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Published: Fri, 02 Feb 2018
Juristic Personality of a Corporation
This proposed doctoral research intends to focus on the juristic personality of a corporation, looking at it from the nature, what gave rise to legal person-hood of a corporation, with the aim of examining the revolution, impact and possible features of the modern business corporations, by making a comparative examination of the subsets of rights afforded under the law to natural persons, whether those sort of rights should also be afforded to corporations as legal persons.
Generally, there are two types of person which the law recognise, namely the natural and artificial person. The former is confined merely for human beings whilst the latter is generally referred to any being other than human being which the law recognise as having duties and rights. One of the most recognised artificial people are the corporations.
Legal scholars, particularly the jurists, have always explored the issue on the recognition of corporation as a legal person. In the study of jurisprudence, the separate legal personality of corporation is based upon theories, which are concentrated upon the philosophical explanation of the existence of personality in beings other than Human individuals.
W. Friedman stated that:
“All law exists for the sake of liberty inherent in each individual; therefore the original concept of personality must coincide with the idea of man.”
Some legal literatures and judicial review have come to a conclusion that corporations are persons and by literal interpretation, they simply means human beings featuring the natural head (board of directors, the natural hands and legs to work (corporate managements) having capacity to sue and be sued, capacity to enter into legal transactions such as holding property or entering into debt.
The acceptance of the corporate personality of a company basically means that another non-human entity is recognised to assume a legal entity. Although this theory has been accepted as a well-established principle, it is actually “essentially a metaphorical use of language, clothing the formal group with a single separate legal entity by analogy with a natural person”. This can be seen from the many theories of jurisprudence on corporate personality.
The metaphor of personality is indeed useful in describing many of the corporation’s traditional and modern corporate attributes, namely, perpetual succession, and 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. 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.”
Majority of the principal jurisprudence theories on corporate personality contends that the legal entity of the corporation is artificial. The fiction, concession, symbolist and purpose theories support the contention that the existence of a corporation as a legal person is not real, it only exists because the law of the state recognize it as legal person and it is recognized either for certain purpose or objectives. The fiction theory, for example, clearly states that the existence of corporation as a legal person is purely fiction and that the rights attached to it totally depends on how much the law imputes upon it by fiction.
Since the mid-1800s, corporate personhood has become increasingly controversial, as courts have extended other rights to the corporation beyond those necessary to ensure their liability for debts.
All of this appears not in doubt in corporate jurisprudence. But to what extent are the realities of these legal literatures particularly in the era of corporate challenges moving from corporate governance, (a controlling mechanism) perhaps like a parent to corporate brand name, internal controls and the challenges of corporate frauds which ordinarily require the doctrine of lifting the veil of corporation.
There have been divergent forms of legislative and judicial intervention in many nations regarding the subject of legal personality of a corporation. It has been contemplated in some quarters that corporations as juristic persons have enjoyed certain constitutional rights intended for natural humans as the result of a misinterpretation of the concept.
Even though there are many theories which attempted to explain the nature of corporate personality, none of them is said to be dominant. It is claimed that while each theory contains elements of truth, none can by itself sufficiently interpret the phenomenon of juristic person. The stronger concept of corporate personhood is often traced to the 1886 US Supreme Court case, Santa Clara County v Southern pacific Railroad Company, (118 U.S. 394). However, that particular Supreme Court decision still did not address the matter of whether corporations were ‘persons’ with respect to Chief Justice Waite’s words, “we avoided meeting the question”.
Nonetheless, 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 claims 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. The realist also contends that the law merely has the power to recognise a legal entity or refuse to recognise it but the law has no power to create an entity. Referring to the English company law case, Salomon v A Salomon Co.Ltd. The court adopted the fiction theory.
This has left a question unanswered for the realist theory that if the entity of the corporation is real, then the court would not have the right to decide the circumstances whereby the separate legal entity of the corporation should be set aside. No human being has the right to decide circumstances whereby the entity of another human being should be set aside. Only law has such privilege. However, as the entity of corporation is artificial and merely an intendment of the law, the court has the right to apply its discretion when and where the corporate entity should be ignored.
The concession theory has similar assertion that the corporations within the state have no legal personalities except as it is conceded by the state. However the purpose theory has a similar view to the fiction and concession theories, it declares that only human beings can be a person and have rights. Entities other human is regarded as an artificial person and merely function as a legal device for protecting or giving effect to some real purpose.
More detailed and explanation of these jurisprudential theories would be analysed in this research.
