Arbitration Specialist In Bangladesh

A corporation is an artificial being, invisible, intangible and existing only in contemplation of law. It has neither a mind not a body of its own.

INTRODUCTION:

A corporation is a legal entity that is created under the laws of a State designed to establish the entity as a separate legal entity having its own privileges and liabilities distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. A corporation is a business entity that is given many of the same legal rights as an actual person. Corporations may be made up of a single person or a group of people, known as sole corporations or aggregate corporations, respectively. Early corporations were established by charter and many of these chartered companies still exist. Most jurisdictions now allow the creation of a new corporation through registration. Corporations exist strictly as a product of the corporate law.[1]

Lord Justice Lindley defines a corporation as follows:

“An association of many persons who contribute money or money’s worth to a common stock and employ it for a common purpose. The common stock so contributed is denoted in money and is the capital of the company. The persons who contribute it or to whom it belongs are the members. The proportion of capital to which each member is entitled is his share.”[2]

In the late 18th century, Stewart Kyd, the author of the first treatise on corporate law in English, defined a corporation as,

“A collection of many individuals united into one body, under a special denomination, having perpetual succession under an artificial form, and vested, by policy of the law, with the capacity of acting, in several respects, as an individual, particularly of taking and granting property, of contracting obligations, and of suing and being sued, of enjoying privileges and immunities in common, and of exercising a variety of political rights, more or less extensive, according to the design of its institution, or the powers conferred upon it, either at the time of its creation, or at any subsequent period of its existence.”

An important contemporary feature of a corporation is limited liability. Corporations exist as virtual or fictitious persons, granting a limited protection to the actual people involved in the business of the corporation. This limitation of liability is one of the many advantages to incorporation.[3] If a corporation fails, shareholders normally only stand to lose their investment and employees will lose their jobs, but neither will be further liable for debts that remain owing to the corporation’s creditors.[4]

Despite not being natural persons, corporations are recognized by the law to have rights and responsibilities like natural persons. Corporations can exercise human rights against real individuals and the state, and they can themselves be responsible for human rights violations. Corporations are conceptually immortal but they can “die” when they are “dissolved” either by statutory operation, order of court, or voluntary action on the part of shareholders. Insolvency may result in a form of corporate ‘death’, when creditors force the liquidation and dissolution of the corporation under court order but it most often results in a restructuring of corporate holdings. Corporations can even be convicted of criminal offenses, such as fraud and manslaughter.[5]

Although corporate law varies in different jurisdictions, there are four core characteristics of the business corporation:

The essential features of a corporation are as follows:

  • Registration
  • Voluntary Association
  • Legal personality
  • Contractual capacity
  • Management
  • Capital
  • Permanent existence
  • Registered Office
  • Common Seal
  • Limited Liability
  • Transferability
  • Statutory Obligations
  • Not a citizen
  • Residence
  • No fundamental rights
  • Social Objective
  • Centrally Administrated
  • “Lifting the veil” of the company[7]

CORPORATION  IS  AN  ARTIFICIAL BEING,  INVISIBLE,  INTANGIBLE  AND  EXISTING  ONLY  IN  CONTEMPLATION  OF  LAW:

So far we have described what a corporation is and the essential characteristics of a corporation. Now let us take a look at how a corporation is an artificial being, invisible, intangible and existing only in contemplation of law.

a. Inception of the Corporation through Laws:

The modern corporation did not suddenly spring into being as a device for overcoming the obstacles of previous forms of business enterprises. It has been slowly and painfully developing for centuries and in its present form is a composite of the ideas and the experience of many different races and generations of men.[8]

On one side, the business corporation is closely related to the municipal and religious corporation. The jurists of the early middle ages conceived – or rather adapted from Roman law – the idea of the church as a legal entity, distinct from any of its officers or ministers. It was clear that the endowments, for instance, which were given to bishops and abbots were not intended for their personal enjoyment or to be disposed of as they saw fit. It was desirable that the funds should be entrusted to an owner that would exist year after year and generation after generation, irrespective of human frailties or vicissitudes. Out of this need for permanence and for impersonality in holding religious property, grew the perfected idea of the church itself and of other religious and charitable organizations existing as separate entities or “corporations.” It was an easy step, when a similar need arose in business undertakings, to transfer this conception from religious organizations to business organizations.[9]

Corporate Law: 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”).[10]

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.”[11]

Corporation law dates far back into history, possibly beginning with the practice of granting royal charters to establish certain businesses. After several historical incidents where the actions of an industrial segment nearly ruined the economy of a country, monarchs and governments of old realized that the action of an independent business or industry can have a profound effect on the nation as a whole. The larger the business or industry, the more vital it became for law to be created for the safe management of corporations in order to protect the nation’s economy to some degree.[12]

Corporate Personhood: A rather significant legal fiction that is still in use today is corporate personhood. In the common law tradition, only a natural person could sue or be sued. This was not a problem in the era before the Industrial Revolution, when the typical business venture was either a sole proprietorship or partnership; the owners were simply liable for the debts of the business. A feature of the corporation, however, is that the owners or shareholders enjoy limited liability: they are not liable for the debts of the company. In early lawsuits for breach of contract, the corporate defendants argued that they could not be sued as they were not persons; if this argument were to be accepted, the plaintiffs would be without recourse, since by statute the shareholders were not liable for the debts of the corporation. To resolve the issue, courts created an elegant solution: a corporation is an artificial person, and could therefore sue and be sued, and thus held accountable for its debts.[13]

