A juristic or legal person is one to which law attributes legal personality. Generally, legal personality is granted by law to all human beings. Legal personality, being an artificial creation of the law, may be conferred on entities other than individual human beings.
Corporate personality refers to “the distinct status of a business organization that has complied with law for its recognition as a legal entity and having an independent legal existence from that of its officers, directors, and shareholders.” A company once incorporated is clothed in a legal personality and has almost the same rights and powers as a human being. Its existence is distinct and separate from that of its members. Members may change or die but the company continues to exist until it is wound up.
Features of Corporate Personality
• Distinct Personality: As provided by Section 37of CAMA, upon registration, a company becomes a body corporate by the name contained in its memorandum. It has an independent legal existence separate from its shareholders, directors and officers. As a separate legal person, a company will not be affected by changes such as death, transfer of shares or resignation of any members but will continue to exist regardless of the number of times changes of membership occur. Even if all the members die, it will not affect the privileges, immunities, assets and liabilities of a company.
• Legal Capacity: A company can enter can enter into contracts and transactions, even with its members, as a result of separate personality. It has the right to sue or be sued in its own name. A company has the right to protect its fair name. It can sue for such defamatory remarks against it as are likely to damage its business or property. However, a company must ensure that legal actions are instituted in its corporate name and not in the personal name of its officers.
• Proprietary Rights: This refers to the ability of a company to own both real and personal properties. A company can acquire, hold, dispose and transfer property in its own name. Incorporation helps the property of the company to be clearly distinguished from that of its members. The property is vested in the company as a body corporate, and no changes of individual membership affect the title.
• Perpetual Succession: A company has a life of its own as its existence is not tied to the life of its members. It does not come to end with the death of its individual members. In other words, a company has perpetual succession. Its existence is unending. The only way a company can ‘die’ legally is by winding up in accordance with the provisions of Companies and Allied Matters Act (CAMA). The perpetual existence of an incorporated company is well illustrated by the proverbial saying, “members may come and members may go, but the company can go on forever.”
• Limited Liability: One of the principal advantages of an incorporated company is the privilege of limited liability. It is the main feature of registered companies which provides a special attraction to investors. The principle of limited liability implies that the liability of a member in the event of the company’s winding up, in respect of the shares held by him is limited to the extent of the unpaid value on such shares. Thus the liability does not fluctuate but remains limited to the amount which, for the time being remains unpaid, whether from the original shareholder or the transferee of such shares as the case may be. The company cannot insist on further contribution nor can the members be liable to cover debts which the company incurred as a separate person.
• Transferability of shares: Section 115 of CAMA specifically provides that the shares or other interest of any member in a company shall be property transferable in the manner provided by the articles of association of the company. Thus a member of a public company can dispose of his share by selling them in the open market, and recoup the amount so invested. The transferability of shares has two main advantages, namely; it provides liquidity to investors and at the same time ensures stability of the company.
• Corporate Finances: The shares of an incorporated company being transferable can raise maximum capital in minimum possible time. That apart, an incorporated company has the privilege of raising its capital by way of private placement (for private companies) or public subscriptions either by way of shares or debentures (for public companies). Financial institutions willingly lend loan to companies as it is generally secured by floating charge which is an exclusive privilege of a registered company.
Lifting the Veil of Incorporation
A corporation is clothed with a distinct personality by fiction of law, yet in reality it is an association of persons who are in fact, in a way, the beneficial owners of the property of the body corporate. A company being an artificial person cannot act by itself; it can act only through natural persons.
The whole theory of incorporation is based on the theory of corporate entity but the separate personality of the company and its statutory privileges should be used for legitimate purposes only. Where the legal entity of the company is being used for fraudulent and dishonest purpose, the individuals concerned will not be allowed to take shelter behind corporate personality. Where such is the case, the veil of incorporation will be lifted to ascertain the true character and economic realities behind the legal personality of the company.
The term ‘lifting the corporate veil’ has been defined as “looking behind the company as a legal person, that is, disregarding the corporate entity and paying regard instead, to the realities behind the legal façade.” The advantages of incorporation are extended only to those wishing to make honest use of a company. In the case of dishonest and fraudulent use of the facility of incorporation, the law lifts the corporate veil and identifies the persons who are behind the scenes and responsible for the perpetration of fraud.
Grounds for Lifting Corporate Veil
There are several instances when the veil of incorporation will be lifted but for the purpose of this article, we shall be considering three.
• Less membership: If a company carries on business without having at least two members and does so for more than 6 months, every director or officer of the company shall be liable jointly and severally with the company for the debts of the company contracted during that period.
• Fraud: If any business of a company is carried on with the intent to defraud creditors of the company, the director or officer of the company shall be personally liable to such creditors.
• Evasion of Legal Obligations: The corporate veil will be lifted if its members used the veil as a way to avoid an existing legal obligation. For example, the directors or principals officers of a company will be held liable if they fail to remit the personal income tax deducted from employees’ salaries to Federal Inland Revenue Service.
In summary, a company is classified as a separate person from its member. It has perpetual succession, proprietary rights, debts, limited liability and may sue and be sued in its own name. However, incorporation does not cut off personal liability at all times and in all circumstances. Honest enterprise, by means of companies is allowed; but the interests of the public are protected against fraudulent business activities. The sanctity of a separate entity is upheld only in so far as the affairs of the entity are conducted in consonance with the underlying policies which gave it life.
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