Corporate Personality – Meaning and Theories


Corporate personality is the cornerstone of company law in most Common Law countries. It is a legal construct wherein a corporation is regarded as an artificial person. The corporate personality doctrine asserts that a corporation has a separate legal identity from its members. As a result, a company’s legal existence is distinct from the rights and responsibilities entrusted to its shareholders, directors, and executives. The members of a corporation are protected by the veil of incorporation. The first part deals with the various theories of corporate personality.



The Fiction theory of corporate personality is one of the most used and recognised theories. Many proponents of the theory believe that it was Ulpian, the famous Roman Jurist who propounded this theory. When it comes to the modern adaption of this theory, the German Jurist Savigny is regarded as the reviver of this theory.[1] This theory propounds that other than natural persons, the law also gives rights and duties to artificial persons known as corporations. It states that ‘Besides men or natural persons the law known as subjects of proprietary rights certain fictitious, artificial or juristic persons; as one species of this class it knows the corporation. We must carefully sunder this ideal person from those natural persons who are called its members.[2] The other proponents of this theory were Salmon and Holland.

According to this theory, the legal personality of an entity (who is not a human being) is the result of legal fiction. The Corporation is not deemed not to have a personality of its own and thus cannot be construed as a person according to the proponents of the fiction theory. In modern times, this doctrine was used in regards to ecclesiastic bodies – it was propounded that these religious institutions could not be liable for any tort committed as they neither have a body nor a will. Salmond reiterated that a person is anyone who has rights and duties – irrespective of whether he was a natural person or a juridical person. A corporation according to him is incorporated only by an Act of the Parliament and it can only be dissolved when another Act is passed. Even if all the members leave the corporation, it still continues to exist as it is a fictitious creature of law. According to Savigny, the right of all corporations does not exist in the individual members or the members taken collectively. Thus, even if there is a change in an individual member or, in rare cases, change in all the members, this does not affect the existence of a corporation.

This theory stipulates that the only reason that Corporations have rights and duties is because the Law recognizes and approves of them. Thus the corporate personality is present with a body corporate only because the power is given to it by the law. Without this fictitious recognition, there is no existence of a separate corporate personality. In Salomon v Salomon & Co. Ltd[3], it was held that there is a separation from the legal entity (Corporation) and its members. In Lee v. Lee’s Air Farming Ltd[4], the Judgment was given in basis on this theory and accentuated the importance of corporate personality.


This theory is often confused with the fiction theory as they share the major fundamental notions. This theory concentrates on the role of the sovereign state in the doctrine of corporate personality. According to this theory, an association of persons is created by the State as it is the latter that gives it recognition as a juristic person. The proponents of the concession theory adherently believe that legality personality is the creation of the law: only the State can recognise and grant concession to the Corporation.

According to this theory, the only independent existences are that of the sovereign and the individual – the State and human beings are considered to be in the same level. Corporations are thus merely a concession of the State and these concessions can be removed anytime by the State. Most proponents of the fiction theory like Savigny and Salmond also support the concession theory. According to English jurist Pollock, in England it was the concession theory that was used rather than the fiction theory. The discretion of the State is obligatory in two crucial moments of a body corporate – firstly when a company is being set up, it needs the recognition of the State. On the other hand, if it does not adhere to the rules and recognitions set forth by the State, the latter has the power to withdraw this recognition. This theory is often criticized because of the emphasis and the seemingly limitless power of the State in regards to setting up and recognizing a corporation. There are fears that if this doctrine is followed without any checks, it may lead to arbitrary restrictions placed on companies.


The realist theory was propounded by Gierke and was also supported by Pollock, Maitland and Dicey. It propagates the view that every corporation or any other association of individuals doesn’t need the specific recognition of the State. Even without the State concession, these bodies have a real mind, a real will and real power of action.[5] Corporate personality is not a fiction of law and the will and the wants of the Corporation are carried out by the employees, directors and agents.

This theory further proposes that the law doesn’t create any corporation – it merely gives recognition to it. A corporation is referred as a social organism while a human is regarded as a physical organism.

The modern realist theory draws a parallel between human personality and corporate personality. When a group of persons gather and take a decision collectively, the conclusion they take reflects the collective will of its members. The corporation is treated as a legal person as it is deemed to have an independent will that is different from the individual will of its members. The existence of a corporation is actually in fact and not based on any fiction unlike the other theories. This theory is contrary to all other theories regarding corporate personality.


Brinz, a well-known German jurist, was the principal proponent of this thesis, which was subsequently refined in England by Barker[6]. The main goal of this approach, as the name implies, is to treat companies as if they were people for certain purposes. This view firmly argues that only human beings may be persons and are entitled to rights, whereas entities other than humans are to be treated as artificial persons who can only serve as a legal device for protecting or carrying out a true purpose. According to the purpose theory, the legal person is built around an object and a purpose rather than a person. In terms of legal recognition, only those groups with a legitimate objective should be afforded such protection.


It was created by Ihering and was later developed by Marquis de Vareilles Sommieres. This theory is similar to the fiction theory: it states that only individuals have rights and liabilities and corporations are formed to simplify complex legal relationships. It is not usually practical or easy to refer to all of a corporation’s numerous members. A name is given to them and a bracket is placed around them. The corporation is represented by that bracket. Only the members of the corporation are real people, hence a bracket is placed around them to signify that when they establish a corporation, they should be recognised as a single unit. This theory is closely associated with the doctrine of ‘piercing of corporate veil’. However, this doctrine should only be used in exceptional circumstances and not in an arbitrary manner.



[2] F.W.MAITLAND (in the introduction to his translation of) GIERKE’S POLITICAL THEORIES OF THE MIDDLE AGE (1st ed. 1988)

[3] Salomon v Salomon & Co. Ltd (1897) AC 22

[4] Lee v Lee’s Air Farming Ltd (1961) AC 12

[5] F.W.MAITLAND (in the introduction to his translation of) GIERKE’S POLITICAL THEORIES OF THE MIDDLE AGE (1st ed. 1988)

[6] BARKER, (Gierk’s Translation) NATURAL LAW & THEORY OF SOCIETY, 22

Author: Aditi Shanmugam,
Chettinad School of Law, 2nd year/ Student

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