This article is written by Lakshyadeep Gupta, Bharati Vidyapeeth New Law College, Pune,BBA LLB, 5th year, during his internship with LeDroit India
Introduction
As a law firm intern dealing with corporate matters, understanding the concept of corporate personality is fundamental. Corporate personality refers to the legal recognition of a company as a separate entity from its owners. This doctrine, established in Salomon v. Salomon & Co. Ltd. (1897), is a cornerstone of corporate law, influencing business structuring, liability, taxation, and litigation.
Definition of Corporate Personality
Corporate personality is the legal concept that grants a company independent rights and liabilities separate from its shareholders, directors, or employees. This means that:
– A company can own property, enter contracts, sue, and be sued in its own name.
– The liability of shareholders is limited to their investment, protecting personal assets.
– The corporation continues to exist even if ownership changes.
Legal Basis:
– Companies Act, 2013 (India) – Section 2(20): Defines a company as an entity incorporated under the Act.
-Salomon v. Salomon & Co. Ltd. (1897):Established the principle of separate legal personality.
Key Features of Corporate Personality
1. Separate Legal Entity
A corporation is distinct from its members and has its own legal identity.
Example:Tata Sons Ltd. owns assets and enters contracts independently of its shareholders.
2. Limited Liability
Shareholders are only liable to the extent of their shareholding.
Example: If a company goes bankrupt, shareholders are not personally responsible for debts beyond their investment.
3. Perpetual Succession
A company continues to exist despite changes in ownership or management.
**Example:** Reliance Industries Ltd. continued operations even after leadership changes.
4. Ability to Sue and Be Sued
A company can initiate or face legal proceedings.
Example:Google India Pvt. Ltd. can sue for trademark infringement in its own name.
5. Ownership of Property
A company can own land, buildings, and intellectual property separately from its shareholders.
Example: Infosys Ltd. owns office buildings, which are not personal assets of its founders.
Legal Doctrines
1. Lifting the Corporate Veil
In certain cases, courts disregard corporate personality to hold shareholders or directors personally liable.
– Grounds for Veil Lifting:
– Fraud or tax evasion (Gilford Motor Co. Ltd. v. Horne (1933))
– Sham or façade companies (Delhi Development Authority v. Skipper Construction (1996))
– Avoidance of legal obligations (Workmen v. Associated Rubber Industry (1986))
2. Corporate Criminal Liability
Companies can be held liable for criminal acts.
– Case Law:Standard Chartered Bank v. Directorate of Enforcement (2005) – SC ruled that a company can be prosecuted for criminal offenses.
3. Ultra Vires Doctrine
Companies cannot act beyond their legal powers.
-Example: If a company engaged in real estate starts trading in financial securities without authorization, the act is ultra vires.
Relevance
1. Corporate Litigation & Dispute Resolution
– Advising clients on shareholder disputes.
– Representing corporations in contractual or regulatory disputes.
2. Corporate Structuring & Compliance
– Assisting in company formation and ensuring compliance with the Companies Act, 2013.
– Drafting contracts that align with corporate personality principles.
3. Mergers, Acquisitions & Insolvency
– Understanding corporate personality helps in structuring deals and liabilities.
– Assisting in Insolvency and Bankruptcy Code (IBC) proceedings.
4. Taxation & Regulatory Matters
– Helping corporations comply with tax laws without misusing their separate legal personality.
– Advising on corporate veil lifting cases involving tax evasion.
