Theories of Corporate Personality

Theories of Corporate reputation MANAS AGARWAL 5th Semester BA LL. B (B) domesticate of Law Christ University Bangalore index number * Research Methodology * Introduction * The Common Law Perspectives * Fiction guess * Concession speculation * The calculate system * Bracket system * Realist opening * Why Corporations? * Corporate Personality And restrict Liability Cases * Macaura v. Northern toast Co. * leeward v. lee sides Air Farming * Salomon v. Salomon & Co. ACKNOWLEDGEMENT I Manas Agarwal of B. A. LL. B (Hons. ) is re altogethery grateful to Ms. Fincy V, with protrude whose help and tidy sum this project would non prolong been possible.I am similarly grateful to the National Law School India University (N. L. S. I. U) Library staff and the Knowledge Centre, Christ University staff, whose cooperation is appreciable. I think this amiable of assignments lead to the everyplace each(prenominal) development of the students and I am looking in front to take up much( prenominal) assignments in future. RESEARCH METHODOLOGY background AND FOCUS This interrogation paper essentially seeks to paper and criticise the different theories of incarnate spirit considering the jurisprudential contrasts. RESEARCH OBJECTIVES The principal objective of our research is to study and criticise the different theories of corporal genius and the concepts to a lower place it. * an whatever other(a)(prenominal) objective of our research is to find conflicts in the midst of the confused theories relying on various judgments. RESEARCH QUESTIONS * What is the difference between various theories of in incarnate mostbodyalities. * The meaning and limits of a corporate constitution. METHOD OF ANALYSIS This project has its founding on the side by side(p) methods of analysis- DESCRIPTIVE The first task is to comprehensively study and critize the jurisprudential theories of corporate soulfulnessalities.ANALYTICAL Further these concepts and obse rvations fire be analyzed. The valuable knowledge that is gained from study the commentaries must be used to under(a)stand the evolution of the theories and the justness itself in terms of some gaffes. MODE OF CITATION - The researcher(s) has used a kindred mode of citation in this paper. Introduction There is an involvementing conflict between philosophic theories as to the nature of corporate record and the instigative demand of economic forces for a further recognition of those form of physical com repose which seem so essential to modern life.The grant of intelligent disposition is understandably deep down the gift of the hunt, for it may be refused to instinctive persons. In the case of vivid person, however, it is clear that effectuality grants level-headed personality to a physical entity existing in space and consumeing what (for lack of better term) we call as gracious personality. While philosophy may find bar in analyzing or describing the real nature of human personality, few of us doubt that we exist, and we compensate for our defective analysis by an intuitive correspondence of our throw nature which, however inadequate it may be, at least gives a substratum on which to build.As far as legitimate personality is concerned, there is no very significant difference between that allow to human beings and that to non-human beings such as concourses or other entity. The finding of dramatic art of Lords in Salomon v A Salomon & Co. Ltd had a lasting influence in breadbasket justice. It is often credited with the principle of separate well-grounded entity of the weed distinct from the members. Though there is no doubt that the Salomon case had hoyden a significant role in compevery natural law, the decision in this case was hardly the origin of the separate juristic entity principle.The juristic entity of beings other than the human has long been recognise prior to 1897, in which the Salomon case was descendd . The economy theories on juristic person had been established since the early Roman law to justify the globe of legal person other than the human. The State, religious bodies and information institutions had long been acknowledge as having legal entity distinct from the members. The acceptance of the corporate personality of a participation basically essence that a nonher non-human entity is accept to assume a legal entity. This can be seen from the numerous theories of order on corporate personality.Majority of the principal jurisprudence theories on corporate personality contended that the legal entity of the corporation is maudlin. The apologue, giving up, symbolist and purpose theories supported the contention that existence of corporation as a legal person is non real. It scarcely exists because the law of the state acknowledge it as legal person and it is recognized either for certain purpose or objectives. The fictionalisationalisation surmisal, for exampl e, clearly decl ard that the existence of corporation as a legal person is strictly fiction and that the responsibilitys attached to it totally depend on how much the law imputes upon it by fiction.The Common Law Perspectives Generally, there ar two types of person which the law recognized, establishly the natural and artificial person. The former is confined just for human beings while the latter is generally referred to any being other than human being which the