“A Corporation is an artificial being, invisible intangible and existing only in contemplation of law. It has neither a mind nor a body of its own. ’’Explain and illustrate.
Introduction:
A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence. Legally, corporation are typically regarded as independent from those who work in them, manage them, invest in them, or receive products or services from them and separate legal entities in their own right. A corporation, being a creature of law, “owes its life to the state, its birth being purely dependent on its will,” it is “a creature without any existence until it has received the imprimatur of the state acting according to law.” It will have no rights and privileges of a higher priority than that of its creator and cannot legitimately refuse to yield obedience to acts of its state organs. A corporation is an artificial legal entity, typically chartered by a state and formed in order to operate a business. 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. Corporate statutes typically empower corporations to own property, sign binding contracts, and pay taxes in a capacity separate from that of its shareholders.
A Corporation:
The word “corporation” derives from corpus, the Latin word for body, or a “body of people.”. A fictitious legal entity/person which has rights and duties independent of the rights and duties of real persons and which is legally authorized to act in its own name through duly appointed agents. It is owned by shareholders.
Corporations can exercise human rights against real individuals and the state.[1] They can themselves be responsible for human rights violations.[2] 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,[3]but it most often results in a restructuring of corporate holdings. Corporations can even be convicted of criminal offences, such as fraud and manslaughter.
A corporation has four (4) attributes:
(1) It is an artificial being;
(2) Created by operation of law;
(3) With right of succession;
(4) Has the powers, attributes, and properties as expressly authorized by law or incident to its existence.
To differentiate it from a partnership, a corporation should be defined as a legal and contractual mechanism for creating and operating a business for profit, using capital from investors that will be managed on their behalf by directors and officers. To lawyers, however, the classic definition is Chief Justice John Marshall’s 1819 remark that –
“A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law.”Corporations are easier to create than to understand. Because corporations arose as an alternative to partnerships, they can best be understood by comparing these competing organizational structures.
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.
The Roles within a Corporate Entity-Every legal corporate entity consists of three main parties: officers, directors, and shareholders. The officers are responsible for watching over a company’s operations. For example, the Treasurer oversees the finances, the Secretary is responsible for keeping records of the business, and the President provides strategic direction for the company.
“A corporation is described to be a person in a political capacity created by the law, to endure in perpetual succession.” As the law of corporations was articulated by the Supreme Court under Chief Justice Marshall, over the first several decades of the new American state, emphasis fell, in a way which seems natural to us today, upon commercial corporations. Nonetheless, Wilson believed that, in all cases, corporations “should be erected with caution, and inspected with care.” The actions of corporations were clearly circumscribed: “To every corporation a name must be assigned; and by that name alone it can perform legal acts.”
Nowadays, corporations in most jurisdictions have a distinct name that does not need to make reference to their membership. In most countries, corporate names include a term or an abbreviation that denotes the corporate status of the entity (e.g. “Incorporated” or “Inc.” in the United States) or the limited liability of its members (e.g. “Limited” or “Ltd.”). These terms vary by jurisdiction and language.
Characteristics of corporations :
Nature of a corporation -A corporation is an artificial being, invisible, intangible, and existing only in contemplation of the law. Characteristics of corporation are-
- Corporation may buy, own and sell or give away property in its own name like people
can. - Owners of a corporation are called stockholders or shareholders because they own shares
or stocks of a corporation. - Stockholders have limited liability.
Legally, corporations are typically regarded as independent from those who work in them, manage them, invest in them, or receive products or services from them. Although corporate law varies in different jurisdictions, there are some common characteristics of the business corporation.[4]
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). 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. 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.
Steps in the formation of a corporation
– Mutual Agreement to perform certain acts required for organizing a corporation
1- Organize and establish a corporation
2- Comply with requirements of corporation code
3- Contribute capital/resources
4- Mode of use of capital/resource and control/management of capital/resource
5- distribution/disposition of capital/resource.
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.
Types:
Most corporations are registered with the local jurisdiction as either a stock corporation or a non-stock corporation. Stock corporations sell stock to generate capital.
- A stock corporation is generally a for-profit corporation.
- A non-stock corporation does not have stockholders, but may have members who have voting rights in the corporation.
Jurisdictions separate corporations into for-profit and non-profit, as opposed to dividing into stock and non-stock.
- Public corporations – corporations whose shares are sold to the public
- Private (non public) corporations – corporations whose shares are owned by a small
group of investors.
Several states also allow a variation of the corporation for use by professionals In some states, such as Georgia, these corporations are known as “professional corporations”.
Corporations are divided into public and private:
Public corporations, which are also called political and sometimes municipal corporations, are those which have for their object the government of a portion of the state and although in such case it involves some private interests, yet, as it is endowed with a portion of political power, the term public has been deemed appropriate. Another class of public corporations are those which are founded for public, not for political or municipal purposes, and the whole interest in which belongs to the government. The Bank of Philadelphia for example, if the whole stock belonged exclusively to the government, would be a public corporation; but inasmuch as there are other owners of the stock, it is a private corporation
Private Corporations, in the popular meaning of the term nearly every corporation is public, inasmuch as they are created for the public benefit; but if the whole interest does not belong to the government, or if the corporation is not created for the administration of political or municipal power, the corporation is private. A bank, for instance, may be created by the government for its own uses; but if the stock is owned by private persons it is a private corporation, although it is created by the government and its operations partake of a private nature.[5]
A corporation is considered an artificial person under the law:
Being a separate “entity” (like an “artificial person”) is the hallmark of the corporate form. Being an “entity” means that the corporation is not tied to any one person or group of people but exists separately from its officers, directors, and shareholders as a distinct form.
