THEORIES OF CORPORATE PERSONALITY

A Project submitted to

Army Institute of Law, Mohali

In the Partial fulfilment of the requirements for the awards of

degree of BA.LLB

Submitted to: Submitted by:

Dr. Vibhuti Jaswal Manshaa Dhar
Asst. prof. Jurisprudence 2103
 DECLARATION

It is certified that the project work presented in this report entitled “THEORIES OF
CORPORATE PERSONALITY”. Embodies the result of the original research work carried out
by me. All the ideas and references have been duly acknowledged.

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 ACKNOWLEDGEMENT

In preparation for my assignment, I had to get help and guidance from some respected person, who
deserves my deepest gratitude. The completion of this assignment gave me much pleasure. I would
like to show my gratitude towards Dr. Vibhuti Jaswal. I would also like to extend my gratitude to
all those who have directly and indirectly guided me in writing this assignment.

I would like to thank my friends and peers, whose constant encouragement kept me motivated to
work towards the competition of this project. I would also like to extend my gratitude towards the
Army Institute of Law, Mohali and Dr Tejinder Kaur, the Principal of, the Army Institute of Law,
Mohali for giving me this golden opportunity to make a project on such an interesting and engaging
topic.

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 Table of Contents

INTRODUCTION .................................................................................................................... 6

LEGAL PERSON: MEANING ............................................................................................... 6

KINDS OF PERSONS .............................................................................................................. 7

LEGAL STATUS ...................................................................................................................... 8

Legal Status of Animals .......................................................................................................... 8
Legal Status of Dead Man....................................................................................................... 8
Legal Status of Unborn Child ................................................................................................. 9

THEORIES OF CORPORATE PERSONALITY............................................................... 10

Fiction Theory....................................................................................................................... 10
Realistic theory ..................................................................................................................... 10
Concession theory ................................................................................................................. 11
Bracket Theory...................................................................................................................... 12
Purpose theory ...................................................................................................................... 12

LIFT THE VEIL DOCTRINE .............................................................................................. 13

CONCLUSION ....................................................................................................................... 14

Bibliography ................................................................................................................................. 15

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 Cases
Ashray Adhikar Abhiyan v. Union of India ..................................................................................... 9
Delhi Development Authority v. Skipper Construction Co (P) Ltd .............................................. 13
Pramatha Nath Mullich v. Pradyumna Kumar Mullick.................................................................. 7
Ramkrishnarao v. Srinivasrao ........................................................................................................ 7
Re Dean’s case ................................................................................................................................ 9
Solomon v. Solomon Co. Ltd ......................................................................................................... 12
Tagore v. Tagore........................................................................................................................... 10
Willmott v. London Road Car Co ................................................................................................. 11

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INTRODUCTION

The term "personality" has been a controversial subject in both legal as well as philosophical
circles throughout history. The term has been used in the philosophical and moral sense which
means rational substratum or quality of a human being.
To be a legal person is to be subject to rights and duties. To confer legal rights or impose legal
duties is to confer legal personality. If society, through its agents, can effectively sanction and
coerce A to act or forbear in favour of B, then B has a right and A owes a duty.1
In law, the word person is not confined to any human being but is given an extended meaning that
includes entities or associations other than human beings.2

LEGAL PERSON: MEANING

The term ‘person’ is derived from the Latin term ‘Persona’ which means those who are recognised
by law as being capable of having legal rights and being bound by legal duties. It, therefore, means
both- a human being, a body of persons or a corporation or other legal entity that is recognised by
law as the subjects of rights and duties.

In Ramkrishnarao v. Srinivasrao3, it was held that the term legal person has an immediate
relationship with legal rights and duties for without them there cannot be a legal person. For
instance, a Sanyasi, who has renounced the world (civilly dead) is not a legal person. In Pramatha
Nath Mullich v. Pradyumna Kumar Mullick4, it was held that a Hindu idol being a legal person has
peculiar desires and a will of its own which must be respected. An idol is not a living person but a
juristic person capable of holding property.

A corporation, “is no fiction, no symbol, no piece of the state’s machinery, no collective name for
individuals, but a living organism and a real person with a body and members and a will of its

1
“The Concept of Law" by H.L.A. Hart, specifically from Chapter 7, section 2
2
Jurisprudence and Indian Legal Theory, SN. Dhyani
3
Ramkrishnarao v. Srinivasrao, AIR 1960 AP 449
4
Pramatha Nath Mullich v. Pradyumna Kumar Mullick, (1925)52 IA 245

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own.”5 Similarly, Section 42 of the General Clauses Act, of 1897 defines the term person as
including any company, association or body of individuals whether incorporated or not.

