PROJECT WORK ON

PUBLIC CORPORATION AS CORPORATION AGGREGATE

SUBMITTED TOWARDS FULFILLMENT OF THE SUBJECT TITLED :

Under the guidance of : Dr. Prof.Ali Mohammad

CHANAKYA NATIONAL LAW UNIVERSITY

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 DECLARATION

The researcher hereby declares that this research paper is prepared by the researcher with the help
of only those sources which are mentioned in the bibliography part of this paper, foot notes on the
last of each page. This research paper is not a copy of any one’s research paper as per the
knowledge of the researcher.
This research paper is firstly presented to Dr .Ali Sir, the faculty of Administrative Law in The
Chanakya National Law University, Patna. Before this, this paper has never been submitted to any
other teacher/professor or any other school/college/university.

RAJEEV RANJAN
20/04/2018

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 ACKNOWLEDGEMENT
I would like to thank my faculty Ali Sir whose guidance helped me a lot with structuring my
project.
I owe the present accomplishment of my project to my friends, especially my roommate Chandra
Mohan who helped me immensely with materials throughout the project and without whom I
couldn’t have completed it in the present way.
I would also like to extend my gratitude to my parents and all those unseen hands who helped me
out at every stage of my project.
THANK YOU,
RAJEEV RANJAN

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TABLE OF CONTENTS

1. Research Methodology……………………………………………………………………….05
2. Introduction to Public
Corporation……………………………………………………………………………………………..06
3. Introduction to corporation
aggregate………………………………………………………………………………………………..10
4. Relation between them ………………………………………………………………………16
Bibliography…………………………………………………………………………………………….27

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RESEARCH METHODOLOGY
Aims and Objectives:

The aim of this research paper is to present a detailed study on public corporation and corporation
aggregate.

Scope and Limitations:

The researcher has used the doctrinal method and has relied on the secondary sources for the
content of the research paper.
Owing to the large number of topics that could be included in the project, the scope of this research
paper is exceedingly vast. However in the interest of brevity, this paper has been limited to the
real impact of both the concerned subjects .
.Research Questions:
The two research questions are as follows:
1. What is Public corporation?
2. When it works as corporation aggregate ?
Chapterisation:

The project has been divided into three chapters :

Sources of Data:

The researcher has relied on the following secondary sources of data:

Method of Writing

The method of writing followed in this project is both analytical and descriptive.
Mode of Citation

The researcher has followed a uniform mode of citation in this project.

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CHAPTER-1
Meaning of Public Corporation:
A public corporation is that form of public enterprise which is created as an autonomous unit, by
a special Act of the Parliament or the State Legislature. Since a public corporation is created by a
Statute; it is also known as a statutory corporation.1
The Statute defines the objectives, powers and functions of the public corporation. Life Insurance
Corporation of India, the Indian Airlines, the Air India International, Oil and Natural Gas
Commission etc. are some examples of public corporations, in India.
Features of Public Corporation:
Following are the salient features of a public corporation:
(i) Special Statute:
A public corporation is created by a special Act of the Parliament or the State Legislature. The Act
defines its powers, objectives, functions and relations with the ministry and the Parliament (or
State Legislature).
(ii) Separate Legal Entity:
A public corporation is a separate legal entity with perpetual succession and common seal. It has
an existence, independent of the Government. It can own properly; can make contracts and file
suits, in its own name.
(iii) Capital Provided by the Government:
The capital of a public corporation is provided by the Government or by agencies controlled by
the government. However, many public corporations have also begun to raise money from the
capital market.
(iv) Financial Autonomy:
A public corporation enjoys financial autonomy. It prepares its own budget; and has authority to
retain and utilize its earnings for its business.
(v) Management by Board of Directors:
Its management is vested in a Board of Directors, appointed or nominated by the Government. But
there is no Governmental interference in the day-to-day working of the corporation.
(vi) Own Staff:
A publication corporation has its own staff; whose appointment, remuneration and service
conditions are decided by the corporation itself.

1
Dewey, ’The Historical Background of Corporate Legal Personality” 35 Yale Law

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(vii) Service Motive:
The main objective of a public corporation is service-motive; though it is expected to the self-
supporting and earn reasonable profits.
(viii) Public Accountability:
A public corporation has to submit its annual report on its working. Its accounts are audited by the
Comptroller and Auditor General of India. Annual report and audited accounts of a public
corporation are presented to the Parliament or State Legislatures, which is entitled to discuss these.
Advantages of Public Corporation:
Following are the advantages of a public corporation:
(i) Bold Management due to Operational Autonomy:
A public corporation enjoys internal operational autonomy; as it is free from Governmental
control. It can, therefore, run in a business like manner. Management can take bold decisions
involving experimentation in its lines of activities, taking advantage of business situations.
(ii) Legislative Control:
Affairs of a public corporation are subject to scrutiny by Committees of Parliament or State
Legislature. The Press also keeps a watchful eye on the working of a public corporation. This keeps
a check on the unhealthy practices on the part of the management of the public corporation.
(iii) Qualified and Contented Staff:
Public corporation offers attractive service conditions to its staff. As such it is able to attract
qualified staff. Because of qualified and contented staff, industrial relations problems are not much
severe. Staff has a motivation to work hard for the corporation.
(iv) Tailor-Made Statute:
The special Act, by which a public corporation is created, can be tailor-made to meet the specific
needs of the public corporation; so that the corporation can function in the best manner to achieve
its objectives.
(v) Not Affected by Political Changes:
Being a distinct legal entity, a public corporation is not much affected by political changes. It can
maintain continuity of policy and operations.
(vi) Lesser Likelihood of Exploitation:
The Board of Directors of a public corporation consists of representatives of various interest
groups like labour, consumers etc. nominated by the Government. As such, there is lesser
likelihood of exploitation of any class of society, by the public corporation.

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(vii) Reasonable Pricing Policy:
A public corporation follows a reasonable pricing policy, based on cost-benefit analysis. Hence,
public are generally satisfied with the provision of goods and services, by the public corporation.
Limitations Public Corporation:
A public corporation suffers from the following limitations:
(i) Autonomy and Flexibility, Only in Theory:
Autonomy and flexibility advantages of a public corporation exist only in theory. In practice, there
is a lot of interference in the working of a public corporation by ministers, government officers
and other politicians.
(ii) Misuse of Monopolistic Power:
Public corporations often enjoy monopoly in their field of operation. As such, on the one hand
they are indifferent to consumer needs and problems; and on the other hand, often do not hesitate
to exploit consumers.
(iii) Rigid Constitution:
The constitution of a public corporation is very rigid. It cannot be changed, without amending the
Statute of its formation. Hence, a public corporation could not be flexible in its operations.
(iv) Low Managerial Efficiency:
Quite often civil servants, who do not possess management knowledge and skills, are appointed
by the government on the Board of Directors, of a public corporation. As such, managerial
efficiency of public corporation is not as much as found in private business enterprises.
(v) Problem of Passing a Special Act:
A public corporation cannot be formed without passing a special Act; which is a time consuming
and difficult process. Hence, the scope for setting up public corporations is very restricted.
(vi) Clash of Divergent Interests:
In the Board of Directors of public corporation, conflicts may arise among representatives of
different groups. Such clashes tell upon the efficient functioning of the corporation and may
hamper its growth.

