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Corporate Personality And It's Theories

Corporate Personality

Corporate personality is a legal concept. The corporate personality hypothesis essentially asserts that a corporation has a separate legal identity from its members. The idea of corporate personality is used in both English and Indian law. The company's creditors can only sue the corporation to recover their money; they cannot sue individual members.

Similarly, the business is not liable for the individual debts of its shareholders/members, and the company's property is solely used for the company's profit. It has certain rights and responsibilities, including the power to own property, enter into contracts, and sue and be sued in the name of the company. The member's rights and obligations are distinct from those of the company's. The company's legal personality and independence are conferred to it when it is granted corporate/legal personality.

Three key requirements must be present in a corporation's legal personality:
  • First, a group or body of human persons must be linked for a specific purpose;
  • Second, the company must have organs through which it acts; and
  • Third, the company is given will/animus by legal fiction.

Theories of corporate personality

A "corporation sole" and a "corporation aggregate" are treated as individuals by the law. These theories have a political subtext in that they tried to portray the relationship that exists between the state and the groups that exist inside it, or they include a metaphysical elaboration for the presence of such legal persons, or they try to address the practical consequences of the presence of such legal persons. Yet, in dealing with numerous issues connected to corporations, the courts have not continuously adopted any one theory and have, for the most part, been led by practical concerns.
  1. Fiction Theory:

    Savigny proclaimed the fiction theory, and Salmond, Coke, Blackstone and Holland elaborated on it. A pure legal fiction, according to the fiction theory, attaches a personality to organisations, institutions, and finances. The company's character is distinct from that of its constituents. There is a double fiction in operation in case of a company. The corporation is granted a legal entity in the 1st fiction, and the corporation is blessed against the will of an individual person in the 2nd fiction. As a result of this double illusion, the company develops a personality distinct from its members. Savigny saw a company as an

    exclusive legal construct with no existence outside of the company group's individual members, whose fictional deeds are ascribed to the corporate entity. The truth that all of the company members have died has no bearing on the company's continued existence. Only a fake creature of law has survived.

    This theory has been criticised because it does not adequately address corporate civil and criminal culpability. If the company's are ascribed to it by the fiction of law, it implies that it should always be legal, because the will bestowed by law could never be utilised for illegitimate or illegal purposes. The firm would only engage in intra vires activities and would never engage in ultra vires activities.

    Frederick Pollock has also been harsh in his critique of this theory, claiming that the fiction theory of corporate personhood is not recognised by English common law. In English law, a group of people cannot assume collective obligations or powers unless they can meet the prerequisites for incorporation. In English law, unincorporated entities are not considered legal persons. A group of people must be incorporated as per law before they may have rights and responsibilities as a corporation.
  2. Realist Theory:

    Gierke, the eminent German jurist, proposed it. Maitland, Beseler, Lasson, Bluntschli, Zitelmann, Miraglia, Sir Frederick Pollock, Geldat Pollock, Jethrow Brown, and others have all backed up this theory. Every organisation, according to Gierke, has a genuine consciousness, a real will, and a real ability to act. The presence of a group extends beyond the sum of the individualities of the individuals who make up the group. Regardless matter whether it is a political or social group, every group, by this theory, has its own character.

    A company has a genuine existence regardless of whether or not it is recognised by the state. The companies will is manifested via the actions of its subordinates and agents. As a juristic person, you have various rights and responsibilities. A company, according to this view, is a social organism, whereas man is a physical organism. It argues that corporations employ men as agents to carry out their duties. The corporation's will is manifested via the actions of its directors, workers, and agents.

    Unlike the preceding argument, the presence of a company is founded on actuality rather than fantasy. It is more of a psychological than a physical reality. The company is not a real person; rather, it is a reflection of psychical realities that exist outside of state law and are recognised rather than formed by it. Realist theory is intertwined with Institutional theory, which signifies a move from an individualist to a collectivist perspective. An individual gets integrated into the organization and then becomes a piece of it, as per this theory. They felt that inside the State, which is the highest institution, there were several separate institutions.

    Professor Gray denies that collective will exists. The corporate will, he claims, is a fabrication of his imagination. A corporation is not a mythical or legal entity; it is merely a collection of natural individuals, some of whom have rights that differ from those of natural persons in common and descend in various ways.
  3. Concession Theory:

    The theory is propounded by savigny, salmond and dicey. It tied to the sovereign state ideology. The sovereign and the individual are the sole realities according to this view. They are considered as individuals solely as a result of the sovereign's concession. Only the law may provide legal personality. It assumes that a company has enormous importance as a legal person since it is accepted by the state or the law.

