INTRODUCTION:

The decision of House of Lords in Salomon v A Salomon & Co. Ltd had a
lasting influence on incorporation law. It is often credited with the principle of
the separate legal entity of the corporation distinct from the members.
Though there is no doubt that the Salomon case had a play a significant role in
company law, the decision, in this case, was hardly the origin of the separate
legal entity principle. The legal entity of beings other then the human has long
been recognized prior to 1897, in which the Salomon the case was decided.
The jurisprudence theories on juristic person had been established since the
early Roman law to justify the existence of a legal person other than the human.
The State, religious bodies and education institutions had long been recognized
as having legal entity distinct from the members.
The acceptance of the corporate personality of a company basically means that
another non-human entity is recognized to assume a legal entity. This can be
seen from the many theories of jurisprudence on corporate personality. Majority
of the principal jurisprudence theories on corporate personality contended that
the legal entity of the corporation is artificial. The fiction, concession, symbolist
and purpose theories supported the contention that the existence of the
corporation as a legal person is not real. It only exists because the law of the
state-recognized it as a legal person and it is recognized either for certain
purpose or objectives. The fiction theory, for example, clearly stated that the
existence of the corporation as a legal person is purely fiction and that the rights
attached to it totally depend on how much the law imputes upon it by fiction.
THE COMMON-LAW PERSPECTIVES:
Generally, there are two types of a person which the law recognized, namely the
natural and artificial person. The former is confined merely for human beings
while the latter is generally referred to any being other than human being which
the law recognized as having duties and rights. One of the most recognized
artificial persons is the corporation.
Legal scholars, particularly the jurists, have always explored the issue on the
recognition of the corporation as a legal person. In the study of jurisprudence,
the separate legal personality of the corporation is based upon theories, which
are concentrated upon the philosophical explanation of the existence of
personality in beings other than human individuals.
W. Friedman stated that: “All law exists for the sake of liberty inherent in each
individual; therefore the original concept of personality must coincide with the
idea of man.”
Even though there are many theories which attempted to explain the nature of
corporate personality, none of them is said to be dominant. It is claimed that
while each theory contains elements of truth, none can by itself sufficiently
interpret the phenomenon of the juristic person. Nonetheless, there are five
principal theories, which are used to explain corporate personality, namely, the
fiction theory, realist theory, the purpose theory, the bracket theory and the
concession theory.
THE FICTION THEORY:
The fiction theory of corporation is said to be promulgated by Pope Innocent IV
(1243-1254). This theory is supported by many famous jurists, particularly,
Savigny and Salmond. According to this theory, the legal personality of
entities other than human beings is the result of fiction. Hence, not being a
human being, a corporation cannot be a real person and cannot have any
personality on its own. Originally, the outward form that corporate bodies are
fictitious personality was directed at ecclesiastic bodies. The doctrine was used
to explain that the ecclesiastic colleges or universities could not be
excommunicated or be guilty of a delict as they have neither a body nor a
will. The famous case of Salomon v A Salomon Co Ltd is a proof of the English
court adoption of the fiction theory. In this case, Lord Halsbury stated that the
important question to decide was whether in truth an artificial creation of the
legislature had been validly constituted. It was held that as the company had
fulfilled requirements of the Companies Act, the company becomes a person at
law, independent and distinct from its members.
Salmond made it clear that a human being is the only natural person while legal
persons govern any subject matter other than a human being to which the law
attributes personality. States, corporations and institutions cannot have the
rights of a person but they are treated as if they are persons. Under this theory,
rights and duties attached to the corporation as an artificial person totally
depend on how much the law imputes to it by fiction.
The personality the corporation enjoys is not inherent in it but as conceded by
the state. Due to the close connection made in this theory as regards to the
relation of legal personality and the power of the state, fiction theory was
claimed to be similar to the theory of sovereignty of the state which is also
known as the concession theory.
THE CONCESSION THEORY:
The concession theory is basically linked with the philosophy of the sovereign
national state. It is said to be essentially a product of the rise of the national
state at a time when there were rivals between religious congregations and
organizations of feudal origin for the claim of the national state to complete
sovereignty. Under the concession theory, the state is considered to be in the
same level as the human being and as such, it can confer on or withdraw legal
personality from other groups and associations within its jurisdictions as an
attribute of its sovereignty. Hence, a juristic person is merely a concession or
creation of the state.
Concession theory is often regarded as the offspring of the fiction theory as it
has a similar claim that the corporations within the state has no legal personality
except as it is conceded by the state. Exponents of the fiction theory, for
example, Savigny, Dicey and Salmond are found to support this theory.
Nonetheless, it is that while the fiction theory is ultimately a philosophical
theory that a corporation is merely a name and a thing of the intellect, the
concession theory is indifferent as regards to the question of the reality of a
corporation in that it focuses on the sources of which the legal power is derived.
Dicey took the view that sovereignty is merely a legal conception which
indicates the law-making power unrestricted by any legal limits.