law recognized as having duties and rights . One of the approximately recognized artificial persons is the corporation. Legal scholars, particularly the jurists, accommodate unendingly explored the put under on the recognition of corporation as a legal person.In the study of jurisprudence, the separate legal personality of corporation is ground upon theories, which are unvoiced upon the philosophical explanation of the existence of personality in beings other than human individuals. W. Friedman stated that All l aw exists for the sake of liberty inherent in each individual therefrom the original concept of personality must coincide with the idea of man. Even though there are many theories which attempted to explicate the nature of corporate personality, none of them is said to be dominant.It is claimed that while each conjecture contains elements of truth, none can by itself sufficiently interpret the phenomenon of juristic person. Nonetheless, there are five principal theories, which are used to explain corporate personality, namely, the fiction hypothesis, realist theory, the purpose theory, the bracket theory and the concession theory. Fiction Theory The fiction theory holds that corporations are scarcely legal fictions, take ind and sustained by an spot of the state. They are endowed with corporate personality obviously because this is a well- countenanced form through with(predicate) which the natural persons behind the corporation may conduct their headache.According to thi s theory, the legal personality of entities other than human beings is the publication of a fiction. Hence, not being a human being, corporation cannot be a real person and cannot have any personality on its knowledge. Originally, the emergeward form that corporate bodies are faux personality was directed at ecclesiastic bodies. The doctrine was used to explain that the ecclesiastic colleges or universities could not be excommunicated or be indictable of a delict as they have neither a body nor a will. The famous case of Salomon v A Salomon Co Ltd is a create of the English court adoption of the fiction theory.In this case, Lord Halsbury stated that the fundamental question to decide was whether in truth an artificial creation of the law-makers had been validly constituted. It was held that as the come with had fulfilled acquirements of the Companies Act, the confederacy becomes a person at law, independent and distinct from its members. Despite its submissive conception of the corporation, the fiction theory still affords a sufficient basis for according corporations legal rights. Indeed, it is on the basis of the fiction that corporations are persons that they possess the legal rights they do, such as private post rights. barely the fiction theory affords no basis for the recognition of moral rights of corporations. On the fiction view, corporations, as creatures of the State, have still those rights granted them by the State. The personality the corporation enjoys is not inherent in it simply as conceded by the state. Due to the close connection do in this theory as regards to relation of legal personality and the actor of the state, fiction theory was claimed to be similar to the theory of monarch entirelyterflyty of state which is also known as the concession theory. Concession TheoryA group of persons scatty to create a corporation will have to execute documents and surveil with requirements set by the state before being give corp orate personality further a privilege state may tolerate causes for which the privilege may be withdrawn. It brinytains that the law is the only source from which the legal personality may flow. The law lays down certain conditions which creates the legal personality of a corporation. Corporate form is thence a concession given by the state. The concession theory is basically linked with the philosophy of the sovereign national state.It is said to be essentially a product of the progress of the national state at a m when there were rivals between religious congregations and organizations of feudal origin for the claim of national state to consummate sovereignty. Under the concession theory, the state is considered to be in the aforesaid(prenominal) level as the human being and as such, it can confer on or withdraw legal personality from other groups and associations within its jurisdictions as an attribute of its sovereignty. Hence, a juristic person is merely a concession or creation of the state.Concession theory is often regarded as the offspring of the fiction theory as it has similar claim that the corporations within the state have no legal personality except as it is conceded by the state. Exponents of the fiction theory, for example, Savigny, Dicey and Salmond are found to support this theory. Nonetheless, it is that while the fiction theory is ultimately a philosophical theory that a corporation is merely a name and a thing of the intellect, the concession theory is heedless as regards to the question of the reality of a corporation in that it focuses on the sources of which the legal power is derived.Dicey took the view that sovereignty is merely a legal conception which indicates the law-making power unrestricted by any legal limits. The Purpose Theory This theory is also known as the theory of Zweckvermogen. resembling to the fiction and concession theories, it