Essentials of Corporate Personality – Companies Act, 2013

⚖️ This resource is for educational purposes only and does not constitute legal advice.

Essentials of Corporate Personality

As per the Companies Act, 2013 | LL.B. Study Resource | Paper 6.2 – Company Law

📌 Jump To Section

Introduction Separate Legal Entity Limited Liability Perpetual Succession Common Seal Transferability Sue & Be Sued Separate Property Corporate Veil Conclusion

Foundational Concept

What is Corporate Personality?

When a company is incorporated (registered), the law treats it as a separate legal person – different from its members, directors, and promoters. This legal status is called Corporate Personality.

A company can own property, sign contracts, sue others, and be sued in its own name.
The concept is rooted in Section 9 of the Companies Act, 2013 – "Effect of Registration".
The landmark case is Salomon v. Salomon & Co. Ltd. (1897) – where the House of Lords confirmed that a company is distinct from its members.

📜 Salomon v. Salomon [1897] AC 22 (House of Lords):
Mr. Salomon sold his business to a company (of which he was the majority shareholder) and took debentures as security. When the company went insolvent, the court held that the company was a separate legal entity, so Salomon's debentures took priority over unsecured creditors. This case firmly established corporate personality in law.

Essential 1 | Section 9

1. Separate Legal Entity

Meaning

Upon registration, a company becomes a juristic / artificial person recognised by law, completely separate from its shareholders and directors.

Key Points

The company is a "person" in the eyes of law – it has rights and obligations.
Members cannot be held personally liable for company debts.
A member can be a creditor or employee of the company.
Governed by Section 9, Companies Act 2013: "On registration, a company becomes a body corporate."

📌 Example: Tata Motors Ltd. is a company. If Tata Motors incurs a debt, the shareholders (including the Tata family) are NOT personally responsible. Only the company's assets can be used to pay off that debt.

📜 Lee v. Lee's Air Farming Ltd. (1961): Mr. Lee was both the sole shareholder/director and an employee of his company. After his death (at work), his widow claimed workmen's compensation. The Privy Council held that Lee and his company were separate legal persons, so she was entitled to compensation.

Essential 2 | Section 3A

2. Limited Liability

Meaning

The liability of a company's members is limited – they are only required to pay up to the amount they agreed to contribute (i.e., the face value of shares or guarantee amount).

Key Points

In a company limited by shares: liability = unpaid amount on shares held.
In a company limited by guarantee: liability = guaranteed amount.
Members' personal assets are fully protected from company creditors.
Exception under Section 3A: If membership falls below minimum (2 for private; 7 for public) for >6 months, remaining members may be personally liable.
Lifting of Corporate Veil is another exception (discussed separately).

📌 Example: A shareholder buys 100 shares of ₹10 each but has paid only ₹7 per share. If the company goes bankrupt, his maximum liability is only ₹300 (₹3 × 100 unpaid balance). His personal property (car, house) cannot be touched.

Essential 3 | Section 9

3. Perpetual Succession

Meaning

A company has uninterrupted existence. It continues to exist regardless of changes in its membership, death of directors/shareholders, or insolvency of members.

Key Points

"Members may come and go, but the company goes on forever."
Only dissolution under the Companies Act, 2013 (Chapter XX) can end a company.
Death, retirement, or bankruptcy of a director/member does NOT affect company existence.
Contracts signed by a company remain valid even after ownership changes completely.

📌 Example: Infosys Ltd. was founded by Narayana Murthy and co-founders. Even after all the original founders retired, the company continues to exist and function normally. The company is legally "immortal" until wound up.

Essential 4 | Section 9 (now optional)

4. Common Seal (Now Optional)

Meaning

The Common Seal is the official signature of the company. Since a company is an artificial person, it cannot sign documents like a human. Historically, the seal was used to authenticate important documents.

Key Points

Earlier, every company was required to have a Common Seal.
After the Companies (Amendment) Act, 2015, having a Common Seal is optional.
Without a seal, documents can be signed by two directors or one director + company secretary.
Documents that require the seal (if adopted) include: share certificates, powers of attorney, etc.
The company's name must be engraved on the seal in legible letters.

📌 Example: XYZ Pvt. Ltd. does not want to maintain a Common Seal. So when they issue share certificates, two directors (Mr. A and Mr. B) sign it instead. This is perfectly valid under the 2015 amendment.

Essential 5 | Section 44

5. Transferability of Shares

Meaning

Shares in a public company are freely transferable property. A shareholder can sell or transfer shares without the consent of other shareholders or the company.

Key Points

Section 44: Shares are movable property, transferable as per the articles of association.
Public companies: Shares are freely transferable (cannot impose restrictions).
Private companies: Articles of Association may restrict transfer of shares (Section 2(68)).
This gives investors liquidity – they can exit the company by selling shares.
Transfer does not affect the company's existence.

📌 Example: If you hold shares of Reliance Industries Ltd. (a public company), you can sell them on the stock exchange at any time, to any buyer, without asking Reliance's permission. The company continues; only ownership changes.

