Theories of Corporate personalities
Different society has different hypothesis based on the nature of society and the dynamics of intellectuality in their subjects. The act of camouflaging of an entity with a legal personality suggests five justification theories. As we know that jurisprudence is an outcome of criticism, so like it, these theories contradict each other at a different node of dialogues.
Fiction theory- Carl Von Savigny was the propounder of this theory. As per him ‘a personality is attached to the corporation, institution, etc through a legal fiction and the concerned personality is different from the personality of its constituents’. There is double fiction in case of a corporation.
-The corporate is given a legal personality.
-The corporation is clothed with a will. (will create interest and subsequently the right)
As per Savigny, ‘Subject of right does not exist in the individual or the group of individuals but in the ideal whole. What survives all its members is only a fictitious creature of law.’
In the case of, Salomon v Salomon, “Fiction Theory” was recognized. The Court eradicates the misconception of Sole proprietorship as well as the will of a corporation.
The exception of Fiction theory
Exceptions: concealment principle, evasion principle (fraud exception)
Sir Frederick Pollock expressed that Common law does not uphold this theory in totality because the indispensability of incorporation cannot be compromised.
Realistic theory- This theory is popularized by Professor Gierke. As per him, every group has a real mind, a real will and a real power of action. The existence of a group person goes beyond the aggregate of the individualities of the person forming the group.
In the words of A.V. Dicey, When a body of twenty or two hundred or two hundred thousand men binds themselves together to act in a particular way for some common purpose, they create a bond which by no fiction of law, but by the very nature of things, differs from the individuals of whom it is constituted.
A corporation has a real existence irrespective of its recognition by the state. The corporate will is expressed through its agents. Every group has its own personality. Ex- political group, social group etc
As per Miraglia, The corporate personality is real means corporation is a representation of psychic realities that exist independently of the incorporation by state, State only recognizes the corporate personality rather than to create it.
Criticism: As per Prof Gray, there is no reality in the collective will. It is just another fiction to deny the prior one. Further, he claimed that
Salmond criticized the realistic approach suspecting its survival last of the group members.