declares that only human beings can be a person and have rights. Entities other human is regarded as an artificial person and merely function as a legal device for defend or giving effect to some real purpose. As corporations are not human, they can merely be regarded as juristic or artificial person.Under this theory, juristic person is no person at all but merely as a subject less quality destined for a particular purpose and that there is ownership but no owner. The juristic person is not constructed round a group of person but based on the object and purpose. The place of the juristic person does not belong to anybody but it may be utilize and legally bound by certain objects. This theory rationalized the existence of many charitable corporations or organizations, such as trade unions, which have been recognized as legal persons for certain purposes and have continuing fund.It is also well linked with the legal system which regard the institution of public law and the endowment of private law as legal personalities. Bracket Theory According this theor y, a come with consisting of its members or shareholders exists and it is inconvenient to refer always to all of them, a bracket is placed around them to which a name is given but in order to understand the real position we must remove the bracket. The real status is given in realist theory. Realist Theory On the realist view, the corporation is more than a legal fiction, and more than simply an agreement between its shareholders.It is an autonomous institution with a demonstrable extra-legal existence, analogous in some respects to a self-governing state. Like the start theory, the realist theory recognises that the shareholders of a corporation delegate the powers of control over their property to the corporations management so that the property can be pooled towards a structured purpose. Unlike under the contract theory, however, the shareholders are seen more as investors in the corporation than owners of it.This is why managers owe fiduciary duties not simply to the sharehol ders, but to the corporate person as a whole. Of the three theories, only the realist theory seems capable in principle of supporting moral rights for corporations, because only it grants them a real social existence apart from the concession of the state or the agreement of their shareholders. However it seems that the realist theory of corporate personality has fallen out of favour amongst modern academic writers. This may be because it seems to accurately sop up only a limited subset of corporations.Many types of corporations which have assumed greater vastness since the realist view gained prominence, including holding companies and trustee companies, sit uneasily within the realist framework. up to now it is believed that the realist theory is potentially the most useful of the three set out above, so long as the subset of corporations to which it most accurately applies can be sufficiently delineated. By itself the theory seems incapable of providing any basis for such deli neation. If the realist conception of the corporation is to be salvaged at all, its assumptions must be explicated by some other theory.Why Corporations? The above survey of the theories of corporate personality has revealed no complete conception of the corporation which justifies the recognition of moral rights of corporate persons. To some extent, this is hardly surprising. Corporate personality is a legal concept based on purely commercial considerations The concept of the juridical person is convenient to the conduct of business by providing for extended life and a limit on obligation, not to mention the right to own property and attain into contracts, which the law reserves to people.But laws might be fashioned to give corporations the same power to own property and sign valid contracts without terming them persons. There is therefore no reason why the types of bodies (if any) which deserve to be endowed with corporal rights should coincide with those organisations allotte d the status of persons by the law for purely instrumental reasons. For instance, corporations are classified as legal persons, but partnerships are not. just there is no obvious reason why the mere act of incorporation by a partnership should endow it with moral rights which it did not possess before.The intuition which many lawyers seem to possess that corporations do possess rights can be explained as a psychological response to the matching normative vocabulary with which natural and corporate persons are described. That is, the personification of the corporation leads lawyers to indiscriminately apply concepts to it which are rightly applicable only to natural persons. However although this may be a convenient mode of analysis, it is clearly not conceptually consistent for rights to be accorded to bodies corporate (and to no other collectivities) purely because they bear that designation.Nevertheless, that is precisely what propose should be done. The rationale is that the d evote paper is not simply a normative, but also a descriptive study. It is apparent that corporate persons are already recognised as more appropriate bearers of rights than non-incorporated bodies under Australian law. It is for this reason that they have property and other common law rights which non-incorporated bodies