Thinking
machines and artificial beings appear in Greek myths, such as Talos of
Crete, the golden robots of Hephaestus and Pygmalion's Galatea. Human
likenesses believed to have intelligence were built in every major
civilization: animated statues were seen in Egypt and Greece. It was
also widely believed that artificial beings had been created in the
past. By the 19th and 20th centuries, artificial beings had become a
common feature in fiction, as in Mary Shelley's Frankenstein.
But did you know that the idea of artificial beings has long been recognized and existing in almost all legal systems in the world?
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A corporation is one such artificial being. A corporation is an
entity separate and distinct from its stockholders. While not in fact
and in reality a person, the law treats a corporation as though it were a
person by process of fiction or by regarding it as an artificial person
distinct and separate from its individual stockholders.
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A corporation is an institution that is granted a charter recognizing
it as a separate legal entity having its own privileges, and
liabilities distinct from those of its members. There are many different
forms of corporations, most of which are used to conduct business.
Despite not being natural persons, corporations are recognized by the
law to have rights and responsibilities like actual people. Corporations
can exercise human rights against real individuals and the state, and
they may be responsible for human rights violations. Just as they are
"born" into existence through its members obtaining a certificate of
incorporation, they can "die" when they lose money into insolvency.
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Corporations exist as a product of corporate law, and their rules
balance the interests of the management who operate the corporation,
creditors, shareholders, and employees who contribute their labor. In
modern times, corporations have become an increasingly dominant part of
economic life.
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An important feature of corporation is limited liability. If a
corporation fails, shareholders normally only stand to lose their
investment, and employees will lose their jobs, but neither will be
further liable for debts that remain owing to the corporation's
creditors.
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Corporate officers may act on such matters as may be authorized
either expressly by the By-laws or Board Resolutions or impliedly such
as by general practice or policy or as are implied by express powers.
When officers are allowed to act in certain particular cases, their acts
conformably therewith can bind the company. Hence, a corporate officer
entrusted with general management and control of the business has the
implied authority to act or contract for the corporation which may be
necessary or appropriate to conduct the ordinary business. If the act of
corporate officers comes within corporate powers but it is done without
any express or implied authority therefor from the by-laws, board
resolutions or corporate practices, such an act does not bind the
corporation. The Board, however, acting within its competence, may
ratify the unauthorized act of the corporate officer. So, too, a
corporation may be held in estoppel from denying as against innocent
third persons the authority of its officers or agents who have been
clothed by it with ostensible or apparent authority.
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By legal fiction, a corporation has a personality separate and
distinct from its officers, stockholders and members. The corporation
has a separate existence and there is a veil or shroud which separates
the corporation from its stockholders and members. That is why
obligations incurred by the corporation are its sole liabilities, and
are not the obligations of its stockholders or members. Conversely,
officers of a corporation are not personally liable for their official
acts unless it is shown that they have exceeded their authority.
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However, there are instances when the corporate fiction or the notion
that the corporation is a separate legal entity may be disregarded.
Piercing the veil of corporate entity requires the court to see through
the protective shroud which exempts its stockholders from liabilities
that ordinarily, they could be subject to, were it not for the existing
corporate fiction. But to do this, the court must be sure that the
corporate fiction was misused, to such an extent that injustice, fraud,
or crime was committed upon another, disregarding, thus, his, her, or
its rights. It is the protection of the interests of innocent third
persons dealing with the corporate entity which the law aims to protect
by this doctrine.
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The mere ownership by a single stockholder of all or nearly all of
the capital stock of a corporation is not of itself a sufficient reason
for disregarding the fiction of separate corporate personalities.
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