A corporation is an artificial being, invisible, intangible and exiting only in contemplation of law. It has neither mind nor body of its own
Introduction:
A corporation is an institution that is granted a charter
CharterA charter is the grant of authority or rights, stating that the granter formally recognizes the prerogative of the recipient to exercise the rights specified…
recognizing it as a separate legal entitySeparate Legal EntityIn the United States a Separate Legal Entity or SLE refers to a type of legal entity with detached accountability. A business can be setup as a SLE to legally separate it from the individual or owner, such as a limited liability company or a corporation….
having its own privileges, and liabilities distinct from those of its members.[1] There are many different forms of corporations, most of which are used to conduct business. Corporations exist as a product of corporate lawCorporate lawCorporate law is the law of the most dominant kind of business enterprise in the modern world. Corporate law is the study of how shareholders, directors, employees, creditors, and other stakeholders such as consumers, the community and the environment interact with one another under the internal…
, and their rules balance the interests of the managementManagementManagement in all business areas and organizational activities are the acts of getting people together to accomplish desired goals and objectives efficiently and effectively. Management comprises planning, organizing, staffing, leading or directing, and controlling an organization or effort for…
who operate the corporation, creditorCreditorA creditor is a party that has a claim to the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption that the second party will return an equivalent property or…
s, shareholderShareholderA mutual shareholder or stockholder is an individual or company that legally owns one or more shares of stock in a joint stock company. A company’s shareholders collectively own that company and are the members of the company by signing the memorandum of association..
s, and employees who contribute their labor. In modern times, corporations have become an increasingly dominant part of economic life. Despite not being natural persons, corporations are recognized by the law to have rights and responsibilities like natural persons (“people”). Corporations can exercise human rights
Human rightsHuman rights are “rights and freedoms to which all humans are entitled”. Proponents of the concept usually assert that everyone is endowed with certain entitlements merely by reason of being human. Human rights are thus conceived in a universalist and egalitarian fashion…
against real individuals and the state[2], and they are often responsible for human rights violations[3]. Just as they are “born” into existence through its members obtaining a certificate of incorporationCertificate of incorporationA certificate of incorporation is a legal document relating to the formation of a company or corporation. It is a license to form a corporation issued by state government. Its precise meaning depends upon the legal system in which it is used, but the two primary meanings are:* In the U.S.A…
, they can “die” when they are “dissolved” either by statutory operation, order of court, or voluntary action on the part of shareholders. InsolvencyInsolvencyInsolvency means the inability to pay one’s debts as they fall due. Usually used to refer to a business, insolvency refers to the inability of a company to pay off its debts.Business insolvency is defined in two different ways:…
may result in a form of corporate ‘death’, when creditors force the liquidation and dissolution of the corporation under court order[4], but it most often results in a restructuring of corporate holdings. Corporations can even be convicted of criminal offences, such as fraudFraudIn the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent….
and manslaughter[5].
Corporation as legal entity:
Limited Liability Company is basically a corporation, a legal entity which its purpose is to gain profit. By understanding the meaning and consequence of legal entity, we can get the whole understanding about Limited Liability Company. Basically a legal entity is an entity which own rights and obligations to perform any act like a man who has their own property, to sue and to be sued before the court.[6] Corporation is a legal entity which has some substantive characters, which are:[7]
1. The Limited Liability
Basically the founders, share holders, or stake holders are not liable personally for the company loss or debt. If the legal entity is a limited liability company, the liability is only limited to the nominal amount of the owned share. They are not liable for further loss and debt.
2. Perpetual Succession
As an existing corporation for its own rights, the membership change does not affect of its status or existence. In the context of limited liability company, share holders can even transfer owned shares to third party. The transfer does not create any problem in the existence of the company. In a limited liability company which is in go public category and listed in stock market, there is even freedom to transfer the share.
3. Owns its own property
All the property is owned by the entity itself, not by the owner or share holder. This is an advantage of legal entity. Therefore, the property ownership is not based on member or shareholder.
