·
THEORIES
OF CORPORATION PERSONALITY :
There are many
writers who argue that a corporation has a physical existence having its own
will or mind. On the other hand, there
are jurists who consider the personality of a corporation a mere myth or
fiction.
(i) Fiction Theory : Its most famous exponent is Savigny & the
principal British advocate is Salmond.
Juristic persons r only treated as
if they r persons, i.e., h/beings. It
regards the legal personality of entities other than h/being as the result of a
fiction. It presupposes that only h/beings r properly called persons. Corporation
is not real person as it has no will, mind & ability. Salmond said, “Group has reality or existence,
but has no real personality”. To Savigny,
“Every single man & only the single
man is capable of rights (only man is capable of right). The
original concept of personality must coincide with the idea of man.” This
theory is most applicable to English Law where courts hv not proceeded on any
hard & fast principle in recognition of juristic persons. There is much flexibility & it can
accommodate various decisions on legal personality.
(ii) Concession Theory : This theory is allied to the fiction theory. It
regards the dignity of being a ‘juristic person’ to be conceded by the State,
i.e., the law. The identification of ‘law’ with ‘State’ is necessary, but not for
the fiction theory. It is a matter of discretion for the State. It has
been used for political purposes to strengthen the State & to suppress
autonomous bodies within it. This grant or
concession can be withdrawn by the State, if the entities violate the
restraints placed upon them. This theory is also supported by Savigny, Salmond & Dicey.
(iii) Realist Theory : Gierke is the principal exponent &
Maitland a sympathiser / supporter. Juristic persons enjoy a real existence as a
group. Gierke speaks of the group as
having real mind, real will & real power of action. A corporation has all the characteristics
which the natural person has. Corporation is a living organism like
natural h/being which possesses rights.
A group / corporation tends to become a unit & to function as
such. Therefore, juristic persons are
real in the same sense in which human beings are. Legal personality is not fictitious, nor it depends upon State’s recognition.
(iv) Bracket/Symbolist Theory : The
principal exponent is Ihering. According to this theory, juristic personality is only a symbol to
facilitate the working of the corporation.
Only the members of the corporation are persons in true sense &
around them a bracket is put to indicate that they r to be treated as one unit,
when they have formed themselves into a corporation. The members of a corporation or the
beneficiaries of a foundation are the only ‘persons’. Juristic
person is a symbol to put a bracket on the members in order to treat them as a
unit. It is only for the sake of convenience. It
assumes that use of the word ‘person’ is confined to human beings. Its weakness is that it is unable to indicate
when the bracket to be removed & the mask lifted for the purpose of taking
note of mem. constituting the corp. Ltd. co. is not same as its members.
(v) Purpose Theory : The German jurist Brinz propounded this theory & was
developed in England by Baker. This
theory is based on the assumption that ‘person’ is applicable only to human
beings; he alone can be subject-matter of rights & duties. To
so-called juristic persons are not persons at all. Since jural relations can only vest in human
beings, juristic person should be
regarded simply as ‘subject-less properties’ designed for certain purposes. It was
designed mainly to explain the vacant inheritance, hereditas jacens, of Roman
law. It is not applicable to English of Indian law where judges have
repeatedly held that corporations r persons & to challenge this usage
would amount simply to using the word differently from judges. { To
Duguit, ‘purpose’ assumed a different meaning. The endeavour of law is the achievement of
social solidarity. If a given group is
pursuing a purpose, which conforms to social solidarity, all activities falling
within that purpose deserve protection. He rejected the idea of collective will as
unproven, but there can be, he said, collective purpose. }
(vi) Hohfeld’s Theory : He drew a distinction b/w h/beings &
juristic persons. Juristic persons are the creation of
arbitrary rules of procedure, which limit the extent of their responsibility. His theory is closely related to Bracket
Theory. He says, “Only h/beings have claims, duties, powers & liabilities; transactions r conducted by them & it is
they who ultimately become entitled & responsible”. The
corporate person is merely a procedural form used to work out a complex mass of
jural relation. It is purely analytical
& analyses a corp. out of existence.
(vii) Kelsen’s Theory : He rejected any contrast b/w h/beings &
natural persons & juristic persons.
The law is concerned with h/beings
only as their conduct is the subject of rules, duties & claims. He also rejected the definition of person as
an entity which has claims & duties.
It is also purely analytical. It doesn’t explain why the special set of
rules is invoked in the case of corp., but not in partnerships. There is no diff. b/w natural & legal
person, per Kelsen.
(viii) Theory of Enterprise Entity : The corporate entity is based on the reality
of the underlying enterprise. Approval by law of the corporate form
establishes a prima facie case that the assets, activities &
responsibilities of the corp. r part of the enterprise. Where there is no formal approval by law, a.,
a. & r. of the unit r determined by the underlying enterprise.
(ix) Organism Theory : This theory is
closely associated with the Realist Theory.
It asserts that groups r persons
because they r organisms & correspond to h/beings. They
have a real life. They have a group will, independent of the wills of its component members.
(x) Institutional Theory : This theory
is also closely connected with the Realist Theory. It
marks a shift from an individualist to a collective outlook. The
individual is integrated into the institution & becomes part of it.
Conclusions : In the first place, no theory takes into account all aspects of
the problem and, thus, criticism becomes easy.
The theories, that have been considered,
are philosophical, political or
analytical. They are not so much concerned with finding solutions to practical
problems as with trying to explain the meaning of the word ‘person’. Courts,
on the other hand, faced with the solving
of practical problems, have proceeded according to policy, not logic. The objectives of the law are not uniform.
There is no essence underlying the various
uses of ‘person’. Its application to things other than human
beings is purely a matter of legal convenience. If corps. aggregate are ‘persons’,
then p/hips & trade unions should be too.
Neither the linguistic nor legal
usages of ‘person’ are logical. The error lies in supposing that there
should always be logic.