This research will be focusing on states like the United Kingdom and Nigeria. There will be a comparison between these states.
The proposed research methodology for this study will be in three phases: First is the primary source of information from outstanding text books, famous journals, official publications and internet documents. Second is the secondary source of data from decided cases, legal reports, and interviews with relevant authorities like legal luminaries, judicial officers, research fellows and renowned corporate Managers, CEO and Directors. Third is the theoretical and practical analysis of various items of information and data collected on the subject of legal personality of a corporation. The thesis shall be composed of six chapters.
The expected findings and conclusion from this study shall be rooted in a comparative exposition of the law practice and legislative jurisprudence in the United Kingdom and Nigeria, through the instrumentality of the following fundamental questions: What constitute the concept of separate legal personality of a corporation? What is a corporation? What are the difference between a corporation and a natural person, what are the jurisprudential theories of corporate personality and which of them is more acceptable to the courts?
Why should the veil of corporation be lifted when the corporation is itself a juristic person?
The present research aim at examining recent corporate challenges posed to the reality of the juristic nature of a corporation.
The work is expected to review existing literature and state in clear terms the position of the law in the aforementioned countries.
The work will also help us to see if there are any limitations to the doctrine of separate legal personality of a corporation.
The work is expected to extend to the international mechanism of the workings of the corporation and demonstrate whether the realities of today’s corporate world still support the juristic personality of a corporation or whether there are departures.
The work will contribute to knowledge in the area of critical challenges facing the doctrine of corporate juristic personality and the limitations in its surroundings.
The work may propose for reform or a restatement of the law on corporate juristic personality.
Chapter One – Development of Jurisprudential Theories of Juristic Personality
Introduction – What is Juristic Personality & how has it affected the recognition of the Separate Legal Personality of Corporations?
In looking to evaluate what the concept of ‘juristic personality’ consists of for the purposes of our discussion, a ‘juristic person’ (also sometimes referred to as a ‘legal person’) is a legal entity through which the law of a particular legal system serves to permit groups of ‘natural persons’ to act as if they were a composite individual for certain purposes – or in some jurisdictions – for an individual then to have a separate legal personality other than that of their own. As a result, such a legal fiction does not mean that these specific entities are human beings, but rather that the law allows them to then act as people for certain limited purposes – usually lawsuits, property ownership, and contractual arrangements. However, such a concept should be recognised as being somewhat separate from – and should not be confused with – either the recognition of the principle of limited liability or that of the joint stock principle already understood in this regard. It should also be noted basic rights including that of free speech and due process of law do not necessarily follow on from the recognition of ‘legal personhood’ since a legal person in practice is also occasionally referred to as an ‘artificial person’ or legal entity. Moreover, whilst the concept of a legal person may be considered to be much more fundamental in the Western world in both common and civil law jurisdictions, the recognition of the concept of juristic personality has been almost universally accepted in every countries legal system around the world today.
However, as will come to be understood as this study regarding the recognition of as to whether corporations are juristic personalities through a comparative analysis with the law in Nigeria progresses, by way of example, it is also to be appreciated that, under English law, the use of such terminology regarding the recognition of juristic personality does not mean legal persons that serve to make up corporations are really to be understood as human beings. Instead, the juristic personality of legal persons in relation to the recognition of corporations is simply founded upon a ‘technical legal meaning’ whereby what is understood as “a ‘person’ is any subject of legal rights and duties”. Therefore, in view of the fact that such entities may have legal rights and duties, the legal ‘personhood’ of corporations has been noted in practice in an effort to then better distinguish their existence as ‘personalities’ that are somewhat separate from the recognition of natural persons that is discussed in greater detail in the sections of this chapter that follow.
At this point, however, there also many more examples of juristic personalities outside of mere corporations in the company law sense of the word as the recognition of juristic personalities in practice have also been taken to include – (a) co-operatives; (b) the estates of deceased people; (c) European Economic Interest Groups (EEIGs); (d) municipalities; (e) natural persons; (f) partnerships; (g) political parties; (h) sovereigns; (i) states; (j) trade unions; (k) trusts; (l) ships; and (m) churches and/or temples depending on the religious denomination. At the same time, not all organisations have recognised legal ‘personhood’ in practice. This is because, for example, the board of directors of a corporation, legislature, or governmental agency are usually not considered to be legal persons in view of the fact that they do not have the ability to exercise legal rights independent of their given corporation or particular political body that they are a part of in practice. Then, as a consequence, by way of illustration lawsuits that have been implemented in practice against a government agency are usually not directed specifically at that given agency but rather at a particular person within it that looks to exercise their governmental authority.
