A Company or a Corporation Is an ‘Artificial Person’ Created by Law

Topics: Corporation, Legal person, Corporations law Pages: 7 (1753 words) Published: June 17, 2012
“A company or a corporation is an ‘artificial person’ created by law.” Discuss.

A company or a corporation is an artificial person not natural person. Artificial person are such as are created and devised by human laws for the purpose of society and government which are called corporation. Such artificial persons, known as corporation, possess similar rights and owe similar obligation as natural person, but have no physical or natural existence. The law in creating legal persons always does so by personifying some real thing. The legal entity[1] known as the company.

Corporate constitution

In the world in almost every jurisdiction a company must have a corporate constitution, which defines the existence of the company and regulates the structure and control of the company.

By convention, most common law jurisdictions divide the corporate constitution into two separate documents: i) The Memorandum of Association (in some countries referred to as the Articles of Incorporation) is the primary document, and will generally regulate the company's activities with the outside world, such as the company's objects and powers and specify the authorized share capital of the company.

A company cannot take any action outside the memorandum. If it does, than the action should be considered as illegal and the company may found guilty for that specific action.

ii) The Articles of Association (in some countries referred to as the by-laws) is the secondary document, and will generally regulate the company's internal affairs and management, such as procedures for board meetings, dividend entitlements etc[2].

Legal Rights and Obligation of the Corporation

As the company is an artificial person or a legal entity, so the law allows them to act as persons for certain limited purposes-

i) The ability to sue and be sued
(ii) The ability to hold assets in its own name
(iii) The ability to hire agents
(iv) The ability to sign contracts
(v) The ability to make by-laws, which govern its internal affairs.[3]

Other legal rights and obligations may be assigned to the corporation by governments or courts.

The modern business corporation has three other legal characteristics: i) Transferable shares[4]
ii) Perpetual succession capacity[5]
iii) Limited liability[6]

Corporate personality

One of the key legal features of companies are their separate legal personality[7]. It is now largely accepted throughout the world that companies are legally separate and distinct entities. Separate legal personality often has unintended consequences, particularly in relation to smaller, family companies. However, Separate legal personality does allow corporate groups a great deal of flexibility in relation to tax planning, and also enables multinational companies to manage the liability of their overseas operations.[8]

There are certain specific situations where courts are generally prepared to "pierce the corporate veil": to look directly at, and impose liability directly on the individuals behind the company.

Shares and share capital

Companies generally raise capital for their business ventures either by debt or equity. Capital raised by way of equity is usually raised by issued shares or warrants.

Shares usually confer a number of rights on the holder. These will normally include: • voting rights
• rights to dividends declared by the company
• rights to any return of capital either upon redemption of the share, or upon the liquidation of the company

Capacity and powers

As companies are artificial persons created by operation of law, the law prescribed what the company could and could not do. Usually this was an expression of the commercial purpose which the company was formed for, and came to referred to as the company's objects, and the extent of the objects are referred to as the company's capacity. If an activity...
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