We are all servants of the laws in order that we may be free.

“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.

1. Introduction

Corporation includes fast turn into the predominant business organization form in most other nations. It can be owned by a single person or can have hundreds, thousands or millions of shareholders. A creature of statue is the corporation which is an artificial being neither existing only in law and tangible nor visible. Under company law a corporation is referred to as a “legal entity”. One of the main reason for forming a corporation or company is the limited liability it offers its share holders. A share holder only loses what he or she has contributed as shares to the corporate entity by the doctrine (limited liability). Nevertheless there is a major exception in general concept of limited liability. In certain circumstances courts will have to look through the corporation, that is, lift the veil of incorporation, otherwise known as piercing the veil[1] of incorporation otherwise known as piercing the veil, and hold the shareholders of the company directly and personally liable for the obligations of the corporation.

The veil doctrine is invoked while shareholders blur the difference between the corporation and the shareholders. Although a separate legal entity, a company or corporation can only act through human agents that compose it. As a result, there are two main ways through which a company becomes liable in company or corporate law to wit : through direct liability (for direct infringement[2]) and through secondary liability (for acts of its human agents acting in the course of their employment). The doctrine of piercing the corporate veil varies from country to country.

There are two existing theories for the lifting of the corporate veil. The first is the “alter-ego” or other self theory[3], and the other is the “instrumentality” theory.

The alter-ego theory considers if there is in distinctive nature of the boundaries between the corporation and its shareholders.

The instrumentality theory on the other hand examines the use of a corporation by its owners in ways that benefit the owner rather than the corporation. It is up to the court to decide on which theory to apply or make a combination of the two doctrines.

Courts are generally reluctant to pierce the corporate veil, and this is only done when liability is imposed to reach an equitable result.

2. Meaning of Corporation in Company Law

In different legal systems, corporate law and company law indicate the same thing. In either circumstance, the word is used to position for the field of law relating to the formation and regulation of companies or corporations and other business organizations. The owners in such an entity are not held liable for the firm’s obligations in excess of the value of their investment therein.8 In fact, a company is equal in law to a natural person.

3. The Corporation as a Creature of Statue

The corporation is a creature of statue and its existence generally depends on state law, though some corporation’s especially public organizations can be created under federal law. All state has its own body of corporate law, these laws are not completely uniform. The Model Business Corporation Act is a codification of modern corporation law.

Neither the 1969 act nor the 1984 act has been totally adopted by any state in its current form. The 1969 act, however, has been influential in codification of corporation statutes in thirty-seven states[4] and the District of Columbia. However there is considerable variation among the statutes of the states that have used Model Act as a basis for their statutes. Individual State corporation laws should be relied upon rather than the MBCA. The revised model business corporation act (RMBCA) approved in 1984, was drafted convenient as a guide for revision of state business corporation acts. Which was designed for use by both publicly held and closely held corporations’ and includes provisions for the rights and duties of Share-holders, Management and Directors.

4. The nature of a corporation

A legal entity created and recognized by state law is a corporation and it can consist of one or more persons recognized under a common name. Most economic activity was conducted by soul-proprietorship and partnership, while corporation represents only about a quarter of the total number of business organizations and they generate about 90 percent of gross business receipts on the other hand sole proprietorship generate about 6 percent of gross receipts. Partnership consists of about a tenth of business organizations and makes less than 5 percent of gross receipts. These statistics suggest that the creation, governance, operation and termination of corporation are significant issues for business.

4.1 The corporation as Legal “person”

Under state and federal law as a “person” recognized as a corporation. Corporations are considered persons in most instances the bill of rights guarantees a “person”, as a citizen, certain protections for example: a corporation has the same right as a natural person to equal protection of the laws under the Fourteenth Amendment. It has the right of due process before denial of life, liberty or property as well as freedom from unreasonable search and seizure and from double jeopardy.

Under the first amendment, corporation are entitled to freedom of speech[5] just as individuals are. In addition to freedom of commercial speech corporations may express their political viewpoints on particular issues. Only the corporation’s individual officers and employees possess the Fifth Amendment right against self- incrimination[6]. In addition the privilege and immunities clause of the federal constitution (Article IV, Section 2) does not protect corporations, nor does it protect unincorporated associations[7]. This means a state may restrict a foreign corporation’s activities within that state. The criminal act of corporation has to do with an unsettled area of corporation law. Even though, under law it is a person, it is obvious that a corporation cannot be sent to prison. Most court holds a corporation that has violated the criminal statutes liable for fines. While criminal conduct can be recognized to corporate officers or agents those individuals, as natural persons are detained accountable and can imprisoned for their acts.

4.2 Characteristics of the Corporate Entity

Usually corporate characteristics are cited as main reasons for the success. A corporation is a legal entity and an artificial person with the rights and responsibility with its own corporate name. Corporations are legal entities split from their participants and owners. In view of the fact that there is no basis for the survival of artificial entities they must be created under authority approved by the state legislatures. The Corporation substitute itself intended for the shareholders in conducting corporate business and in incurring legal responsibility, yet it power to take action and liability for its actions are divide and separately from the individuals who own it. Responsibility for overall management of the corporation accountability entrusted to a board of directors, which is chosen by the shareholders[8]. Corporate officers and other employees are hired by the board of directors to run the daily business operations of the corporation. They answer board of directors rather than directly to the shareholders.