    Juristic personality, as per this theory, is a concession provided by the state to companies. Recognize or not is totally at the discretion and judgement of the State. The idea is similar to the fiction theory in that it argues that none of its members have a legal personality. This theory varies from the fiction theory in that it emphasises the State's discretionary authority when it comes to identifying the corporation's personality.

    Overemphasis on state discretion when it comes to recognising corporations that are not alive. This might result in authoritarianism and arbitrary limits on business organisations, especially political ones.
  4. Purpose theory:

    Brinz, a German jurist, is the principal proponent of this theory. This notion was endorsed in England by E.I. Bekker, Aloysand Demilius. The notion is founded on the premise that companies can be recognised like individuals for certain reasons. It is based on the premise that only living humans may be the subject of rights and responsibilities, and that companies, as non-living organisations, have no such rights or obligations. To address this, the theory contends that a corporation's personality was required in order for it to be viable of possessing rights and obligations.

    The foundations or building upon which the construction of the juristic person may be created can be followed back to the Stiftung of German Law, i.e. the underpinnings or edifice for which the construction of the juristic person can be built. Duguit, a well-known jurist, had a distinct approach to aim theory.

    According to him, the goal of law, in its broadest meaning, is to establish social cohesion. If an unit is pursuing an objective that is in line with social solidarity, then all of its acts that fall within that goal must be safeguarded by law by bestowing legal personality on the unit.
  5. Bracket theory:

    The Symbolist theory, often referred as the Bracket theory, is linked to the well-known German jurist Ihring. As per this theory, legal individuality is a symbol that helps corporate bodies perform more efficiently. According to this view, members of a company have specific rights and responsibilities that are delegated to the corporation in order for commercial transactions to go smoothly. It is not usually practical or easy to refer to numerous members of a company. Hohfeld, an American jurist, has argued for this notion in a somewhat modified form.

    Corporate personality, in his opinion, is the development of arbitrary legal norms meant to assist legal procedures by and against an established company. Only human beings are individuals, according to Hohfeld, and legal personality is nothing more than the establishment of arbitrary procedural norms. A corporate person is just a procedural form of a lot of individuals that is recognised in order to establish legal relationships between them. Corporate personality, as per Hohfeld, is just a way of accounting for mass individual interactions. He indicated that a company's unity is a handy mechanism for courts of law to decide matters.

    This theory has a flaw in it from the beginning. It does not specify when the bracket can be removed and raised in order to take notice of the members who make up the corporation.
  6. The Organism Theory:

    According to this theory, a company is similar to an organism, with (limbs in the form of members), a head (top authorities), and other organs. Furthermore, an individual has one head, a body, and legs, which aid in the fulfilment of desires and the performance of functions. As per the theory, a corporation has its own will and body, and also legal rights and responsibilities.

    To have legal rights, you don't have to be a human person. A body that has its own will and life might have legal rights as well as legal obligations or duties. A social entity with members, a will, and a body is referred to as a corporate personality. As a result, the core of this theory would be that a corporate personality must have a body (head, limbs, and organs), collective volition, and legal recognition.
  7. Ownership Theory:

    This theory was devised by Bzinz, Bekker, and Demelius, and it was expanded by Planiol. Humans, not companies, are said to have legal rights, according to this idea. In addition, it states that a legal person or company is not a person in any case. These are subjectless property, which is a legal fabrication, and this fictional identity exists solely for the purpose of owning common property. Personalities like this are nothing more than a kind of ownership. As a result of their ownership, these persons may enter into contracts and pursue legal action in the same way that real people can.

    When it comes to estates and money that are solely owned by corporations, this ownership theory holds some significance. Furthermore, human beings could only be entitled to certain rights and duties. As a result, if such a personality cannot be entitled to such rights and obligations, it should be classified as subjectless property. The core of this view is that the law protects particular human purposes and interests, and property acquired by a juristic person does not belong to anybody but is controlled for a certain objective and purpose. Furthermore, these legal professionals are there to put some genuine goals into action.

    Also Read:
    1. Corporate Personality
    2. Theories of Corporate Personalities
    3. Legal Personality In The Light of Jurisprudence
    4. Is Corporate Personality A Real Personality? Important Case Laws And Theories

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