Meaning and Nature of Corporate Personality

Meaning and Nature of Corporate Personality


In our country, the constitution of India is the legal document or framework which constitutes the layout of rules and regulations, rights and duties, among which the rights plays the main role in the development of the citizens as it provides the fundamental rights such as right to equality, rights to freedom of speech and expression, right to life, etc. As citizens are provided for their betterment and protection as well as smooth survival, similarly company law also provides the rights of the company for its development and betterment. Therefore, the company also contains the personality which is separate from the owner and thus is an individual as well as the legal person having the rights of admitting, relishing and demolition of the property of its own company. Also, the company refers to the owner of its capital and assets.


People generally establish the company and the reason to do so is that the company itself also has an entity and certain rights and duties that’s why some people consist of preference to initiate it which helps them to gain the benefit of its amazing feature of being a separate personality. Whenever any company is constituted then such company comes up with certain rights, personalities, and independent status, hence it is recognized as a separate and different personality and separate entity since this is a notion behind the corporate personality. Therefore, corporate personality refers to the company as a separate entity from its owners and having it’s own rights and duties, thus called a legal person.


The corporate personality contains various features within it and helps in understanding the theory of corporate personality in precise form. The company consists of different kinds of features as per this theory of corporate personality which are as follows-

  • Separate entity
  • Legal personality
  • Perpetual succession
  • Can be sued or can sue
  • Limited liability
  • Transferability of shares

This theory of corporate personality was developed in the case of Oakes vs Turquand. In  India, this theory or the principle of corporate personality was introduced in the of Re kondoli Tea limited, in which very first time it was held by the Indian court that the company is a separate entity and contains certain rights by having its own legal personality, by applying the rule or principle laid by the Salmon case.


In the landmark case of corporate personality, Salmon vs Salmon company, 1897, the facts were that there was a person named Aron Salmon who was specialized in manufacturing leather boots who set up a limited company at dollar 38,000. The total share capital of the company was 40,000 carrying a value of 1 pound each. The memorandum of the company was 7 subscribers such as Salmon himself, his wife, his one daughter, and his 4 sons. All the subscribers had consisted one share but only Salmon had consisted of 20,000 shares and 10,000 debentures. And after a year, the company shifted or turned into a liquidation, wherein the company contained the value of assets as 6,000 and about 17,000 for liability, also the division of the distribution of the credit was likely as 10,000 to Salmon and rest 7,000 to the unsecured creditor. The central point involved with the issue of the case was that to which creditor company should have to pay the credit and in the situation where the entire family carried out the company, hence whether the company and family are considered as a separate entity. In this case, it was held by the court that while incorporating the company, the company was an independent and legal personality thus it is a separate entity from the owner and the family of Salmon. Therefore, Salmon shall be the prior creditor to be paid and the company shall have to pay the credit amount to Salmon before the unsecured creditor.


The company has its own entity maintains it’s own independent status of the master to the employees or staffs who works for or under it. In the case of Lee vs Lee Air, Farming Company limited, wherein the fact was that there was a company named as Lee Air Farming company limited whose total share capital amounted to 3,000 shares in which 2,999 share capital was of the company. Lee also was a managing director of the company as well as the chief pilot and thus was a salaried employee as well. Later, while at the time of working hour in the company, an incident took place where the plane crashed in which lee died. Then the widow of Lee claimed compensation from Lee Air  Farming company limited but the issue raised was that as Lee was the occupier of almost share capital and was the owner of that company than whether his widow is entitled to the compensation from the company and whether Lee and such company is a separate entity. In this case, the court held the decision that on the basis of the principle of master-servant relation and laid down that the widow of Lee shall be entitled to get the compensation since Lee was the managing director of the company but also was the employee of the company so he was acted as a servant of the company and there was a relationship of master-servant between the company and lee. And also held that the company was a separate entity from lee who controlled the company.


The theory of the corporate personality of the company provides the distinctive personality of the company which indicates the company as a legal person and a separate entity from the owner and members of the company. Also, certain laws clarify the theory and originate the concept as well as signifies the theory with different situations or circumstances.

Also Read: Communication, Acceptance and Revocation of Proposal under the Indian Contract Act, 1872

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