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Corporate Personality

Corporate personality is the fact stated by the law that a company is recognized as a legal entity distinct from its member. A company with such personality is an independent legal existence separate from its shareholder, directors, officers and creditors.

To run any business why people make a company?

Because apart from any individual company has many rights and advantages.

Whenever any company is formed or it is incorporated, it has its separate legal personality & independent status apart from its members.

Means after incorporation members & company both are separate from each other and becomes two separate legal entity. And this separation concept is known as corporate personality.
Actual usuage of this can be understood by this three important case laws:
  1. Oakes v. Turquand
  2. Salomon v. Salomon & co ltd.
  3. Lee v. lee’s Air Farming Ltd.

The concept of corporate personality was developed in case Oakes V. Turquand. And it is established in case Salomon V. Salomon & co ltd.

Salomon v. Salomon co ltd.( 1897) AC 22

Mr. Aron Salomon was a businessman & was specialized in manufacturing leather boots. He formed a company named Salomon & co ltd. and sold his business for 38000 pounds. Total share capital of company-40000 ( 1 pound each)

Memorandum
This company has 7 subscribers-

  1. Salomon 1
  2. Wife 1
  3. Daughter 1
  4. Sons 4

All of them have one share & Salomon have 20000 shares& 10000 debentures (pounds)
After 1 year… this company goes into liquidation.

  • Assets – 6000 pounds
  • Liabilities – 17000 pounds

Division of liabilities:-
17000:- 10000 Salomon
7000 unsecured creditor

Issue-

  1. Company has limited pounds, so the question was to whom he gives the first.
  2. If only one family manages, administer & controls business than the identity of the family & business will be same or separate.

Considering the same & making it an issue unsecured creditors believes that the money they should get first, because the company doesn’t have the separate / independent existence.

Unsecured creditor-

  1. No separate legal existence
  2. Company was acting as an agent


Court-
After incorporation the company itself becomes the independent legal person and as Salomon was the debenture holder he gets the priority first above the unsecured creditors.
So, the money Salomon gets first.

Lee v Le Air Farming Co.Ltd

A Company is their named LEE AIR FARMING.
Total share capital- 3000 shares
Lee – 2999 shares
Lee himself made him company’s

  • Managing Directors
  • Chief Pilot

At the time work of the company LEE’s plane crashes & LEE dies.
Lets understood the relationship of MASTER & SERVANT of the company.
Between the company & company’s employes there is relation of MASTER- SERVANT means at the time of course of action if anything happens that master will compensate for the same.

Master-Servant = Compensation Issue
Lee’s widow now demands compensation from Lee v Le Air Farming Co.Ltd.

ISSUE- Was there a separate legal entity? Whether MRS. LEE can claim compensation?
Insurance company said lee was managing director & master+ employee. They both entity are same & widow will not get compensation for the same.

Court-
Whether LEE was holding the whole company but they are separate legal personality and to have both the personalities power of master & servant.
And this compensation LEE was demanding as the position of the servant which he will be getting.

This was the concept of corporate or legal personalities. Which says after incorporation, company & member became two different legal entity.

In India, this concept was accepted by case-
Re Kondoli Tea Co Ltd
Advantages of corporate personality-

  1. Legal personality
  2. Perpeptual succession
  3. Company can sue & can be sued
  4. Unlimited liability.


Conclusion-
A company in law is separate person from its subscribers to the memorandum of association.

Reference

  • Finology legal
  • Company law by dr. JK Kapoor
  • wikipedia

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