Meaning And Nature Of Legal Personality 2261f

PERSONALITY-MEANING AND NATURE OF LEGAL PERSONALITY

INTRODUCTION The term person and personality has been the object of legal and philosophical and moral sense which means rational substratum or quality of a human being. It has also been used in the anthropological or biological sense by which person means as one of the species. In the legal sense the person has special meaning and importance. In law the word person is not confined to any human being but is given an extended meaning which includes entities or associations other than human beings. An attempt therefore is made to define the concept of person which possesses judicial meaning. Legal personality is an artificial creation of law. Entities recognized by law are capable of being parties to a legal relationship. A natural person is a human being whereas legal persons are artificial persons, such as a corporation, created by law and given certain legal rights and duties of a human being; a being, real or imaginary, who for the purpose of legal reasoning is treated more or less as a human being1. All legal persons can sue or be sued. A legal personality is what grants a person or organization rights and responsibilities under the law. Since legal systems are built for use by human beings, humans are usually automatically assumed to have a legal personality. In the modern world, the concept of legal personality is frequently a part of discussions about the rights or legal responsibility of entities such as corporations that cannot be defined by a single person. The concept has also been and continues to be an important part of the discussion on human rights. The other instance in which a legal personality becomes an important issue is when the entity in question is not a human, but a business, partnership, or corporations. Since laws generally only 1 Black’s Law Dictionary, 8th Edition.

provide for the behavior and rights of humans, to what extent non-individual entities had rights and legal responsibilities became an important question as these types of organizations became more common and more powerful. For instance, since laws usually only lay out rules for how one person sues another person, a corporation might be impervious to lawsuits unless it is granted some form of legal personality.

CORPORATE PERSONALITY A Corporation is an artificial person enjoying in Law capacity to have rights and duties and holding property. There must be three conditions : Firstly, there must be a group or body of human beings associated for a certain purpose; Secondly, there must be organs through which the corporation functions; Thirdly, the corporation is attributed will by legal functions. There are two types of Corporation : Corporation Aggregate Corporation Sole A corporation aggregate is an association of human beings united for the purpose of forwarding their certain interest. For certain reasons company has an independent existence from those of its . It is for this reason that the company may become insolvent but its may still rich and wealthy. Where the legal entity of the company is being used for fraudulent and dishonest purpose, the individuals concerned will not be allowed to take the shelter behind the corporate personality. The corporate veil of a company may be lifted to ascertain the true character and economic realities behind the legal personality of the company. This may be disregarded in the following cases :1. Where the corporate personality has been used for fraud or improper conduct, the courts have lifted the veil and looked at the realities.2. The corporate veil of the company may be lifted where its a corporate facade is in reality only an agency. Corporate veil may be lifted where the company is engaged in activities which are against the public policy.4. For determining the real character and status of the company, the court may ignore its separate entity and lift the corporate as held in Daimler Co. Ltd. V. Continental Tyre

&Rubber Company.5. Where the corporate facade of the company has been used for evasion of taxes or duties.6. Where it is found that the sole purpose of the formation of the new company was to use it as a device to avoid or reduce payment of bonus to workers, the Supreme Court pierced into the corporate veil to look into the real transaction.7. The courts have sometime lifted the corporate veil in quasi-criminal cases relating to companies in order to look behind the legal person and punish the real persons who have violated the law.

THEORIES OF JURISTIC PERSONALITY

Fiction Theory – This theory was put forward by Von Savigny, Salmond, Coke, Blackstone, and Holland etc. According to this theory, the personality of a corporation is different from that of its . Savigny regarded corporation as an exclusive creation of law having no existence apart from its individual who form the corporate group and whose acts are attributed to the corporate entity. As a result of this, any change in the hip does not affect the existence of the corporation. It is essential to recognize clearly the element of legal fiction involved in this process. A company is in law something different from its shareholders or 2. The property of the company is not in law the property of the shareholders. The company may become insolvent, while its remain rich3. Gray ed this theory by saying that it is only human beings that are capable of thinking, therefore it is by way of fiction that we attribute ‘will’ to non-human beings through human beings who are capable of thinking and assign them legal personality. Wolf said that there are three advantages of this theory. It is analytical, more elastic and it makes easier to disregard juristic personality where it is desirable. 2 Salomon v. Salomon & Co., (1897) A.C. 51. 3 Salmond on Jurisprudence

2. Concession Theory – This theory is concerned with the Sovereignty of a State. It presupposes that corporation as a legal person has great importance because it is recognized by the State or the law. According to this theory, a juristic person is merely a concession or creation of the state. Concession Theory is often regarded an offspring of the Fiction Theory as both the theories assert that the corporation within the state have no legal personality except as is conceded by the State. Exponents of the fiction theory, for example, Savigny, Dicey and Salmond are found to this theory. Nonetheless, it is obvious 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 indifferent to the question of the reality of a corporation in as much as it focuses only on the source (State) from which the legal power of the corporation is derived. 3. Group Personality Theory or Realist Sociological Theory – This theory was propounded by Johannes Althusius and carried forward by Otto Van Gierke. This group of theorists 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. Gierke believed that the existence of a corporation is real and not based on any fiction. It is a psychological reality and not a physical reality. He further said that law has no power to create an entity but merely has the right to recognize or not to recognize an entity. A corporation from the realist perspective is a social organism while a human is regarded as a physical organism. This theory was favoured more by the sociologists rather than by the lawyers. While discussing the realism of the corporate personality, most of the realist jurists claimed that the fiction theory failed to identify the relationship of law with the society in general. The main defect of the fiction theory according to the realist jurists was the ignorance of sociological facts that evolved around the law making process. Horace Gray, however, denied the existence of collective will. He called it a figment. He said that to get rid of the fiction of an attributed by saying that corporation has a real general will, is to derive out one fiction by another.

4. The Bracket Theory or the Symbolist Theory – This theory was propounded by Rudolph Ritter von Jhering (also Ihering). According to Ihering, the conception of corporate personality is essential and is merely an economic device by which we can simplify the task of coordinating legal relations. Hence, when necessary, it is emphasized that the law should look behind the entity to discover the real state of affairs. This is also similar to the concept of lifting of the corporate veil. This group believed that the juristic personality is only a symbol to facilitate the working of the corporate bodies. Only the of the corporation are ‘persons’ in real sense of the term and a bracket is put around them to indicate that they are to be treated as one single unit when they form themselves into a corporation. 5. Purpose Theory or the theory of Zweck Vermogen - The advocates of this theory are Ernst Immanuel Bekker and Alois von Brinz. This theory is also quite similar to the fiction theory. It declared that only human beings can be a person and have rights. This theory also said that a juristic person is no person at all but merely a“subjectless” property destined for a particular purpose. There is ownership but no owner. Thus a juristic person is not constructed round a group of persons but based on an object and purpose. The assumption that only living persons can be the subject-matter of rights and duties would have deprived imposition of rights and duties on corporations which are non-living entities. It therefore, became necessary to attribute ‘personality’ to corporations for the purpose of being capable of having rights and duties. 6. Hohfeld’s Theory- He said that juristic persons are creations of arbitrary rules of procedure. According to him, human beings alone are capable of having rights and duties and any group to which the law ascribes juristic personality is merely a procedure for working out the legal rights and jural relations and making them as human beings. 7. Kelsen’s Theory of Legal Personality – He said that there is no difference between legal personality of a company and that of an individual. Personality in the legal sense is only a technical personification of a complex of norms and asg complexes of rights and duties.