4. Has Contractual Authority and Has Ability to Sue and to be Sued on its Name
Legal entity as legal subject is treated like a man who has contractual authority. The entity can enter into contractual relationship on its own name. As legal subject, the entity can sue and can be sued before the court.
5. Financial disclosure
In many jurisdictions, corporations whose shareholders benefit from limited liability are required to publish annual financial statements Financial statementsA financial statement is a formal record of the financial activities of a business, person, or other entity. In British English—including United Kingdom company law—a financial statement is often referred to as an account, although the term financial statement is also used, particularly by..
and other data, so that creditors who do business with the corporation are able to assess the creditworthiness of the corporation and cannot enforce claims against shareholders.[8] Shareholders therefore sacrifice some loss of privacy in return for limited liability. This requirement generally applies in Europe, but not in the United States, except for publicly traded corporations, where financial disclosure is required for investor protection.
Nindyo Pramono[9] stated that the philosophy of legal entity establishment is that by the death of the founder, the entity’s property is expected to be useful by other person. Thus, law creates “something” which is presumed and recognized as an independent subject like natural person by law. Then the “something” is called legal person in legal science.
In order to make the legal entity can interact in legal activity and do business activity, capital is needed. The capital is come from the separated founder’s property. The capital becomes the property of the legal entity, separated from founder’s property. Therefore, one of the main characteristic of limited liability company is the separation of property from the personal property of the founder.[10]
Manslaughter
Ownership and control:
Persons and other legal entities composed of persons (such as trusts and other corporations) can have the right to vote or receive dividends once declared by the board of directors. In the case of for-profit corporations, these voters hold shares of stock and are thus called shareholders or stockholders. When no stockholders exist, a corporation may exist as a non-stock corporation (in the United Kingdom, a “company limited by guarantee”) and instead of having stockholders, the corporation has members who have the right to vote on its operations. There are two broad classes of corporate governance forms in the world. In most of the world, control of the corporation is determined by a board of directors which is elected by the shareholders. In some jurisdictions, such as Germany, the control of the corporation is divided into two tiers with a supervisory board which elects a managing board. Germany is also unique in having a system known as co-determination in which half of the supervisory board consists of representatives of the employees. The CEO, president, treasurer, and other titled officers are usually chosen by the board to manage the affairs of the corporation.[11]
In addition to the limited influence of shareholders, corporations can be controlled (in part) by creditors such as banks. In return for lending money to the corporation, creditors can demand a controlling interest analogous to that of a member, including one or more seats on the board of directors. Upon the Board’s decision to dissolve a for-profit corporation, shareholders receive the leftovers, following creditors and others with interests in the corporation.[12] However shareholders receive the benefit of limited liability, so they are liable only for the amount they contributed.
Formation:
Historically, corporations were created by a charter granted by government. Today, corporations are usually registered with the state, province, or national government and regulated by the laws enacted by that government. Registration is the main prerequisite to the corporation’s assumption of limited liability. The law sometimes requires the corporation to designate its principal address, as well as a registered agent (a person or company designated to receive legal service of process).[13] It may also be required to designate an agent or other legal representative of the corporation.
Generally, a corporation files articles of incorporation with the government, laying out the general nature of the corporation, the amount of stock it is authorized to issue, and the names and addresses of directors.[14] Once the articles are approved, the corporation’s directors meet to create bylaws that govern the internal functions of the corporation, such as meeting procedures and officer positions.
The law of the jurisdiction in which a corporation operates will regulate most of its internal activities, as well as its finances. If a corporation operates outside its home state, it is often required to register with other governments as a foreign corporation, and is almost always subject to laws of its host state pertaining to employment, crimes, contracts, civil actions, and the like.[15]
Types of Corporation:
There are basically four types of limited company. They are-
- Private company limited by shares: The members’ liability, if the company is wound up, is limited to the amount, if any, unpaid on the shares they hold. The maximum number of members is 50. This is the standard limited company, the most common type of company structure operated by the majority of small to medium sizes business concerns and the company structure formed “as new” by company promoters when starting up in business.[16]
- Company limited by guarantee not having a share capital: As this is a public company, there must be a minimum of seven members. The members’ liability is limited to the amount they have undertaken to contribute to the assets of the company, in the event it is wound up, not exceeding the amount specified in the memorandum. If a guarantee company does not have a share capital, the members are not required to buy any shares in the company. This type of company is generally favored by charities, professional bodies,clubs, sporting associations etc. This company structure is the most suitable vehicle for such entities as the benefits of separate legal personality and of limited liability without the requirement of the members to raise funds is clearly defined.[17]
- Private company limited by guarantee having a share capital: As will be a private company if the maximum number of members is 50.[18] The members have liability under two headings; firstly, the amount, if any, that is unpaid on the shares they hold, and secondly, the amount they have undertaken to contribute to the assets of the company, in the event that it is wound up.
