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Corporate personality and theories of corporate personality

As we know that there are two kinds of persons :

Natural person and Juristic / legal person

Natural person: It simply includes human beings

Legal person: It includes human beings and other entities which are recognized by law as person. Like institutions, corporation, some societies etc.

In olden days slaves were not considered as legal persons . They were simply treated as chattel of their masters. Also some persons who were declared outlaws were not considered persons. Killing them was no homicide.

If we talk of corporation, they are of two types based on their structure. These are

Corporation sole and corporation aggregate
Corporation sole:
Where a single office is occupied by a single natural person. One common example is king of England , there is difference between king as individual and king as head of state. In latter position, he is acting as corporation sole.

Corporation Aggregate:
Where legal personality is given to series of individuals which have come together to carry out a specific function . Like some person have come joined together for the purpose of commerce or doing any sort of business. These groups may be termed as corporations when they are Created either by special stature or by registration under company's Act.

So, corporation personality is an artificial or fictitious personality which is made up of series of natural person as it's members.

It can own property, having rights and obligations. It does not die like the natural person dies meaning thereby, there is perpetual succession+corporation can enter into contract with its members as it has a distinct personality from its members.

There are various theories which have tried to discuss the nature of corporate personalities,but no theory alone can solve the problems fully. There are lacunas or drawbacks in each and every theory .

These theories helps to determine legal existence, separate legal entity, rights and duties of corporation.

Fiction theory:
The chief proponent of historical school savigny has propounded it.

This theory says that only human beings are having real personalities .other entities like corporations, they are given fictitious or in a general legal personality only because they have to carry out some judicial purpose.

This theory was made applicable to famous case of Solomon v Solomon co.ltdwhere he was not held liable for any of companies debts ,though he was acting as owner of company.

So this can be taken as drawbacks of this theory because corporate personality is having its own liabilities, duties to be fulfilled but this theory has given fictitious character to it and totally neglected the liability of corporation.How they can rights as rights only remain with real person.

Concession theory:
This is similar to that of fiction theory. One thing this theory added that fictional personality is given by state . To validate any thing , recognition of law is must ,At certain points this theory is correct.

Purpose theory:
The theory totally denied the personality of juristic person. It says only human beings have personality. Juristic person are no persons at all ,but it is not applicable in india +England.

Bracket theory/ sociological/symbolist theory:
This theory says members of corporation are the only person who are having rights and duties . All these members are put in bracket and law consider them as corporation or as one unit.

But what we see in practice is totally different. The personality of corporation is separate from that of its members. They are separated by veil of ignorance, having separate rights and duties.

Realistic/organic theory:
This is different from Bracket theory. It says corporation in real sense is an entity which is having its own rights and duties.

Like humans are having rights and duties. In the same way , corporation having their rights and liabilities.

It opposes fictional theory because it says corporation is having real and recognized personality.

It talks about Corporation Aggregate that there is collective will of different members which is taken as will of corporation as whole , so this aggregate personality has similar features as that of human personality.

But it doesn't talk about Corporation sole ,which is main lacuna of this theory.

In absence of such theories,I would have been very difficult to give the word corporation,a sense and description. Modern trends related to business is based on theories,that suggests that corporate personality is distinct legal entity with its own identity and eternal succession.

  1. Jurisprudence by Tripathi
  2. Jurisprudence and legal theory by Mahajan.

Written By: Daima khanam, central university of Kashmir

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