CORPORATE PERSONALITY

The Concept of Corporate Personality



The Concept of Corporate Personality

Introduction

This update addresses certain questions pertaining to the rights and liabilities to which a company and the persons associated with it are subject (Hallis, 1930, pp.96). The concept of corporate personality has long been a significant issue in the study of corporate law and commercial systems in general, and raises a number of concerns regarding how a company is to be treated in the eyes of the law. This update deals with:

The concept of a company as an entity separate from its members and other associated persons;

The circumstances under which this corporate veil may be lifted; and

In order fully to understand and appreciate these issues, the nature of a company must be understood. Although the legal definition is somewhat vague and ambiguous, common parlance provides some idea of what a company is: a company is an artificial body - an association of persons too numerous to be a firm - which is united for profit.

Corporate personality

Corporate personality refers to the fact that as far as the law is concerned a company personality really exists apart and different from its owners (Duff, 1938, pp.147). As a result of this, a company can sue and be sued in its own name, hold its own property and crucially - be liable for its own debts. It is this concept that enables limited liability for shareholders to occur as the debts belong to the legal entity of the company and not to the shareholders in that company.

The history of corporate personality

Corporate legal personality arose from the activities of organisations such as religious orders and local authorities which were granted rights by the government to hold property and sue and be sued in their own right and not to have to rely on the rights of the members behind the organisation. Over time the concept began to be applied to commercial ventures with a public interest element such as rail building ventures and colonial trading businesses. However, modern company law only began in the mid nineteenth century when a series of Companies Acts were passed which allowed ordinary individuals to form registered companies with limited liability. The way in which corporate personality and limited liability link together is best expressed by examining the key (Cooke, 1950, pp.25).

Legally, a sole proprietor cannot segregate his or her private means from those of his or her business. Consequently, in the event of a business-related crisis, financial or otherwise, debts relating to the sole proprietor's business must be met from his or her private finances. Thus, some unfortunate miscalculation on part of his or her business may leave the sole proprietor and his or her family facing bankruptcy and it may not be worthwhile to continue in other commercial ventures.

In the case of a partnership, the position is even more precarious: a partner is not only responsible for his or her acts in the course of business, but also liable for the acts of his or her ...