Essential 6 | Section 9

6. Capacity to Sue and Be Sued

Meaning

As a legal person, a company can file lawsuits and can also be sued in its own name in courts of law.

Key Points

A company sues in its own name, not in the name of its members or directors.
A company can be sued for breach of contract, negligence, tax evasion, fraud, etc.
Companies can be tried for criminal offences (corporate criminal liability).
Directors are not personally liable unless they are specifically named or the corporate veil is lifted.
Governed by Section 9, Companies Act 2013 read with CPC provisions.

📌 Example: If ABC Ltd. fails to deliver goods as per a contract, the buyer can sue "ABC Ltd." in court. The lawsuit is against the company, not against Mr. Sharma (the director). Similarly, ABC Ltd. can sue a defaulting client in its own name.

Essential 7 | Section 9

7. Separate Property

Meaning

A company can own, hold, and dispose of property in its own name. The property belongs to the company, not to its members – even if a single person owns all shares.

Key Points

Shareholders have no direct ownership in company property – only a right to dividends and assets on winding up.
A member cannot claim company property as their own even if they are the sole owner of shares.
Company can mortgage, sell, or lease its property independently.
On a member's death, their shares pass to legal heirs – but company property is unaffected.

📜 Macaura v. Northern Assurance Co. (1925): Macaura owned all shares of a timber company. He insured company timber in his own name. When the timber was destroyed, the insurer refused to pay – because Macaura had no insurable interest in the company's property (it belonged to the company, not him). The House of Lords agreed.

📌 Example: Mr. Gupta owns 100% shares of Gupta Steels Pvt. Ltd. The factory and land belong to the company, not to Mr. Gupta. If Mr. Gupta dies, his heirs get the shares, but the factory remains the company's property.

Essential 8 | Judicial Doctrine

8. Corporate Veil & Its Lifting

Meaning of Corporate Veil

The separation between a company and its members is called the "Corporate Veil." Courts generally respect this veil (the Salomon principle). However, in certain cases, courts "lift" or "pierce" the corporate veil to hold members personally liable.

Circumstances for Lifting the Veil (Statutory)

Section 3A: Membership below minimum for over 6 months.
Section 339: Fraudulent trading during winding up.
Section 34 / 35: Misrepresentation in prospectus.
Tax evasion, sham companies, enemy character, fraud on minority shareholders.

Judicial Grounds

Fraud or improper conduct (e.g., using company as a shield).
Agency relationship.
Sham or facade company.
Public interest / national security.

📜 Gilford Motor Co. v. Horne (1933): An ex-employee formed a company to solicit customers in breach of a non-compete clause. The court lifted the veil, finding the company was a "cloak or sham" to evade legal obligations.

📜 Daimler Co. v. Continental Tyre Co. (1916): During WWI, Continental Tyre was registered in England but had all German shareholders. The court held it was an "enemy company" and lifted the veil for public interest.

📌 Example: Mr. X forms XYZ Ltd. only to commit fraud on creditors. Courts will "pierce the veil" and hold Mr. X personally liable for the fraud, as the company was just a mask over his personal activities.

Conclusion

Summary of All 8 Essentials

#	Essential	Legal Basis (CA 2013)	Meaning	Key Case
1	Separate Legal Entity	Section 9	Company = independent legal person	Salomon v. Salomon (1897)
2	Limited Liability	Section 3A, 3(2)	Members liable only for share value	–
3	Perpetual Succession	Section 9	Company lives forever until dissolved	–
4	Common Seal	Section 9 (now optional)	Official signature of company	–
5	Transferability of Shares	Section 44	Shares = movable, freely transferable property	–
6	Capacity to Sue/Be Sued	Section 9	Company litigates in its own name	–
7	Separate Property	Section 9	Company owns its own assets	Macaura v. Northern Assurance (1925)
8	Corporate Veil / Lifting	Sections 3A, 339	Exceptional personal liability of members	Gilford Motor v. Horne (1933)

Visual Diagram

Flowchart – Essentials of Corporate Personality

This flowchart shows how corporate personality is established and what essentials flow from it.

Visual Diagram

Mind Map – Essentials of Corporate Personality

Central concept branches into 8 essentials, each with key sub-points.

Study Plan

Learning Roadmap – Essentials of Corporate Personality

A 5-stage step-by-step plan to master this topic for LL.B. Paper 6.2 – Company Law.

Stage 1 – Basics (Day 1–2)

Understand what a "legal person" means – natural vs. artificial persons.
Read Section 2(20) of Companies Act, 2013 – definition of "company".
Read Section 9 – Effect of Registration (body corporate, perpetual succession, common seal, capacity to sue).
Learn the concept of "incorporation" and why it creates corporate personality.

Stage 2 – Core Essentials (Day 3–5)

Study each of the 8 essentials with definitions and key points.
Focus on: Separate Legal Entity, Limited Liability, Perpetual Succession.
Understand Section 44 for transferability of shares.
Note the 2015 amendment making Common Seal optional.
Make a comparison chart: Public Company vs. Private Company on each essential.