More specifically in corporate law it has already long been recognised that the decision of the English House of Lords in the case of Salomon v. A. Salomon Co Ltd has had such a lasting and significant impact upon the development of corporate law under the domestic legal system as well as in many other jurisdictions the world over. In this regard, the decision of the House of Lords in this case has often been credited with first recognising the separate legal personality of all corporations as being somewhat distinct from their membership (i.e. shareholders). However, although there can be little doubt that the decision of the House of Lords in the case of Salomon v. A. Salomon Co Ltd played a significant role in company law, the decision of the House of Lords here was hardly the origin of this principle. This is because the legal entity of beings other than the human was actually recognised for some time prior to the House of Lords’ aforementioned decision as the section regarding the varied jurisprudential theories of Corporate Personality goes on to discuss in greater detail. In so doing it will be recognised that jurisprudential theorists on juristic personality were established because the remit of early Roman law was meant to justify the existence of legal persons beyond mere human beings.
State, ecclesiastical bodies and education institutions had long been recognised as having legal personality that was otherwise somewhat distinct from their membership. As a result, it has come to be recognised that the acceptance of the corporate personality of a company basically another non-human entity is recognised so that a given corporation may then assume that it has a legal personality. However, although such a theory has been accepted as being well-established, it is actually “essentially a metaphorical use of language” that serves to ‘clothe’ “the formal group with a single separate legal entity by analogy with a natural person”. Such an understanding has been effectively illustrated by the recognition of the fact of many theories of jurisprudence on corporate personality. This is because most jurisprudential theories have served to contend the legal personality of a given corporation is somewhat ‘artificial’ in practice.
Therefore, the fiction, concession, symbolist and purpose theories that are discussed later in this chapter have served to support the contention that a given corporation’s recognition as a legal person is ‘artificial’. It is arguable that the theory of corporate personality only stands because of the fact that the law of the state recognised it as having a separate legal personality for certain purpose or objectives. By way of illustration, the fiction theory serves to clearly recognise the existence of corporations as having a separate legal personality is little more than a ‘fiction’ and that the rights attached depend on how much the law imputes upon it. With this in mind, it has come to be understood that the recognition of corporate personality in practice is certainly not in any way arbitrary and so must respond to the organisational realities of a given corporation as well as conform with the treatment of such organisations as ‘legal actors’.
Conceptions of corporations in practice should be analytical and ideological, as well as both descriptive and prescriptive in recognising the separate legal personality of corporations. The metaphor of personality is indeed useful in describing many of the corporation’s traditional and modern corporate attributes involving perpetual succession, ability to own property, rights to take its own legal proceedings, ability to create floating charges, limited liability and compliance with the remit of the Companies Act 2006 in the UK. In looking to place these particular attributes in keeping with the concept of separate legal personality it has been recognised that has resulted in the selection of these few salient features for recognising the concept of a fictitious – although it should be understood that the use of the metaphor is mainly to describe and not dictate the reality of corporation. This is largely because, as academics including Bryant Smith have since recognised that “It is not the part of legal personality to dictate conclusions” so that because “a corporation is a legal person for some purposes it must therefore be a legal person for all purposes … (so as) to make of … corporate personality …a master rather than a servant, and to decide legal questions on irrelevant considerations without inquiring into their merits” arguably to the detriment of the law and its development in this area.
In contrast, the development of the recognition of separation of ownership and control for companies in Anglo-American corporate governance has often been much less marked in other jurisdictions. By way of illustration, over 90% of the largest German companies have a shareholder with at least 25% of the overall equity of such companies. Even in the US and England the concentration of ownership in large companies is not altogether absent. In the majority of cases within these jurisdictions, however, shareholder control of corporations is now largely a myth. But to say that this is the case in Germany would be something of an over-simplification since there is extended German literature on the role of the corporation in society that is not easy for those in the Anglo-American tradition to appreciate. In sharp contrast to the shareholder agency model, this tradition originated a century ago with Otto von Gierke’s concept of the ‘Verbands personlichkeit’ (‘corporate personality’) this is because such an understanding argued for the recognition of a mystical collectivism because it was argued the corporation sought to achieve a ‘physio-spiritual unity'. The problem with this understanding is that such thinking is now somewhat unfashionable in practice today because of the fact that “The social substratum to be personified is not simply a (static) social structure” – it is in fact “an internal dynamics system, with selections of its own, and with a capacity for self-organisation and self-reproduction” and so ‘concentrated shareholding’ in German companies needs to be viewed accordingly.
