CORPORATE PERSONALITY: JURISPRUDENTIAL APPROACH

5 April 2024|Pramarth Gupta (Associate)

The concept of the company as a separate legal person, a metaphor of limited use like all legal fictions, can
only be justified by and assessed to the extent that it serves the law’s social and economic aims. The
pervasive influence of the concept, the effect of its contextual application, and the way in which it represents
the 'reality’ through which the common law accesses the complex nature of the corporation, all point to the
need for its re-examination.

Corporate personality, as the name suggests, is related to the corporate sector of the world and is said to be
the most important term in this field. We know that all laws are basically formed based upon a foundation
which has been time and again established and changed by certain jurists. These jurists are famous for
giving their own interpretation of laws so that future laws will be formulated by accepting a common
ideology. In this research paper, our main goal is to get to know this topic in depth. For this, we need to
research the following questions:
 How this corporate personality has been connected with jurisprudence?
 What theories have been given by the jurists in order to justify the nature of corporate personality?
 What factors led this world in understanding the true significance of this concept?
In our lawful environment, there are two types of persons that are accepted as lawful people. One of the type
is of natural person that we humans are and the other type is of artificial person. This artificial person is
basically the man made person but have its own existence in this environment. This artificial person is
generally made up for certain purpose and so its existence must have to revolve around that purpose only.
Corporate firms, companies, etc. are the examples of this artificial person. These artificial persons in the
business world are said to be the corporate personality. This is because they are formulated by the humans
with a certain intention to earn profit in a particular sector. This intention depends upon the objective of the
artificial person. Artificial person’s main task is to fulfil their objectives and not deal in outside matters. It is
one of the most important feature of the corporate firms and companies that they have a separate legal
existence and so these corporate entities have the right to enter into any kind of contract related to their field
in its own name. For this they have their official seal which acts as a official signature of these entities.
The term ‘corporate personality’ defines the personality of corporate entities. Its personality is different from
the natural persons. Corporate personality is a kind of fake individual who have its own rights and duties just
like a natural person but have a lot of differences if we compare it with natural persons. Such an example
can be the humanity. One can expects humanity from a natural person but in case of corporate personality,
there is no such term in their dictionary. Their motive is to obey the principle of perpetual succession in a
particular field and to get profits or to achieve growth in it. Here the concept of natural law has no role.
Corporate personality works on what is best for it rather than the concept of morality. However, one must get
confuse between ethics and morality but just to be clear these both terms have their separate meanings and
may or may not be connected to each other. Corporate personality has the social duty to work with ethics but
it is not mandatory for them to always play in ethics. Sometimes they may reflect moral behaviour in order
to obey ethical environment but if somehow circumstances change, corporate entities may ignore the
concept of morality completely while still remain in the ambit of the ethics.
LEGISLATIVE PERSPECTIVE
The concept of corporate personality is a well recognised concept in English as well as Indian law. From our
ancient Indian cultures, we can found many references of separate legal personality based upon which
corporate personality has developed and become a prevalent characteristic nowadays.
Like if we take an illustration from Hindu law, we can observe that Karta as a part of Hindu coparcenary is a
dominant/supreme position in a joint Hindu family. He holds the representative rights of its family members
and is successive in nature. However it is not a corporate but have a separate legal existence. Similarly in the
case of Hindu idols, they were also once recognised as a corporate entity in the ancient times. Not only
Hindu idols but Guru Granth Sahib, mosque, etc. we also considered to have their own separate legal
existence. In fact the Union of India and the states have also been recognised as corporate entities under the
constitution of India[1]. The President of India as also the Governor of the state is a corporation sole like the
British Crown. Even the Reserve Bank of India is an incorporated body having an independent corporate
existence. But if we see the case of Union Public Commission and a Joint Hindu Family, they cannot hold
property in their own names or cannot sue or be sued in their own name which makes them apart from the
definition of the legal persons.
A company incorporated in India[2] is said to be the best example of Corporate Personality. A corporate or a
company certainly have their own rights and duties which they can enjoy because of their legal personality
by the effect of fiction created by law.
Basically Corporate Personality is of two types, that is:
1) Corporate Sole- In corporate sole, there is an incorporated series of successive persons.[3] It consists of
only one member at a time. As per the Salmond’s point of view, when a successive holder of some public
office incorporates so as to become a single, permanent and legal person is said to be a corporate sole.
Sovereign, the Secretary of State for War, Attorney general of India, etc. are some of the examples of the
corporate sole in India. A corporate sole is basically about a position which will always be there no matter
who can hold it and for how many years.
It is kind of a position of double capacity. It means that a person holding the particular position should have
double role in the society. Like if we take the case of king in a country, then he can exercise his powers
without restrictions but at the same time he is also an individual and so he can confer rights and duties upon
himself as an individual also.

