Corporate law encompasses foundational doctrines that define the structure, liabilities, and governance of companies as distinct legal entities. These principles balance shareholder interests, creditor protections, and managerial accountability while enabling economic activity.
Separate Legal Personality
A corporation exists as a separate legal “person” from its shareholders and directors, capable of owning assets, incurring debts, and entering contracts independently. This doctrine, established in the landmark case Salomon v. Salomon & Co. Ltd. (1897), shields owners from personal liability for company obligations, fostering investment by limiting risk to invested capital.
Shareholders enjoy limited liability, meaning their exposure ends at their share contribution, even if the company fails. Courts rarely “pierce the corporate veil” to hold individuals liable, doing so only in cases of fraud, agency, or abuse where the company serves as a mere facade.
This separation promotes capital formation but raises challenges, such as attributing corporate intent or liability for wrongs committed by agents.
Ultra Vires Doctrine
Ultra vires (“beyond powers”) prevents companies from acting outside their memorandum of association’s stated objects. Any such act is void and unenforceable, protecting shareholders and creditors from unauthorized risks.
Historically strict, modern statutes like India’s Companies Act, 2013 (Section 6), override repugnant memorandum clauses, allowing broader operations unless explicitly prohibited. Ratification is possible for directors’ ultra vires acts via shareholder approval, but not for those exceeding the company’s constitutional powers.
This doctrine ensures transparency in corporate purpose, though flexibility has reduced its rigidity.
Directors’ Duties
Directors owe fiduciary duties to act in the company’s best interests, including loyalty, care, and good faith. Key obligations mirror trust law: avoid conflicts, not profit personally, and exercise reasonable skill.
Under frameworks like Australia’s Corporations Act 2001 or India’s Companies Act Section 166, directors must prioritize the “triple bottom line”—shareholders, employees, community, and environment. Breaches trigger civil penalties, compensation, or disqualification.
These duties form the “direct mind and will” of the corporation, imputing their actions to the entity.
Corporate Opportunity Doctrine
Directors must not usurp business opportunities belonging to the company, such as deals in its line of business they learn through their role. This no-conflict rule requires disclosure and approval or forfeiture of profits if breached.
In India, Section 166 prohibits directors from competing businesses or conflicting interests. Courts assess fairness; remedies include disgorgement or constructive trusts.
The doctrine safeguards corporate assets from insider exploitation.
Lifting the Corporate Veil
Exceptions to separate personality arise when justice demands holding controllers liable. Common bases include: statutory (e.g., tax evasion), fraudulent use, or groups of companies treated as one (“single economic unit”).
UK and Indian courts pierce sparingly, as in Gilford Motor Co. Ltd. v. Horne (1933) for evasion or DHN Food Distributors v. Tower Hamlets for enterprise liability. US approaches vary by state, often broader in torts.
Critics argue it undermines certainty, yet it deters abuse.
Agency and Attribution
Companies act only through agents; directors and employees bind the company if acting within authority or apparent authority. Tort liability requires the act to fall within employment scope and company objects.
Criminal liability attributes “directing mind” states—senior officers’ mens rea—to the corporation, as in Tesco Supermarkets Ltd. v. Nattrass (1972).
Deemed primary liability links individuals’ roles to corporate fault, enhancing compliance.
Minority Shareholder Protections
Doctrines like Foss v. Harbottle (1843) bar individual suits for wrongs to the company, favoring representative actions by the majority “proper plaintiff.” Exceptions include ultra vires acts, fraud on minority, or personal rights violations.
Statutory remedies, such as unfair prejudice petitions, empower courts to intervene. Derivative actions allow shareholders to sue on the company’s behalf.
