Corporate Personality
Corporate Personality
1. Meaning of Corporate Personality
Corporate Personality means that a company or corporation is recognized by law as a separate legal entity distinct from its members or shareholders.
This means the company has its own rights and liabilities, can own property, enter into contracts, sue and be sued in its own name.
The company’s existence is independent of the existence of its members.
2. Legal Implications of Corporate Personality
The company is treated as a ‘legal person’.
It can own property, incur debts, and be held responsible separately from its members.
Members’ liability is generally limited to the extent of their shareholding (in case of a limited company).
The company’s property belongs to the company, not to the shareholders individually.
3. Source of Corporate Personality in Indian Law
Under Section 3(1) of the Companies Act, 2013, on incorporation, a company becomes a separate legal entity.
The company continues to exist even if the membership changes or members die.
4. Important Features of Corporate Personality
Separate Legal Entity: The company is distinct from its members.
Perpetual Succession: The company continues to exist despite changes in membership.
Limited Liability: Members are liable only to the extent of their shares.
Capacity to Sue and Be Sued: The company can take legal action and be sued in its own name.
Ownership of Property: The company holds property in its own name.
5. Landmark Case Law on Corporate Personality in India
1. Salomon v. Salomon & Co. Ltd. (UK case, but recognized in India)
Note: While Salomon is an English case, its principle is firmly accepted in Indian law.
Established the principle of separate legal personality.
The company was held separate from its shareholders.
2. M/s. Tata Engineering and Locomotive Co. Ltd. v. State of Bihar (1965 AIR 40)
The Supreme Court recognized that a company incorporated under the Companies Act is a separate legal entity.
It has rights and obligations independent of its shareholders.
3. L.C. Gupta v. Kotak Securities Ltd. (1969 AIR 144)
The Court reiterated that the company is a distinct legal person.
Liability and rights of the company must be treated independently of the members.
4. Bacha F. Guzdar v. CIT (1964 AIR 1003)
The Court recognized the separate identity of the company for the purpose of taxation and liabilities.
Company’s obligations are distinct from those of its promoters or shareholders.
6. Exceptions to the Corporate Personality (Lifting the Corporate Veil)
Sometimes courts may ‘lift’ or ‘pierce the corporate veil’ to look beyond the company’s separate personality:
To prevent fraud or improper conduct.
When the company is used as a “mask” or “sham” to evade legal obligations.
To hold members or directors personally liable in cases of wrongdoing.
7. Importance of Corporate Personality
Encourages entrepreneurship by limiting members’ liability.
Facilitates ease of doing business as the company acts as an independent entity.
Protects shareholders from personal liability beyond their investment.
Allows companies to enter contracts, acquire assets, and sue in their own name.
8. Conclusion
The doctrine of Corporate Personality is a cornerstone of company law in India. It ensures that a company is recognized as a separate legal entity, independent of its shareholders, with its own rights and liabilities. This principle underpins modern business and corporate governance. However, Indian courts also recognize exceptions where the veil of incorporation may be lifted to prevent misuse.
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