The several advantages of a corporate form may help us to map out why the corporate form is considered a separate entity or an “artificial person” under the law:
- Limited Liability: The Corporation is treated as a separate entity under the law in part because it can incur its own debts and liabilities. For example, people could sue Wal-Mart itself (the corporation), and not the individual officers of Wal-Mart. Wal-Mart the corporation would be responsible for any judgments. The limited liability aspect of the corporate form is actually very important because it encourages the board of directors to make candid and risky business judgments, and it encourages shareholders to invest in the corporation. This ensures involvement, innovation, and good business strategies among people who might otherwise be scared away by lawsuits.
- Continuity: Because the corporate form is a separate entity, it can survive its founders, its shareholders, and its board of directors, and is not tied to the life of any one person. This creates continuity for investors and employees and allows the business to keep going, uninterrupted and without fear of liquidation. This is not so with other business forms such as a partnership.
- Limited Rights as a “Person:” Because of these two main facets of the corporate form, several rights that would consider being individual rights have been given to corporations. For example, corporations can own property and other assets, can buy, sell, or lease property, and have very broad commercial rights so that the corporation can conduct business independent of an individual person and maintain continuity. Because corporations can own assets, they can pay off their debts, thus, it’s also ties to limited liability. Corporations also have limited noncommercial rights.
Conclusion:
Corporation is typically regarded as ‘artificial person’ in the eyes of the law, i.e., they have certain rights and responsibilities in society, just as an individual citizen might. Actually corporate law is the law of corporations. Once chartered, the corporation is completely separate from its owners, has its own life, is liable for its own debts and must pay its own taxes. When a business incorporates, it becomes a legal entity that survives of its own accord. It is no longer a dependent branch of its owners. It is an association recognized by civil law and regarded in all ordinary transactions as an individual. It is an artificial person. Corporation itself usually owns all the assets association with it. Corporations can exercise human rights against real individuals and the state and they can themselves be responsible for human rights violations. In a general sense, a corporation is a business entity that is given many of the same legal rights as an actual person. Corporations exist as virtual or fictitious persons, granting a limited protection to the actual people involved in the business of the corporation.
BIBLIOGRAPHY
1. Kraakman, Reinier H.; et al. (2004). Anatomy of Corporate Law: A Comparative and Functional Approach. New York: Oxford University Press.
2. Lowry, John; Dignam, Alan (2006). Company Law. New York: Oxford UniversitPress.
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.
4. See, for example, the Business Corporations Act (B.C.) [SBC 2002] CHAPTER 57, Part 10
5. Corporate Manslaughter and Corporate Homicide Act 2007
6. RC Clark, Corporate Law (Aspen 1986) 2; See also, Hansmann et al., The Anatomy of Corporate Law (2004) Ch.1, p.2; C. A. Cooke, Corporation, Trust and Company: A Legal History, (1950).
7. Hansmann et al., the Anatomy of Corporate Law, pg 7.
8. Radhe Shyam Rungta, the Rise of the Business Corporation in India, 1851–1900, (1970)
9. R. Sobel, The Age of Giant Corporations (1984); J. Davis, Corporations (1905, repr.1986); W. Doran, The Business Corporation in the Democratic Society (1987); J. Bakan, The Corporation: the Pathological Pursuit of Profit and Power (2004).
10. South African Constitution Art.8, especially Art (4)
11. The Business Corporations Act (B.C.) [SBC 2002] CHAPTER 57, Part 10
12. Corporate Law (Aspen 1986) 2, RC Clark.
13. The Anatomy of Corporate Law (2004), Hansmann et al, Ch.1, p.2.
14. Corporation, Trust and Company: A Legal History, (1950), C. A. Cooke.
15.Cases and Materials on Company Law, Hicks, A. and Goo, S.H. (2008), Oxford University Press Chapter 4.
16. The Business Corporations Act (B.C.) [SBC 2002] CHAPTER 57, Part 10
17.Corporate Manslaughter and Corporate Homicide Act 2007
18. The Rise of the Business Corporation in India, 1851–1900, (1970), Radhe Shyam Rungta,
19. The Age of Giant Corporations (1984), R. Sobel.
20. Corporations (1905, repr.1986), J. Davis.
21. The Business Corporation in the Democratic Society (1987), W. Doran.
22. The Corporation: the Pathological Pursuit of Profit and Power (2004), J. Bakan
[1]South African Constitution Art.8, especially Art.(4)
[2] 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.
[3] the Business Corporations Act (B.C.) [SBC 2002] CHAPTER 57, Part 10
[4] RC Clark, Corporate Law (Aspen 1986) 2; See also, Hansmann et al., The Anatomy of Corporate Law (2004) Ch.1, p.2; C. A. Cooke, Corporation, Trust and Company: A Legal History, (1950).
[5] ‘Lactic Law Library’s Lexicon
CORPORATIO; LECTLAW.COm