Teamwork development in group dynamics

“A corporation is an artificial being, invisible, intangible and existing in contemplation of law. It has neither a mind nor a body of its own”-explain and illustrate


In the eye of law, everyone is under the province and scope of the statutory provisions.

Any one cannot get away the control of law of the territory. Even the legal personalities like the body corporate or corporations and companies are under the range of the law of the land. The corporations though, not being natural personalities, are also under the scope of the law of the land. They are also detained responsible for the offences and civil wrongs. But several times question arises as to the choice of law of the land under which the corporations are to be governed.

For that purpose, it has to be understood whether the law of the nation which is going to be applied, has the jurisdiction over the corporation and related matters. In other words, it has to be understood whether the corporation has domicile of the nation whose law is to be applied.

In general a corporation is a legal entity with the nature of the individualism. A corporation may accurately be called a company: maybe however, a company ought to not necessarily be called a corporation, which has distinct characteristics. According to Black’s Law Dictionary a company means a corporation- or, less commonly, an association, partnership or union-that carries on industrial enterprise.1

The defining feature of a corporation is its legal independence from the people who create it. If a corporation fails, its shareholder will lose the money and employee will lose the jobs. Shareholders, however owing a part piece of the company, are not liable for debt that remains owing to the corporation’s creditors. This rule is called limited liability and this why corporation end with “Ltd”.

“….only a juristic figment of the imagination, lacking both a body to be kicked and a soul to be dammed”2

But despite this, corporations are recognized by the law to have rights and responsibility like actual people.

1.       8 th edition (2004), ISBN 0-314-15199-0

2.       Northern Counties Securities Ltd. v. Jackson & Steeple Ltd. [1974] 1 WLR 1133; Walton J actually attributes the term to his counsel, Mr. Price, quoting Lord Haldane. But Lord Haldane never used such figurative words. They may trace back to Lord Chancellor Thurlow (1731–1806), who is said to have asked rhetorically, “did you ever expect a corporation to have a conscience, when it has no soul to be damned and no body to be kicked?” Though it seems his exact phrase was, “Corporations have neither bodies to be punished, nor souls to be condemned; they therefore do as they like.” John Poynder Literary Extracts (1844) vol. 1, p. 2 or 268

Corporation can exercise human rights against real individuals and state, 3 and they may be responsible for human rights violation.4

The four defining characteristics of the modern corporation are: 5

Separate Legal Personality of the corporation

Limited liability of the shareholders


Delegated Management, in other words, control of the company placed in the hands of a board of directors

Separate Legal Personality of the corporation:

The outstanding feature of a company is its independent corporate existence. A partnership has no existence apart from its members. It is nothing but a collection of the Partners.6 Corporation is a distinct legal persona existing independent of its member. By incorporation under the act, the company is vested with a corporate personality which is distinct from the members who compose it. One of the effect of incorporation is stated in section34 (2) of the act. Thus the company becomes a body corporate which is capable immediately of functioning as an incorporate individual. The enterprise acquires its own entity.7 It becomes impersonalized. No one can say that he is the owner of the company. The business now belongs to an institute.

“The benefits following from incorporation can hardly be exaggerated. It is because of incorporation that the owner of the business ceases to trade in his own person. The company carries on the business, the liabilities are the company’s liabilities and the former owner is under no liability for anything the company does, although, as principal shareholder, he is able to take full advantage of profits which the company makes.8

3.       For example, South African Constitution Art 8,especially Art(4)

4.       The Multinational Challenge to Corporation Law. Phillip I. Blumberg. The search for a New Corporate Personality has a very good discussion of the controversial nature of additional rights being granted to corporations.

5.       See RC Clark, Corporate Law (Aspen 1986) 2; H Hansmannatal, Anatomy of Corporate Law (2004) Ch: 1 set out similar criteria, and an addition state modern companies involve shareholder ownership. However this latter feature is not the case in most European jurisdiction, where employees participate in their companies.

6.       This basic difference between a company and a partnership has been explained by GHULAM HASAN J in Bacha F. Guzdar v CIT (1955),See also partnership act 1932 which says that collectively the partners are known as a partnership firm.

7.       Company Law.Avtar Singh, 14th edn, pg:4, Para no:1

8.       Palmer’s PRIVATE COMPANIES , PG:13 (42nd Edn,1961)

The following further passage from Palmer9 was cited by WADHWA J.10

The principal that, apart from exceptional cases, the company is a body corporate, distinct from members, lies at the root of many of the most perplexing questions that beset company law. It is a fundamental or cardinal distinction-a distinction which must be firmly grasped. This principle is thrown into clear relief by contrasting an incorporated company with a partnership, for under English law a firm or partnership is not a separate entity from its members.”

