The meaning of corporate personality is the idea that a corporation is its own entity. Corporations, unlike pass-through business entity types or disregarded entities, can be taxed, buy and sell property, and take part in lawsuits. 

What Is a Corporate Personality?

Not only are corporations considered their own business entities, but they can own property. Property owned by a corporation can only be taken away under due process. 

There are a number of concerns still debated in corporate law regarding the meaning of corporate personality including:

  • Whether corporations are separate from their members and any other individuals associated with the company.
  • How and when the corporate veil is lifted.
  • Whether a corporation, as its own taxable entity, should actually be treated as a United States citizen.

Any business viewed as a separate legal entity has many similar rights to human beings and legal citizens. The existence of a separate legal entity is completely distinct from the existence of its owners. This means that, unlike some business types, the company doesn't dissolve upon the death of a member. 

Businesses that are registered as separate legal entities continue to live on until they are dissolved on proper grounds. 

Corporations and other separate legal entity types can do the following:

  • Open their own bank account.
  • Pay taxes.
  • Own property.
  • Take out loans.
  • Incur liability.
  • Partake in contracts.

Limited Liability of Corporate Personality

The members within a separate legal entity can actually enter into a legal agreement with the company itself and take legal action against the company, if needed. This ability for the company to be sued and held liable provides the corporate veil or liability protection that corporations are known for. Creditors may come after the company for any debts, but not its owners or shareholders. 

When a business owner starts a corporation, they must keep their personal and business finances separate. The company should have its own bank account, assets, and so on. Keeping this appropriate separation from the personal affairs of business owners prevents courts from piercing the corporate veil and protects owners from liability.  

The member of a business entity with a corporate personality can only be held liable, in the event of a lawsuit, up to the amount of their capital contribution. Any debts that a business takes on as its own entity are the responsibility of the business and not its members or investors. If members or owners cosign on business loans or contracts, however, they may be held liable in those instances. 

Case Law Regarding Corporate Personality

The ruling in Collins Stewart Ltd vs. Financial Times set the precedent that companies cannot have complete human rights because they are inherently non-human. For example, a business cannot sue for injury based on offense or injured feelings because companies do not feel emotion. 

In Bacha F. Guzdar vs. The Commissioner of Income Tax, Bombay the court ruled that shareholders are not actually owners in the company. Bacha F. Guzdar was a shareholder of a tea company in 1952. She received dividends from her shares. When it came time for her to pay taxes on her dividends, due to the double taxation of corporations, she argued that she should only be required to pay taxes on 40 percent of those dividends because they were agricultural income. 

Agricultural income was not taxed at the time, and the tea company's income was considered 60 percent agricultural. Because dividends distributed to shareholders were meant to represent the income of the business, it was a logical conclusion that Guzdar's dividends were 60 percent agricultural and therefore 60 percent tax exempt. 

The court ruled that Guzdar's income was not, in fact, partly agricultural as the company's income was. This set the precedent that shareholders are separate entities from the companies in which they invest. Shareholders have rights in the business when it comes to voting and profit distribution, but their income is not the same as the company income, they are separate entities altogether. 

Corporate personalities afforded to companies that are registered as separate legal entities protect business members and shareholders from liability, keep the company going in the event of a member's death, and offer independence to the business legally and financially. 

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