Meaning Rationale Principle Separate Corporation Personality Essay

Length: 10 pages Sources: 10 Subject: Business Type: Essay Paper: #89756829 Related Topics: Personality Theory, Corporate Crime, Corporate Fraud, Personality Traits
Excerpt from Essay :

Corporate Personality

Separate Corporate Personality

Explain the meaning of and the rationale for the principle of separate corporation personality.

Personality in this case does not have anything to do with an actual person, but that personhood is given to something. Also, this does not mean that the corporation in question has the traits or quirks given to it by the people who work there. The concept of identity in the corporate realm is something else entirely. The concept of separate corporate personality can be equated to the fact that an individual has and individual personality, and that no one else is responsible for what that individual does or says. The fault or benefit is that person's alone. A separate corporate personality means that the corporation is an entity that is separate and that the component parts that make up the organization are not responsible, legally, for any action taken against the company.

It is simplest to examine the concept in light of personhood for an actual person. Some amount of the personality of an individual is made up of innate qualities that are inborn and cannot be altered. Much like a person's eye color or how tall the individual is going to be, these traits are determined genetically. The rest of the personality is developed early in a child's life, and it is the result of the environment that child grows up in. how the child interprets and adds items to his or her personality is determined primarily by the innate qualities they are provided at birth. A company has both sets of determinants also. When an organization is first founded it is given certain characteristics because of the type of business it is, and due to what the founders wanted the company to be originally (Reza, 2009). However, a company has to grow just like a person, and it is affected by its environment and the traits it acquires. The people who work at the business, the industry it grows in, and other factors influence the identity of the company. However, few of these actually have to do with the legal standing of the company. Thus the two can be separated into the innate characteristics which are legally termed the corporate personality and make the business a separate entity from the people who make up the organization, and the corporate identity or how the company conducts business and treats employees based on the style of management (Balmer & Wilson, 1998). This paper is concerned with the former, or how a company is viewed by legal entities as separate from the people within the organization.

The personhood of the organization is determined by what type of business it is for the most part. This is a large part of the innate quality of the company. Most countries have some sort of arrangement whereby a company becomes a separate legal entity when it first born and registered. In Australia,

"The Corporations-Act-2001-confirms that a company comes into existence as a body corporate on the day it is registered by the Australian Securities and Investments Commission (ASIC). In doing so, a 'company' becomes a legal entity with the legal capacity and powers of an individual" (Shub, 2005).

On the day that the company is registered with the ASIC it becomes an entity that is separate and has its own personhood. In the United States the process is much the same. Podnar and Melewar (2010) said that;

"This notion can be traced back to the principles of law dating back to 1819 in the case of the Trustees of Dartmouth College vs. Woodward, when the Supreme Court in the U.S.A. recognized the corporation as a person. In the case of Santa Clara County vs. Southern Pacific Railroad in 1886 the Supreme Court held that, under the Constitution, a private corporation was a "natural person," entitled to all the rights and privileges of a human being."

These are two landmark cases which defined the bounds of a corporate entity and ensured that the sovereignty of the company would be established as a legal precedent.

However, the idea of personhood truly came from a landmark British case known as Salomon v. Salomon & Company, Ltd.



In Salomon v. Salomon & Company, Ltd.;

"The House of Lords confirmed beyond doubt that a company incorporated in the UK possesses its own separate legal identity as set out in the 1862 Companies Act. In the legal sense, a corporation is a distinct person with its own personality separated from and independent of the persons who form it, who invest money in it, and who work in it" (Podnar & Melewar, 2010).

This case is considered foundational, even though there had been others that dealt with the personhood of a company, because of the words "confirmed beyond any doubt." The British House of Lords ruled that Mr. Salomon could not be held responsible for legal issues which had to do with his company. The rationale for devising this system is simple to see in consequence.

At the time when a company is incorporated, the original shareholders decide what the nature of the corporation will be. Limited liability corporations are made because the partners do not wish to have the legal responsibility to pay back creditors if the company is sued or, for some reason, is dissolved. Because of the separate personality of the corporation, the shareholders are not responsible to the creditors for the debts that the corporation has incurred. Shub (2005) points out that "a company's property is not the property of the members, and its debts are not the debts of its members." This may be problematic when it comes to separating assets if a partner leaves, but there are legal precedents for this action also. The primary rationale is that the people who own shares in the company do not want to be held financially responsible if the company defaults for some reason. The courts and creditors are only able to go after the corporation itself.

The shield that this type of arrangement provides for the shareholders of a company is only part of the rationale behind the original intent of the practice. A person, despite the fact that the corporation they owned has incurred debts or some other actionable offense, has the right to certain property. A person should be able to protect assets that had nothing to do with the running of the company. Thus, the rationale for the courts setting up this rule is that a person is separate from the business that they own. A corporation may have been given life (so to speak) by a certain individual, but that person does have a life that is separate from the corporation. Therefore the courts have worked to ensure that the dividing line is kept inviolate -- in most cases.

2. Describe the circumstances under which the courts will set aside this doctrine and allow claimants to proceed directly against the owner of the company. When considering a case you should outline the case and explain the ratio decidendi which the court has expressed in reaching its decision.