- Public limited company: The PLC as it is more commonly known. This type of company must have a minimum of seven members. Their liability is limited to the amount, if any, unpaid on shares held by them.[19] It should be noted that it is unlawful to issue any form of prospectus except in compliance with the Companies Act 1994 in Bangladesh.
Corporate Taxation:
In many countries corporate profits are taxed at a corporate tax rate, and dividends paid to shareholders are taxed at a separate rate. Such a system is sometimes referred to as “double taxation”, because any profits distributed to shareholders will eventually be taxed twice. One solution to this (as in the case of the Australian and UK tax systems) is for the recipient of the dividend to be entitled to a tax credit which addresses the fact that the profits represented by the dividend have already been taxed. In Bangladesh Public Ltd. Companies listed with the Stock Exchange have to pay at 27.5% tax rate according to Finance Act 2009 and Private Ltd. Companies will pay 37.5%.[20] Other corporate tax rate in Bangladesh is as follows-
Ø Bank, Insurance Companies & other Financial Institutions at 42.5%[21]
Ø Mobile Phone Operators Companies at 45%. But if any Mobile Company offers at least 10% of its shares in the Stock Market as IPOs, in that case, tax rate shall be @35% Dividend income shall be taxed @ 20% (for the corporate assesses).[22]
As per Finance Act. 2009, every company irrespective of shown Profit or Loss, shall pay a minimum tax of Tk.5,000/-.[23]
Conclusion:
The existence of a corporation requires a special legal framework and body of law that specifically grants the corporation legal personality, and typically views a corporation as a fictional person, a legal person, or a moral person (as opposed to a natural person). Corporate statutes typically empower corporations to own property, sign binding contracts, and pay taxes in a capacity separate from that of its shareholders (who are sometimes referred to as “members”). According to Lord Chancellor Haldane, “…a corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation.”[24] So from the above discussion it is very much clear that, “A corporation is an artificial being, invisible, intangible and exiting only in contemplation of law. It has neither mind nor body of its own.”
Bibliography:
1. Bangladesh Finance Act 2009.
2. A.B. DuBois, The English Business Company after the Bubble Act, , (1938)
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4. Bishop Hunt, The Development of the Business Corporation in England (1936)
5. Blumberg, Phillip I., The Multinational Challenge to Corporation Law: The Search for a New Corporate Personality, (1993)
6. Bromberg, Alan R. Crane and Bromberg on Partnership. 1968.
7. Bruce Brown, The History of the Corporation (2003)
8. C. A. Cooke, Corporation, Trust and Company: A Legal History, (1950)
9. Charles Freedman, Joint-stock Enterprise in France, : From Privileged Company to Modern Corporation (1979)
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12. Ernst Freund, MCMaster.ca, The Legal Nature of the Corporation (1897)
13. Edwin Merrick Dodd, American Business Corporations until 1860, With Special Reference to Massachusetts, (1954)
14. John Micklethwait and Adrian Wooldridge. The Company: a Short History of a Revolutionary Idea. New York: Modern Library. 2003.