lack. It is likely, therefore, that any extension of the rights recognised of collectivities under our law will employ this existing category.To extend the recognition of rights to non-incorporated bodies would require the recognition of a third type of personhood hitherto unknown to the law. However desirable this may be, it is not a realistic proposal for law reform. Corporate Personality And Limited Liability Corporate personality refers to the circumstance that as far as the law is concerned a caller personality really exists apart and different from its owners. As a result of this, a company can sue and be sued in its own name, hold its own property and crucia lly be liable for its own debts.It is this concept that enables limited liability for shareholders to occur as the debts belong to the legal entity of the company and not to the shareholders in that company. Corporate legal personality arose from the activities of organisations such as religious orders and local authorities which were granted rights by the administration to hold property and sue and be sued in their own right and not to have to rely on the rights of the members behind the organisation. Over time the concept began to be applied to commercial ventures with a public interest element such as rail building ventures and colonial traffic businesses.However, modern company law only began in the mid-nineteenth speed of light when a series of Companies Acts were passed which allowed ordinary individuals to form registered companies with limited liability. The way in which corporate personality and limited liability link together is best convey by examining the key cases- Salomon v Salomon Co. Mr Salomon carried on a business as a leather merchant. In 1892 he create the company Salomon Co. Ltd. Mr Salomon, his wife and five of his children held one share each in the company.The members of the family held the shares for Mr Salomon because the Companies Acts required at that time that there be seven shareholders. Mr Salomon was also the Managing Director of the company. The new incorporated company purchased the fix duty leather business. The leather business was valued by MrSalomon at ? 39,000. This was not an attempt at a fair military rating rather it represented Mr Salomons confidence in the continued succeeder of the business. The price was paid in ? 0,000 worth of debentures (a debenture is a indite acknowledgement of debt like a mortgage see Chapter 7) giving a charge over all the companys assets (this means the debt is secured over the companys assets and Mr Salomon could, if he is not repaid his debt, take the companys assets and sel l them to get his money back), plus ? 20,000 in ? 1 shares and ? 9,000 cash. Mr Salomon also at this point paid off all the sole trading business creditors in full. Mr Salomon thus held 20,001 shares in the company, with his family holding the six stay shares. He was also, because of the debenture, a secured creditor.However, things did not go well for the leather business and within a year Mr Salomon had to sell his debenture to save the business. This did not have the desired effect and the company was placed in belly-up(predicate) liquidation (i. e. it had too little money to pay its debts) and a recipient was appointed (a court appointed official who sells off the remaining assets and distributes the output to those who are owed money by the company, see Chapter 16). The liquidator alleged that the company was but a sham and a mere alias or agentive role for Mr Salomon and that Mr Salomon was therefore personally liable for the debts of the company.The motor hotel of Appeal agreed, decision that the shareholders had to be a bona fide association who intended to go into business and not just hold shares to comply with the Companies Acts. The House of Lords disagreed and found that- the fact that some of the shareholders are only holding shares as a technicality was orthogonal the registration procedure could be used by an individual to carry on what was in effect aone-man business a company formed in compliance with the regulations of the Companies Acts is a separate person and not the agent or trustee of its controller.As a result, the debts of the company were its own and not those of the members. The members liability was limited to the amount prescribed in the Companies Act i. e. the amount they invested. The decision also confirmed that the use of debentures instead of shares can further nourish investors. Macaura v Northern Assurance Co. Mr Macaura owned an estate and some musical note. He agreed to sell all the timber on the estate in return for the entire issued share capital of Irish Canadian dictum Mills Ltd.The timber, which amounted to almost the entire assets of the company, wasthen stored on the estate. On 6 February 1922 Mr Macaura ensure the timber in his own name. Two weeks later a firing destroyed allthe timber on the estate. Mr Macaura tried to claim under the redress policy. The insurance company refused to pay outarguing that he had no insurable interest in the timber as the timber belonged to the company. Allegations of fraud were also made against Mr Macaura but never proven. Eventually in 1925 theissue arrived before the House of Lords who found thatThe timber belonged to the company and not Mr Macaura Mr Macaura, even though he owned all the