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CHAPTER-2

CORPORATION AGGREGATE

The legal use of the word ‘person' has attracted an assortment of theories which is probably second
to none in volume. ‘Person' in law, is both the recognition of an entity as well as the
acknowledgement of such an entity's rights and interests. Granting of ‘personhood' states then
enables an entity to undertake acts and relations that are recognized in the law. In the realm of law,
the term ‘person' is nothing more than an abstraction - a representation through the form of an
entity either real or artificial, of certain attributes. These attributes come to form what is known as
‘personality' in the law.
The effort in this paper has been to provide a description of this conception of corporate
personality. In doing so, at first the researcher has attempted to introduce the subject by speaking
of personality in the widest possible terms and locating its existence even outside the boundaries
of law. The researcher has then outlined the concept of legal personality, its nature, types and
implications and while doing so, summarily dealt with the notion of the corporation sole and the
corporation aggregate. Next, the researcher has dealt with part of the subject-matter itself by
elaborating on the meaning and theoretical underpinnings of the concept of dual personality and
the attributes of corporate personality along with a jurisprudential understanding of the same.
Persons in law are seen to be of only two kinds: real/natural and artificial. Human beings are
considered ‘real' or ‘natural' persons because they are ipso facto persons. The other kind of person
is the artificial person, which is a fiction of law invested with limited legal capacity. At this
juncture, it is necessary to clarify the meaning of the term ‘capacity' in law. Capacity is the primary
attribute of personality and denotes the ability to commit acts and undertake relations that are
recognised in the law. Capacity is what enables a person to have a ‘standing' in law, be it in the
person's ability to claim-possess-exercise rights, property, enter into contracts, sue and be sued,
commit legal injury or be the victim thereof. In other words, capacity in law is the medium through
which personality expresses itself.2
As mentioned earlier, the law in recognizing artificial persons infuses such entities with limited
legal capacity. The limitation exists in the sense that artificial persons do not possess personalities
in the fullest sense of the term. Their ability to commit legally recognizable acts is limited to the
extent that law allows for, nothing more. To provide an example, a body corporate such as a joint
stock company is undoubtedly a ‘person' but cannot be likened to a human person anymore than
an apple can be compared to an orange. While human beings as natural persons are capable of
every act and relation possible in fact, an artificial person is only capable of those acts and relations
allowed in law; the doctrine of ultra vires with respect to joint stock companies prevents such
artificial persons from committing acts/undertaking relations that are outside their scope of
activities as specified in the Memorandum and Articles of Association.
The familiar theoretical classification of artificial persons follows likewise -
1. Corporation Sole.
2. Corporation Aggregate.
Both of the above are however narrow in the sense that they contemplate only one segment of
artificial personality i.e. the body corporate. It may be pertinent to note that the law also recognises
other forms of artificial personality such as the idol. Indeed Salmond in his work on jurisprudence
2
G.W. PATON “A TEXTBOOK ON JURISPRUDENCE” Ed.4, Oxford University Press.

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has chanced to observe on this aspect, “legal persons, being the arbitrary creations of the law, may
be of as many kinds as the law pleases.” However, for our present purposes, a discussion on the
concept of a ‘body corporate' will suffice in helping understanding the nature of artificial
personality.
The corporation sole is nothing more than a tool meant to ensure continuity of an office. Any office
that is created in law also by implication, creates a legal personality to such office which occupies
it in perpetuity till the law itself extinguishes it. This legal personality is the Corporation Sole.
Examples of it are predominantly found in Offices of the State discharging sovereign functions,
which are always creations of the law. The proverbial example of the Corporation Sole is the
English Crown. However, the Corporation Sole is also manifest in various other instances such as
the Offices of the President, Prime Minister, Chief Justice of India, Attorney-General of India all
of which are creations of the Indian Constitution. Likewise, even localised examples where there
is a need for permanent Office implies the existence of a Corporation Sole: e.g. the Vice-
Chancellor of a University, the Postmaster General, both of which are statutorily created Offices.
The researcher has pointed out in the preceding paragraphs that human beings, ipso facto are
persons enjoying all the attributes of legal personality. Each human being then is vested with an
independent personality in the law. However, if the same notion were to be applied as a general
rule, concerted and unified human action can have no place in law for the simple reason that such
action can only be recognised as several acts of several persons as opposed to a single act of a
group of several persons. The former perception would lead to many difficulties including
unlimited liability of such several persons towards third parties. It is for this reason that a
partnership, though an association of persons acting in concert, renders each of those persons
jointly and severally liable for acts of any partner. This approach also has the effect of apportioning
liability disproportionately in the sense a partner who is insolvent cannot be proceeded against
while a solvent partner is satisfy the entire liability or debt that subsists between the partnership
and the third party. It is to obviate this difficulty, the law recognises certain groups of several
persons as a ‘body corporate' and thus holds the several acts of such several persons in fact,
attributable to a single person in law. In doing so what the law also does is create a veil of
incorporation as between the constituting members and the legal personality of the constituted
body: the corporation. The veil of incorporation implies the existence of a personality in the
corporation as distinct from its members. In the joint stock company, the veil of incorporation is
what separates the acts of the company from those of its shareholders and the individual acts of its
shareholders from that of the company. The result of adopting this approach is also that there is
limited liability of the shareholders (members of the group) which renders them liable only to the
extent of their holding in the group or company.3
Going by the above description of corporations aggregate, it would logically follow that every
form of concerted activity of willing individuals aimed at a particular end, would lead to their acts
coming to known through the glass of incorporation which realises their combined operations as
one single act, performed by a single personality. However, it is in this regard that the real limits
of artificial personality are discernible. The law deems only certain forms of concerted action as
eligible for recognition through incorporation; thus while joint stock companies are recognised as
incorporated bodies, associations such as partnerships, trade unions and other organizations are
not recognised as incorporated bodies for various reasons. These groups have come to assume the
term ‘unincorporated associations'. However the effect of such thinking has been somewhat
mitigated by statutory devices and judicial interpretation which in certain respects have enabled
3
P.J.Fitzgerland, “Salmond on jurisprudence”,Ed. 12.universal law publishing co.pvt.ltd.pg 66

