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CHAPTER- 1

INTRODUCTION
Personality is a very vague and wide term and it has a variety of meanings. It is
derived from the Greek word Persona which means the actors mask through which his
voice must be sounded. In philosophical sense personality means the rational substratum of a
human being. In law it means a right and duty bearing unit.
Generally there are two types of persons which law recognizes namely the Natural
Person and Artificial Person. The natural is confined merely to human beings and the
artificial person is generally referring to any being other than human which the law
recognizes as capable of having rights and duties. Scholars all over have constantly explored
the issue on the recognition of corporation as a legal person or legal entity. The House of
Lords in case Salomon v A Salomon & Co Ltd. held the principle of separate legal entity of
the corporation distinct from the members.
A juristic person is sometimes called a legal person, artificial person or legal entity.
Although the concept of a juristic person is more central to western law as well as common
law and civil law countries, it is also found in virtually every legal system.
The idea of legal personality i.e., artificial person can be traced in Roman and ancient
Hindu law. The ancient Roman society was undeveloped and its organization was not very
complex, therefore the problem of legal personality did not bother them much. The family
was the unit of the society. Though family consisted of a number of individuals all the powers
were centered in pater familias. He represented the whole family; therefore there was no
theoretical difficulty about his position.
A juristic person is an artificial entity through which the law allows a group of natural
person to act as if it were a single composite individual for certain purposes. Unlike a
partnership firm, which has no existence apart from its members, a company is a distinct
legal or juristic person independent of its members. Legal persons are real or imaginary
beings to whom personality is attributed by law by way of fiction where it does not exist in
fact. Juristic persons are also defined as those things, mass of property, group of human

beings or an institution upon whom the law has conferred a legal status and who are in the
eye of law capable of having rights and duties as natural persons.

CHAPTER- 2
HISTORY
In the common law tradition, only a person could sue or be sued. This was not a
problem in the era before the Industrial Revolution, when the typical business venture was
either a Sole Proprietorship or Partnership. There, the owners were simply liable for the debts
of the business. A feature of the corporation, however, is that the owners/shareholders
enjoyed limited liability. The owners were not liable for the debts of the company. Thus,
when a corporation breached a contract or broke a law, there was no remedy, because limited
liability protected the owners and the corporation wasnt a legal person subject to the law.
There was no accountability for corporate wrong doing. To resolve the issue, legal scholars
proposed a solution. A corporation could instead be considered a person, and could therefore
be recognized and held subject to the law. This understanding was not only adopted by the
courts but also by the legislatures. Thus, legislatures intentionally used the word person to
include both natural persons and juristic persons.
Corporate Personality is the creation of law. Legal personality of corporation is
recognized both in English and Indian law. A corporation is an artificial person enjoying in
law capacity to have rights and duties and holding property. A corporation is distinguished by
reference to different kinds of things which the law selects for personification. The
individuals forming the corpus of corporation are called its members. The juristic personality
of corporations pre-supposes the existence of three conditions:
1. There must be a group or body of human beings associated for a certain purpose.
2. There must be organs through which the corporation functions, and
3. The Corporation is attributed will by legal fiction.
A corporation is distinct from its individual members. It has the legal personality of its
own and it can sue and can be sued in its own name. It does not come to end with the death of
its individual members and therefore, has a perpetual existence. However, unlike natural
persons, a corporation can act only through its agents. Law provides procedure for winding
up of a corporate body. Besides, corporations the banks, railways, universities, colleges,

church, temple, hospitals etc. are also conferred legal personality. Union of India and States
are also recognized as legal or juristic persons.

