Corporate personality

Section 3(1) of the Companies Act, 1956 defines a company as: (i) a "company" means a company formed and registered under this Act or an existing company as defined in clause (ii).

Name of a company:

One of the important aspects of corporate personality is that the body incorporate has a name of its own that it uses for carrying on its business and day to day affairs. Further, it can sue and be sued under its name.  A company has a right to protect the goodwill associated with its name.

Section 20 provides that: (1) No company shall be registered by a name which, in the opinion of the Central Government, is undesirable.

(2) Without prejudice to the generality of the foregoing power, a name which is identical with, or too nearly resembles,-

(i) The name by which a company in existence has been previously registered, or

(ii) a registered trade mark, or a trade mark which is subject of an application for registration, of any other person under the Trade Marks Act, 1999, may be deemed to be undesirable by the Central Government within the meaning of sub-section (1).

(3) The Central Government may, before deeming a name as undesirable under clause (ii) of sub-section (2), consult the Registrar of Trade Marks.

Nature of corporate form:

A company incorporated has a legal personality. The various advantages and disadvantages associate with its personality are as follows:

A company has the following advantages:

(1)    Independent corporate existence (Section 34)- a company has a distinct legal persona capable of existing independent of its members. Section 34(2) states: From the date of incorporation mentioned in the certificate of incorporation, such of the subscribers of the memorandum and other persons, as may from time to time be members of the company, shall be a body corporate by the name contained in the memorandum, capable forthwith of exercising all the functions of an incorporated company, and having perpetual succession and a common seal, but with such liability on the part of the members to contribute to the assets of the company in the event of its being wound up as is mentioned in this Act.

In Solomon v Solomon & Co., the House of Lords observed that a company is at law a different person altogether from the subscribers of the memorandum and is not their agent or trustee.

(2)    Limited liability- where the subscribers exercise the choice of registering the company with limited liability, the member’s liability becomes limited or restricted to the nominal value of the shares taken by them or the amount guaranteed them. No member is bound to contribute anything more than the nominal value of the shares held by him.

(3)    Perpetual succession- it means that the membership of a company may keep changing from time to time, but that does not affect the company’s continuity.

(4)    Separate property- a company, being a legal person, is capable of owning, enjoying and disposing of property in its own name.

(5)    Transferable shares- Section 82 states: The shares or debentures or other interest of any member in a company shall be movable property, transferable in the manner provided by the articles of the company.

(6)    Right to sue and be sued- criminal complaint can be filed by a company but the same must be represented by a natural person. A company has a right to protect its fair name.

(7)    Professional management- a company can get the professional management of its resources and business.

(8)    Finances- the facility of borrowing and giving security by way of a floating charge is an exclusive privilege of a company. It also has the privilege of raising capital by public subscription either by way of shares or debentures. Further, public financial institutions also lend their resources more willingly to companies.

Disadvantages of corporate personality:

(1)    Lifting of corporate veil- while a company is a legal person, it acts through its members. The members act in the name of the company and the company is responsible for the acts done in its name. The corporate veil is said to be lifted when the court ignores the company and concerns itself directly with the members or managers. Grounds for lifting the veil are:-

(a)    Determination of character(enemy character)

(b)   For benefit of revenue

(c)    Fraud or improper conduct

(d)   Government companies(agents of State)

(2)    Formality and expense- the administration of a company has to be carried on strictly in accordance with the provisions of the Act.

(3)    Company is not citizen- a company is not a natural person and hence it cannot get citizenship. In State Trading Corporation of India v CTO (1964)4 SCR 99, the Supreme Court observed that a company is not a citizen.