The law needs subjects to whom it can give rights and duties. To meet this need, it uses the idea of a "person". In everyday language, a person means a human being. In law, the word is wider. It covers human beings, who are natural persons, and also companies, idols, universities and municipalities, which are artificial or juristic persons.
Legal personality is therefore the status by which the law treats an entity as capable of having rights and duties. A company can own a factory, and an idol can own land. Neither is a living human being.
01
Meaning and Definition of Person
In law, a person is any entity that can hold rights and duties.
The test is legal capacity, and not biological life. Personality depends on recognition by the legal system, and not on features such as intelligence or will.
SalmondDefined person as
A person is any being whom the law regards as capable of rights and duties.
The test is legal capacity, and not natural existence.
GrayDefined person as
A person is an entity to which rights and duties may be attributed.
Gray stresses attribution. Rights and duties attach to an entity only because the law chooses to give them.
Four points follow from these definitions.
Legal personality depends on legal recognition.
Human nature or physical existence is not required.
Personality is a legal status, and not a biological fact.
The law can create, change, limit or end it.
02
Legal Consequences of Being a Person
Capacity to have rights.
A person can own property, receive protection against wrongs, take by succession where this applies, and enter into legal relationships within the limits of his capacity.
Capacity to have duties.
A person must obey the law, perform duties under contracts and statutes, and avoid harming others. If he breaks these duties, he can be held liable.
Capacity to sue and be sued.
A person can go to court to enforce his rights, and he can be sued for breaking the law. Under Article 300 of the Constitution, even the Union of India and the States can sue and be sued in their own names.
Criminal law uses the same wide idea.
Section 11 of the Indian Penal Code stated that "person" includes any company or association or body of persons, whether incorporated or not. The Bharatiya Nyaya Sanhita, 2023, which replaced the Indian Penal Code in 2024, keeps this wide meaning in Section 2(26). A company was once thought incapable of crime, because it has no mind of its own. That view has changed. In Standard Chartered Bank v. Directorate of Enforcement (2005), a case under the Foreign Exchange Regulation Act, 1973, which the Foreign Exchange Management Act, 1999 has since replaced, the Supreme Court held that a company can be prosecuted for offences that carry imprisonment and fine, and that the court can impose the fine where imprisonment is not possible.
03
Nature of Legal Personality
It is created by law.
It is not natural, and without legal recognition no entity can claim it.
It is artificial and abstract.
Corporations and idols exist only in the eyes of the law, but they are treated as persons for legal purposes.
It varies.
A minor has limited capacity. A corporation has wide capacity. An idol's capacity is limited to property and worship.
It begins and ends according to law.
Birth creates personality, death ends it, and dissolution ends the personality of a corporation.
04
Kinds of Person
Natural person
A living human being.
e.g.Personality begins at birth and ends at death. The law limits it in cases such as minority and unsoundness of mind.
Artificial or legal person
An entity that the law creates for convenience.
e.g.It is not a human being and exists only in the eyes of the law. A company, an idol, a university and a corporation are examples. It can own, acquire and transfer property, and it can sue and be sued.
05
Status of Different Entities
AnimalsProtected interests, but no personality
They cannot own property, bear duties or sue. In Animal Welfare Board of India v. A. Nagaraja (2014), the Supreme Court held that animals are protected by the Prevention of Cruelty to Animals Act, 1960.
Dead personNo personality
Death ends legal existence. Even so, the law protects the dead body from insult, protects reputation indirectly through relatives, and passes property by succession. In Pt. Parmanand Katara v. Union of India (1995), the Supreme Court held that the right to dignity extends to a dead body.
Unborn childConditional personality
The child's rights are recognised if it is born alive. Under Section 13 of the Transfer of Property Act, 1882, property can be transferred for the benefit of an unborn person.
IdolJuristic person
It can own property and sue through a shebait. In Pramatha Nath Mullick v. Pradyumna Kumar Mullick (Privy Council, 1925), the court recognised that an idol has legal personality. In Yogendra Nath Naskar v. CIT (1969), the Supreme Court held that an idol can be assessed to income tax.