CHAPTER- 3
TYPES OF CORPORATIONS
1. Corporate Aggregate:
This kind of corporation is an association of human beings united for the purpose of
forwarding their certain interest. A limited Company is one of the best examples. Such a
company is formed by a number of persons who are shareholders of the company and
contribute or promise to contribute to the capital of the company for the furtherance of a
common object. Their liability is limited to the extent of their share-holding in the company.
A limited liability company is thus formed by the personification of the shareholders. The
property is not that of the shareholders but its own property and its assets and liabilities are
different from that of its members. The shareholders have a right to receive dividends from
the profits of the company but not the property of the company. The principle of corporate
personality of a company was recognized in the case of Saloman v. Saloman & Co.1
2. Corporation Sole:
This kind of corporation is an incorporated series of successive persons. It consists of
a single person who is personified and regarded by law as a legal person. In other words, a
single person, who is in exercise of some office or function, deals in legal capacity and has
legal rights and duties. A corporation sole is perpetual. Post Master, Public Trustee,
Comptroller and Auditor General of India, the Crown in England etc. are some examples of a
corporation sole. Generally, corporation sole are the holders of a public office which are
recognized by law as a corporation. The chief characteristic of a corporation sole is its
continuous entity endowed with a capacity for endless duration. A corporation sole is an
illustration of double capacity. The object of a corporation sole is similar to that of a
corporation aggregate. In it a single person holding a public office holds the office in a series

1 1897 A.C. 22

of succession, meaning thereby that with his death, his property, right and liabilities etc., do
not extinguish but they are vested in the person who succeeds him. Thus on the death of a
corporation sole, his natural personality is destroyed, but legal personality continues to be
represented by the successive person.

CHAPTER- 4
THEORIES OF CORPORATE PERSONALITY
In Jurisprudence, discussion on the nature of corporate personality has always become
one of the major focuses. Even though there are many theories which attempt to explain the
nature of corporate personality, none of them is said to be dominant. It is contented that while
each theory contains elements of truth, none can by itself sufficiently interpret the
phenomenon of a juristic person.
The acceptance of the corporate personality of a company basically means that
another non-human entity is recognized to assume a legal entity. Although this theory has
been accepted as a well-established principle it is actually essentially a metaphorical usage of
language, clothing the formal group with a single separate legal entity by analogy with a
natural person.
Majority of the principal jurisprudence theories on corporate personality contented
that the legal entity of the corporation is artificial. The separate legal personality of
corporation is based upon theories which are concentrated upon the philosophical explanation
of the existence of personality in beings other than human individuals. There are various
theories of corporate personality which have attempted to theorize the nature and authority of
it. This might make one to gather that theoretically all the legal problems regarding persons
have been fully explored but this is not true. There is a great divergence between theory and
practice. Any one theory alone is not capable of solving the problems fully.
Therefore, the courts have not followed any one theory consistently. The reason of
gap between theory and practice is that the theorists have kept themselves more occupied
with either a philosophical explaination of legal personality, or in making it to fit in some
political ideology than with the practical problems. Even though there are many theories

which attempted to explain the nature of corporate personality none of them is said to be
dominant. It is claimed that each theory contains elements of truth; none can by itself
sufficiently interpret the phenomenon of juristic person. The following are the principal
theories of corporate personality:
1. Fiction Theory
2. Realist Theory
3. Concession Theory
4. Bracket Theory or Symbolist Theory
5. Purpose Theory
The Fiction Theory
This theory is firstly promulgated by Pope Innocent IV (1243-1254). According to this
theory the legal personality of entities other than human beings is the result of a fiction.
Hence not being a human being corporation cannot be a real person and cannot have any
personality of its own.
Under this theory rights and duties attached to corporation as artificial person totally
depend on how much the law imputes to it by fiction. The juristic personality of the
corporation is a fiction and the author is the state. The personality the corporation enjoys is
not inherent in it but as conceded by the state. Due to the close connection made in this
theory as regards to relation of legal personality and the power of the state, fiction theory was
claimed to be similar to the theory of sovereignty of state which is also known as the
concession theory.
This theory is supported by many famous jurists, particularly, Von Savigny, Coke,
Blackstone and Salmond. Sir John Salmond is of the view that a corporation is so far distinct
from its members that it is capable of surviving even the last of them.
One of the distinguished followers of fiction theory is Coke, who took the view that
corporations are invisible, immortal and resting only in intendment and consideration of law.

