Corporate Personality

Corporate Personality

A company incorporated under the Act is vested with a corporate personality so it redundant bears its own name, acts under name, has a seal of its own and its assets are separate and distinct from those of its members. It is a different ‘person’ from the members who compose it. Therefore it is capable of owning property, incurring debts, borrowing money, having a bank account, employing people, entering into contracts and suing or being sued in the same manner as an individual. Its members are its owners however they can be its creditors simultaneously. A shareholder cannot be held liable for the acts of the company even if he holds virtually the entire share capital. 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].

Feature of corporate personality

According to the legislation, a company is considered to be an artificial person. It has the power to exercise rights, carry out responsibilities, and acquire and retain property in its own right. This means that the legal idea of corporate identity is a unique development of the legal system. For example, the corporate personality of a corporation as defined by the Companies Act, 2013.

A company is regarded by the law as a fictional character. As a result, it may exercise its rights, perform its responsibilities, and possess property. Thus, the law created the idea of corporate personhood. Corporations have a distinct personality under the Companies Act, 2013, which is the greatest illustration of this.

Theories of corporate personality

1.??Fiction theory :- the legal person only exists in the eyes of law created for a specific purpose

2.??Concession theory :- the legal entity has been given a corporate personality and legal existence by the functions of the state

3.??Realist theory :- the most unreasonable one as per the realist theory there is no distinction between a normal person and artificial person. So the artificial person isn’t created by law it just exists

4.??Bracket theory :- more famous and feasible theory which states that corporation is created only by its members and agents, the law only puts a bracket around them taking them under a blanket for convenience purpose. In the practical world however the agents and the corporation have separate legal entities.

Doctrine of Lifting of the Corporate Veil

The legal privilege of a company's distinct identity may only be used in furtherance of its legitimate economic goals. Individuals who commit fraud and dishonesty by using a legal corporation will not be able to hide behind the corporate identity.

What's known as "piercing the corporate veil," or "lifting the corporate veil," will be used in this case. It will be as if the corporate entity doesn't exist at all, and the members or those in charge will be held accountable for the debts and liabilities of the corporation.

In the case of Salomon v. Salomon, it was held that a company has a corporate personality which is distinct from its members or subscribers. A single shareholder may virtually hold the entire share capital of the company; even in such a case, the company does not lose its identity. It was declared that the business belonged to the company and not to a single shareholder or number of shareholders and neither of them is liable to indemnify the company for its debts.

The other feature of a company is that of limited liability. A company having its separate legal entity is the owner of its own assets and bound by its liabilities. Members are neither the owner nor liable for its debts. All the debts of a company are to be paid by itself rather than by its members. Members liability becomes limited or restricted to the nominal value of the shares taken by them in a company limited by shares or the amount guaranteed by them in a company limited by guarantee.