shares in the company, had no insurable interest in the property of the company just as corporate personality facilitates limited liability by having the debts belong to the corporation and not the members, it also means that the companys assets belong to it and not to the shareholders. More modern examples of the Salomon principle and the Macaura problem can be seen in cases such as Barings Plc (In Liquidation) v Coopers Lybrand (No. 4) 2002 2 BCLC 364.In that case a loss suffered by a parent company as a result of a loss at its subordinate word (a company in which it held all the shares) was not actionable by the parent the subsidiary was the proper plaintiff. In essence you cant have it some(prenominal) ways limited liability has huge advantages for shareholders but it also means that the company is a separate legal entity with its own property, rights and obligations. Lee v Lees Air Farming Mr Lee incorporated a company, Lees Air Farming Limited, in August 1954 in which he owned all the shares. Mr Lee was also the sole administration Director for life.Thus, as with Mr Salomon, he was in essence a sole trader who now operated through a corporation. Mr Lee was also sedulous as chief pilot of the company. In March 1956, while Mr Le e was working, the company plane he was flying stalled and jamed. Mr Lee was killed in the crash leaving a widow and four infant children. The company as part of its statutory obligations had been paying an insurance policy to cover claims brought under the Workers Compensation Act. The widow claimed she was entitled to compensation under the Act as the widow of a worker.The issue went first to the New Zealand Court of Appeal who found that he was not a worker within the meaning of the Act and so no compensation was payable. The case was appealed to the prat Council in London. They found that the company and Mr Lee were distinct legal entities and therefore capable of entering into legal relations with one another as such they had entered into a contractual relationship for him to be employed as the chief pilot of the company he could in his role of political science Director give himself order as chief pilot.It was therefore a master and servant relationship and as such he fitte d the translation of worker under the Act. The widow was therefore entitled to compensation. Separate legal personality and limited liability are not the same thing. Limited liability is the logical consequence of the existence of a separate personality. The legal existence of a company (corporation) means it can be liable for its own debts. The shareholders will lose their initial investment in the company but they will not be responsible for the debts of the company.Just as earthly concern can have restrictions imposed on their legal personality (as in the case of children) a company can have legal personality without limited liability if that is how it is conferred by the statute. CONCLUSION person is not artificial or fictitious but real and natural. The realist also contended that the From the discussion on jurisprudence theories of corporate personality by G. W Paton, it is observed that main arguments lie between the fiction and realist theories.The fiction theory claimed that the entity of corporation as a legal person is merely fictitious and only exist with the intendment of the law. On the other hand, from the realist point of view, the entity of the corporation as a legal law merely has the power to recognize a legal entity or refuse to recognize it but the law has no power to create an entity. Referring to the English company law case law, it can be seen that in most cases, the court adopted the fiction theory. Salomon v A Salomon Co Ltd is the most obvious example.It is also observed that fiction theory provide the most acceptable reasoning in justifying the circumstances whereby court bring up the corporate veil of corporation. If the entity of the corporation is real, then the court would not have the right to decide the circumstances where there is separate legal entity of the corporation should be set aside. No human being has the right to decide circumstances whereby the entity of another human being should be set aside. exactly law has such privilege.Nonetheless, the realist contention that the corporation obtain its entity as a legal person not because the law granted it to them but because it is generated through its day to day transaction which are later accepted and recognized by law also seem acceptable. Bibliography * A Text daybook of Jurisprudence, 2nd Ed, by G. W. Paton * Corporate personality in the 20th century edited by Ross Grantham * Manupatra. com * Legalservicesindia. com * Westlaw. com 1 . Cf. A. Kocourek, Jural Relations (2nd ed. ), 57. 2 . Stokes, M. Company Law and Legal Theory in Twining, W. ed). Legal Theory and the Common Law. Basil Blackwell, Oxford, 1986, 155, 162. 3 . Salomon v A Salomon & Co Ltd 1897 AC 22 4 . First National Bank v Bellotti (1978) 435 US 765 5 . Mark, G. Op. cit. 1472. 6 . cf. Mills v Mills (1938) 60 CLR 150 7 . Woytash, J. We Must Stop Viewing Corporations as race (1978) 64 ABAJ 814 8 . Dan-Cohen, M. Rights, Persons, and Organizations. University of Californ ia Press, Berkeley, 1986, 5. 9 . Salomon v Salomon & Co. 1897 AC 22 10 . Macaura v Northern Assurance Co. 1925 AC 619 11 . Lee v Lees Air Farming 1961 AC 12