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such associations to assume characteristics of a single legal person. Thus it may be said that even
unincorporated associations in certain contexts, assume the character of a legal person.
There are five principal theories, which are used to explain corporate personality, namely, the
fiction theory, realist theory, the purpose theory, the bracket theory and the concession theory.
The fiction theory of corporation is said to be promulgated by Pope Innocent IV (1243-1254). This
theory is supported by many famous jurists, particularly, Von Savigny, Coke, Blackstone and
Salmond. According to this theory, the legal personality of entities other than human beings is the
result of a fiction. The famous case of Salomon v A Salomon Co Ltd is a proof of the English court
adoption of the fiction theory. In this case, Lord Halsbury stated that the important question to
decide was whether in truth an artificial creation of the legislature had been validly constituted. It
was held that as the company had fulfilled requirements of the Companies Act, the company
becomes a person at law, independent and distinct from its members.
Under the concession theory, the state is considered to be in the same level as the human being
and as such, it can bestow on or withdraw legal personality from other groups and associations
within its jurisdictions as an attribute of its sovereignty. Hence, a juristic person is merely a
concession or creation of the state. Concession theory is often regarded as the offspring of the
fiction theory as it has similar assertion that the corporations within the state have no legal
personality except as it is conceded by the state. Exponents of the fiction theory, for example,
Savigny, Dicey and Salmond are found to support 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 as regards to the question of the reality
of a corporation in that it focus on the sources of which the legal power is derived.
Next, is the purpose theory (also known as the theory of Zweckvermogen) . The advocates who
are associated with this theory are E.I Bekker, Aloys Brinz and Demilius. Similar to the fiction
and concession theories, it declares that only human beings can be a person and have rights. Under
this theory, juristic person is no person at all but merely as a “subjectless” property destined for a
particular purpose and that there is ownership but no owner. The juristic person is not constructed
round a group of person but based on the object and purpose. The property of the juristic person
does not belong to anybody but it may be dedicated and legally bound by certain objects.
The Symbolist theory is also known as the “bracket” theory. It was set up by Jhering and later
developed particularly by Marquis de Vareilles-Sommiéres. Basically, this theory is similar to the
fiction theory in that it recognizes that only human beings have interests and rights of a legal
person.38 According to Jhering, the conception of corporate personality is indispensable and
merely an economic device by which simplify the task of coordinating legal relations. Hence, when
it is necessary, it is emphasized that the law should look behind the entity to discover the real state
of affairs. This is clearly in line with the principle of lifting of the corporate veil.4
The realist theory, founded by German jurist, Johannes Althusius has been most prominently
advocated by Otto von Gierke. According to this theory, a legal person is a real personality in an
extra juridical and pre-juridical sense of the word. It also assumes that the subjects of rights need
not belong merely to human beings but to every being which possesses a will and life of its own.
As such, being a juristic person and as ‘alive' as the human being, a corporation is also subjected
to rights. Under the realist theory, a corporation exists as an objectively real entity and the law
merely recognizes and gives effect to its existence. The realist jurist also contended that the law
has no power to create an entity but merely having 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
4
Dr n.v. paranjape “studies in jurisprudence legal theory,5th edition, central law agency.

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as a physical organism. A corporation from the realist perspective is a social organism while a
human is regarded as a physical organism.
From the discussion on jurisprudence theories of corporate personality, it is observed that main
arguments lie between the fiction and realist theories. The fiction theory claimed that the entity of
corporation as a legal person is merely fictitious and only exist with the intendment of the law. On
the other hand, from the realist point of view, the entity of the corporation as a legal person is not
artificial or fictitious but real and natural.

Dual personality is different from dual capacity in the sense that whenever a person is said to
possess dual capacity, the law only recognises one person performing more than one function. In
the eyes of the law, all these functions are attributable to a single person. However, with dual
personality, the law recognises these functions as attributable to different personalities. The
difference between the two can be amplified by a simple illustration: a person possessing double
capacity cannot contract with himself or sue himself; a person possessing dual personality can. To
illustrate the working of the above-stated principles, the decision of the House of Lords in
Salomon v. Salomon & Co. may be perused.

The decision of House of Lords in the abovementioned case has had a lasting influence in corporate
law. It is often credited with the principle of separate legal entity of the corporation distinct from
the members. Though there is no doubt that the Salomon case had play a significant role in
company law, the court's decision in this case was hardly the origin of the separate legal entity
principle. The legal entity of beings other than the human has long been recognized prior to 1897,
in which the Salomon case was decided. The jurisprudence theories on juristic person had been
established since the early Roman law to justify the existence of legal person other than the human.
The State, ecclesiastical bodies and education institutions had long been recognized as having legal
entity distinct from the members

Mr. Salomon ran a boot-shoe business and sold the business to Salomon and Company, Ltd which
paid him through 21,000 shares and a secured debenture. Six shares were also sold to Mr.
Salomon's family, one to each of five his children and one to his wife. The company during its
course of business acquired many liabilities in the form of unsecured credit from third parties. It
subsequently went into liquidation on which all the creditors of Salomon & Co. lined up to collect
their dues. As a principle of insolvency law, the rule was that the assets of the insolvent (in this
case, Salomon & Co.) are distributed according to the pre-insolvency entitlement of the creditors.
At the top of the queue then was the debenture-holder with the charge which meant that Mr.
Salomon holding the secured debenture sold by himself as agent of Salomon & Co. to himself
would acquire precedence over all other creditors. Since unsecured creditors do not belong to the
same class as secured creditors, Mr. Salomon was again under no requirement to share the proceeds
with the other creditors of Salomon & Co. who did not hold charge over the assets. Though the
Trial Court and the Court of Appeal held that Mr. Salomon was personally liable to the creditors
on the basis that the corporation (Salomon & Co.) was just an agent of Salomon, the House of
Lords held otherwise. According to the Court, with the incorporation of the company, Mr. Salomon
achieved dual personalities in the law - one as the shareholder of Salomon & Co., two, as the
secured creditor to the company. Since in the eyes of the law there existed a veil of incorporation
between the company (Salomon & Co.) and its shareholder (Mr. Salomon), he was not liable for

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any of the company's debts. Similarly, because of the veil of incorporation, Mr. Salomon as the
secured creditor of Salomon & Co. enjoyed a different personality from Mr. Salomon as the
shareholder.

