Follow my blog with Bloglovin

Explain the corporate concept of a company. Discuss its advantages and disadvantages

What is Corporate Personality? Explain its nature.


(Corporate Personality of Company) A company exists by its incorporation or amalgamation. Upon incorporation, the company assumes a statutory existence and acquires a separate corporate personality from its members. Due to the acquisition of corporate personality, the company comes under the category of artificial personality. As a result of this, all the properties of the business are owned by the company and it can sue anyone in its own name and can also be sued by other parties. She can buy and sell property in her own name, open bank accounts and enter into contracts in her own name. Thus, after incorporation, a company as an artificial person becomes capable of doing all the things that a human or business person can do. This is known as the principle of corporate personality of the company.


known from. This principle of corporate personality of the company has been recognized in the Companies Act. But this principle was recognized by the courts much earlier. In England in 1867, after Oaks v. Tarquand and Harding, the principle of corporate personality of the company was recognized by the House of Lords. In 1897 Salomon v. Salomon & Co. Ltd. Later this theory was firmly established and confirmed. This debate proved to be a milestone in this area and became very popular.


A man named Salomon used to trade in shoes. His business was in good shape. He established a company named ‘Salomon and Company Limited’ to increase his business further. Salomon sold his business to the company for £38,782. The company did not have cash to pay Salomon. Therefore, as payment of sale price, fully paid-up shares of £20,000 and surety debentures of £10,000 were given. The balance amount was paid in cash. The company’s property was mortgaged to Salomon to protect the loan of 10,000 pounds Salomon gave and received debentures. All the members of Salomon and Company belonged to the same family. Salomon, his wife, daughter and 4 sons. Thus the company was formed by 7 members of the same family. Salomon and his two sons were included in the company’s board of directors. Salomon was appointed managing director and his two eldest sons were appointed directors. Due to the strike in the leather business, the company had to suffer a lot after some time. company at the time of winding up


The position of the assets was as follows – 6,000 pounds


Liabilities – (i) Debentures £10,000


(ii) Unsecured Creditors £7,000. The debenture holder is given priority in payment over the unsecured or unsecured lender. So Salomon took £6,000 to pay off his loan, leaving the company with nothing left to pay off the debts of the unsecured lenders. The unsecured creditors sued the company in such a situation and argued that the company had no independent personality and Salomon and Salomon & Company held majority of the shares and the other members had only nominal shares. Salomon and Salomon’s two sons were the directors over whom Salomon had complete control. The company was merely an agent of Salomon. The company was just a hoax. So Salomon must first pay off the unsecured lenders. Debentures held by Salomon should be paid off only after the unsecured creditors have been paid in full. The subordinate courts accepted the argument of the unsecured creditors and decided in their favor and against Salomon.


Salomon appealed to the House of Laws against the decision of the subordinate courts. The House of Lords overturned the decision of the subordinate courts and unanimously ruled in favor of Salomon. According to the decision of the House of Lords, the company has a completely separate existence from the signatories of the memorandum in the eyes of law. Although it is possible that after incorporation, the business of the company may have remained the same as before and its managers were also those persons and profit was also received by those persons only, this does not affect the original intention of the company. So Salomon was not held liable for the company’s liabilities and it was decided that the debentures held by Salomon should be paid first. As a result, Salomon was paid all of the company’s remaining balance (£6,000) and secured creditors did not receive any.


“Recognition in India- This principle was recognized in India only in 1886 when the Kandoli Tea Company Limited, r. Later, the court ruled that the company is a separate person, which is completely different from its shareholders. Property transferred by the company It is the same transfer to be done. As if transferred by one person to another. According to the facts of this suit, some persons sold the tea garden to a company. Exemption was sought that in fact they were the shareholders of the company and the transfer was to be made to them, but the court rejected the argument of the plaintiffs and said that the company has a separate corporate personality in the eyes of law and is completely different from the shareholders.


Nature of Company


Under the law, persons are divided into two categories – (1) natural persons, such as humans, and (2) artificial persons such as companies, which are created through legal process. legal


Can be a person, human being or anyone else. But in each case his rights and duties are determined by law. Man remains a legal person for life. Although a man is a legal person, every legal person need not be a human being. A company or corporation is called a non-human legal person and is born not according to natural laws, but through a legal process.


