Question: “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.
Answer:
1. Introduction:
The word corporation refers to any group of persons united or regarded as united in one body. Or a group of people authorized by law to act as a legal personality and having its own powers, duties and liabilities. The word corporation originated in 1530s when it meant ‘persons united in a body for some purpose’ in Anglo-Latin; in 1610s the word meant ‘legally authorized entity’.1A corporation is a separate 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.2
In the legal dictionary the Corporation is stated as an artificial being, invisible, intangible and existing only in contemplation of law. It has neither a mind nor a body of its own.
The bold terms here are expressing the characteristic of a corporation.
2. Definition and classification of Corporation
Wilson says “a corporation in an artificial entity created by statute law and endowed with many of the legal capacities of individuals, as the power to take, and convey property, make contracts, sue and be sued and the like”. 3
1dictionary reference.com
2Dictionary.reference.com
3. The elements of business law by Ernest Wilson, Huffcuff George & Gleason Bogert page 248.
The famous definition of Chief Justice Marshall in the Dartmouth College Case 2, was as follows:
“A corporation is an artificial being, invisible, intangible and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence. These are such as are supposed best calculated to effect the object for which it was created. Among the most important are immortality, and, if the expression may be allowed, individuality; properties by which a perpetual succession of many persons are considered as the same, and may act as a single individual. They enable a corporation to manage its own affairs, and to hold property without the perplexing intricacies, the hazardous and endless necessity, of perpetual conveyances for the purpose of transmitting it from hand to hand. It is chiefly for the purpose of clothing bodies of men, in succession, with these qualities, and capacities, that corporations were invented, and are in use. By these means, a perpetual succession of individuals is capable of acting for the promotion of the particular object, like one immortal being.”
There are few types of corporation. They are given below;
i) General corporation: this kind of corporation is also known as ‘C’ corporation. This is the most common corporate structure. This type of company may have an unlimited number of share holders. As a company is a separate entity, a stockholder’s personal liability is usually limited to the amount of investment in the corporation and no more. 4
4. Tax Savvy for Small Business By Frederick W. Daily, Frederick Daily .p.125
Contemporary Business By Louis E. Boone, David L. Kurtz ,Business Law By Robert W. Emerson p.348
ii) Close corporation: A close corporation limits stockholders to a maximum of 30. Many close corporation statutes require that the directors of a close corporation must first offer the shares to existing stockholders before selling to new stockholders. Not all states recognize close corporations. There are few significant differences between general and close corporations . 5
iii) Subchapter S Corporation: this is a general corporation that has elected a special tax status with the IRS after the corporation has been formed. When a general corporation makes a profit, it pays a federal corporate income tax on the profit. If the company also declares a dividend, the stockholders must report the dividend as personal income and pay more taxes. 6
S Corporations avoid this “double taxation” (once at the corporate level and again at the personal level) because all income or loss is reported only once on the personal tax returns of the stockholders.
iv) Limited Liability Company: limited liability company is not a corporation, but it offers many of the same advantages. Many small business owners and entrepreneurs prefer LLC because they combine the limited liability protection of a corporation with the “pass through” taxation of a sole proprietorship or partner ship. 7
5. Tax Savvy for Small Business By Frederick W. Daily, Frederick Daily .p.125
Contemporary Business By Louis E. Boone, David L. Kurtz ,Business Law By Robert W. Emerson p.348
6. Tax Savvy for Small Business By Frederick W. Daily, Frederick Daily .p.125
Contemporary Business By Louis E. Boone, David L. Kurtz ,Business Law By Robert W. Emerson p.348
7. Tax Savvy for Small Business By Frederick W. Daily, Frederick Daily .p.125 Contemporary Business By Louis E. Boone, David L. Kurtz ,Business Law By Robert W. Emerson p.348
3. Analysis of the characteristics:
a) Artificial being: Bengali: ??????? (kritrim). Artificial means something that is created by man not occurred naturally, lacking naturalness or spontaneity. A corporation is said to be a artificial being because it is a man made thing and is not created naturally. The owners or the employees are natural being and grouped together for a common purpose. As a corporation is a separate legal entity the people are associated with a corporation not a part of it. 8
b) Invisible: Invisibility is the state of an object that can not be seen. Literally something is in not visible state is called invisible. Though they can not be seen the effects made by them is seen or realized in the world. A corporation is not the capital assets that can be seen, or the owners it is a separate entity. The assets, property or workers are visible but not the corporation itself because it is a separate legal entity. 9
8. Wikipedia.com. Dictionary.reference.com
9. Eugene A. Craig and M. Lichtenstein, “Visibility-Invisibility Cycles as a Function of Stimulus-Orientation,” The American Journal of Psychology, 66.4 (Oct., 1953):554-563.