To provide another illustration, reference may be made to Lee v Lee's Air Farming.
In this case, Mr Lee incorporated a company, Lee's Air Farming Limited, in August 1954 in which
he owned all the shares. Mr Lee was also the sole ‘Governing Director' for life. Thus, as with Mr
Salomon, he was in essence a sole trader who now operated through a corporation. Mr Lee was
also employed as chief pilot of the company. In March, 1956, while Mr Lee was working, the
company plane he was flying stalled and crashed. Mr Lee was killed in the crash leaving a
widow and four infant children. The company as part of its statutory obligations had been paying
an insurance policy to cover claims brought under the Workers' Compensation Act. The widow
claimed she was entitled to compensation under the Act as the widow of a ‘worker'. The issue went
first to the New Zealand Court of Appeal who found that he was not a ‘worker' within the meaning
of the Act and so no compensation was payable. The case was appealed to the Privy Council which
held that the widow was entitled to compensation on the basis that:
• That the company and Mr Lee were distinct legal entities and therefore capable of entering
into legal relations with one another.
• As such they had entered into a contractual relationship for him to be employed as the chief
pilot of the company.
• Therefore Mr. Lee could in his role of Governing Director give himself orders as chief
pilot. It was therefore a master and servant relationship and as such he fitted the definition
of ‘worker' under the Act.

In both cases it may be noticed that the doctrine of dual personality operates so as to enable a single
person (Mr.Salomon; Mr.Lee) to perform acts that are construed as acts by different legal persons
thus enabling them in effect, to enter into contracts with themselves.
In the examples of Salomon and Lee it has been shown how the device of dual personality has
resulted in the law recognising the acts of one person as committed by distinct legal personalities
due to the application of the principle of the corporate veil. However, because of the misuse of this
doctrine by individuals seeking to escape liability (as was the case in Salomon), modern company
law recognises certain situations (similar to the circumstances in Salomon) as warranting the lifting
of the corporate veil. Instances of fraud as was the case in Salomon are recognised as ground for
lifting the veil whereby the wall that separates the legal personality of the shareholder of the
company from the legal personality of the company itself is done away with. The resulting situation
is the extinguishment of whatever dual or plural personality that the shareholder (like in Salomon)
attempts to assume.
Dual capacity and dual personality are inventions of the law meant to remove difficulties arising
from pedantic applications of the rules of common law. Their purpose is to predominantly facilitate
everyday application of the law. Salmond in his work on jurisprudence has chanced to observe,
“the conception of personality beyond the class of human beings is one of the most noteworthy
feats of the legal imagination.”

Being merely a metaphor or an analogy, corporate personality is not entirely arbitrary and therefore
must respond to the organizational realities of the corporation as well as conform with the

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treatment of organization as legal actors. As such, conception of a corporation should be analytical
and ideological, descriptive and prescriptive. The metaphor of personality is indeed useful in
describing many of the corporation's traditional and modern corporate attributes, namely, perpetual
succession, ability to own property, rights to take its own legal proceedings, ability to create
floating charge, limited liability and compliance with the formalities of the Companies Act.
Placing these attributes under the head of separate legal entity has resulted to selection of these
few salient feature existence of the concept of a fictitious person.
Nevertheless, the use of the metaphor is mainly to describe and not to dictate the reality of
corporation. As Bryant Smith pointed out:
“It is not the part of legal personality to dictate conclusions. To insists that because it has been
decided that a corporation is a legal person for some purposes it must therefore be a legal person
for all purposes… is to make of…corporate personality…a master rather than a servant, and to
decide legal questions on irrelevant considerations without inquiring into their merits. Issues do
not properly turn on a name.”

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CHAPTER-3

PUBLIC CORPORATION AS CORPORATION AGGREGATE

The main object of Law is to regulate the relationship between individuals in the society. The
validity of the acts and omissions of persons is determined on the basis of their reasonableness.
All those acts which do not adversely affect the interest of others are held to be lawful whereas the
acts which interfere with the rights of others are called unlawful. Therefore law enforces certain
duties on individuals for the protection of interest of mankind. Therefore rights and duties form
the basis of judging the legality of mans act. The law imposes liability for unreasonable and
unlawful acts, the enforcement of which is ensured through legal sanctions. The law being
concerned with regulating the human conduct the concept of legal sanctions. The law being
concerned with regulating the human conduct, the concept of legal personality constitutes an
important subject matter of jurisprudence because there cannot be rights and duties without a
person.
The separate legal entity concept, as it applied to large joint stock companies, evolved throughout
much of the nineteenth century, and in particular, during the period between 1840 and 1880. This
evolution was gradual and involved subtle changes that occurred on a number of fronts. Common
law developments included the changing nature of shares and the refinement of the internal
relationships within a company which served to separate a company from its shareholders and
thereby differentiated companies from partnerships. At the same time, companies adapted their
capital structures and the ways in which they raised capital so as to make themselves more
attractive to investors. These practices also reflected the distinction drawn by the investment sector
between joint stock enterprises and partnerships. The separate legal entity concept then, was
largely developed by the late nineteenth century insofar as it applied to joint stock companies.
This project work along with different theories of corporations also examines the well-known case
of Salomon v Salomon & Co Ltd and its effect on the evolution of the separate legal entity concept.
It is important to consider the role of Salomon’s case in this evolutionary process because the legal
principle derived from the case has been the legal basis of the subsequent application of the
separate legal entity concept to corporate groups. Salomon’s case is usually regarded as a landmark
case which finally established the fundamental principle that a company is a separate legal entity
distinct from its members. This core principle of company law has come to be so closely associated
with the case that it is widely known as ‗the principle in Salomon’s case‘. According to this widely
accepted narrative, Salomon’s case represented a belated but inevitable advance of the law towards
clarifying the separate nature of the relationship of shareholders and their company and thereby
better serving the needs of business by establishing a more efficient company law that recognised
the commercial expectations of the business community.
ORIGINS
The word “person” is derived from the latin word persona which meant a mask worn by actors
playing different roles in a drama. Until sixth century the word was used to denote the part played
by a man in life. Thereafter it began to be used in the sense of a living capable of having rights and
duties.
Generally there are two types of person which the law recognises namely natural and artificial.
The former refers to human beings while latter to other human beings which law recognised as
having duties and rights. One of the most recognised artificial person is a corporation. In the
opinion of many writers the word” personality” has been restricted to human beings because of

