The Corporation and Legal Personality

The major and most interesting feature of the corporation is its legal personality, which is separate from the incorporators or shareholders. The court refers to the legal personality of the corporation as the state of being an artificial person or plainly the corporation’s personhood. The English law confirmed the legislation of the legal personality in 1895 under the House of Lords from the case Salomon v. Salomon.

Legal Personality

The creation of the corporation being a legal personality serves its own purpose as it relates to the corporation’s unintended consequences. This is specifically true with small family owned companies. The case proceedings of the B v. B in 1978 led to the well thought development of the legal personality of the corporation. The discovery order pursued by the wife towards her husband became ineffective against the company of the husband because it was separate and considered as distinct person. The court did not recognize the claim for the proceeds of an insurance policy under the case of Macaura v. Northern Assurance Co. Ltd. The policyholder transferred the name of the beneficiary of the insurance policy from the policyholder’s name to the name of the company wholly owned by him. The fire destroyed the company but the insurance policy and the property now belonged to the company, which terminated the insurable interests of the policyholder. The claim for the proceeds of the insurance policy failed considering the company is a separate legal person distinct from the owner and previous policyholder.

Legal Personality and the Court

The concept of the distinct and separate legal personality is not flexible enough when it comes to tax planning. The multinational corporations still handle and manage the responsibility over their overseas operations liability. The case proceedings of Adams v. Cape Industries Plc prohibited the asbestos poisoning victims to sue the English parent of the American subsidiary for tort case. There are conditions that the court may interfere behind the corporate walls and impose liability directly at the incorporators of the company such as representation of the company as a mere façade, the company plainly operates as an agent of the controllers, and the company’s representative took personal responsibility over an action or statement. The court can also move in when the company proves to be engaged in serious criminal or fraudulent activities.

This article does not imply any legal advice.

Legal Resource: Attorney at Law Ned Kimmelman, serving corporations in South Florida.


Comments are closed.