2) Corporate Aggregate- In corporate aggregate, there is an incorporated series of co-existing persons.

Unlike corporate sole, there are several members forming a group at a time. For example, a registered
company consisting of all the shareholders, co-operative society consisting of several members of the
society, limited companies, etc. In this corporate type, members forming a group contribute in the group in
light of common interest and works together for the upliftment of the group. Once this group gets registered,
it becomes a separate legal entity in the eyes of law. After this the particular group gets the right to deal with
the members as well as to the outsiders in their own name for serving the purpose upon which the group was
built in its first place. This group then also gets the right to sue or be sued in case of something wrong
happen. However, a partnership firm is said to be exception in this case since it is an aggregate of individual
which is generally not incorporated. Also the partners in the partnership firm own the property and are
equally liable for debts.[4]

JUDICIAL APPROACH
The concept of corporate personality was first came into notice in the year 1867 in the case of Richard
Oakes Vs. William Turquand and R. P. Harding[5]. However, if we talk about the leading cases in the matter
of corporate personality then there were few landmark cases which comes as a base for this whole concept.
These cases are:
1) Salomon Vs. A Salomon & Co Ltd.[6]
In this case, a businessman named Mr. Aron Salomon, who already has business of manufacturing leather
boots, has incorporated a limited company known as Salomon & Co. Ltd. The minimum requirement for
starting a limited company was to have at least 7 shareholders. So in order to fulfil this requirement, he
decided to give one share each to his family members so as to make them the shareholders. Then after few
years, he sold off his business to the limited company for $39000 out of which he was having a debt of
$10000. In this way he has become company’s principal shareholder and principal creditor at the same time.
After one year, the company went into liquidation. The main problem which persists here is that the
realization of assets was just $6000 whereas debentures held by Salomon were of $10000 and unsecured
creditor were of $7000. So the creditor by stating these facts has challenged the right of Mr Salomon over
his preferential right as a debenture holder. The main issue which rose here is that whether the company’s
formation by Mr. Salomon was done with the malicious intention to defraud the creditors. The court in this
case held that after the incorporation stage, the company has attained the status of independent legal person.
It will not be considered as an agent of Mr. Salomon. Since Mr. Salomon is a debenture holder in this
company, therefore, he must get the priority in payment over the unsecured creditors at the time of winding
up.[7]
This case law established the concept of separate legal personality which allows a freedom to the
shareholders to trade in different companies without facing any risk of personal insolvency. This judgement
for the first time has bring into notice 2 principles i.e. Artificial person and limited liability.
2) Lee Vs. Lee’s Air Farming Ltd.[8]
In this case, Mr. Lee held 2999 shares out of the 3000 shares of Lee’s Air Farming Ltd. and since he is a
majority shareholder, he makes himself the managing director and the chief pilot on salary. So basically he
was the shareholder, director and employee of the company at the same time. While working in the course of
his employment he was killed in an air crash. His widow then claimed for the compensation from the
company since he was being dead in the course of his employment. She claimed a sum of £2,430 for herself,
for her four infant children and for the funeral expenses. Company then denied this claim by giving a
statement that Mr. Lee was not a worker of the company rather he was just the shareholder and the
controlling director of the company at the time of the accident. The main issue which rose here is that
whether the company is a separate legal entity or not, or if it is then, whether Mrs. Lee can claim for the
compensation or not. This case is basically concerned about the two concepts i.e. corporate veil and separate
legal personality. This case helped in proving the principles given in the Salomon’s case. The Privy Council
in this case held that Mr. Lee might be the controlled of the company at the time of the accident but in the
eyes of law, Mr. Lee and Lee’s Air Farming Ltd. is to be considered as a separate legal entity. Therefore Mr.
Lee can enter into a contract with the company and could be considered as an employment irrespective of
being the shareholder and the director at the same time. The company would be considered as a separate
legal entity and any director is allowed to enter into a contract with the company and can act as an employee
also for the benefit of the company. So, Mrs. Lee’s claim has been allowed by the Privy Council and she has
been awarded compensation in respect of workmen’s compensation.

