Chapter 1

Introduction

1.1 Background to the Study

In the realm of law, the term ‘person’ holds a specific and technical connotation. It refers to any entity that possesses legal rights and obligations. These entities encompass a wide array, including natural individuals, educational institutions, religious organizations, nations, labor unions, corporations, and more. To elaborate further, Almond defines a person as any entity considered capable of bearing legal rights and responsibilities. Within the realm of law, if an entity demonstrates such capability, it attains the status of a ‘person.’

The notion of corporate personality is a fundamental legal concept that acknowledges a company as a distinct legal entity separate from its shareholders, directors, officers, and creators. This principle is commonly known as the ‘veil of incorporation.’ The result of corporate personality is that a company exists as an autonomous legal entity, independent from the individuals who established it or have ownership in it. As a result, a company exhibits perpetual succession, signifying its continuous existence and ability to engage in business activities without being influenced by changes such as shifts in membership, shareholder transfers, or the resignation of members. Even in the event of changes like the passing of all members, the company remains unaffected, with its rights, immunities, assets, and obligations remaining intact.

Although the Companies Acts were developed to facilitate group activities, a significant legal precedent for corporate personality was established in the case of Salomon v. Salomon. In this pivotal case, the House of Lords deliberated on claims by unsecured creditors in the liquidation process of Salomon Ltd., a company primarily owned by Mr. Salomon. The issue at the heart of the case was whether, despite a company’s distinct legal identity, its major shareholder and controller could be held personally liable for the company’s debts, potentially exposing them to unlimited personal liability.

The court’s decision in this case established that, as a matter of law, it could not “pierce the corporate veil” to safeguard the interests of creditors and overlook the legal separation of the company. The principles affirmed in Salomon v. Salomon continue to be influential in contemporary legal contexts, emphasizing the paramount legal separation between a company and its owners or controllers.

However, in certain cases involving fraudulent or improper conduct where individuals exploit the shield of corporate personality, the courts have intervened by considering the corporate structure as a façade. One recent example is found in the case of Jones v. Lipmann. Here, the defendant, who had agreed to sell land and chattels to the plaintiff, transferred the land to a company between the signing and completion of the contract. In response, the court ordered specific performance by the company, declaring it a mere creation of the defendant—a contrivance and a sham employed to evade recognition by the courts of equity.

The principle of corporate personality has also been relevant in the realm of income tax, where courts have, at times, regarded one company as an agent for another—a legal embodiment of the other entity—for the purposes of tax assessment on the profits of the company. A notable example is the Daimler Case, where a company registered in England, primarily owned by German interests, was deemed to carry an enemy character in the context of Trading with the Enemy legislation of 1914.

In the legal framework of Cameroon, the concept of a company having attributes of a ‘person’ is derived from Article 98 of the OHADA Uniform Act on Commercial Companies and Economic Interest Groups. This article specifies that upon registration, all companies are vested with legal personality, unless otherwise stipulated. This legal framework implies that a company possesses a dual nature: it is an association of its members while simultaneously existing as a distinct legal entity separated from its members. The term ‘legal personality’ is not explicitly defined by the Uniform Act. However, it finds resonance with the case of Salomon v. Salomon in England, where the implications of incorporation were clearly articulated. This landmark case established two fundamental principles:

1. The principle of corporate personality, which affirms that upon registration, a company acquires a legal persona, and
2. It firmly supports the concept of limited liability.

The legal implications of these principles have had a profound impact on the field of law, shaping the understanding of the legal status and personality of companies.

A juristic or legal person is an entity to which the law grants legal personality. While legal personality is inherently attributed to all human beings by default, it can also be conferred by the law on entities other than individual human beings. When the law endows legal personality on such entities, it essentially personifies a tangible or intangible object. Although the law isn’t compelled to personify these entities, personification is a convention that simplifies both legal thought and communication and is consistently adopted in practice. The law also reserves the right to withdraw legal personality from certain human beings, as it deems necessary.

Given that legal personality is a product of legal fiction, it can be extended to various categories of entities based on the law’s discretion. One prominent category is that of corporations, which are undoubtedly considered legal persons. Additionally, the prevailing perspective is that registered trade unions and friendly societies also hold legal personhood, even if they are not registered as corporations.

The concept of legal personality isn’t confined to a singular application; it encompasses several distinct categories, including:

1. Corporations: The first category of legal persons comprises corporations, whether they are constituted as a personification of groups (referred to as a corporation aggregate) or as a series of individuals (referred to as a corporation sole).

2. Institutions: The second category encompasses institutions or objects selected for personification. In this scenario, legal personality is attributed to an institution itself, rather than any specific group of persons associated with that institution. For example, the law may recognize a church, hospital, university, or library as legal persons. Notably, English law may not adopt this approach, as it prefers to personify the aggregate of individuals linked to the institution. However, it’s essential to understand that the concept of legal personality isn’t inherently restricted to incorporated bodies of individuals. In India, for instance, institutions like universities, temples, and public authorities are acknowledged as legal persons.

3. Funds and Estates: The third category of legal persons involves the personification of a fund or estate dedicated to specific purposes, such as charitable funds or trust estates. English law tends to personify the body of individuals who administer such funds or estates rather than the funds or estates themselves. Nevertheless, it’s crucial to recognize that the alternative approach, which personifies the fund or estate directly, is equally feasible and may serve similar expediency.

In essence, the notion of legal personality is flexible and adaptable, subject to the law’s discretion. It extends its application to a variety of entities, allowing them to possess rights and obligations as distinct legal persons.