Ethical Natural law philosophers of the 17th and 18th centuries as well as the metaphysical theorists of 19th century postulated the concept of will as an essential requirement for exercising legal right. They also believed that personality is the subjective possibility of a rightful will.
Legal personality is an artificial creation of law. Entities recognized by law are capable of being parties to a legal relationship.
A natural person is a human being whereas legal persons are artificial persons, such as a corporation, created by law and given certain legal rights and duties of a human being; a being, real or imaginary, who for the purpose of legal reasoning is treated more or less as a human being. All legal persons can sue or be sued.
Theories of Juristic Personality
1. Fiction Theory – This theory was put forward by Von Savigny, Salmond, Coke, Blackstone, and Holland etc. According to this theory, the personality of a corporation is different from that of its members.
Savigny regarded corporation as an exclusive creation of law having no existence apart from its individual members who form the corporate group and whose acts are attributed to the corporate entity. As a result of this, any change in the membership does not affect the existence of the corporation.
It is essential to recognize clearly the element of legal fiction involved in this process. A company is in law something different from its shareholders or members. The property of the company is not in law the property of the shareholders.
The company may become insolvent, while its members remain rich.
Gray supported this theory by saying that it is only human beings that are capable of thinking, therefore it is by way of fiction that we attribute ‘will’ to non-human beings through human beings who are capable of thinking and assign them legal personality.
Wolf said that there are three advantages of this theory. It is analytical, more elastic and it makes easier to disregard juristic personality where it is desirable.
2. Concession Theory – This theory is concerned with the Sovereignty of a State. It pre-supposes that corporation as a legal person has great importance because it is recognized by the State or the law. According to this theory, a juristic person is merely a concession or creation of the state.
Concession Theory is often regarded an offspring of the Fiction Theory as both the theories assert that the corporation within the state have no legal personality except as is conceded by the State. Exponents of the fiction theory, for example, Savigny, Dicey and Salmond are found to support this theory.
Nonetheless, it is obvious that while the fiction theory is ultimately a philosophical theory that a corporation is merely a name and a thing of the intellect, the concession theory is indifferent to the question of the reality of a corporation in as much as it focuses only on the source (State) from which the legal power of the corporation is derived.
3. Group Personality Theory or Realist Sociological Theory – This theory was propounded by Johannes Althusius and carried forward by Otto Van Gierke. This group of theorists believed that every collective group has a real mind, a real will and a real power of action.
A corporation therefore, has a real existence, irrespective of the fact whether it is recognized by the State or not.
Gierke believed that the existence of a corporation is real and not based on any fiction. It is a psychological reality and not a physical reality. He further said that law has no power to create an entity but merely has the right to recognize or not to recognize an entity.
A corporation from the realist perspective is a social organism while a human is regarded as a physical organism. This theory was favoured more by the sociologists rather than by the lawyers.
While discussing the realism of the corporate personality, most of the realist jurists claimed that the fiction theory failed to identify the relationship of law with the society in general.
The main defect of the fiction theory according to the realist jurists was the ignorance of sociological facts that evolved around the law making process.
Horace Gray, however, denied the existence of collective will. He called it a figment. He said that to get rid of the fiction of an attributed by saying that corporation has a real general will, is to derive out one fiction by another.
4. The Bracket Theory or the Symbolist Theory – This theory was propounded by Rudolph Ritter von Ihering (also Ihering). According to Ihering, the conception of corporate personality is essential and is merely an economic device by which we can simplify the task of coordinating legal relations.
Hence, when necessary, it is emphasized that the law should look behind the entity to discover the real state of affairs. This is also similar to the concept of lifting of the corporate veil.
This group believed that the juristic personality is only a symbol to facilitate the working of the corporate bodies. Only the members of the corporation are ‘persons’ in real sense of the term and a bracket is put around them to indicate that they are to be treated as one single unit when they form themselves into a corporation.
5. Purpose Theory or the theory of Zweck Vermogen – The advocates of this theory are Ernst Immanuel Bekker and Alois von Brinz. This theory is also quite similar to the fiction theory. It declared that only human beings can be a person and have rights. This theory also said that a juristic person is no person at all but merely a “subjectless” property destined for a particular purpose. There is ownership but no owner. Thus a juristic person is not constructed round a group of persons but based on an object and purpose.
The assumption that only living persons can be the subject-matter of rights and duties would have deprived imposition of rights and duties on corporations which are non-living entities. It therefore, became necessary to attribute ‘personality’ to corporations for the purpose of being capable of having rights and duties.