CORPORATE PERSONALITY
Introduction
There are two types of persons that are recognized under law — natural persons and artificial (or fictitious)
persons. A natural person, as per its definition, is any individual who has natural rights and obligations,
like a human. Meanwhile, an artificial or fictitious person can be referred to as an individual who is not
natural or human, like a corporation. However, that does not mean artificial persons do not have rights
or obligations, because they do due to their fictitious personhood that is made by law. This fictitious or
artificial personhood of corporations and other corporate entities originates from the concept of
corporate personality.
What is corporate personality?
As briefly discussed earlier, corporate personality can be defined as a legal concept that gives a corporate
entity personhood in the eyes of the law. In simpler words, corporate personality allows a company to be
legally recognized as an artificial or fictitious person for the enforcement of its rights and obligations.
These rights include the right to own properties under its name along with the right to enter into contracts
and agreements as a party. In addition to that, corporate entities can sue and be sued just like any other
person recognized by the law.
This concept was established and coined by the House of Lords in the landmark judgement of Salomon v.
Salomon & Co. (1897) AC 22, in which it was held that a corporation has an identity that is separate and
completely independent from its shareholders and other members working under it. Thus, due to the
separate identities, the shareholders and members of the company cannot be held accountable for the
actions taken by the company in its name. This separate legal identity is known as the corporate
personality, which is responsible for giving a company its artificial personhood.
Thus, to establish or recognize the corporate personality of any corporate entity or organization, three
conditions need to be fulfilled:
• There should be an organization or association formed by several individuals with a specific
purpose or goal.
• The said entity should have different organs or departments that can act upon corporate
functions, such as management, sales, human resources, import and export, etc.
• The organization or association shall have a ‘will’ as per legal fiction.
Features of corporate personality
As mentioned earlier, corporate personality is distinct from natural personality. Some of the features that
make corporate personality distinct are given as follows:
1. Artificial personhood
Corporate personality gives a fictitious or artificial personhood to corporate entities. This enables the
corporate entities to have their own presence separate from their agents and conduct day-to-day business
activities such as financial transactions in their own name. It also allows a company to engage in actions
such as opening and managing bank accounts, taking debts, lending money, hiring employees, entering
into contracts and agreements, as well as suing and being sued.
2. Rights and obligations
Once incorporated, a company gains its separate personality from its members and shareholders. This
corporate personality enables them to have their own rights and obligations since they are recognised as
a legal person in the eyes of the law.
3. Independent operations
Corporate personality enables a company to operate independently from the shareholders and its
members. This is possible due to a separation between the company and its members by creating a
separate legal identity or personality, which we will cover more in detail later in the article.
4. Collective will
While corporate personality creates a separation between the identity of the company and its members,
a company cannot quite function without its members either. As an artificial person, a company needs
natural persons to act as its agents or representatives.
The will of the natural persons forming the company; that is, its members and shareholders help create
the will of the company. Their collective will is decided by voting in general meetings and whatever
decision is made by the majority, the company would act on it. This decision would then be expressed
through a common seal, which is the physical symbol of such collective will.