MosqueGenerally not a juristic person
Its property is dedicated to God and managed by trustees. It is treated as a religious institution.
MinorA natural person with limited capacity
In Mohori Bibee v. Dharmodas Ghose (Privy Council, 1903), a minor mortgaged his house to a moneylender, and the Privy Council held the agreement void. A minor can still own property through a guardian or next friend.
UniversityArtificial person created by statute
It has perpetual succession. It can own property and sue and be sued.
RiverDeclared a legal person by one court
In Mohd. Salim v. State of Uttarakhand (2017), the Uttarakhand High Court declared the Ganga and Yamuna to be legal persons. The Supreme Court stayed the order.
06
Corporation as a Legal Person
A corporation is an artificial person created by law.
It has a separate legal existence apart from its members, perpetual succession, the capacity to own property, and its own rights and duties. It continues even when its members change.
There are two kinds of corporation.
KIND
Corporation sole
A single office holder. The office continues when the person changes.
e.g.The President, a Governor
KIND
Corporation aggregate
A group of persons who act as one legal unit with a separate identity.
e.g.A company, a municipality, a university
07
Lifting the Corporate Veil
The separate personality of a company is not absolute.
Courts sometimes look behind the company to the persons who control it, which is called lifting the corporate veil. They do this when the company is used as a sham or a cloak to avoid the law.
Gilford Motor Co. v. Horne (1933).
Horne was bound by a covenant not to solicit his former employer's customers. He set up a company to do exactly that. The court treated the company as a mere cloak and granted an injunction against both him and the company.
Delhi Development Authority v. Skipper Construction Co. (1996).
The Supreme Court looked behind a group of companies and lifted the veil to reach the property of the persons who controlled them, because the companies had been used to defeat the claims of buyers and the authority.
08
Theories of Corporate Personality
01FictionSavigny
The corporation is a creation of law, with no real existence. It exists only in legal imagination.Savigny held that only human beings have a real will, so only they are true persons. A group has no will of its own. The law pretends that the group is a person so that it can hold property and make contracts.Illustration: Salomon v. Salomon & Co. Ltd (1897) fits this view. Aron Salomon held almost all the shares, but the House of Lords treated the company as a different person from him. The law had made the company, and the law gave it its own rights and debts. In India, Section 9 of the Companies Act, 2013, which replaced the Companies Act, 1956, says that a registered company becomes a body corporate with perpetual succession.Weakness: A fiction cannot act, think or be punished. Yet the law holds companies liable and punishes them. The theory does not explain this.
02ConcessionDeveloped from the fiction theory
The State grants legal personality, and without State recognition there is none. Corporations exist by State permission.This is a close relative of the fiction theory, but it puts the State at the centre. The State can create a corporation, limit its powers and dissolve it.Illustration: A company exists only after registration with the Registrar of Companies. A university created by an Act exists because the legislature said so. In Dartmouth College v. Woodward (US Supreme Court, 1819), Chief Justice Marshall described a corporation as "an artificial being, invisible, intangible, and existing only in contemplation of law".Weakness: Groups act as units even without State recognition. An unregistered club or a family business still holds property through its members, and the law deals with it in practice.
03PurposeBrinz
Personality exists only to serve a specific purpose. Property belongs to a purpose, and not to a person.Brinz said that some property, such as a charitable fund, has no human owner. It is held for a purpose, such as relief of the poor or the running of a school. Nobody owns it, and the law protects it for that purpose. The theory is mainly applied to charitable and religious institutions.Illustration: Its use in India is limited. For religious endowments, Indian law gives personality to the idol itself. In Pramatha Nath Mullick v. Pradyumna Kumar Mullick (Privy Council, 1925), the idol was held to be a juristic person that owns the endowed property through its shebait. The property therefore has an owner, and Indian law does not need the idea of property held only for a purpose.Weakness: Property without an owner is hard to explain in law. The theory also says nothing about business corporations.