Salmond the principal English fiction theory advocate made it clear that a human being is the
only natural person whilst legal person govern any subject matter other than a human being to
which the law attributes personality. States, corporations and institutions cannot have rights
of a person but they are treated as if they are persons. Under the fiction theory, to exist as a
legal person it depends upon impediment of law. The fiction theory has a reasonable
reasoning to justify the position of unincorporated associations and partnerships.
In Scotland and Continental European countries, as the law granted partnership a legal
entity, then it exists as a legal person but the position is not so in England and also in India,
even though its partnership have similar attributes to partnership in Scotland and Continental
European countries, it is not an entity because the law of England and of India refused to
grant such status to partnership.
The fiction theory reasoning is able to justify that the existence of a legal person does
not solely belong to corporations. Hence it is possible for other organizations to be treated as
an entity provided that the law granted it such recognition. This finding is vital to justify that
the concept of separate legal entity in corporation is not an exclusive right of corporations. To
be a legal person, it does not actually depend upon incorporation but on the recognition of
law of the land.
The Realist Theory
According to this theory, a legal person is a real person. The theory assumes that the
subjects of rights need not belong merely to human beings but to every being which
possesses a will and life of its own. As such being a juristic person and as alive as the human
being, a corporation is also subjected to rights.
Under this a corporation exists as an objectively real entity and the law merely
recognizes and gives effect to its existence. The realist jurists also contended that the law has
no power to create an entity but merely having the right to recognize or not to recognize an
entity.
Gierke the great German jurist was the main propounder of this theory. He believed
that every collective group has a real mind, a real will and a real power of action. A
corporation therefore has a real existence irrespective of the fact whether it is recognized by

the State or not. The corporate will of the corporation finds expression through the acts of its
Directors, employees or agents. The existence of a corporation is real and not based on any
fiction. It is a psychological reality and not a physical reality.
Apart from these two important theories we have the Concession, Symbolist and
Purpose theories which supported the contention that existence of corporation as a legal
person is not real.

The Concession Theory


This is theory is also called Theory of Sovereignty of State. According to this
theory, the only realities are the sovereign and the individual. The other groups cannot claim
recognition as persons. They are treated as persons merely by a concession on the part of the
sovereign. The theory is often regarded as the offspring of the fiction theory as it has similar
assertion that the corporations within the state have no legal personality except as it is
conceded by the State. Due to the close connection made in this theory as regards to relation
of legal personality and the power of the State the Concession theory is also known as the
theory of sovereignty of State.
Therefore concession theory is basically linked with the philosophy of the sovereign
national State. Under this theory the State is considered to be in the same level as the human
being and as such it can bestow on or withdraw legal personality from other groups and
associations within its jurisdiction as an attribute of its sovereignty. Hence a juristic person is
merely a concession or creation of the State.

The Bracket Theory or The Symbolist Theory


According to this theory the members of a corporation are the bearers of the rights
and duties which are given to the corporation for the sake of convenience. The theory is
similar to the fiction theory in that it recognizes that only human beings have interests and
rights of a legal person. It is not always practicable or convenient to refer to all the

innumerable members of a corporation. A bracket is placed around them to which a name is


given. That bracket is the corporation.
According to Ihering, the propounder of this theory, the conception of corporate
personality is indispensable and merely an economic device by which simplify the task of
coordinating legal relations. Hence when it is necessary it is emphasized that the law should
look beyond the entity to discover the real state of affairs. This is clearly in line with the
principle of lifting of the corporate veil.
The Purpose Theory
According to this theory juristic person is no person at all but merely as a subjectless
property destined for a particular purpose and that there is ownership but no owner. Entities
other than human is regarded as an artificial person and merely functions as a legal device for
protecting or giving effect to some real purpose.
Brinz the German jurist has propounded this theory which is similar to the fiction and
concession theory as it declares that only human beings can be persons and have rights. The
theory rationalized the existence of many charitable corporations or organizations such as
trade unions which have been recognized as legal persons for certain purposes.