According to Salmond, a person is a being whom the law regards as capable of rights and duties.
Any being that is so capable is a person, even though he is a man. Persons are substances of which
rights and duties are the attributes. Gray has defined a person as an entity to which rights and duties
may be attributed. Anything capable of holding a right or duty, whether it be a human being or
not, is a person in law. Furthermore, Gwiaton, calls legal personality a medium through which
some entities are created to whim rights and duties can be vested.

KINDS OF PERSONS

Natural
Types of person
persons Artifical
person

The expression ‘person’ includes natural as well as artificial persons which are considered by law
as capable of having rights and duties. A natural person is a human being who is regarded by law
as having rights and being bound by duties. A human being must satisfy two conditions to be a
natural person in law, namely, (1) he must be a living human being and (2) the state must recognise
him as a person, so he must not be a slave in the absolute control of his master or otherwise civilly
dead as a monk who has renounced the world.
Artificial or legal persons are those, who are the creations of law e.g. companies, corporations,
trade unions etc. According to Salmond, a legal person, is any subject matter other than a human
being to which the law attributes personality.

5
Maitland, quoted by Geldart

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LEGAL STATUS

Legal Status of Animals

• An animal is any creature except man. Beasts are, therefore, not persons either natural or
legal. They are merely a res or things- merely the objects of rights and duties. They are not
capable of rights and duties. Hence, they are not legal persons.
• Although in ancient times animals were regarded as having legal rights and duties, however,
the modern law does not recognise animals as bearers of rights and duties.
• No animal can be the owner of the property, and no transfer of property from a person to an
animal can take place. Any wrong by the animal, the master will be held liable. This does
not, however, involve any legal duty in the animal to be protected as of right.
• In Re Dean’s case6, a testator charged his property with the payment of an annual sum to
trustees for the maintenance of the horses and dogs. The court held it is not a valid trust
enforceable in any way by or on behalf of these animals. It was observed that the trustees
could spend the money if they pleased in the manner desired by the testator. Thus, in this
case, trust in favour of animals that are of service to men has been held to be illegal, but not
trust in favour of wild animals.
• In Animal Welfare Board of India v. A. Nagaraja7, the SC Bench sought to elevate animals
as rights-holders recognizing their right to dignity and live lives free from cruelty.

Legal Status of Dead Man

• Deadman is not a person like a living being. As soon as a man dies, he ceases to have a legal
personality. Dead men do not remain as bearers of rights and duties, for it is said that they
have laid down their rights and duties along with their death- action personalis moritur cum
persona- action dies with the death of a man.
• Although a dead man ceases to have any legal right or bound by legal duty yet law to some
extent recognises and takes into account after a man’s death of his desires and interests when
alive.

6
Re Dean’s case,(1889) 41 Ch.551
7
Animal Welfare Board of India v. A. Nagaraja, (2014) 7 SCC 547

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 • According to Salmond, there are three things in respect of which the anxieties of the living
men extend beyond their lives i.e. after death. They are a man’s body, his reputation and his
estate.
• In Ashray Adhikar Abhiyan v. Union of India8, it was held that as to the right to the decent
burial of homeless persons when found dead on the road, they have a right to cremation or
burial as per the religious faith of the dead person.
• A libel upon a dead man is punished as a misdemeanour but only when its publication is in
effect an attack upon the interests of living persons.
• With regards to the protection of the property of the dead man, the law recognised this right
of the deceased to regulate and control his property according to his desires even when he is
not living. But this right of the deceased is subjected to the rule called rule against perpetuity
as well as the law of testamentary succession. Section 14 of the Transfer of Property Act
incorporates the rule against perpetuities which forbids tying down of property for an
indefinite time thereby making it inalienable.
• In Re the Proper treatment for COVID-19 Patients and dignified handling of Dead Bodies in
Hospitals etc9., the right to dead persons was considered.

Legal Status of Unborn Child

• The legal status of the unborn child is just opposite that of the dead man. The unborn person
has a legal personality and possesses legal rights and duties.
• But his legal status is contingent- subject to his being born alive. According to Section 13 of
the Transfer of Property Act, property can be transferred for the benefit of the unborn person
by way of trust. In Tagore v. Tagore10, it was held that according to Hindu law, a child in the
womb of the mother is in existence.
• In short, an unborn child is endowed with a legal personality. He can own property before he
is born.