Many court cases exist in which a group of creditors sought to "pierce the corporate veil" (Ilg, 2008). The reason that the creditors wish to do this is because they have may not be able to retrieve all that is owed to them from the corporation. The owner or owners may also use the legal precedent of the veil to excuse their actions which were a distinct part of the reason that a company failed. Ilg (2008) wrote that "Common law courts have demonstrated a willingness to 'pierce the corporate veil' in circumstances when upholding the assumption of separate corporate legal identity would, for example: endorse an instrument that appears simply a sham; would permit for behavior akin to fraud; or lead to a result to fragrantly opposed to justice."

Three separate reasons are here given for the courts to discount the separate corporate personality. It is the job of the court to try and see through the owners contention that they are not personally responsible for the actions of the company, and that is often the truth. However, there are many instances of fraud, sham and attempts to counter justice.

Courts do not want to take this action because if a precedent is set it is often difficult to rule otherwise. As a matter of fact, if a higher court has set a precedent that applies to the case before the lower court, the lower court must abide by that prior been settled. However, there are exceptions to this precedent. Following are some instances from different countries which detail why the precedent was defeated.

Jones v. Lipman is a small case that established that it is illegal to form a company for the sole purpose…

Sources Used in Documents:


Balmer, M.T., & Wilson, A. (1998). Corporate identity: There is more to it than meets the eye. International Studies of Organization & Management, 28(3), 12-23.

Harris, R. (2006). The transplantation of legal discourse on corporate personality theories: From German codification to British pluralism and American big business. Washington & Lee Law Review, 63, 1421-1478.

Ilg, M. (2008). An equity rationale for the enforcement of the corporate veil? The Alberta Court of Appeal considers a joint venture agreement in the shadow of corporate reorganization. Retrieved from content/uploads/2008/04/mi_apex_ceco_april17.pdf

Jones v. Lipman. (1962). 1 WLR 832.
Lectlaw. (2011). Stare decisis. Retrieved from
Levin, M. (1998, November 13). Chicago sues gun makers and sellers. LA Times. Retrieved from
Shub, A. (2005). Separate corporate personality: Piercing the corporate veil. FDCC, Retrieved from personality.html

Cite this Document:

"Meaning Rationale Principle Separate Corporation Personality" (2011, May 08) Retrieved May 24, 2022, from

"Meaning Rationale Principle Separate Corporation Personality" 08 May 2011. Web.24 May. 2022. <>

"Meaning Rationale Principle Separate Corporation Personality", 08 May 2011, Accessed.24 May. 2022,

Related Documents
Aloud or in Writing, Making
Words: 17261 Length: 55 Pages Topic: Business Paper #: 71062622

Companies such as XYZ Widget Corporation are well situated to take advantage of burgeoning markets in developing nations, particularly in Asia and Africa. 2. XYZ can grow its business by expanding its operations to certain developing nations in ways that profit the company as well as the impoverished regions that are involved, particularly when marketing efforts are coordinated with nongovernmental organizations operating in the region. 3. Several constraints and challenges must

Management in Business Operations and Performance
Words: 12446 Length: 45 Pages Topic: Business - Management Paper #: 41162745

Integrating Total Quality Environmental Management Systems - a Critical Study of TQEM Relevance of TQM to Environmental Management Scope of Dissertation Moving from Reactive to Proactive Management Understanding TQM in Relation to TQEM History of TQM Operation of TQM Quality and Environmental Management Standards Environmental Management Systems Weaknesses of EMS Standards Total Quality Environmental Management Comparing ISO 9000 and ISO 14000 Integrating the ISO 14000 Environmental Management System Demographics Impact of certification on economic and ecological performances Research Design and Nature Integrating a Sustainable EMS with

Delimitations Today, Modern Business Systems
Words: 20751 Length: 75 Pages Topic: Business Paper #: 13650636

A favorite target for conspiracists today as well as in the past, a group of European intellectuals created the Order of the Illuminati in May 1776, in Bavaria, Germany, under the leadership of Adam Weishaupt (Atkins, 2002). In this regard, Stewart (2002) reports that, "The 'great' conspiracy organized in the last half of the eighteenth century through the efforts of a number of secret societies that were striving for

Censorship in Music
Words: 12976 Length: 36 Pages Topic: Music Paper #: 66604850

Censorship in Music Censorship Under the Guise of Protecting the Children Rock and Roll Culture Hip Hop Culture Is Censorship in Music Viable and Does it Make a Difference? There have been many attempts by society control music. Governmental statutes, agency regulations, business controls and parents have all tried to censor the music. Sometimes they have succeeded and sometimes they have not. The examination of various aspects of rock and rap music censorship involves general

Cultural Diversity Impact on Small
Words: 5800 Length: 20 Pages Topic: Business Paper #: 95589360

Significance of the Study to Leadership a leader's ability to adapt to change within global markets determines the multinational company's success (Handley & Levis, 2001). Affective adaption to cultural changes, albeit depends upon available information; essential to the leadership decision-making (Kontoghiorghes & Hansen, 2004). If leaders of multinational companies better understand the challenges and impact of culture and diversity in global markets, they may use the information to improve planning

Globalization and Innovations in Telecommunications
Words: 18188 Length: 66 Pages Topic: Psychology Paper #: 2190458

Chapter 2: Review of Related Literature Chapter Introduction This chapter provides a review of the literature concerning hypnosis, Eastern Meditation, Chi Kung, and Nei Kung and how these methods are used to treat various ailments and improve physical and mental functioning. A summary of the review concludes the chapter. Hypnosis In his study, "Cognitive Hypnotherapy in the Management of Pain," Dowd (2001) reports that, "Several theories have been proposed to account for the effect of