CHAPTER- 5
APPLICABILITY OF THEORIES

From the discussion on the two important jurisprudence theories and the other
theories, on corporate personality, it is observed that the main argument is that, the fiction
theory claimed that the entity of corporation as a legal person is merely fictitious and only
exists with the intendment of the law. On the other hand from the realist point of view the
entity of the corporation as a legal person is not artificial or fictitious but real and natural. The
realist also contended that the 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.
The personality of the corporation is different from that of its members. It is observed
therefore that there is double fiction in the case of a corporation. By one fiction the
corporation is given a legal entity. By the second fiction, the corporation is clothed with the
will of an individual person. Hence the fictitious personality of the corporation comes to have
a will of its own which is different from that of its members.
It is also observed that fiction theory provide the most acceptable reasoning in
justifying the circumstances whereby court lifted 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 whereby the 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. Only law has such privilege. There are many other theories of
corporate personality, but it is not possible here to discuss them in detail. However, a few
words may be said regarding each of them.
Hohfelds theory which is closely related to bracket theory. He says that only human
beings have rights and duties and a corporate personality is merely a procedural form, which

is used to work out in a convenient way for immediate purpose, a complex class of jural
relation.
Kelsens theory which makes an analytical and formal approach to the concept of
personality. He says for legal purposes there is no contrast between natural and juristic
persons. According to him personality is always a matter of law i.e., totality of rights and
duties.

CHAPTER- 6
PARTNERSHIP & UNINCORPORATED ASSOCIATIONS
Before concluding the discussion on corporation as a legal personality, it would be
desirable to contrast it with unincorporated associations and partnership. The fiction theory
has a reasonable reasoning to justify the position of unincorporated associations and
partnerships. Under the fiction theory to exist as a legal person it depends upon impediment
of the law. Therefore, unincorporated associations and partnerships can also be treated as
legal persons if the law granted to them such status.
In Scotland and Continental European countries, as the law granted partnership a legal
entity, then it exists as a legal person but the position is not so in England and also in India,
even though its partnership have similar attributes to partnership in Scotland and Continental
European countries, it is not an entity because the law of England and of India refused to
grant such status to partnership.
Today the development of partnership laws has proved that the status of legal person
can also be embraced by partnerships. The limited liability partnership (LLP) structure is an
example of partnerships which are treated by law as legal persons. Other than having separate
legal personality from the partners limited liability partnerships also enjoy main attributes of
corporation namely limited liability.

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Applying the fiction theory again this is justifiable as the attributes of corporation are
not naturally generated by corporation by it but exists because they are granted by the law to
corporations, then once the law granted the entity as legal person and attributes of corporation
to limited liability partnership, it can act similar to corporations.
A corporation is in law quite different and distinct and also separate from the
members who compose it. Its rights and liabilities are different for those of the members. The
real position of a company can be understood only if we make a comparison of it with an
unincorporated firm.
In an unincorporated firm, there is not much difference between the rights and
obligations of the firm and its partners. Even the separate property of the partners is liable for
the debts of the firm.

CHAPTER- 7
CONCLUSION
From the foregoing analysis it may be concluded that incorporation has great
importance because it attributes legal personality to non-living entities such as companies,
institutions and group of individuals which helps in determining their rights and duties.
Clothed with legal personality these non-living entities can own, use, dispose of property and
can sue and be sued in their own names. Unincorporated institutions are denied this
advantage because their existence is not different from the members.
Thus the existence of corporation requires a special legal framework and body of law
that specifically grants the corporation legal personality, and typically views a corporation as
a fictional person or a legal person. As such corporate statutes typically give corporations the
ability to own property, sign binding contracts, pay taxes in a capacity that is separate from
that of its shareholders.
Finally expressing these views about the two important theories of legal personality, it
can be observed that the existence of corporation is neither wholly fictitious nor wholly real,
instead it is partly fictitious and partly.

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However this assertion hardly serves any useful purpose in the determination of rights
and duties of corporate entities. On each theory the duties imposed by the State are the same
and the persons on whose actual wills those duties are enforced are same, hence it would not
be incorrect if contended that the difference between the fiction theory and the realist theory
is merely verbal.

BIBLIOGRAPHY
Books
1.
2.
3.
4.

Salmond, Jurisprudence, 4th Edn. Butterworths Publications, New Delhi.


V.D. Mahajan, Legal Theory and Justice, Orient Longman Pub., New Delhi (1991).
Holland, Jurisprudence, 4th Edn. Sweet & Maxwell Publishers (London).
Rama Jois, Legal and Constituional History, Universal Law Publishers, New Delhi
(1986).

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