8
Ashray Adhikar Abhiyan v. Union of India, AIR 2002 SC 554
9
Re the Proper treatment for COVID-19 Patients and dignified handling of Dead Bodies in Hospitals etc, (2021) 2
SCC 519
10
Tagore v. Tagore, 9 Beng. LR 377

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THEORIES OF CORPORATE PERSONALITY

A corporation has no body corpus or physical existence. However, it has a legal existence created
by law. Many writers argue that a corporation has a physical existence having its own will or mind.
On the other hand, some jurists consider the personality of a corporation as a mere myth or fiction.
This controversy regarding the corporate personality of the corporation has no legal significance.
All the theories regarding the nature of corporate personality, therefore, centre on one fundamental
fact- what should be the relationship between the State and other groups or associations within it?

Fiction Theory

• This theory considers the legal personality of groups or entities other than human beings as
mere fiction. In contrast to a human being who is a real and living corporations are merely
artificial persons who are unreal and fictitious.
• Salmond and Savigny are the main exponents of this theory.
• According to Salmond, the corporation has no real mind or will and has no real personality
except one artificially created by law. This theory subordinates the groups to the State which
is the mightiest of all associations.
• According to Savigny, the essential quality of all corporations consists in this, that the subject
of the right does not exist in the individual members thereof but in the ideal whole: a
particular, but especially important result whereof is, that by the change of an individual
member, indeed, even of all the members, the essence and unity of a corporation is not
affected.
• Unincorporated bodies are not treated as legal persons in English Law. Before a body of
persons can have rights and duties in their corporate character, they have to be incorporated
according to law.

Realistic theory

• Realistic theory is also known as Organic theory.

• This theory is associated with the name of the Gierke in Germany and Maitland in England.
It is opposed to fiction and concession theories which consider the groups as mere fiction or
concession from the State.

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 • The realist theory asserts that a group personality has the same features as a human
personality. The groups have a real mind, a real will and a real power of action. According to
this theory, a group does not owe its personality to State recognition or State concession. It
is not a fictitious legal creation. It has its separate independent existence like that of the State.
• In individual consciousness, an individual will invest an individual with personality, group
consciousness and group will invest the group with a personality as real as the corresponding
personality of the individual.
• All that is meant is that a corporation is a representation of physical realities that exist
independently of the fiat of the State and are recognised rather than created by it.
• According to Gray, “A corporation sole is not a fictitious or juristic person; it is simply a
series of natural persons some of whose rights are different and devolve differently from
those of natural persons in general.”
• In Willmott v. London Road Car Co11., a lessee covenanted not to assign or underlet without
the consent of the lessor which was not to be withheld in respect of “a respectable and
responsible person”. It was held that the word person in the covenant included a corporation.

Concession theory

• According to this theory, the only realities are the sovereign and the individual. The other
groups cannot claim recognition as persons. Other groups cannot claim recognition as
persons. They are treated as persons merely by a concession on the part of the sovereign.
Legal personality is conferred only by law.
• It is at once connected with the notion of a sovereign independent state which is superior in
a politically organised society as compared to other internal institutions and groups that are
inferior to the state.
• According to this theory, corporate bodies within the State have no legal personality except
in so far as it is conceded to them by the Sovereign state.
• It is supported by Savigny, Salmond and Dicey who assert that all group life within the State
is a mere concession or grant from the State.

11
Willmott v. London Road Car Co, 45 L.J.666

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 • All the groups have to comply with in legal requirements laid down by the State for their
existence and continuance. This concession or grant of corporate existence can be withdrawn
by the State if the entities violate the restraints placed upon them.

Bracket Theory

• This theory regards the members of the corporation as the bearers of the rights and being
bound by duties which are for convenience referred to the corporation itself.
• A, B and C form a company and it is inconvenient to refer always to all of them. So, a bracket
is placed around them to which a name is given. However, to understand the real nature of
the corporation we must remove the bracket to find out the actual position of the company.
• Solomon v. Solomon Co. Ltd12, the House of Lords by removing the bracket concluded that
it was one man’s company and was a fraud upon the creditors.
• Kelson and Inhering are the main adherents of this theory. According to Ihering, a German
Jurist, a corporate personality is the creation of arbitrary legal rules designed to facilitate
proceedings by and against a corporation in a court.