Stage 3 – Procedures & Applications (Day 6–7)

Understand how limited liability operates in liquidation/winding up (Chapter XX).
Study exceptions: Section 3A (reduction in membership), Section 339 (fraudulent trading).
Understand the doctrine of lifting/piercing of corporate veil – statutory and judicial grounds.
Apply essentials to practical scenarios (exam-style problem questions).

Stage 4 – Case-Law Linkage (Day 8–9)

Salomon v. Salomon [1897] – Separate legal entity; landmark House of Lords ruling.
Lee v. Lee's Air Farming [1961] – Member can also be employee; Privy Council.
Macaura v. Northern Assurance [1925] – Company property ≠ member's property.
Gilford Motor Co. v. Horne [1933] – Sham company; veil lifted for fraud.
Daimler Co. v. Continental Tyre [1916] – Enemy character; public interest.
Jones v. Lipman [1962] – Property transferred to company to avoid court order; veil lifted.
Indian cases: Tata Engineering v. State of Bihar (1964) SC – company cannot claim fundamental rights of citizens.

Stage 5 – Exam Revision Checklist (Day 10)

☑ Can you define corporate personality in 2 lines?
☑ Can you list all 8 essentials without referring to notes?
☑ Do you know the section numbers (§9, §3A, §44, §339)?
☑ Can you write 5 landmark cases with facts + held?
☑ Do you know statutory vs. judicial grounds for lifting the veil?
☑ Can you solve a problem question applying corporate personality?
☑ Have you prepared a summary table for quick revision?

Compact Roadmap Table

Stage	Goal	Output / Deliverable	Duration
1 – Basics	Understand legal personality & §9	Notes on legal person concept	Day 1–2
2 – Core Essentials	Master all 8 essentials	Summary chart per essential	Day 3–5
3 – Procedures	Apply to real situations, exceptions	Problem-answer practice questions	Day 6–7
4 – Case Law	Link concepts to landmark cases	Case-fact-held flashcards	Day 8–9
5 – Exam Revision	Final recall + checklist	Timed answer writing practice	Day 10

Quick Reference

Master Summary Table – All Essentials at a Glance

Use this table for quick last-minute revision before exams.

Table 1 – Essentials Overview

Essential	Section / Rule	Meaning	Key Point	Example
Separate Legal Entity	§9, CA 2013	Company = independent juristic person	Members not personally liable for company debts	Tata Motors' debt ≠ shareholder's debt
Limited Liability	§3(2), §3A	Liability confined to unpaid share amount	Personal assets protected; exception §3A	Unpaid ₹3/share = max liability
Perpetual Succession	§9	Company lives forever until dissolved	Death/exit of members doesn't end company	Infosys after founders retired
Common Seal	§9 (optional post-2015)	Official signature of company	Now optional; can use 2 directors' signatures	XYZ Pvt. Ltd. skips seal; 2 directors sign
Transferability of Shares	§44	Shares = movable property, freely transferable	Public: freely transferable; Private: restricted	Selling Reliance shares on NSE
Capacity to Sue/Be Sued	§9	Company litigates in its own name	Directors not personally named unless veil lifted	ABC Ltd. sues defaulting client
Separate Property	§9	Company owns its assets independently	Members have no direct ownership interest	Macaura couldn't insure company timber
Corporate Veil / Lifting	§3A, §339	Exception: courts hold members personally liable	Applied for fraud, sham, tax evasion	Gilford Motors – ex-employee used sham co.

Table 2 – Landmark Cases Quick Reference

Case Name	Year	Court	Essential Covered	Decision
Salomon v. Salomon & Co.	1897	House of Lords (UK)	Separate Legal Entity	Company = distinct from members; debentures valid
Lee v. Lee's Air Farming	1961	Privy Council	Separate Legal Entity	Member can also be employee of company
Macaura v. Northern Assurance	1925	House of Lords (UK)	Separate Property	Member has no insurable interest in company's property
Gilford Motor Co. v. Horne	1933	Court of Appeal (UK)	Corporate Veil Lifting	Sham company = veil lifted; injunction granted
Daimler Co. v. Continental Tyre	1916	House of Lords (UK)	Corporate Veil Lifting	Enemy character; veil lifted for public interest
Jones v. Lipman	1962	High Court (UK)	Corporate Veil Lifting	Property to company to avoid order; veil lifted
Tata Engineering v. State of Bihar	1964	Supreme Court of India	Separate Legal Entity	Company ≠ citizen; cannot claim Art.19 rights

Table 3 – Public vs. Private Company: Key Differences on Essentials

Essential	Public Company	Private Company
Minimum Members	7 (§3(1)(a))	2 (§3(1)(b))
Liability	Limited to shares	Limited to shares
Transferability	Freely transferable	Restricted by Articles
Common Seal	Optional	Optional
Perpetual Succession	Yes	Yes
Capacity to Sue	Yes	Yes
Separate Property	Yes	Yes