RECENT TRENDS AND OBSERVATIONS

Corporate Personality is a concept which has not been evolved on its own. Many jurists have given their
theories based upon which the ‘Legal Personal’ has been defined nowadays. It is their observation and ideas
which led to the emergence of this concept. Recent trends and observations from these theories have become
the foundation for the concept. These theories help in understanding the nature and scope of corporate
personality as created by law. One may believe that these theories may act as a universal principle but
practically speaking this is not the case. Jurists have adopted the theoretical approach and ignored the
practical approach while giving these theories. These theories are:
1) Fiction Theory-
This theory gives importance more to the natural persons rather than the legal persons. As per this theory,
legal persons are just a kind of fiction and emphasized more on human beings as natural persons. The
existence of a corporation is considered only as an outcome of fiction and metaphor. So the personality that
is attached to these corporations is done purely by legal fiction. The legal person is created only in the eyes
of the law for a specific purpose. The theory is expounded mainly by Savigny and backed by Salmond,
Coke, Blackstone, Kelson and Holland. This theory is mostly adopted and used by the English Law where
the main focus of the courts was not on recognizing a legal person.
2) Concession Theory-
This theory is basically linked with the philosophy of sovereign state. This theory is almost similar to the
fiction theory except with a difference that it accepts corporation as a legal person if it has been recognised
by the state. According to this theory, juristic personality is a concession granted to the corporations by the
state on its discretion. It is similar to fiction theory in a way that it does not accept any legal personality
except which has been recognised by the creation of law. The same jurists as of fiction theory has given this
theory by saying that a corporate is someone on which legal entity has been endowed as a legal fiction for
particular purpose by the state.
3) Realistic Theory-
This theory is also known as organic theory. The founder of this theory was German jurist Johannes
Althusius and its main propounders were Gierka and Maitland. It talks about the real existence of the
corporation is not dependent upon state’s discretion. It is immaterial whether state recognise any corporation
or not, and so a corporate is a legal person same as that of a natural person. This theory proposes no
distinction between natural person and artificial person. This is not a very practical theory as it does not
apply in the real world. This theory was favoured more by sociologists rather than legalists.
4) Bracket Theory-
This theory is also known as Symbolist theory and it is associated with the well known German jurist Rudolf
K. Ihering. It states that a corporation is just a group of persons having their rights and duties and so the law
basically puts a bracket to this by considering the whole group as one single unit as corporate personality.
This theory doesn’t differentiate between the corporation and its members. This theory is however used by
many courts in the cases of ‘lifting of corporate veil’. However, the basic criticism for this theory is that it
doesn’t indicate clearly when to put the brackets and when to lift the corporate mask.
5) Purpose Theory-
The main exponent of this theory was the noted German jurist Brinz. In England, this theory was developed
by Barker[9]. E.I. Bekker, Aloys and Demilius also supported this theory. This theory has a view that
corporations should be treated as the persons only for the specific purpose since the assumption is that only
the living persons has the rights and duties and so they are said to be the living persons whereas corporations
are the non- living entities. Duguit also interpreted this theory but in his own way. He connected this concept
with social solidarity. According to him, if a group is pursuing a purpose which conforms with social
solidarity, then all its activities falling within the purpose need to be protected by law by conferring its legal
personality[10].

CONCLUSION
So far what we understand from this whole research was that a corporate personality is an artificial person
having its own rights and obligations separate from that of its owners and other members. Basically it a
separate legal entity and so it has the power to enter into its own contracts with its own seal. With the
passage of time and with the help of so many precedents this has become a widely used concept. This in turn
helps the shareholders in trading freely into the market without having the risk of unlimited liability.
Corporate personality is of two types i.e. corporate sole and corporate aggregate. Corporate sole is basically
when a person is playing a double role in the society and is having such a position which on its own have a
separate legal status whereas corporate aggregate is when a certain group of people combined together along
with their resources and manpower and thus, formed an organisation for a specific purpose having its own
legal status in the eyes of law. These both types helps in explaining and broadening the concept of artificial
person and its rights & duties in the society.
Many jurists in this regard have tried to give their own interpretation of this concept and were successful in
giving certain theories which becomes a base for this law. They have given the theories like fiction theory,
concession theory, realistic theory, bracket theory and purpose theory which different courts as per their own
convenience and circumstances have observed and adopted for reaching at a particular decision.

[1] Article 300 of the Indian Constitution

[2] As per Companies Act
[3] Dr. N.V. Paranjape, Studies in Jurisprudence and Legal Theory, 514
[4] Dr. Avtar Singh and Dr. Harpreet Kaur, Introduction to Jurisprudence, 3rd edition, 355
[5] LR 2 HL 325
[6] AC 22 (1897)
[7] Company Law Case Manual, Vips Legal Edition
[8] AC 12 (1961)
[9] Barker (Gierk’s Translation) Natural Law & Theory of Society
[10] Dr. N. V. Paranjape, Studies in Jurisprudence and Legal Theory, 527