstraction, it has no mind of its own any more than it has a body of its
own; its active and directive will must consequently be sought in the person of somebody who
for some purposes may be called an agent but who is really the directing mind and will of the
corporation, the very ego and center of personality of the Corporation.”

The question that will be asked is this; how then does a company acquire this legal personality.

The answer is simply through the issuance of a Certificate of Incorporation. It is the Certificate
of Incorporation that evidences that a company has been incorporated, and without it, the
incorporation of the company can be successfully contested. See Emenite Ltd v. Oleka, (2004)
11 LLIR 1, where it was held that the legal personality of a corporate body can only be
established as a matter of law by the production in evidence of the certificate of incorporation.
See also Dairo V The Registered Trustees of The Anglican Diocese of Lagos SC (2017) 6
LLIR 1 Thus, what is being said is that the legal personality of a company is tied to the
Certificate of Incorporation once incorporation has been put in issue. The Certificate of
Incorporation is the end product of the registration process of the formation of the company.
The historical conception of the legal personality of a company can be clearly traced to the case
of Salomon v Salomon and Co. Ltd, (1897) AC 22.

In that case Salomon a leather merchant and boot manufacturer in 1892 formed a limited
company to take over his business. Salomon and six other members of his family subscribed to
its memorandum for one share each, and two of his sons were appointed directors. The Company
paid about ₤39.000 to Salomon for the business, the mode of payment being to give Salomon
₤10.000 in debentures secured by a floating charge on the Company’s asset and ₤20,000 shares
of ₤1 each, the balance of ₤9,000 was paid to Salomon in cash. The business did not however
prosper and when it was wound up a year later its liabilities (including debenture debt) exceeded
its asset by ₤8,000. The liquidator representing the unsecured creditors claimed that the
Company’s business was in actual fact still Salomon’s liability for debts incurred in carrying it
on and therefore Salomon should be ordered to indemnify the Company against its debts and
payment of the debenture debt to him should be suspended until the Company’s other creditors
are paid. The trial judge agreed with the reasoning of the liquidator and he further held that all
the subscribers of the memorandum (except Salomon) held their shares as mere nominees
because Salomon’s motive in forming the Company was to use it as an agent to manage his
business for him.

Under the Companies and Allied Matters Act, the legal personality is statutorily entrenched in
the following terms;

“As from the date of incorporation mentioned in the certificate of incorporation, the subscribers
of the memorandum together with such other person as may, from time to time, becomes
members of the company, shall be a body corporate by the name contained in the memorandum
capable forthwith of exercising all the powers and functions of an incorporated company
including the power to hold land and having perpetual succession and a common seal, but with
such liability on the part of the members to contribute to the asset of the company in the event of
its being wound up as is been mentioned in this Act.”

IMPORTANCE AND APPLICATION OF CORPORATE PERSONALITY

The implication of the corporate legal personality of a company, has been highlighted below;
LITIGATION RIGHTS IN ITS OWN NAME

An incorporated company is capable of suing and being sued in its corporate name. Thus, the
company does not need to join any of its members and directors in order to institute an action.
An action instituted against the company, but in the name of another, is liable to be struck out on
the basis that the proper parties are not before the court. A company suing or being sued, must be
identified by its proper corporate name.

Thus, where the legal personality of a company is put to issue, and this advisedly should be done
at the stage of pleadings, the company has a duty to prove its due incorporation by tendering its
certificate of incorporation. (See Dairo V The Registered Trustees Of The Anglican Diocese Of
Lagos SC (2017) 6 LLIR 1) This is because only a juristic person can maintain an action.

OWNERSHIP OF PROPERTY

The company, much like any other person, can own property in its corporate name. The property
of the company is therefore exclusively the property of the company, and a member of a
company does not share ownership of the company property with the company, except of course
by virtue of a contract or joint venture; and not by the mere fact of being a member of the
company. Thus in the case of Macaura v Northern Assurance Co (Supra), A man who owned
a property had transferred it to his company, he thereafter proceeded to insure it in his own
name; the property was destroyed by a fire and he filed for indemnification, it was held that he
could not succeed, because he had no interest or insurable right in the property, which was prima
facie the property of the company. In Phillips v. Abou-Diwan, (1976) 2 F.R.C.R. 24 it was held
that the shareholders of a company were not the individual owners of the property of the
company and therefore cannot dispose of the company’s property. See the following
cases; Macaura v Assurance Co (supra).

PERPETUAL SUCCESSION

Perpetual succession does not necessarily mean that a company will last forever; what it does
mean is that theoretically a company can last forever. Thus while members of a company can
change, that is while shareholders can sell off their shares, and board of directors dissolved and
reconstituted; the company continues its existence. In a simpler form, the death, resignation,
bankruptcy, or permanent disability of a member, does not necessarily result in the dissolution of
the company. The company owes its existence to the law, and its existence must therefore be
brought to an end, only by the means of the law. Thus in C.B.C.L. (Nig.) Ltd v Okoli (2009) 5
N.W.L.R (pt. 1135) 446, it was held that a juristic person is a creation of law, and unlike a
natural person whose legal existence terminates at death, a juristic person is immortal as long as
the law creating it allows its existence and it is only subject to demise in accordance with the
law. See also; New Nigerian Newspaper Ltd v Agbomabini (2013).

LIMITED LIABILITY

According to Gower, the concept of Corporate Personality was inter-alia introduced to cater for
circumstances which tends to accumulate all the debts and liabilities upon an individual. The
doctrine therefore act as a shield and helmet to such individual(s) who owns all or substantial
amount of shares of a company.

Thus, one of the accepted implications of the corporate entity of the company is that the
liabilities of the company is that of the company; and as such cannot be enforced against a
member beyond any unpaid balance of their subscription to the company. This is logical, given
that the property of the company is that of the company, it equally makes sense for the company
to primarily bear its liabilities. See the classical case of Salomon v Salomon & Sons Ltd.
(supra)

FORMATION OF A COMPANY

A company by virtue of being a person can subscribe to the memorandum of another company.
[See Section 20 (3) of CAMA.] Simply put, a company can join the formation of another
company. This is the basis of holding and subsidiary companies.

BORROWING POWERS

A registered company can issue debentures and secure it with a floating charge, for example, on
the assets of the company while public companies quoted on the stock exchange can invite
members of the public to subscribe to its shares, as a way of capital financing. This was in fact
the situation in the classic case of Salomon v Salomon & Sons Ltd, where the contention was
on who should be paid first following the proceeds of liquidation following the inability of the
company to meet its obligations with its creditors.