c) Intangible: The word intangible refers to something that can not be quantified but can be realized. In economics intangibles are recognized but not measured within a given theory of economics. It has different uses in different fields. In arts, intangibles commonly refer to the artists unique embodiment of substance and form. In business, intangibles are commonly referred to as intangible assets or intellectual capital. In law, legally created intangibles are referred to as intellectual property. In financial analysis it refers to good will or perceived value.
In that case a corporation is said to be intangible because corporation can be realized can not be measured. Corporation can not be measured by how many office buildings it has or how many owners it has. As we know from the definition, corporation is separate legal entity so it is intangible. 10
d) Contemplation of law: It means a corporation is created through law or it needs some legal considerations. According to Miller “a corporation is an artificial creature that exists only in law. Its existence depends on the state law.” Again Jentz says “corporation is created by statute of law, either state law or federal law” 11
10.Dictionary.com
11.Business Law Today: The Essentials Gaylord A. Jentz , p 609
Fundamentals of Business Law: Summarized Cases By Roger LeRoy Miller, Gaylord A. Jentz, page 520
e) Neither has a body or a mind of its own: No invisible, intangible, artificial being can have a body or a mind. A corporation being an artificial being can not have a mind because it is operated by the people and operated in a certain location that is created by people. So it does not have a body or mind of its own. Lord Chancellor Haldane says;
…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.12 (Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd[1915] AC 705)
4. Legal considerations:
A corporation must go through some legal obligations. The corporation has to be registered lawfully. Then some steps must be taken. They are given below;
1. The memo and articles must be prepared
2. Has to fix up paid up capital and authorized capital
3. Industry license must be obtained
4. The certificate for the commencement of business must be obtained from the registrar.14
14.Business Structures: Forming a Corporation, LLC, Partnership, Or Sole proprietorship By Michael Spadaccini,p111)
Business Law By Robert W. Emerson.p.346
Incorporate Your Business: A Legal Guide to Forming a Corporation in Your StateBy Anthony Mancuso)
In Bangladesh the procedure is given below:
1.Verify online the uniqueness of the proposed company name with the Registrar of Joint Stock Companies and Firms
2.Pay adhesive stamp fees at a designated bank
3.File documents with the Registrar of Joint Stock Companies and Firms for registration
4.Make a company seal
5.Register with the tax authority
6.Register for VAT
7.Obtain a trade license
5. Justification:
A corporation is formed in law. It is an association of a group of people formed together for some purpose. There are some features of a corporation. They are:
a) Legal personality- made in contemplation of law
b) Permanent existence- artificial being
c) Management- neither has a body nor a mind
d) Not a citizen- invisible, artificial and intangible
e) Fundamental rights- separate entity.
So, here we can see that the claims are justified. 15
15. Business law CIMA
Handbook of Commercial law, A.K. Sen
6. Conclusion:
A corporation can be small or big. But the main characteristic will remain same in any place in the world. Depending on the size, category or location few things might vary but basic things will be same. A corporation is always that’s why invisible, separate from its owners, intangible and made via law. 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 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.
BIBLIOGRAPHY
1. Dictionary reference.com
2. Dictionary.reference.com
3. The elements of business law by Ernest Wilson,
4. Huffcuff George & Gleason Bogert
5. Tax Savvy for Small Business By Frederick W. Daily, Frederick Daily
6. Contemporary Business By Louis E. Boone, David L. Kurtz.
7. Business Law By Robert W. Emerson.
8. .Business Law Today: The Essentials Gaylord A. Jentz
9. Fundamentals of Business Law: Summarized Cases By Roger LeRoy Miller, Gaylord A. Jentz.
10. Wikipedia.com. Dictionary.reference.com
11. Eugene A. Craig and M. Lichtenstein, “Visibility-Invisibility Cycles as a Function of Stimulus-Orientation,” The American Journal of Psychology, .