04Bracket or symbolistIhering
The corporation is a convenient bracket for the individuals behind it. It is a legal symbol and not a real person.Ihering said that the real holders of rights are the members, who enjoy the benefits. The corporation is a device. It works like a bracket in algebra, which gathers several terms into one and makes dealings simpler.Illustration: The cases on lifting the corporate veil follow this logic. When the bracket is misused, the court looks inside it. In Gilford Motor Co. v. Horne (1933), the court saw through the company to Horne, who was using it to break his covenant. In Daimler Co. v. Continental Tyre Co. (House of Lords, 1916), a company registered in England was treated as an enemy during war, because Germans controlled it.Weakness: The theory cannot explain a corporation sole, which has no members behind it. It also does not explain why the company's property is kept separate from the members' property in ordinary cases, as in Salomon's case.
05Realist or organicGierke, Maitland
The corporation is a real person, with its own will and existence. It acts through agents and representatives.Otto von Gierke held that a group is more than the sum of its members. It has a collective will, which is formed through its organs, such as the board and the general meeting. F.W. Maitland, the English legal historian, brought Gierke's ideas into English law. On this view, the law does not invent the corporation. It recognises a social reality.Illustration: The law of liability follows this view. In Lennard's Carrying Co. v. Asiatic Petroleum Co. (1915), Viscount Haldane held that the managing director was the "directing mind and will" of the company, so his fault was the company's fault. In Standard Chartered Bank v. Directorate of Enforcement (2005), the Supreme Court held that a company can be prosecuted for offences that carry imprisonment and fine. In Iridium India Telecom Ltd. v. Motorola Inc. (2011), the Supreme Court held that a company can be prosecuted for cheating, which needs a guilty mind, because the mind of its directors is treated as the company's mind.Weakness: The "real will" of a group is hard to prove and sounds mystical. The law also gives personality only on registration, so it does not simply find real persons. This is the most accepted theory in modern jurisprudence.
RememberIn modern law, each theory explains one part of the picture. The realist theory explains why a company can be sued and punished. The concession theory explains why registration is needed. The bracket theory explains why courts lift the veil. The fiction theory explains why the company is separate from its members in the first place.
09
Leading Case Laws
Salomon v. Salomon & Co. Ltd (House of Lords, 1897)
FactsAron Salomon sold his business to a company that he formed, and took shares and debentures. The company failed.
Decision and principleThe company was a separate person. Salomon, as a secured creditor, was paid before unsecured creditors. Shareholders are not liable for the company's debts.
Lee v. Lee's Air Farming Ltd (Privy Council, 1960)
FactsLee, the sole shareholder and director, was killed while piloting for the company. His widow claimed compensation.
Decision and principleThe company and Lee were distinct persons. He could be both director and employee.
Lennard's Carrying Co. v. Asiatic Petroleum Co. (House of Lords, 1915)
FactsA ship was lost through the fault of the company's managing director.
Decision and principleThe managing director's mind was the company's mind, so the company was liable.
Gilford Motor Co. v. Horne (1933)
FactsA former employee used a new company to break his covenant.
Decision and principleThe veil was lifted. The company was a cloak for his breach.
Pramatha Nath Mullick v. Pradyumna Kumar Mullick (Privy Council, 1925)
FactsA dispute over the family idol and its property
Decision and principleAn idol is a juristic person that can hold property through a shebait.
Mohori Bibee v. Dharmodas Ghose (Privy Council, 1903)
FactsA minor mortgaged his house to a moneylender
Decision and principleThe agreement was void. A minor's capacity to contract is limited.
Standard Chartered Bank v. Directorate of Enforcement (2005)
FactsA company was prosecuted under the Foreign Exchange Regulation Act, 1973 (now replaced by the Foreign Exchange Management Act, 1999)
Decision and principleA company can be prosecuted, and the court can impose a fine.
10
Conclusion
Legal personality is a dynamic concept. The law gives personality to artificial entities, as well as to human beings, to meet the needs of justice, commerce, religion and social organisation. Without it, modern commerce could not work, religious institutions and universities could not function independently, and corporate governance would be impossible. Legal personality is therefore an essential legal tool for the working of society.