4.2.1 Shareholders

When a share of stock in corporation purchased by individual that person becomes a shareholder and an owner of the corporation. Distinct the members in a partnership, the body of shareholders can change frequently without affecting the continual survival of the corporation. A shareholder is not personally liable for the corporation’s business debt nor is the corporation responsible for a shareholder’s personal debts. Therefore a corporation is not exaggerated by the fatality of a shareholder, while the death of a partner dissolves a partnership. Shareholders are owners exclusive of direct power over the management of the corporation’s business. From beginning to end the election of the board of directors they can work out power over the corporate policy. Even though the fact that they are neither manager nor agents of the corporation. Each shareholders liability is limited to the amount of the investment (that is the money is actually paid when stock was acquired)[9]shareholders have certain rights during a corporation’s existence and are at independence to relative parts of corporate assets on the twisting up of business. A shareholder can sue the corporation and the corporation can sue a shareholder. Under certain circumstances a shareholder can sue on behalf of a corporation. A shareholders action, called a derivative suit[10] is based upon a primary right of corporation but asserted on its behalf by the stockholder because of the corporation’s failure, deliberate or otherwise to act upon the primary right. Limited liability of corporations and limited liability of partnerships was probably the primary structure necessary for the vast improvement in living standards in the industrial world later experienced during the 20th century.

Theory of firm, Economists theorize that large firms are actually just a “bundle of contracts”[11].

4.2.2 Board of directors

The board of controllers is cast a vote by shareholders and is occasionally to blame to them for reelection. A general direct in business regulation states, “Directors should direct the business enterprise affairs.” The board is to blame for producing conclusions about the general policy. Directors announced dividends, authorize foremost business agreements, assign or eliminate agents and set their wages topic authorized portions of supply suggested alterations in the business charter. The  board can coordinate itself in to boss managing assemblies and delegate to these managing assemblies specific responsibilities to proceed representing the whole board or to report back to it.

4.2.3 Officers and Other Employees

Officers are executive of the corporation any person who counter to the board of directors alternatively to the shareholders straight and they can be detached at any time by the board.

4.2.4 Tax Considerations

While business is a split lawful entity, company wages is duty paid by the state and central government governments. Corporations can perform one of two things with company yield retain them or go beyond them on to shareholders in the diagram of dividends disseminated to shareholders. As before long as dividends are wealth payments they are over taxable as common wages to the shareholder accepting them. This two times taxation aspect of the company governing body is one of its greatest disadvantages. on the other hand saved returns if speculated properly  will yield higher company yield in the future and hence source the charge of the company’s store to rise. Individual shareholders can then reap the gain of these saved returns in the advances they accept when they trade their allocations in the advances but they are still perform not avert taxation.

5. Conclusion

In conclusion, we can say that the nature of the corporation stays to deduce through existing corporations compressing novel models and constructions, courts replying, and governments regulating in reply to novel situations. A suspect of prolonged standing is that of diffused responsibility: for case, if the corporation is found liable for a death, afterward how ought the liability and retribution for this be allocated across the shareholders, directors, authorities and employees of the corporation, and the corporation itself. The prevailing law differs among jurisdictions[12], and is in a declare of flux. Some assert that the owners of the finance – the shareholders – ought be ultimately responsible for such circumstances, compelling them to examine distributes as an alternative profit after investing, but the modern corporation may have many millions of small shareholders any person who know none come seal its finance activities.

[1] Piercing the veil: Piercing the corporate veil describes a legal decision to treat the rights or duties of a corporation       as the rights or liabilities of its shareholders or directors.

[2] Direct infringement: Direct infringement is one of the three types of copyright infringement (the other two being contributory infringement and vicarious infringement). It occurs where someone exercises one of the exclusive rights granted by the Copyright Act without seeking the permission of the copyright owner.

[3] An alter ego (Latin, “the other I”) is a second self, a second personality or persona within a person, who is often oblivious to the persona’s actions. It was coined in the early nineteenth century when dissociative identity disorder was first described by psychologists. A person with an alter ego is said to lead a double life.

[4] Alaska, Alabama, Arizona, Colorado, Connecticut, Florida, Georgia, Idaho, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Montana, Nebraska, New jersey, New Mexico, New York, North Carolina, North Dakota, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming.

[5] Pacific Gas & Elec. Co. v. Public Utilities Commission of California, 475 U.S. 1,106 S. Ct. 903,89 L. Ed. 2d 1(1986).

[6] In re Grand Jury  No.86-3(Will Roberts Corp.), 816 F. 2d 569(11th Cir.1987).

[7] W.C.M Window Co .v. Bernard, 730F. 2d 486 (7th Cir.1984).

[8] MBCA Section 35, 36; RMBCA Sections 8.01, 8.03.

[9] Thus, if Paul Ginsberg purchases one hundred shares of Ace Manufacturing stock at $1per share and Ace Manufacturing goes bankrupt owing creditors millions of dollars, Ginsberg’s loss is limited to the $100 purchase price that he originally paid for the shares. The converse is also true. If Ginsberg declares bankruptcy and owes creditors thousands of dollars, Ace Manufacturing Company is not liable and the creditors can claim only the one hundred shares of stock. MBCA Section 25 and RMBCA Section 6.22.

[10] A shareholder derivative suit is a lawsuit brought by a shareholder on behalf of a corporation against a third party. Often, the third party is an insider of the corporation, such as an executive officer or director. Shareholder derivative suits are unique because under traditional corporate  law, management is responsible for bringing and defending the corporation against suit.

[11] Corporations have emerged as the predominant economic force because they have some cost advantages in bringing functions in house over individual entrepreneurs who must subcontract many details of production. See, Ronald H. Coase, The Nature of the Firm, 4 Economica 386(1937).

[12] ^ “jurisdiction – Definition from the Merriam-Webster Online Dictionary”. See also, e.g., “Metro’s $11 Billion To-Do List,” in The Washington Post: “Local jurisdictions are also facing shortfalls, and much will depend on the economy and political decisions at the local, state and federal levels”; “Teacher pension pinch,” in The Baltimore Sun: “Large, affluent jurisdictions have scores of high-salaried teachers with correspondingly higher pension costs.”