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the sole reason that they only are subjected to rights and obligations, but in law the scope of word
“personality” is wide enough to cover gods, angels, idols, corporation etc. despite of the fact that
they are not human beings.
Conversely there may be living persons such as slaves who were not treated as person in law
because they were not capable of having rights and duties. Likewise, in Hindu ascetic who has
renounced the world ceases to have any proprietary rights and his entire estate is passed on to his
heirs and successors and his legal personality is completely lost.
Human beings are no doubt units of society and were in existence prior to evolution of both law
and society. Since laws were made by individuals and for them, jural relations between them came
to be recognised for legal purposes. Human beings as a legal person, therefore implies a multitude
of claims, duties liberties, liabilities etc.
However no sooner than later it was realised that treating only human beings as persons in law
would lead to good deal of needless perplexity, which could be avoided by conferring legal
personality on certain jural relations applicable to others than human beings for the purposes of
law.
Definition of legal person:-
Jurists have defined legal persons in different ways,
The German jurist Zitelmana considers “will” as the essence of the legal personality to quote him
“personality is the legal capacity of will, the bodylines of men for their personality a wholly
irrelevant attribute”
Salmond defines a person as “any being to whom the law regards as capable of rights and duties.
Any being that is so capable is a person whether human being or not and nothing that is not so
capable is a person even though he be a man”
Gray defines “person” as entity to which rights and duties may be attributed” any being that is
capable of holding a right or duty, whether it being a human or not is person in law.
According to Paton, legal personality is a medium through which some such units are created in
whom right can be vested.
Therefore persons in juristic terms are of two kinds: natural and legal .the former are human beings
while the latter may be real or imaginary, in whom law vests rights and imposes duties and thus
attributes personality by way of fiction.
A natural person is a living human being. But all human beings need not necessarily be recognised
as persons in law. For example slavery, before abolition of slavery the slaves were considered to
be devoid of any legal personality for they could not have any rights and duties. Also persons such
as children have restricted rights for they do not have right to vote.
Legal persons on the other hand is a person any subject –matter in which the law attributes legal
personality. Legal personality being the creation of law can be conferred on entities other than
human beings. As Salmond rightly observed that “law in creating legal persons always does so by
personifying some real things”. He further pointed out that all though all legal personality
involves personification the converse is not always true.5
Legal persons are therefore artificial beings to which law attributes personality by way of fiction
where it does not exist in fact. They are capable of rights and duties like natural persons.
Hibbert classified legal persons into three different categories:
• Certain non-living things can be conferred legal personality by personification. The
existence of such a legal person is real but its personification is fictitious.

5
Supra (1)

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 • A collection of rights and duties may be vested in some real or imaginary beings to whom
personality is attributed by law.
• Fitzgerald, the learned editor of Salmond jurisprudence writes that legal persons being the
arbitrary creations of the law, may be of several kinds the English law however recognises
only a few kinds of legal persons .(1) corporations (2) institutions such as trade unions and
societies and associations, and (3) the estate of funds.
THE CONCEPT OF SEPARATE LEGAL ENTITY
The principal effects of the formation of a company are twofold. First, its shareholders, and their
transferees, become members of an association and are granted rights as such. Pre-eminent among
these are, usually, powers of control in the widest sense of an entitlement to participate, by voting,
in the management of the company through the appointment and removal of its directors, the
distribution of profits and other decisions of the company in general meeting, and also by the
power to enforce the company’s regulation. Secondly, and consequently, the members relinquish
all proprietary and other interests in the monetary or other consideration which they have given
for their shares and which becomes wholly vested in the company. In effect, therefore, the
members’ rights of ownership of their assets are completely reconstituted and the powers conferred
by membership substituted for powers of direct this result is achieved by.
Applying to the company three basic principles or groups of principles. First, the legal capacity
of the company is restricted or limited in its extent, both by the objects of the company and, more
basically, by the common law, to activities which are both lawful and appropriate to the general
scope of its purposes. Secondly, within the scope of its particular objects the company is accorded
legal capacity for proprietary, contractual and other purposes which is of exactly the same nature
as that possessed by natural persons of full capacity. This capacity is entirely separate from, and
not derived from or related in any way to, the individuals who ultimately comprise the company’s
membership. Thirdly, the company itself is accorded full and independent procedural capacity both
vis-h-vis its members and outsiders. From the combination of these principles flow all the well-
known practical aspects of separate legal entity. For example, due to its separate proprietary and
other capacity the company may enjoy perpetual existence, its usefulness as an entity for
accounting purposes is given a legal foundation, and the possibility is opened that its members
may limit their liability.
Like the trust, the company enables the proprietary interests of natural persons to be associated
and reconstituted in a manner which makes possible a real division of the ownership and control
of property. Unlike the trust, however, the company may, to the extent it is empowered, itself
possess full and independent capacity to exercise contractual, proprietary and other rights.
Corporate personality:
Meaning
Corporate personality is a creation of law. Legal personality of law is recognised both in English
and Indian law. A corporation is an artificial person enjoying in law capacity to have rights and
duties and holding property. A corporation is distinguished by reference to different kinds of things
which the law selects for personification. The individuals forming the corpus of the Corporations
are of two kinds distinguished in English law as corporations aggregate and corporations sole.
According to coke persons are of two sorts ( a)persons naturally created by god and persons
incorporate or politique by policy of man. A corporate aggregate is a group of co-existing persons
and a corporation sole is an incorporated series of successive persons. The former is that which
has several members at a time and the latter is that which has one member at a time. Corporations

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are found only when the successive holders of some public office are incorporated so as to
constitute a single, permanent, and legal persons.6
Evolution of the notion of corporate personality
In mature systems of law the doctrine of corporate personality is fully developed and a clear –cut
distinction is made between the individual who compose a corporation and the corporation itself.
If we postulate that the company may have a distinct persona separate from that of is shareholders
or directors, it is difficult to attack the logic of this distinction. Whatever may be said of its practical
effect? Conversely the acts of two separate departments of a company are in law the act of the
same person.
If a group of miners wish to co-operate to secure cheap delivery of coal from the colliery at which
they work, they must be careful as to the legal forms they use. if they create an incorporated
company to organise the transport a carriers licence must be secured, since the company is carrying
goods for hire or reward .but if they merely form an association then each member is regarded as
the part owner of the vehicles and the co-owners do not carry their own goods for hire or reward
merely because they contribute to the running expenses. The formation of a company introduces a
new legal persona which owns vehicles and receives money for coal that does not belong to it
In modern law therefore there is a clear cut distinction between the personality of a company and
the personality of its members. The company may engage in juristic acts, sue, and be sued .though
all the members change overnight, indeed even if they all die the company remains the same legal
persona. But this conception of corporate personality is achieved but slowly.
The first step to evolve is based on family, but no doctrine of group personality is necessary at
home the family retained a very strong organisation but no theoretical difficulty arose as its powers
were vested in human pater families. Religious and ecclesistical grouping provides another
unifying element and we also have the manifold agencies of government such as government such
as the counties, hundreds and boroughs of English law. Economic associations such as the
merchant guilds create another organisation of the community. But it is futile to expect to find
answers to problems phrased in modern language concerning corporate personality, for they were
not asked earlier by the lawyers. We have already seen that the state in England reached a high
degree of organisation on the very inadequate theory that the state was the king and the king the
corporation sole.[10]Duff’s analysis on rule of Roman law reveals how long the road to a fully
developed conception of human personality is. Persona was not always used in the sense of legal
personality, and there are hundreds of passages where homo could be substituted for persona
without any apparent change in the sense. If we find lack of analysis where the individual is
concerned it is not surprising to say that “the republican lawyers did not get beyond the first
rudiments of that very abstract and artificial conception, corporate personality”.
In the English law there were in thirteenth and fourteenth centuries numerous active groups of
whom some were dissolved into their component parts before they became corporations others
followed a gradual development to legal personality. When Bracton wrote the notion of corporate
personality .it not clearly understood and the evolution was comparatively slow. The inimitable
touch of Maitland has enlivened the story of the corporation sole and we see there the great
difficulty that exist in securing a clear distinction between the rights of natural man and the rights
of corporation sole which it represents. The corporation sole was a useful device for holding of
title to church land, but, although logic would require us to recognise that the artificial corporation
sole can survive the death of natural person, the medieval lawyers however thought that the