Piercing the Corporate Veil: It describes a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders or directors since a corporation has neither a mind nor a body of its own and is thus an artificial being. [14]

Formation of Corporation: 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). It may also be required to designate an agent or other legal representative of the corporation.[15]

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. 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.[16]

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.[17]

b. Corporations are Open to the Laws of the Constitution:

Constitutional Rights: A corporation has some constitutional rights which is a freedom granted by a government‘s constitution (on the national or sub-national level), and may not be legally denied by that government.[18] Corporations are entitled to protection under the Fourteenth Amendment to the U.S. Constitution.[19]

Although corporate law varies in different jurisdictions, there are four core characteristics of the business corporation:

Legal Personality: Legal personality (also artificial personality, juridical personality, and juristic personality) is the characteristic of a non-human entity regarded by law to have the status of a person. A legal person (also artificial person, juridical person, juristic person, and body corporate, also commonly called a vehicle) has a legal name and has rights, protections, privileges, responsibilities, and liabilities under law, just as natural persons (humans) do. The concept of a legal person is a fundamental legal fiction. It is pertinent to the philosophy of law, as is essential to laws affecting a corporation (corporations law) (the law of business associations).[21]

Legal personality allows one or more natural persons to act as a single entity (a composite person) for legal purposes. In many jurisdictions, legal personality allows such composite to be considered under law separately from its individual members or shareholders. They may sue and be sued, enter into contracts, incur debt, and have ownership over property. Entities with legal personality may also be subject to certain legal obligations, such as the payment of tax. An entity with legal personality may shield its shareholders from personal liability.[22]

Centralized Management under a Board Structure: A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Theoretically, the control of a company is divided between two bodies: the board of directors, and the shareholders in general meeting. In practice, the amount of power exercised by the board varies with the type of company. The legal responsibilities of boards and board members vary with the nature of the organization, and with the jurisdiction within which it operates.[23]

The judiciary has over a period defined the association of the directors with the corporation and its shareholders. As early as in 1866, that is about a century and half back, in Ferguson vs. Wilson, the Chancery Division held that a company though a legal entity, cannot act by itself. It can act only through its directors and as such the relation of a director with the company is that of principal and agent and therefore general principles of law of agency would govern the relationship between the company and the directors. The relationship was further defined in Forest of Dean Coal Mining company case by Chancery Division in 1878 that directors, having been entrusted with the affairs of the company, are trustees of the company and therefore they are in a fiduciary relationship with the company. This relationship would mean that the directors should always act in the interest of the principal that is the company and in discharge of their fiduciary responsibilities, they cannot benefit at the cost of the company.[24]

CONCLUSION:

This clearly explains that a corporation is an artificial being which exists only in contemplation of law. It has neither a mind nor a body of its own so it has to be guided and directed by the directors of the company.

BIBLIOGRAPHY

http://en.wikipedia.org/wiki/Corporation

Arun Kumar Sen, Jitendra Kumar Mitra .Commercial Law and Industrial Law

http://www.wisegeek.com/what-is-a-corporation.htm

http://en.wikipedia.org/wiki/Corporation

http://chestofbooks.com/finance/private/Business/Chapter-III-The-Corporation-Origin-Of-Corporations.html

http://en.wikipedia.org/wiki/Legal_fiction#Corporate_personhood

http://en.wikipedia.org/wiki/Piercing_the_corporate_veil

http://en.wikipedia.org/wiki/Corporation#Formation

http://en.wikipedia.org/wiki/Constitutional_right

http://en.wikipedia.org/wiki/Santa_Clara_County_v._Southern_Pacific_Railroad

http://en.wikipedia.org/wiki/Legal_person

http://en.wikipedia.org/wiki/Board_of_directors

[1] http://en.wikipedia.org/wiki/Corporation

[2] Arun Kumar Sen, Jitendra Kumar Mitra .Commercial Law and Industrial Law, pg-538, paragraph- 7

[3] http://www.wisegeek.com/what-is-a-corporation.htm

[4] http://en.wikipedia.org/wiki/Corporation

[5] http://en.wikipedia.org/wiki/Corporation

[6] http://en.wikipedia.org/wiki/Corporation

[7] Arun Kumar Sen, Jitendra Kumar Mitra .Commercial Law and Industrial Law, pg-540,541,542.

[8] http://chestofbooks.com/finance/private/Business/Chapter-III-The-Corporation-Origin-Of-Corporations.html

[9] http://chestofbooks.com/finance/private/Business/Chapter-III-The-Corporation-Origin-Of-Corporations.html

[10] http://en.wikipedia.org/wiki/Corporation

[11] http://en.wikipedia.org/wiki/Corporation

[12] http://www.wisegeek.com/what-is-corporation-law.htm

[13] http://en.wikipedia.org/wiki/Legal_fiction#Corporate_personhood

[14] http://en.wikipedia.org/wiki/Piercing_the_corporate_veil

[15] http://en.wikipedia.org/wiki/Corporation#Formation

[16] http://en.wikipedia.org/wiki/Corporation#Formation

[17] http://en.wikipedia.org/wiki/Corporation#Formation

[18] http://en.wikipedia.org/wiki/Constitutional_right

[19] http://en.wikipedia.org/wiki/Santa_Clara_County_v._Southern_Pacific_Railroad

[20] http://en.wikipedia.org/wiki/Corporation

[21] http://en.wikipedia.org/wiki/Legal_person

[22] http://en.wikipedia.org/wiki/Legal_person

[23] http://en.wikipedia.org/wiki/Board_of_directors

[24] http://en.wikipedia.org/wiki/Board_of_directors

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