Key Takeaways

  • An artificial person is a legal entity distinct from its owners and created by law to have rights and responsibilities similar to a natural person.
  • Corporations are the most common type of artificial person, enjoying legal rights such as the ability to own property, enter contracts, and be held liable.
  • The concept enables legal continuity, separation of liability, and centralized management.
  • Artificial persons have legal limitations, such as restrictions on personal rights like voting or marriage.
  • The doctrine of separate legal personality was solidified in the landmark case Salomon v A Salomon & Co Ltd.
  • Artificial persons must follow fiduciary duties, regulatory compliance, and tax obligations.

To understand artificial person definition, you should know the law finds it necessary to provide an entity, such as a firm, with certain rights and responsibilities that are commonly held by humans. In doing so, when an entity is established, it is recognized as an artificial person that exists independently and treated as a separate person from its participants. Artificial persons may also be referred to as juristic or legal persons.

Why Are Corporations Viewed as Artificial Persons?

A corporation is recognized as an artificial person. The word incorporate comes from the Latin corpus, meaning body. It essentially means formed or added into a body and united by legal enactment.

When a new legal entity is incorporated, owners are able to act as one. The new body assumes responsibility for its actions, while legally distancing themselves from individual personal liability. Owners are often referred to as stakeholders. Not to be confused with a shareholder, which owns part of a company through shares of stock. Stakeholders have interests other than stock performance only.

What Rights Do Artificial Persons Have?

Considered and treated as artificial persons, corporations are entitled to specific rights, such as:

  • Rights to protection under the law.
  • Rights to property.
  • Right to enter into business agreements and contracts.

However, corporations are not allowed to exercise certain liberties, such as the right to marry, parent a child, vote, or run for office. Individuals, on the other hand, have the freedom to exercise such rights.

Creation and Recognition of Artificial Persons

An artificial person comes into existence through statutory processes. In most jurisdictions, this involves filing incorporation documents and paying associated fees. Once registered:

  • The entity acquires legal personality, separate from its founders.
  • It can continue to exist despite changes in ownership or management.
  • It must comply with statutory governance rules (e.g., annual filings, board meetings).

The entity’s legal identity persists beyond the lives of its members, providing continuity and stability in business and legal transactions.

Legal Personhood vs Natural Personhood

While natural persons are human beings with full constitutional rights, artificial persons—such as corporations—are legal creations designed to act as independent entities under the law. The key distinction lies in their origin and scope of rights:

  • Natural persons are born with inherent rights including life, liberty, and political participation.
  • Artificial persons are granted legal rights to function within commerce and law (e.g., own assets, sue/be sued), but lack rights such as voting or marrying.

This differentiation enables the legal system to hold entities accountable without confusing their obligations or privileges with those of human beings.

What Responsibilities Do Artificial Persons Have?

Corporations are held liable for the actions of their companies, as well as the people they choose to employ; just as individuals and groups of people are responsible for their own actions. If recognized as an artificial person under the law, government and courts hold corporations liable and responsible to operate in accordance with statutes and government regulations. These regulations stem from all levels of government; federal, state, local, and all applicable jurisdictions.

Corporations have unlimited life, meaning that the sale of stock or death of a stockholder or employee does not impact the continuous life of the corporation.

Can an Artificial Person Be Sued?

As a separate legal entity, operating under its own name, a corporation can be sued. As previously mentioned, courts hold corporations liable and responsible to obey and operate under the law, just as individuals are to obey laws. If a corporation fails to comply or is sued and found guilty, the court can order them to pay fines or even order them to liquefy the entity.

Rights to Privacy and Free Speech

Although artificial persons cannot exercise all human rights, courts have recognized their entitlement to some civil liberties:

  • Free Speech: Corporations have been granted First Amendment rights in several U.S. Supreme Court cases, most notably Citizens United v. FEC, which affirmed their right to political speech.
  • Privacy and Data Protections: Businesses have limited rights to privacy under statutory frameworks such as HIPAA and GDPR, though these are generally more restricted than those of natural persons.

These rights ensure that artificial persons can defend themselves and participate in public discourse when relevant to business interests.

How Does the 14th Amendment Apply?

Being that corporations are recognized as artificial persons, courts allow them to assert basic 14th amendment rights, such as due process and equal protection. Therefore, corporations operate with some rights and are under the protection of many of the same laws as individuals are. They are free to sue, hire attorneys, and collect damages when a crime has been committed against them.

When Was the Concept Started?

The concept of corporations being considered as individuals dates back to 1891 when a case was heard in the Supreme Court -- Gulf, Colorado & Santa Fe Railway Co. v. Ellis. The Supreme Court ruled that just as individual citizens have protection under the law, states do not have the power to deny corporations equal protection of the law.

Landmark Case Law: Salomon v. Salomon

A pivotal moment in defining artificial personhood in corporate law was the 1897 case of Salomon v A Salomon & Co Ltd. The House of Lords upheld the principle that a company is a separate legal person from its shareholders. This case reinforced:

  • The doctrine of separate legal entity.
  • The ability of shareholders to limit liability to their investment.
  • Legal clarity for creditors and contractual partners.

This doctrine has since become foundational in company law worldwide, ensuring that personal and corporate liabilities are distinct.

How Do Taxes Apply to Artificial Persons?

The application of tax rates and requirements applies to corporations differently than individuals. Once incorporated, a corporation has to decide whether it will benefit from being taxed as a C corporation or an S corporation.

In short, a C corporation is treated as a separate taxpayer incurring taxes and expenses. If profits are made, they are distributed to the shareholders and they must pay personal income tax on the income. This creates a double taxation and is why many, especially small businesses, do not opt for C corporation status.

If a corporation qualifies to act as an S corporation, then taxes, profits, and losses all pass through the corporation to shareholders and are only reported on the shareholders' tax returns, thus eliminating double taxation.

Not all corporations can choose to be an S corporation for tax purposes. They must meet certain criteria to qualify as an S corporation. For example, the number and type of shareholders, along with classes of stock, are elements taken into consideration when determining if the company will qualify for S status.

Fiduciary Duties and Regulatory Oversight

Artificial persons, especially corporations, are subject to a range of fiduciary and legal responsibilities:

  • Fiduciary Duties: Directors and officers owe duties of care and loyalty to the corporation and its stakeholders.
  • Regulatory Oversight: Entities must comply with various laws, including labor, environmental, and securities regulations.
  • Reporting Obligations: Most artificial persons are required to maintain financial records, submit tax filings, and disclose material changes to governing bodies.

Non-compliance can result in fines, dissolution, or removal of corporate protections.

Frequently Asked Questions

1. What is an artificial person in legal terms? An artificial person is a non-human entity recognized by law as having legal rights and responsibilities, such as corporations or LLCs.

2. Can an artificial person own property? Yes, artificial persons can own property, enter into contracts, and be held liable for debts and obligations.

3. Are artificial persons protected under the Constitution? They receive certain protections, such as due process and freedom of speech, but lack personal rights like voting or marriage.

4. How does an artificial person differ from a natural person? Natural persons are human beings; artificial persons are legally created entities with limited rights and obligations.

5. Can an artificial person be held criminally liable? Yes, corporations and other entities can face criminal charges, typically resulting in fines or regulatory penalties rather than imprisonment.

If you need help with understanding artificial person definition, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.