Purpose theory

• Brinz, the German Jurist, has propounded the purpose theory of Corporate personality. In
Germany, foundations or Stiftung are treated as juristic persons.
• A foundation is no more than a trust for a specific charitable purpose. Such trusts or
foundations are not treated as persons in English Law. About the foundation of Stiftung in
German Law, Brinz observes that the Juristic person in such a case is merely the property set
apart for the foundation personified for facilitating legal transactions.
• Salmond criticises the theory of group person on two grounds. It does not apply to
corporations solely as we cannot have any group mind or group personality. Moreover, a
corporation aggregate can exist even if there is no member at all. Under the circumstances, it
is not possible to talk of a group. The collective will is considered to be fiction and it is
pointed out that replacing the fiction theory with realistic theory is to drive out one fiction
with another fiction.

12
Solomon v. Solomon Co. Ltd, (1897) AC 22

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LIFT THE VEIL DOCTRINE

A corporation is an imaginary being. It has no mind but the mind of its servant, it has no voice but
the voice of its servants and it has no hands with which to act but the hands of its servants.
Therefore, generally, attempts are made to distinguish the guilt or malice of the corporations from
that of its servants. Usually guilt of the directors is said to be the guilt of the corporation and thus
directors try to escape liability or punishment under the cover of the corporation.

Since corporations are artificial persons, they cannot be hanged, imprisoned or whipped.
Sometimes, it becomes necessary to look beyond the façade of technicalities to discover its
employees, and agents actively engaged in the management, direction and control of the affairs
and punish them for defrauding the creditors, invasion of tax etc. In such situations, courts lift the
veil or pierce the veil for the protection of the creditors.

In Delhi Development Authority v. Skipper Construction Co (P) Ltd13, the court held that where
the device of incorporation i.e. corporate veil, is used for some illegal and improper purpose, the
principle of corporate veil will be dismissed. The SC has further explained the rationale of the
concept of corporate entity when remarked “The concept of corporate entity has evolved to
encourage and promote trade and commerce but not commit illegalities or to defraud people.
Where, therefore, the corporate character is employed to commit illegality for defrauding others,
the court would ignore the corporate character.

13
Delhi Development Authority v. Skipper Construction Co (P) Ltd, AIR 1996 SC 2005

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CONCLUSION

The use of the word “person”, by Mr. Hohfelld’s “principle of linguistic contamination,” is an
open invitation to read the concept of the qualities of a natural person, which, according to the
statement, would be attributed to a corporation and denied to a partnership. For instance, it suits
the purposes of society to make a ship a legal person, not because the ship’s conduct will be any
different, of course, but because the ship’s conduct will be different, of course, but because its
personality is an effection instrument to control in certain particulars the conduct of its owner or
other human beings.

The notion of legal personality plays a crucial role in any legal system as it serves as the foundation
of the objective of law in a given society. The laws enacted are designed to regulate human conduct
in a manner that ensures that member actions do not cause any harm to others or infringe on
individual rights. This principle of accountability is essential in establishing social harmony. It is
worth noting that the concept of legal personality goes beyond living human beings and
encompasses unborn persons, deceased persons, animals, corporations, idols, mosques, the
environment, and even the state. All of these entities are an integral part of society and have an
impact on everyday life at various levels.

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 BIBLIOGRAPHY

WEBSITES

• ‘Legal Personality in the Light of Jurisprudence’ (legalserviceindia.com),

https://www.legalserviceindia.com/legal/article-1904-legal-personality-in-the-light-
of-jurisprudence.html.

• ‘LEGAL PERSONALITY in JURISPRUDENCE - Legal Vidhiya’ (24 October

2023), https://legalvidhiya.com/legal-personality-in-jurisprudence/, accessed 1 March
2024

• ‘Persons - Nature of Personality: Legal Personality, Questions’ (Toppr-guides26 June

2019), https://www.toppr.com/guides/legal-aptitude/jurisprudence/persons-nature-of-
personality/

BOOKS
• Jurisprudence Indian Legal Theory, S.R Dhyani, edition. 2023
• Jurisprudence and Legal Theory, V.D. Mahajan, edition. 2023
• Jurisprudence and Legal Theory, P.S. Atchuthen Pillai, 2023

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