In English and Indian law, just like the law of other Common Law countries, it is permissible in a limited class of cases to ‘pierce the corporate veil’; when this is done, the person or entity who is found to be the alter ego of the corporation can be held liable for the liability of the corporate entity.

Limited liability of the shareholders:

“The privilege of limiting liability for business debts is one of the principal advantages of doing business under the corporate form of the organization”11The company being a separate person .is the owner of its own assets and bound by its liability. Members even as a whole are neither the owner of the company’s undertaking, nor liable for its debts. Where the subscribers exercise the choice of registering the company with limited liability, the members’ liability becomes limited or restricted to the nominal value of the shares taken by them or the amount guaranteed by them. No member is bound to contribute anything more than the nominal value of the shares held by him.12In a partnership; on the other hand, the liability of the partners for the debts of the business is unlimited. They are bound to meet, without any limit, all the business obligations of the firm. The whole fortune of partner is at stake, as the creditors can levy execution even on his private property. Speaking of the advantage of trading with limited liability, BUCKLEY J observed: 13

“The statutes relating to limited liability have probably done more than any legislation of the last fifty years to further the commercial prosperity of the country. They have, to the advantage of the investors as well as of the public,

9.       Palmer’s Company Law, pg:1523,para: 2,(25th Edn)

10.    In New Horizons Ltd v UOI, (1997) 89 Comp Case 785 at 802 Delhi overruled by the Supreme Court on the grounds in New Horizons Ltd v UOI, (1995) 1 SCC 478 1997)89 Comp Case 849 SC. Ref: Company Law, Avtar Singh, (Edn: 14),Pg:4; para:3

11.    Cadman, THE CORP[ORATION IN NEW JERSEY,327(1940)

12.    COMPANY LAW, Avatar Singh (14th edn),pg:7, para:2

13.    London & Globe Finance Corpn,Re,[1903] Ch:1,pg 728,731

allowed and encouraged aggregation of small sums into large capitals which have been employed in undertakings of great public utility largely increasing the wealth of the country. One of the primary and accepted motivations behind incorporating a company is to limit personal risks by obtaining the benefit of limited liability”


Stockholder’s equity in corporation is generally made up of large units of shares; within a given case of stock each share is exactly equal to every other share. Each owner’s interest is determined by the number of shares he or she possesses.14Each share of stock has certain rights and privileges that can be restricted only by special contract at the time the shares are issued. One must examine the articles of incorporation, stock certificates and the provision of the state law to ascertain such restriction on or variation from the standards rights and privileges. In the absence of restrictive provisions, each share carries the following rights: 15

1.      To share proportionately in profits and looses.

2.      To share proportionately in management

3.      To share proportionately in corporate assets upon liquidation

4.      To share proportionately in any new issues of stock of the same class- called the preemptive right.

The first three rights are to be expected in the ownership of any business. The last may be used in a corporation to protect each shareholder’s proportional interest in the enterprise. Without this there is another from named Transferable share. When joint stock companies were established the great object was that their shares could be capable of being easily transferred.16 According the Companies Act in Section 82 declares: “The shares or debentures or other interest of any number in a company shall be movable property, transferable in the manner provided by the article of the company”.

14.    “If a company has but one class of stock dividend into 1000 shares, a person owing 500 shares controls one half of the ownership interest of the corporation; one holding 10 share has a one-hundredth interest”.-Intermediate Accounting system (11 Edn); 2007-2008; Donald E. Kieso; pg:725;para:2

15.    Intermediate Accounting system (11 Edn); 2007-2008; Donald E. Kieso; pg:725;para 4

16.    Lord BLACKBURN in Bahia and San Francisco Rly Co, Re (1968)LR 3 QB 584: 18 LT 467

Thus incorporation enables a member to sell his shares in the open market and to get back his investment without having to withdraw the money from the company. This provides liquidity to the investor and stability to the company.17 In a partnership, on the other hand, a partner cannot transfer his share in the capital of the firm except with the unanimous consent of all the partners. If a transfer is made against the will of the partner, the transferee does not become a partner, although he has some rights in the dissolution of the firm.18

Delegated Management:

The corporate sector is capable of attracting the growing cadre of professional manager. The position that the director occupy in a corporate enterprise is not easy to explain.19They are professional men hired by the company to direct its affairs. Yet they are not the servants of the company. They are rather the officers of the company. “A director is not a servant of any master. He cannot be described as a servant of the company or of anyone.20 “A director is in fact a director or controller of the company’s affairs. He is not a servant.21A director may, however, work as an employee in a different capacity. For example, in Lee v Lee’s Air Framing Ltd.22

The companies act makes no effort to define their position. Sub-Section (13) of Section 2 only provides that” director includes any person occupying the position of a director, by whatever name called”. The Nigerian Act carries a better definition:”Directors of a company registered under this act23 are persons duly appointed by the company to direct and manage the business of the company”.24 Section 291 declare that “subject to the provisions of the act, the board of directors of a company shall be entitled to exercise all such powers and to do all such acts and things as the company is authorized to exercise and do”. 25


18 Sec: 29 of the Indian Partnership Act, 1932

19 Ram Chand & Sons Sugar Mills v Kanhayalal, AIR 1966 SC 1899: [1966] 2 Comp LJ 224

20 Moriarty v Regent’s Garage & Eng Co, [1921] 1 KB 423.Lush J at 431

21 MCCARDIE J at 446, ibid

22 1961 AC 12: [1960] 3 AII ER 420 PC

23 Companies and Allied Matters Act, 1990

24 In Imperial Hydropathic Hotel v Hampson, (1882) 23 Ch: D 1:49 LT 150 .See also A.J. Judah v Rampada Gupta, AIIR 1959 Cal 715

25 A director, therefore, cannot be deprived of his right by the other directors.Pulbrook v Richmond Consolidated Mining Co, (1878) 9 Ch D 610.

Directors are described sometimes as agents, sometimes as trustee and sometimes as managing partners. But each of this expression is used not as exhaustive of their powers and responsibilities, but as indicating useful points of view from which they may for the moment and for the particular purpose be considered.

Other factors must be considered in corporation. They are:

Ø      They (corporations) are not novelist. They are institution of very ancient date.26 But the large partnership from which the modern business company evolved appeared on the English scenes during the commercial revolution.

Ø      An incorporated company never dies. It is an entity of perpetual succession. In spite of total changes in membership, “the company will be the same entity, with the same privileges and immunities, estates and possessions.”27

Ø      A company, being a body corporate, can sue and be sued in its own name.

Ø      The company is the only medium of organizing business which is given the privilege of raising capital by public subscription either by way of share or by the debenture.


A corporation is an artificial being, invisible, intangible and existing only in contemplation of law.28 “It has neither a mind nor a body of its own”.29 A living person has a mind which can have knowledge or intention and he has hands to carry out his intention. A corporation has none of these; t must act through living persons.30This makes it necessary that the company’s business should be entrusted to some human agents.”Honest enterprise, by means of companies is allowed; but the public are protected against kiting and humbuggery”31 The nature of the corporation continues to evolve through existing corporations pushing new ideas and structures, courts responding, and governments regulating in response to new situations. In short it is an intricate, centralized, economic administrative structure run by professional’s managers who hire capital from the investor.

26 Marshal LJ in Bank of US v Dandrige, 12 Wheat (25 US 64, 92) Ref: Company Law (Edn:14) Avtar Singh

27 Canfield & Wormser, CASES ON PRIVATE CORPORATIONS, (2nd Edn) 1.Ch 1 on The Legal Conception of a


28 MARSHALL J in Trustees of Dartmouth College v Woodward, (1819) 17

29 HALDANE LC in Lennard’s Carrying Co v Asiatic petroleum Co, 1915 AC 705 at 713:[1914 -15]AII ER Rep 280

: 113 LT 195

30 Tesco Supermarkets Ltd v Nattras, [1977] AC 153 at 170, per Lord Reid



1) Avtar Singh, Company Law (Edn: 14) 2010; EBC Publishing (P) Ltd

2) Intermediate Accounting system (11 Edn); 2007-2008; Donald E. Kieso; Susan Elbe


4) Palmer’s Company Law, (25th Edn)

5) Palmer’s PRIVATE COMPANIES, (42nd Edn, 1961)

6) RC Clark, Corporate Law (Aspen 1986)

7) H Hansmannatal, Anatomy of Corporate Law (2004)

8) Gower, The Principal Of Modern Company Law, 78 (3rd Edn, 1969).

9) GHULAM HASAN J in Bacha F. Guzdar v CIT (1955),

10) Indian Partnership Act, 1932

11) Hahlo’s CASEBOOK ON COMPANY LAW, 42 [Edn: 2]: Hahlo and Trebilock publishing Comp