6
P.J.Fitzgerland, “Salmond on jurisprudence”,Ed. 12.universal law publishing co.pvt.ltd.pg 66.

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artificial corporation was in abeyance if the benefice was as vacant. A statute of limitation speaks
of a corporation sole or his predecessor.7
Later in the fifteenth century it was felt that the corporation could not sue one of its members, for
this was really a case of a man suing himself. By the time coke, it was laid down that the
corporation could be created either by a common law, by authority of parliament, by royal charter
or by prescription –but there must be some lawful authority of incorporation there must be.
Corporation played a large part in development of British empire .as a result of which there were
65000 registered companies in England, but within forty years the number increased to 3, 31,000.
In 1897 Salomon v Salomon & Co Ltd, a case concerning the legitimacy of limited liability of a
single beneficially owned company according to the companies legislation, created the concept of
the separate legal personality of a company. This idea, often described as a fundamental principle
of
Company Law by our judges, exists both as a powerful metaphor and a judicial reality The
interaction of these two aspects has in a sense caused the concept to assume a life of its own as a
persuasive metaphor which has dictated the course of law focussed around its fulfilment rather
than the specific regulative aims of the law in each discrete area. The principle’s application in so
many different situations each with utterly different consequences, indicate a sense in which the
courts have often merely mapped out the logical consequences of ‘separate legal personality’ with
inadequate examinations as to its specific ramifications.
The concept of the corporation as a separate legal personality is, as Farrar describes “essentially
a metaphorical use of language, clothing the formal group with a single separate legal entity by
analogy with a natural person’] while obviously a fiction, the choice of metaphor or analogy is not
entirely arbitrary, and must respond to organisational realities of the corporation as well as
conforming with and making intelligible the treatment of organisations as legal actors In this sense
the conception of a corporation is both analytical and ideological, descriptive and prescriptive, It
is not enough to dismiss the debate over the nature of corporate personality as Dewey did in 1920
by emphasising that corporate rights and Liabilities were the product of the law and that the legal
implications or meanings of the corporation was “whatever the law makes it mean”.
The law’s conception that the “company is at law a different person” in some ways seems proper
and satisfying, as Dan-Cohen writes, °it at once provides a unifying familiar image of The
organisation and expresses those features in virtue of which treating the organisation as a legal
actor makes sense .The corporation as a complex organisation requiring regulation in many
different situations presents a special problem as Dan Cohen writes:
“The cognitive need for ’epistemic access’ thorough a Unifying metaphor is felt most urgently
with respect to organisations because of their ’ontological elusiveness’: hovering between the
abstract and the concrete, they evade our grasp by constantly invoking the opposing fears of
reductionism and Rectification.”
The metaphor of personality is useful in conceptually facilitating and describing many of the
corporation’s traditional and modem corporate attributes. The metaphor was used in Salomon to
express the fact that Salomon’s incorporation was legitimate according to legislation and therefore
he should be a11owed to benefit from limited liability. The creation of the separate legal person
analogy/metaphor was useful in particular to assert this point against the first instance judge mad
court of appeal who held respectively that the company was Salomon’s agent and that Salomon
was trustee for the company.The language used however, does not add anything to our
understanding of the real issues involved and in particular, the analogy with, or metaphor of, person
7
G.W. PATON.,”A TEXTBOOK ON JURISPRUDENCE”,ED.4TH ,oxford university press.

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creates some problems which exhibit the typical dangers of metaphorical thinking as Dan-Cohen
write:
“By inducing misplaced analogies between individuals and organisations, the metaphor of person
easily leads to anthropomorphism: the attribution to organisations of traits and the adoption toward
them of attitudes that properly pertain to individuals only. The conception of the company as a
person in particular has contributed towards two tendencies: firstly the tendency to treat the
normative status of Corporations with similar considerations that ground and determine the legal
fights of individual human beings, and secondly, the diversion of judicial attention from the
distinctive features of organisations (many of which obviously do not correspond to the idea of
’person’) and from the normative implications of these features”
The courts’ treatment of separate legal personality
The doctrine of “piercing the veil” has been the primary method through which the courts have
mitigated the strenuous demands of the logical fulfilment of the separate legal personality concept.
The problems with finding some thread of principle through all the decisions basically stem from
the false unity of the cases which, while involving vastly different underlying issues, are still linked
under the metaphor of the ’veil’ As Blumberg writes ~the conceptual standards of entity law are
frequently regarded as universal principles and applied indiscriminately across the entire range of
the law o In that way while it is possible, as some writers have done, to analytically organise the
cases in this area in various ways, what is needed is a more diagnostic approach which examines
why rather than how the area is a problem o The point is not to simply rationalise the disparate
cases under some principle, but to point to their essential dissimilarity and criticise the framework
around which they are organised. The function of much of the courts’ work in this area is to
delineate the legitimate uses of the corporate form° It is obvious that the existing framework,
organised as it is around reluctant departure from the demands of a metaphor, is inadequate for the
proper articulation of such varied and complex questions.
The primary weakness of most attempt to rational the cases in the area is their tacit acceptance and
reliance on the veil metaphor. A more obvious example of this can be seen in an article by Otto
lenghi whose self-appointed task is to propose suggestions for some inroads into this jungle of
judgments.
Ottolenghi commences his analysis –“the the popular warning of Cardozo J that ’metaphors in law
are to be narrowly watched, for starting as devices to liberate thought they end often by enslaving.
. However, his analysis is divided and organised around four categories: ’peeping behind the veil’,
’penetrating the veil’, ’extending the veil’, and ’ignoring the veil of each of these categories he
argues ’has its own appropriate set of considerations and justifications.
Such an approach is flawed in its reliance for a legal principled analysis on the concept of the
’veil’. While obviously compromised by the fact that it is ’result-driven’ its assertion that there are
considerations appropriate to categories referable to the ’veil’ allies itself to perpetuating the very
source of confusion in this area. Any framework that would align Lee v Lee’s Air Farming Ltd8 (a
case about whether the director of a single member family business could legally be allowed to
employ myself for the purposes of workers compensation) and Walker v Wimborne (a case on
directors’ duties within corporate groups) on the basis of their similar treatment of the corporate
veil can only blur any understanding of the area.
The ’categories analysis’ adopted by most writers identifying particular legal categories which
have been used to justify piercing the corporate veil has similarly been criticised for being result