Such shareholdings are usually most commonly controlled or at least significantly influenced by banks or other major companies and, as a result, certainly do not imply large-scale German enterprises are closer to the model of owner-manager than British or American corporations. Instead these shareholdings alone are considered evidence of the German company as a social institution that is both a community itself as well as an organisation embedded within a given community as product of a different view of the corporation and its role in society. The idea of a company as a social organisation has also been equally clearly evoked in Japan which, although without the difference in formal legal structure between major firms and owner-managed concerns characteristic in Europe, still retains the demarcation in operational structure and economic function between both large and small companies. Moreover, the very idea a Japanese company is described by an agency relationship between shareholders and managers would be incomprehensible to the majority of Japanese businessmen because the economic growth achieved by corporations “is appreciated and sought after primarily for its contribution to utilising the enriching human resources and in creating promotion opportunities … workers identify their interests with those of the company which … is regarded as a sort of community”. Therefore, it is arguable the corporate form has taken on a whole other meaning as something approaching a social enterprise.
Nevertheless, in Anglo-American systems of corporate law, corporate personality was first popularized by Olins in the writing of his influential text of 1978 called ‘The Corporate Personality: An Inquiry into the Nature of Corporate Identity’. Other academics including Balmer have since argued that the concept of corporate personality refers to the mix of cultures that are found to be present within any given organisation. Moreover, a number of other authors have argued or implied that the corporate personality is at the heart of a given organisation’s very corporate identity. The crucial role of an organisation’s personnel in this regard was only further emphasised by implication in relation to the role of culture in corporate identity. This is because “The most important audience for any company is its own staff. I cannot understand how people can say that the most important audience they have is the consumer. Because if you cannot train your own staff in what you are, in what you think, in how to behave, and in what your moves and precepts are, how the hell can you expect to train your customer?”. Therefore, in much the same way as any other aspect of law, the recognition of a given company’s ‘corporate personality’ in practice serves to control the way in which the company operates.
In the late nineteenth and early twentieth century, corporate personality was keenly debated by both European, and American corporate scholars. The principal question was whether corporations are ‘real’ entities – with a philosophically separate existence – or whether they are simply aggregations of shareholders or artificial entities that owe their powers entirely to the state. However, it is now arguable the debate has reached an excruciating point where problems are only being further exacerbated. This is because it is arguable that the debate regarding the recognition of corporate personality is the corporate law equivalent of the medieval quarrels over how many angels can dance on the head of a pin. At the same time, however, it has been argued that the debate has reached the stage where it actually ended when the philosopher John Dewey published an article that argued the various views covered in greater detail in the sections that follow effectively collapsed into one another since and each could be used to support any outcome on a particular issue. Therefore, the reason why we now look to consider the varying theories of corporate personality is because it cannot be understated the significance of the opposing views in this regard – particularly since Dewey was writing over three-quarters of a century ago when expressing his view in relation to the recognition of corporate personality.
Recognition of the varied jurisprudential theories of Corporate Personality & how they relate
Generally, it has come to be understood that there are two types of ‘legal person’ that the law will recognise in practice – ‘natural’ and ‘artificial’. The first – ‘natural’ – refers solely to human beings whilst the latter – ‘artificial’ generally relates to anything else that is not human that the law considers to have rights and duties. As a result, one of the most commonly recognised examples of an artificial person is the corporation this is because, as a particularly significant exponent of the fiction theory, Car Friedrich von Savigny for one believed “Besides men and ‘natural persons’ the law knows as ‘subjects’ of proprietary rights certain fictious, artificial or juristic persons, and as one species of this class it knows the corporation”. Moreover, jurists in particular have long sought to explore the issue regarding the effective recognition of corporations as ‘legal persons’. By way of illustration, in relation to jurisprudence it has been held the separate legal personality of corporations is based upon theories that are predominately focussed upon the philosophical explanation of ‘personality’ in things that are not human like companies since many academics have long espoused the view that “All law exists for the sake of liberty inherent in each individual; therefore the original concept of personality must coincide with the idea of man”.