15. Frederick Hallis, Corporate Personality: A Study in Jurisprudence (1930)
16. Hessen, Robert. In Defense of the Corporation. Hoover Institute. 1979. ISBN -X
17. John P. Davis, Corporations (1904)
18. John William Cadman, The Corporation in New Jersey: Business and Politics, , (1949)
19. Joseph S. Davis, Essays in the Earlier History of American Corporations (1917)
20. Klein and Coffee. Business Organization and Finance: Legal and Economic Principles. Foundation. 2002. ISBN -X
21. Radhe Shyam Rungta, The Rise of the Business Corporation in India, 1851–1900, (1970)
22. Ramesh Chandra Majumdar, Corporate Life in Ancient India, (1920)
23. Robert Charles Means, Underdevelopment and the Development of Law: Corporations and Corporation Law in Nineteenth-century Colombia, (1980)
24. Sobel, Robert. The Age of Giant Corporations: a Microeconomic History of American Business. (1984)
25. Thomas Owen, The Corporation under Russian Law, : A Study in Tsarist Economic Policy (1991)
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[1] Dictionary.Reference.com, (Accessed on 4th April, 2011)
[2] e.g. South African Constitution Art.8, especially Art.(4) , (Accessed on 4th April, 2011)
[3] Phillip I. Blumberg, The Multinational Challenge to Corporation Law: The Search for a New Corporate Personality, (1993) discusses the controversial nature of additional rights being granted to corporations, (Accessed on 4th April, 2011)
[4] See, for example, the Business Corporations Act (B.C.) [SBC 2002] CHAPTER 57, Part 10
[5] e.g. Corporate Manslaughter and Corporate Homicide Act 2007, (Accessed on 4th April, 2011)
[6] Chidir Ali, Badan Hukum, Alumni, Bandung, 1987, page 19. , (Accessed on 4th April, 2011)
[7] See David Kelly, et.al, Business Law, Cavendish Publishing Limited, London, 2002, page 343345. , (Accessed on 4th April, 2011)
[8] Hicks, A. and Goo, S.H. (2008) Cases and Materials on Company Law Oxford University Press Chapter 4, (Accessed on 4th April, 2011)
[9] Nindyo Pramono, “Kekayaan Negara Yang Dipisahkan Menurut UU No. 19 Tahun 2003
tentang BUMN”, in Sri Rejeki Hartono, et.al,ed, Permasalahan Seputar Hukum Bisnis: Persembahan
kepada Sang Maha Guru, Without Publisher, Jogjakarta, 2006, page 142. , (Accessed on 4th April, 2011)
[10] Ibid. , (Accessed on 4th April, 2011)
[11] Hansmann et al., The Anatomy of Corporate Law, pg 7. , (Accessed on 4th April, 2011)
[12] A leading case in common law is Salomon v. Salomon & Co. [1897] AC 22. , (Accessed on 4th April, 2011)
[13] Hock, Dee (2005). One from many. Berrett-Koehler Publishers. p. 140. ISBN 1576753323. “… they have become a superb instrument for the capitalization of gain and the socialization of cost.” , (Accessed on 4th April, 2011)
[14] Grosse, Robert E. (2004). The future of global financial services. Wiley-Blackwell. pp. 57–62. ISBN 1405117005. , (Accessed on 4th April, 2011)
[15] Graeme G. Acheson & John D. Turner, The Impact of Limited Liability on Ownership and Control: Irish Banking, 1877-1914, School of Management and Economics, Queen’s University of Belfast, available at, (Accessed on 4th April, 2011)
[16] “Australian Limited Companies”, (Accessed on 4th April, 2011)
[17] A Treatise on the Law of Corporations, Stewart Kyd (1793-1794) , (Accessed on 4th April, 2011)
[18] A Treatise on the Law of Corporations, Stewart Kyd (1793-1794) , (Accessed on 4th April, 2011)
[19] A Treatise on the Law of Corporations, Stewart Kyd (1793-1794) , (Accessed on 4th April, 2011)
[20] Bangladesh Finance act 2009
[21] A Treatise on the Law of Corporations, Stewart Kyd (1793-1794) , (Accessed on 4th April, 2011)
[22] A Treatise on the Law of Corporations, Stewart Kyd (1793-1794) , (Accessed on 4th April, 2011)
[23] A Treatise on the Law of Corporations, Stewart Kyd (1793-1794) , (Accessed on 4th April, 2011)
[24] Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705, (Accessed on 4th April, 2011)