THE PURPOSE THEORY:
This theory is also known as the theory of Zweckvermogen. Similar to the
fiction and concession theories, it declares that only human beings can be a
person and have rights. Entities other human is regarded as an artificial person
and merely function as a legal device for protecting or giving effect to some real
purpose. As corporations are not human, they can merely be regarded as a
juristic or artificial person. Under this theory, a juristic person is no person at all
but merely as a “subjectless” property destined for a particular purpose and that
there is ownership but no owner. The juristic person is not constructed around a
group of person but based on the object and purpose. The property of the juristic
person does not belong to anybody but it may be dedicated and legally bound by
certain objects. This theory rationalized the existence of many charitable
corporations or organizations, such as trade unions, which have been recognized
as legal persons for certain purposes and have continuing fund. It is also closely
linked with the legal system which regards the institution of public law (Anstalt)
and the endowment of private law (Stiftung) as legal personalities.
THE BRACKET or SYMBOLIST THEORY:
This theory is also known as the “bracket” theory. It was set up by Ihering and
later developed particularly by Marquis de Vareilles-Sommiéres. Basically, this
theory is similar to the fiction theory in that it recognizes that only human
beings have interests and rights of a legal person. According to Ihering, the
conception of corporate personality is essential and merely an economic device
by which simplify the task of coordinating legal relations. Hence, when it is
necessary, it is emphasized that the law should look behind the entity to
discover the real state of affairs. This is clearly in line with the principle of
lifting the corporate veil. Under this theory, rights are not inherent attributes of
the human will and that an individual is not a subject of right by reason that he
possesses a will. On the contrary, the will is at the service of law and it is the
interest of man which the law protects.
The symbolist theory is often acknowledged for its availability to justify
corporate personality from non-legal facts but it has been repeatedly rejected by
the courts in common law jurisdictions because it denies the law by deducing
that the only legal relation which is fixed and certain can be discovered by
removing the ‘brackets’ of the corporation and analyzing the relations of the
human beings involved.
THE REALIST THEORY:
The founder of this theory was a German jurist, Johannes Althusius while its
most prominent advocate is Otto von Gierke, who not only responsible for the
scholarly wisdom of his writings but also as the challenger to the entire basis of
Roman jurisprudence.
According to this theory, a legal person is a real personality in an extra juridical
and pre-juridical sense of the word. It also assumes that the subjects of rights
need not belong merely to human beings but to every being which possesses a
will and life of its own. As such, being a juristic person and as ‘alive’ as the
human being, a corporation is also subjected to rights.
Under the realist theory, a corporation exists as an objectively real entity and the
law merely recognizes and gives effect to its existence. The realist jurist also
contended that the law has no power to create an entity but merely having the
right to recognize or not to recognize an entity.
A corporation from the realist perspective is a social organism while a human is
regarded as a physical organism. The realists contended that action of the
corporation is deemed to be carried out on its own, similar to the way of the
normal person and not by its agents or representatives like those of the
incapable, such as the infant and insane. While human uses his bodily organ to
do an act, the corporation uses men for that purpose. Some of the realist theory
followers even claimed that similar to the human being, the juristic person also
has organs.
This theory is found to be favoured more by sociologists rather than by lawyers.
While discussing the realism of the corporate personality, most of the realist
jurist claimed that the fiction theory failed to identify the relation of law with
the society in general. The main defect of the fiction theory according to the
realist jurist is the ignorance of sociological facts that evolved around the law-
making process. Hence, by ignoring the ‘real capacity and functions’ of the
corporation in the real world, the fiction jurists had failed to see the ‘live’
possessed by a corporation. The realist contended that by rejecting the fiction
theory, one would succeed to reject an abstract conception and untrue account
of the reality with which the practical lawyer has to deal.
According to the realist jurist, lawyers have to acquire the habit to depart from
the plain meaning of law and go behind the scenes of the legal platform for the
realization and justice which law is supposed to introduce to life.
CONCLUSION:
From the discussion on jurisprudence theories of corporate personality, it is
observed that main arguments lie between the fiction and realist theories. The
fiction theory claimed that the entity of corporation as a legal person is merely
fictitious and only exist with the intendment of the law. On the other hand, from
the realist point of view, the entity of the corporation as a legal person is not
artificial or fictitious but real and natural. The realist also contended that the law
merely has the power to recognize a legal entity or refuse to recognize it but the
law has no power to create an entity.
Referring to the English company law case law, it can be seen that in most
cases, the court adopted the fiction theory. Salomon v A Salomon Co Ltd is the
most obvious example. It is also observed that fiction theory provide the most
acceptable reasoning in justifying the circumstances whereby the court lifted the
corporate veil of the corporation. If the entity of the corporation is real, then the
court would not have the right to decide the circumstances where there is a
separate legal entity of the corporation should be set aside. No human being has
the right to decide circumstances whereby the entity of another human being
should be set aside. Only law has such a privilege. Nonetheless, the realist
contention that the corporation obtains its entity as a legal person not because
the law granted it to them but because it is generated through its day to day
transaction which is later accepted and recognized by law also seem acceptable.