However, whilst there may be many theories in this area academics have looked to utilise in an effort to explain the nature of corporate personality, none are considered strong enough to offer a clear explanation. This is because whilst all such theories may contain elements of truth, none is deemed sufficient to interpret the concept of juristic personality on its own. The reasoning behind such a contention is that the recognition of corporate personality is effectively technical legal advice that is applied to a multitude of very diverse aggregations, institutions and transactions that have no common political or social denominator – even though each of the many theories has been conceived with a purpose for a particular type of juristic personality. Nonetheless, five key theories have developed in an effort to be able to effectively explain the concept of corporate personality in the form of – (a) the fiction theory; (b) the realist theory; (c) the purpose theory,(d) the symbolist or bracket theory; and (e) the concession theory.
- The fiction theory
The fiction theory of corporate personality was first said to have been put forward as an explanation in this regard by Sinibald Fieschi who became Pope Innocent IV (1243-1254) who said “cum collegium in causa universitatis fingatur una persona” in relation to the idea that both colleges and universities of this time were little more than artificial people. On this basis, it is perhaps hardly surprising the Pope was one of the keenest supporters of the supremacy of spiritual power over something that is considered to be temporal after the time of the Papal Empire. Moreover, ostensibly the doctrine corporate bodies are personae fictae was effectively directed at ecclesiastic bodies as the reason why a ‘collegium’, ‘universitas’, or ‘capitulum’ could not be excommunicated or guilty of a delict. However, for the ‘nomina sunt juris et non pcrsonarum’ they have neither a body nor will so that a chapter was then little more than a name.
Canonists then also went on to declare that it was impossible to either punish or excommunicate corporate bodies because they had neither a ‘soul’ nor a ‘body’. With this in mind, they carried their nominalism to the extent that they had being only in, ‘abstracto’, like ‘man’ relates to men – although the doctrine did not imply excommunication was of no effect. The reason for this is because the recognition and application of the doctrine actually signified that, so a decree of punishment or excommunication would not lack in effect, it was to be applied to all ‘omnes singulus’. Therefore, even where it was found that Pope Innocent had not included ‘populus et gens et hujus modi’ along with ecclesiastical groups, what applied to religious organisations also applied ‘a fortiori’ to civil so that a chapter or a ‘populus’ would not suffer from excommunication – although it was not the same when the ban fell upon ‘omnes singulus’.
On this basis, the intellectual actor in the recognition and application of the doctrine accepts the fact that their group’s recognition as a ‘person’ was denied because of their dominant. The current understanding of this theory has arguably been most effectively expressed within St. Thomas Aquinas’s definition ‘vera persona est rei rationabilis individua substantia’ since all of the three last words have a particularly significant meaning going back to the ancient philosophy of Aristotle. This is because there has been a particular problem with the recognition of the ‘individual’ being even more of a problem than that of ‘substance’. Therefore, the use of the phrase ‘rational individuated substance’ in the conception of ‘person’ has endured for some considerable time a good deal longer than after the metaphysics and theology which bore it were obscured so as to then also largely account for much of the difficulty with attributing ‘person’ to corporate and single units.
As a result of such recognition, the fiction theory has gained a great deal of credibility and legitimacy as an explanation for the recognition of corporate personality in the intervening years. That such a theory has gained such popularity over time is because it is supported by many famous jurists. By way of illustration, noted English legal theorist Sir Edward Coke, as also one of the most distinguished followers of fiction theory, took the view that corporations are “invisible, immortal and resting only in the intendment and consideration of law”. Moreover, John Salmond, another principal advocate in this regard, also recognised that a human being is the only natural person recognised, whilst legal persons govern the recognition of legal personality for any subject matter other than a human being to which the law applies.
Our understanding of the fiction theory is ostensibly based upon the idea that the recognition of the legal personality of entities other than human beings is as a result of little more than a fiction so, as a result, not being a human being, corporations cannot be ‘real’ or ‘natural’ people and also cannot have personalities of their own. At the same time, however, it is also to be noted that, when the theory was first conceived, the outward form of corporate bodies as fictitious personality was largely focussed upon ecclesiastic bodies. As a result, the doctrine was originally utilised with view to then being able to more effectively understand why ecclesiastic colleges or universities could not be excommunicated or guilty of a delict (i.e. a concept of civil law whereby a wilful wrong or act of negligence leads to the recognition of a legal obligation or duty of care between parties even though there is no formal contract existing between them) because they lack the effective ‘body’ and ‘will’ to do so – in the end it is always ultimately a natural person that is considered to be responsible for any such act.
That such a view could arise in the circumstances is marked by the fact that the ecclesiastical courts at this time looked to apply Canon law which looked to utilise the ‘Romanist Fiction theory’ so as to then bett
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