8
(1961) AC 12

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oriented’ and ’rarely assisting as a guide to predicting when and under what conditions another
court will be prepared to lift the veil.
Corporations: Legal Capacity
To the extent that a company is properly authorised to act, what is the nature of the legal capacity
which it may exercise? Is it real,” or ‘‘fictitious”? The terms “fictitious” and ‘‘artificial,” as
sometimes used to describe companies can only be understood by taking account of the twofold
nature of the corporation. It consists both of an association of members, which may themselves
be corporate bodies; and of an entity possessing independently of its membership the legal capacity
to exercise proprietary, contractual and other powers. Clearly, as an association of members it has
as real an existence as any other formally constituted society, and the above terms must therefore
refer primarily to the nature of its legal rights and obligations. It may be thought, for example, that
when a company ‘‘ owns or deals in property, or enters into service, sale or other contracts, it does
so not in its own right, as a natural person may do, but merely for or on behalf of its members and
for their benefit. This being so, the company in reality exists simply as the agent of its members,
or as a trustee for them, of property and contractual rights and obligations which in a true sense,
taking into account (‘the realities of the situation,” belong to those members.
It follows that on appropriate occasions the courts may or ought to disregard the fiction and deal
instead with the company in its true nature as the agent or trustee of its members. To deny this
proposition is not to assert that a company can never be the agent or trustee of its members or
directors. It can, of course, act as an agent or as a trustee for any other person or persons, including
its own members and directors. Whether or not it is acting in such capacity does not depend on the
existence of an independent mind to control the company, as was shown in Lee v. Lee’s Air
Farming Ltd.,“ but on whether the proprietary, contractual or other rights in question are, as a
question of fact, being exercised on behalf of its members.
While this is undoubted, it does not affect the wider proposition that, irrespective of true legal
agency, a company may always be held to be the agent or trustee of its members in appropriate
circumstances. In oth3er words, in reality, or in substance, all the pro- proprietary, contractual or
other rights which may be in the apparent or ‘(fictitious” ownership or possession of a company
are in fact held or exercised by it on behalf of its shareholders. This proposition, if it represents the
law, must be of fundamental importance and there is, it seems, considerable authority in its support.
Dicta in certain cases suggest that a company may be the agent of its members where one
shareholder beneficially owns the entire share capital 7e including, for example, in Pegler v.
Craven and Devlin J.’s somewhat guarded comments that “ . . . the proposition might in loose
talk pass muster in the case of the 100 per cent Shareholder.”
But it is a proposition which does not appear ever to have been applied to decide a case, and which
is contrary to the decision in Salomon v. Salomon 4 Co. Ltd., where the six minority shareholders
were all, to all intents and purposes, the mere nominees of Salomon, the majority shareholder. The
House of Lords nevertheless specifically rejected the suggestion that the company was the agent
of the latter. Further, the dicta to this effect in Pegler v. Craven were subsequently discussed and
rejected by a unanimous Court of Appeal in Tunstall v. Steigmann. Subsidiary companies
constitute a special case within the preceding category, for by definition they must always be
controlled by another company. Again, however, the existence of complete control does not, of
itself, establish that the subsidiary is the agent of its holding company. This is confirmed by
William Cory Son Ltd. v. Dorman Long 4 Co.., Ebbw Vale U.D.C. v. South Wales Traffic Area
Licensing Authority 84 and merchandise transport limited v British transport commission

Page | 22
THEORIES OF CORPORATE PERSONALITY
1. Fiction theory:- this theory is mainly propounded by Savigny, Salmond, Kelson and
Holland . According to this theory a corporation is clothed with a legal personality. The
personality of a corporation is different from its members. Savigny regarded corporations
as an exclusive creation of law having no existence apart from its individual members who
form the corporate group and whose acts by fiction are attributed to the corporate entity .as
a result of this change in the membership does not affect the existence of the corporation
or its unity . savigny further pointed out that there is double fiction in case of a corporation.
By one fiction the corporation is given a legal entity, by another it is clothed with the will
of an individual. Thus, fictitious personality of a corporation has also a will of its own
which is different from that of its members.
Kelson also regards legal personality a fiction. To quote his words “it is convenient peg upon
which to hang legal rights and duties. Thus a group of persons or a successive series of person is
a legal person because it has an imaginary personality by fiction of law”.
Salmond also supports the view that a corporation has a fictitious existence. It is distinct from its
members and capable of surviving even after all the members have ceased to exist. Gray justifies
fiction theory on the ground that the main object of incorporation is to protect the interest of
persons having common objectives. Like fictitious personality, the will of the corporation is also
an imaginary creation of law.
The fiction theory thus believes that incorporation is a fictitious extension of personality resorted
to for the purpose of facilitating dealings with property owned by a large body of natural persons.
The fiction theory, however, answer satisfactorily the civil and criminal liability of corporations.
If it is assumed that the will of the corporation is attributed to it by the fiction of law then it leads
to infer that it must always be lawful as the will conferred by law can never be for unlawful and
illegal ends.
However this theory has been criticised by Sir Fredrick Pollock on the grounds that under English
law neither collective liabilities nor collective power can be enjoyed by the body of individuals
unless they are duly incorporated under the existing laws. Therefore unincorporated bodies are not
treated as legal person.
2. Realist theory: – also known as organic theory, was propounded by Glerke, a german
jurist . He 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
recognised by the state or not. The corporate will of the corporation finds expression
through the acts and directions of its directors, employees or agents. The existence of the
corporation is based on reality and not fiction. It is a psychological reality and not physical
reality. Gray, however denies the existence of collective will. He calls it a figment this
theory has also been supported by some other jurists like Bluntschli, Beseler Miraglia,
Pollock, Maitland and Dr. Jethrow Brown. Dicey also contends that the personality of a
group is the reflection of its consciousness and will. Thus group personality is as real as
the personality of an individual.
However this theory has been criticised by J.C. Gray as he contended that collective will have no
reality, it is nothing more than mere fiction. Salmond also says that even it is assumed that that the
group will is reality, the reality of the unitary notional entity which may in law survive the last of
its members cannot be conceded to .moreover he further contends that the realist theory cannot be
applied in case of a corporation sole because it is simply a series of natural persons whose rights

