Theories of Corporate Personality

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Introduction 

Lawyers and judges have maintained that a corporation is an intangible legal entity with nobody and no soul since the beginning of our judicial history. A sole proprietor can’t legally separate his or her finances from those of his or her company. As a result, in the case of a business-related financial crisis or otherwise, the sole proprietor’s business debts must be paid from his or her funds. A miscalculation on the part of his or her company can leave the sole proprietor and his or her family bankrupt, making it unprofitable to pursue other commercial projects. But the House of Lords in Salomon v. Salomon & Co., Ltd. unanimously and somewhat contentiously founded the doctrine of corporate personality in English company law in the year 1897. The doctrine recognized that a corporation is a separate legal entity. This means that even though the people running the company change often, the company maintains its identity, and the business does not need to be stopped and restarted with each change of management or shareholders. The company’s creditors can only recover their money from the company and its property. They are unable to sue individual members. As a result, the company is not liable in any way for the individual debts of its members. The company’s property is to be used for the benefit of the company, not for the personal gain of the shareholders. In simple words, a company is a separate legal entity that exists independently of its members.

Definition – Corporate Personality 

Corporate personality refers to a company’s ability to have its name, sue and be sued in its name, and buy, sell, lease, and mortgage its property in its name. Furthermore, a corporation’s property cannot be taken away without due process of law.

The legal status of a company that has complied with the legislation to be recognized as a legal entity and has a separate legal life from its officers, directors, and shareholders.

Theories of Corporate Personality 

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These theories have a political undertone in that they aim to project the essence of the relationship between the state and the groups that exist within the state, or they offer a metaphysical justification for the presence of such legal persons, or they try to address the practical consequences of the existence of such legal persons.

The following are the key corporate personality theories:

  1. Fiction Theory 

According to this theory, only human beings have the right to be named “persons.” The company, according to this theory, has a distinct identity from its members. As per this theory, a juristic individual only has a fictitious will. The legal personality of people other than humans, according to this theory, is the product of fiction.

  1. Concession Theory 
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The state’s sovereignty is at the heart of the concession theory. It believes that the company is extremely important because it is a legal entity recognized by state or federal law. A juristic being, according to this theory, is the state’s development. This theory is linked to the theory of fiction. To some extent, this theory is correct; it is correct in the sense that all rights, whether human or corporate, derive from what the law grants, and that where the law does not grant anything, its approval is required to affirm, preserve, or perpetuate what already exists or is conferred by nature, or what man has taken or made for himself.

  1. Purpose Theory 

It declares that only human beings can be persons and have rights, similar to the fiction and concession theories. Other than humans, entities are considered artificial persons that merely serve as a legal instrument for protecting or carrying out a real purpose. The key point of this principle is that legislation protects specific goals and private interests. The property claimed by juristic persons does not belong to anything; however, it does “belong for a reason,” which is the most important fact about it. Many charitable corporations or associations, such as trade unions11, have been recognized as legal persons for certain purposes and have a continuing fund, thanks to this theory.

  1. Realist Theory 

“Organic Theory” is another name for realist theory. Gierke proposed this idea, and Maitland was an enthusiastic supporter. According to this theory, a corporation has all of the same qualities as a real individual. As a result, he believes that a legal or juristic individual is essentially the same as a human being. It also states that juristic individuals are not fictional and do not need the State’s approval. According to the realist theory, group personality has the same characteristics as individual personality. The organizations have a real mind, a real will, and a real ability to act.

  1. Group Personality Theory 

Institutional Theory is another name for this theory. Hauriou was a proponent of this theory. The theory is based on a collective viewpoint. Individuals are said to integrate into associations and become a member of them. As a result, it was assumed that any collective community possesses a real mind, will, and ability to act. As a result, a company has a true life that is unaffected by whether or not it is recognized by the government.

  1. Symbolist Theory 
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Bracket Theory is another name for this theory. Rudolph Ritter von Ihering was the one who proposed the idea. According to this theory, the owners of the company are the only ones that have privileges and responsibilities. When a company is created, granting legal personality means placing a bracket on the members so that they can be viewed as a single unit. However, to comprehend the true existence of the business, we must eliminate the bracket to determine the company’s true location. If and when the brackets are removed, one can see what the corporation is, what its true nature is, and how the members of the corporation are exposed by the removal of brackets.

Conclusion 

Corporate personality is a legal construct. Since a company is an artificial being, it is capable of exercising certain rights and responsibilities. The company’s identity distinguishes it from the individuals that make up its membership. Thus, a company can be sued and can sue in its name, possess the land, and have a permanent and legal life separate from its directors and shareholders. Corporate personality theories do not have a clear presence in general corporate governance. But the modern concept of business is based on these theories, and it suggests that it is a distinct legal entity with its own identity and eternal succession. Without these theories, it would have been very difficult to give the word Corporation a sense and description, and it would have been extremely ambiguous.


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