Explain why a corporation is considered an artificial person under the law?

Answer 1

Being a separate "entity" (like an "artificial person") is the hallmark of the corporate form. Being an "entity" means that the corporation is not tied to any one person or group of people (like a partnership or a sole proprietorship), but exists separately from its officers, directors, and shareholders as a distinct form.

The several advantages of a the corporate form may help us to map out why the corporate form is considered a separate entity or an "artificial person" under the law:

1. Limited Liability: The corporation is treated as a separate entity under the law in part because it can incur its own debts and liabilities. This means that if you slipped and fell in a Walmart store, for example, you could sue Walmart itself (the corporation), and not the individual officers of Walmart. Walmart the corporation would be responsible for any judgments. The board of directors, officers, and shareholders would not be personally liable, except under rare circumstances called "piercing the veil," where the owner is not respecting the corporate form.
2. • The fact that you can sue a corporation may seem strange (because usually only PEOPLE can be sued), but the limited liability aspect of the corporate form is actually very important because it encourages the board of directors to make candid and risky business judgments, and it encourages shareholders to invest in the corporation. This ensures involvement, innovation, and good business strategies among people who might otherwise be scared away by lawsuits. It keeps our economy going.
3. Continuity: Because the corporate form is a separate entity, it can survive its founders, its shareholders, and its board of directors, and is NOT tied to the life of any one person. This creates continuity for investors and employees and allows the business to keep going, uninterrupted and without fear of liquidation. This is not so with other business forms such as a partnership. Thus, the corporation is treated as a separate person under the law so that it can exist independent of individual people.
4. Limited Rights as a "Person:" Because of these two main facets of the corporate form, several rights that we would consider to be individual rights have been given to corporations. For example, corporations can own property and other assets, can buy, sell, or lease property, and have very broad commercial rights so that the corporation can conduct business independent of an individual person and maintain continuity. Because corporations can own assets, they can pay off their debts, thus, it's also ties to limited liability. Corporations also have limited noncommercial rights like the right not to incriminate one's self which goes along with being able to be sued. Likewise, corporations have limited fourth amendment rights against searches and seizures and limited First Amendment rights (although this is broadening), which are interwoven with the corporation's ability to own property and incur debt. This also continues to encourage corporate business decisions, although some doubt the latest reach of first amendment rights in Citizens United v. FEC, the latest Supreme Court case on this issue. .

Answer 2

A corporation is considered an artificial person under the law because it is granted many of the same legal rights and responsibilities as a natural person. This includes the ability to enter contracts, own property, sue, and be sued. This legal fiction allows corporations to function as independent entities separate from their owners or shareholders.