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are different from those natural persons in general and in case of corporation aggregate personality
is nothing more than a metaphor and a fiction.9
3. Bracket theory:- Ihering propounded this theory of corporate personality .according to
this theory juristic personality is only a symbol to facilitate the working of corporate bodies.
Only the members of corporations are “persons” in real sense 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 a corporation .this theory has been advocated by American jurist Hohfeld in a
different form, in his view corporate personality is creation of arbitrary legal rules designed
to facilitate proceedings by and against an incorporated body in the court of law. His theory
has been criticised on the grounds that as it does not specifies as to when the bracket are to
be removed and when the corporate mask be lifted for taking note of persons constituting
the corporation.
4. Concession theory:– this theory presupposes that corporation as legal person has has great
importance because it is recognised by the state or the law. According to this theory, juristic
personality is a concession granted by the state to a corporation. It is entirely at the
discretion of the state to recognise or not to recognise a juristic person the theory closely
resembles the fiction theory as it also believes that there is no juristic personality apart from
the creation of law. It is for this reason that the fiction theory is being accepted by the
followers of this theory. This theory deviates from the fiction theory in as much as it
emphasis on the discretionary power of the state in matter of recognising the corporate
personality of the corporation. Some critics consider the theory dangerous because of its
over emphasis on the discretionary power of the state in regard to recognition of a
corporation or not. In this view it may lead to dictatorship and arbitrary restrictions on
corporate bodies, particularly the political entities.
5. Purpose Theory:-This theory was propounded by Brinz, on the view that corporations are
treated as persons for certain specific purposes. The assumption that only living persons
can be the subject matter of rights and duties would have derived imposition of rights and
duties on corporations which are non living entities .it therefore became necessary to
attribute “personality” to corporations for the purposes of being capable of having rights
and duties.
These different theories were analysed by Dr. Friedmann who concluded that almost all of the
theories had a political significance and their role in attending the legal problems has been
secondary.

Advantages and disadvantages of separate legal entity concept

Legal protection
Forming a corporation offers legal protection because the business owner becomes a separate
entity from the incorporated company, Inc. notes. This distinction protects business owners from
personal lawsuits and corporate liabilities and secures their personal assets. A C corporation can
be sued since it serves as its own entity. That means the company and all of its assets and equity
are exposed to risks, while the owners remains safe.

Liability and Taxation

9
V.N. Paranjape,”studies in jurisprudence legal theory”, central law agency.p 330

Page | 24
“Since a corporation is a separate and distinct legal entity, owners of a corporation are only
indebted to the extent of their interest in the corporation,” according to Business Accent. This
means that shareholders are not personally liable for any company debt and creditors cannot go
after their personal assets for business debts. Similarly, shareholders only pay taxes on any profits
paid to them as salaries, bonuses or dividends and the corporation itself pays corporate rate taxes
on any additional profits at the lower corporate rate.

Perpetual Existence
The main advantage of a corporation is its perpetual existence. Since the corporation is a separate
legal entity from any of its owners, it does not dissolve when one owner leaves. If a shareholder
dies, the company may transfer her shares in the same way as any other property, and the
corporation is not negatively affected. This also allows a shareholder to disconnect from the
corporation by selling all of her shares without ending the corporation. Keep in mind that when
deciding to dissolve a company there are procedures and paperwork required.

Disadvantages
While a corporation offers many advantages, those same qualities can also make life more difficult.
It costs money to incorporate your business, as “start up, operating and tax costs are not required
of most other structures,” reports Business.gov. Corporations have rules to follow and you must
adhere to the formalities of organizing and running the company. Increased business regulations
lead to a large amount of paperwork required to both incorporate and keep accurate tax, business
and monetary records as required by law.

Liability of corporations
Corporations are legal persons .it means that they have rights and liabilities .so far as rights are
concerned there is no difficulty in their enforcement .But the liabilities of corporations present
very complicated problems. How are the liabilities of an entity which is treated as person only by
a fiction of law to be enforced against it? This problem shall be discussed under three headings:-
1. Liability of a corporation in contract: For entering into a contract two things are important
i.e. the form of the contract and the capacity of the parties, a corporation has no material
existence therefore it always through its agents. It signifies its assent through seal.
Therefore the presence of the seal is considered as evidence of the assent of the body
corporate. The power of the corporation to enter into contract is limited by the statute .and
anything beyond the words of the statute is rendered as ultra vires. Therefore the
corporation formed under a statute is liable only for the acts done within the ambit of the
statute.
2. Liability of corporations of torts: as observed earlier a corporation always acts through its
agents therefore the liability of the corporation for the torts is based on the principle of
vicarious liability. A corporation is liable for the acts of its servants done in the course of
employment but this rule applies only to those acts which are intra vires the corporation.
Two things are taken into consideration while imposing the liability upon the corporation
i.e. whether the act was done by the authority of the corporation or the act was done without
the authority of corporation for the acts done with authority the corporation is liable but for
the acts done without the authority the corporation could not be made liable.

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 3. Liability for criminal acts:- the earlier view was that the corporation cannot be made liable
for criminal offences for the theoretical difficulties like how to attribute mens rea to the
corporations and how can a corporation be punished. The procedural difficulties have been
now been removed partly by legislations and partly by judicial decisions and in the recent
years the corporations have been made liable for the criminal acts .for instance:- in the case
of D.P.P. v Kent and Sussex contractors where the manager of the company has sent in
false returns for the purpose of obtaining petrol coupons the court held the company liable
and said that though the act was done through the manager the company was liable for the
acts. In another case of Moor v Bresler Ltd. The court held the company liable for the
criminal acts of the secretary. Moreover a suit can be filed against the company in the
capacity of juristic person.

CONCLUSION
Therefore from the analysis of the studies of different theories on corporate personality undertaken
as a part of this project it can be concluded that the concept of separate legal entity is of great
importance as it imposes rights and duties on non living persons by attributing legal personality to
them. Clothed with the legal personality these corporations can own, use and dispose of property
in their own name. Moreover in case of any dispute such conferment of title of legal personality
enables the entity to sue or be sued in its own name. Therefore in the light of above statements the
concept of separate legal entity cannot be regarded as a sham concept, though not real but not fully
fictitious as well.

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BIBLIOGRAPHY

BOOKS:
1. Mahajan. V.D., Jurisprudence and Legal Theory 5th Edition
2. Messey I.P. Administrative Law
3. Takwani C.K. Administrative law.

Websites:
1. https://www.lawctopus.com/academike/concept-separate-legal-entity-light-corporations/
2. https://definedterm.com/corporation_aggregate
3. www.businessdictionary.com/definition/public-corporation.html
4. www.lawteacher.net/free-law-essays/company-law/corporate-personality.php
5. https://www.jstor.org/stable/2140122

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