The existence of a company is only in the eyes of law, it does not have any physical existence of its own. According to Lord Lindley, “A company is an association of many persons who make contributions of rupees or equal value to a common fund. General Fund is used for business or business (ie, common purpose. These persons divide among themselves the profit or loss arising out of ordinary business. The General Fund is disclosed in the prevailing currency, i.e. Rupees. This fund is used by the company The person who contributes to the general fund is called a member. The proportion of capital to which one member has the right is called the share (share) of that member. Shares are generally transferable, though in most cases After the amalgamation the company is called the amalgamated institution or corporation. The company corporation is with the currency and perpetual succession. The personality of the company is completely different from that of its members. That is why its member at any one time. But a company can have both a shareholder and a creditor. The nature of corporate personality can be explained as follows:


1. Separate Legal Entity,


2. Separate Property,


3. Perpetual Succession,


4. Limited Liability, 5. Transferability of Shares,


6. Right to Sue,


7. Centralized Management,


8. Availability of Adequate Finance,


9. Unlimited number of members.


Benefits of Corporate Personality


(Advantages of Corporate Personality) The company has a corporate personality. Others of business due to corporate personality


The company enjoys many advantages in comparison to the formats. The main advantages are as follows: (1) Immence Financial Resources The company has the facility to raise a large amount of capital. There are three reasons for this – (i) there is no restriction on the maximum number of members, (ii) limited liability, (iii) issuance of different types of shares and debentures. Due to these three facilities, people with different economic conditions and attitudes get a safe means to invest their capital. In this way, little by little, a large amount of capital gets accumulated, through which huge industries are encouraged. Conversely, the number of members in a partnership organization is limited but the liability is unlimited.


The amount of capital remains limited. (2) Stable Life – A company is an artificial person with perpetual succession. Its life is permanent. Like a partnership, a company does not cease to exist when the members become insane, insolvent or die or there is a change in the members, directors and managers. The movement of shareholders remains the same. But the company continues to function as it is. This quality of the company enables the company to make long-term contracts, as a result of which the company is able to earn more profit by making long-term plans.


(3) Limited Liability The liability of the shareholders of the company is limited to the face value of the shares purchased by them. Its advantage is that even investors with little income do not hesitate to invest their capital in the company. As a result, the company gets a higher amount of capital.


(4) Relief of Taxation Under the Income Tax Act, some special concessions are also provided to the company in comparison to a sole and partnership business. (5) Efficient Management The company has unlimited resources. As a result, it is easy for the company to avail the services of qualified, skilled and experienced experts,


This brings about efficiency in management.


(6) Use of Modern Production Technique – Due to more capital and large scale production, the company can use the latest machines and plants. It can adopt rationalization to a greater extent. (7) Confidence of Public There is a provision in the Companies Act that the annual accounts of the company should be published. This increases the confidence of the general public and


Investment in the company is encouraged.


(8) Division of Risk


Excess number of members in a company


Due to this the risk is reduced. Hence the company is able to undertake more risky activities.


while undertaking risk activities under sole and partnership business, so much


Doesn’t get easier.


(9) Facility of Transfer of Shares – Shares of the company can be easily bought and sold in the market. It is freely transferred. This facility is not available in other types of institutions.


(10) Investment Opportunities – The format of company organization is very beneficial to encourage small savings in the general public. The preference value of the shares of the company is low, that is why even small investors can invest their savings in shares or debentures.


Disadvantages of Corporate Personality


(Disadvantages of Corporate Personality) Despite having many advantages, there are also some drawbacks in the company system. These defects of corporate personality can be overcome to a great extent by the principle of removing the veil of corporate personality or amalgamation. These faults are as follows


1. A company has a separate statutory existence due to its corporate personality. Despite having an artificial personality, the business of the company is carried on by some living persons for the benefit of a group of persons. Thus, despite having an independent separate existence by legislation, a company is an association of persons who use the company’s funds to earn profit. Misuse of these funds by such persons is possible.”


2. For the formation of corporate personality, many statutory formalities have to be completed which takes a lot of time. Various formalities have to be completed for different stages of company formation like promotion, amalgamation, capital subscription and commencement of business etc. And different forms have to be prepared. The process of winding up of a company is also very complicated and lengthy.

3. The limits of the company’s scope of work are determined by the memorandum, beyond which the company cannot go. This hinders the progress of the company. 4. Due to separation of ownership and management, shareholders are only interested in dividend or regular return. He is not concerned with the actual management of the company. They do not even consider it necessary to attend the annual meetings of the company. As a result of this, the directors of the company can use the votes of the absent shareholders in their own private


हितों के लिए भी करते हैं।


5. कम्पनी के निर्माण के समय विभिन्न प्रपत्र, जैसे- पार्षद सीमानियम, पार्षद अन्तर्नियम, प्रविवरण आदि तैयार करने एवं रजिस्ट्रेशन शुल्क आदि पर काफी राशि व्यय करनी पड़ती है। वैधानिक अनिवार्यता के कारण इस व्यय से बचा नहीं जा सकता।


6. निगमीय व्यक्तित्व का दोष यह भी है कि एक अंशधारी अपनी पूँजी का आहरण सरलता से नहीं कर सकता। कम्पनी द्वारा जब तक अंशों के पुनः क्रय का निर्णय नहीं लिया जाता, कोई भी अंशधारी कम्पनी को अंश वापस लौटाकर अपनी राशि प्राप्त नहीं कर सकता। यह अवश्य सम्भव है कि अंशधारी अपने अंशों का हस्तांतरण अन्य व्यक्ति के पक्ष में कर दे।

Leave a Comment