PRINCIPLES OF CORPORATE Personality

INTRODUCTION
Generally, the aim of a company in Malaysia is to make profits. A company by law is a
different person from its subscribers to the memorandum. It involves the principles of
corporate personality which include perpetual succession, proprietary interest, debts
and the process of suing and being sued (Foss v Harbottle). It is concluded with the
main instances of lifting the veil of corporation, such as number of membership,
fraudulent trading, evasion of legal obligations, holding and subsidiary company, and
publication of name.

PRINCIPLES OF CORPORATE PERSONALITY

Corporate personality is the fact stated by the law that a company is recognized as a
legal entity distinct from its members. A company with such personality is an
independent legal existence separate from its shareholders, directors, officers and
creators. This is famously known as the veil of incorporation.

As a result of corporate personality, a company has perpetual succession. It simply

means the company is everlasting and will continue to do business until it is properly
wound up. As a separate legal person, a company will not be affected by changes such
as death, transfer of shares or resignation of any members but will continue to exist
despite the number of times the changes of membership occur. Even if all the members
die, it will not influence the privileges, immunities, estates and possessions of a
company. The principle of perpetual succession is clearly illustrated in the case of Re
Noel Tedman Holdings Pty Ltd (1967)
(http://www.jrank.org/finance/pages/3723/perpetual-succession.html, viewed 26
September 2010

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Theories of Corporate Personalities

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Corporate sole and corporate aggregate are treated as persons by law. There are various theories
which are developed to show the nature of personality. These theories could be either political which
talks about the relationship between the state and group residing within the state or it could be a
philosophical explanation which is pertaining to existence of those persons which are created by law.
But the courts have not uniformly followed any of these particular theories to deal with any problem
or issue which is pertaining to corporation but on the other hand they are also guided by the practical
considerations.
So, here are some of the theories as follows -:
1.The Fiction Theory
2.The Realistic Theory
3.The Concession Theory
4.The Organism Theory
5.The Ownership Theory
6.The Symbolist Theory aka The Bracket Theory

The Fiction Theory:-

Ø There were many jurists those who gave their opinion on Fiction theory. They said that any
corporation either sole or aggregate has a fictitious personality. This personality is necessary to form
an individual corporation existing by their own and even sustaining for its members. Here is
difference between judicial and natural person. Person those who exists for judicial purposes are
judicial person but person who is born with its own personality. But judicial or artificial person are
created by law.

Ø But one of the jurist Michound had raised various objections pertaining to fictitious theory that if
corporate sole or aggregate is fictitious or imaginary person and only exists in the eyes of law, then
how it is possible for them to hold a tangible property? Then next issue was regarding the rights of a
person. He said that if corporate sole or aggregate is a imaginary then how they can have rights
because rights can be only with real persons. So ultimately he said that corporate must be a real
person not fictitious.

Ø Another issue was raised that legislator has done a mistake on their part by forming such entities
or personalities, but legislator never make things by itself. It basically considers each and every
aspect of society before forming any personality or legislation like social need, social good or bad
etc. and legislation is the one which creates such personalities and in present generation even public
also demands such recognition. Therefore a law or judge can give birth to something new which is
worthy and beneficial for the commerce and society.

The Realistic Theory:-

Ø This theory talks in contrast with the fictitious theory. This theory says that corporation has a real
personality not a fictitious. Gierke was the exponent of this theory and tried to criticise the fiction
theory. His opinion was that, corporate has a real & recognized personality and it is not created by
law. This theory also know as sociological theory because in corporate aggregate there is a
collective will of different members and individual will is different from collective will. So corporation
has its own real psychic will, therefore it is not fictitious or imaginary instead it is a real personality
recognized by law. But this theory does not apply to corporate sole because collective will is
necessary for form a real & psychic personality. Hence this theory states that aggregate personality
has similar features as a human personality.

The Concession Theory:-

Ø This theory is much similar with the fiction theory but not asserts exactly what fiction theory says.
It says that any legal personality can take birth from law itself. It is concession or grant from the side
of law that legal personality is created and recognized. At certain point this theory is correct because
any right or any recognition to any personality would flow from the law. So to validate or recognize
any personality, recognition of law is must.

The Organism Theory:-

Ø This theory asserts that corporation is like an organism and it has (limbs in the form of members),
head (top authorities) and other organs. Moreover an individual also has one head, body with legs
which helps in achieving the desires and performing the functions. According to theory corporate has
its own will and body which is subject to some legal rights and obligations as well. It is not necessary
to be a human being to have legal rights. A body with its own will and life can have legal rights and
can also be subjected to some legal obligations or duties.

Ø So according to this theory, corporate personality is a social organism who has its members, own
will and body. Therefore the essence of this theory is that to be a corporate personality, it should
have body (head, limbs & organs), collective will and recognition from law.

The Ownership Theory:-

Ø This is another theory of corporate personality. Bzinz, Bekker and Demelius were those who have
developed this theory and Planiol had elaborated it. This theory states that human beings are
subjected to legal rights not corporations. Furthermore it says that juristic person or corporation is
not a person anyway. These are subject less property which is a creation of law and this fictitious
personality are there only for possessing property in common. Such personalities are only form of
ownership. Being in such ownership these personalities makes contract, sustain legal proceeding
like actual person.
Ø This ownership theory has some importance when it is used which pertains to estates and funds
which are corporations sole. Moreover human being can only be subjected to rights and certain
obligations. Hence if such personality cannot be subjected to such rights and duties then they should
be termed as subject less property. So the essence of this theory is that certain objectives and
interests of human being are protected by the law and property belongs to juristic person does not
belong to anyone but it does owned for a specific objective and purpose. Furthermore these juristic
persons are there to give effect to some real objectives.
The Symbolist Theory
Ø This theory is also called as the “bracket” theory and developed up by Ihering and later
propounded by Marquis de Vareilles-Sommiéres. This theory is somewhat similar to the fiction
theory in which human involvement is needed and it also asserts that only human beings are
subjected to legal rights and certain obligations According to Ihering, the concept of corporate
personality is essential because it is that instrument which makes any objective clear and less
complicated. So to know the actual position of any business it is important to look behind the
corporate veil. So it is with consonance of principle called lifting of corporate veil.

Ø The bracket theory is often acknowledge for its approachability to justify corporate personality
though it was not recognized under common law jurisdiction because it resist law by concluding that
the legal relation could only be detected by removing the brackets of corporation and analysis the
relation of human.

Ø This theory also asserts that the member of the corporation have their own legal rights and legal
obligation which has been referred to corporation itself. To know the actual nature and state of the
corporation, the brackets have to be removed and names of members are kept in brackets. When
brackets are removed, a person could able to see what corporation is, what its actual nature and
how members are revealed by the way of removing the brackets. The essence of this theory is that
rights, obligation and liabilities are vested only to natural person but not to corporation those are
legal entities. In the cases ofSoloman V Soloman Co. Ltd., (1897) AC 22it was said by the court that
to understand the real nature of the corporation, we must remove the bracket to find out the actual
position of the company.

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