Corporate Legal Personality – Legal Personhood, Capacity to Act, and Piercing the Corporate Veil

A fundamental question in company law is whether the company itself or its participants should be considered the subject of rights, obligations, and competencies. This concerns the company's status as an independent legal entity or legal subject. The question has practical significance for a number of matters, such as who can enter into agreements, act as a party in legal proceedings, interact with public authorities, and be subject to taxation.

This article highlights the concept of company legal subjectivity in Norwegian law, with a particular focus on private limited companies, public limited companies, and general partnerships. We will look at the legal basis for companies' status as legal persons and the practical significance of this.

The historical development of company legal subjectivity

From metaphysics to practical legal thinking

The understanding of companies' legal subjectivity has undergone significant development over time. In older legal theory, attempts were made to explain the company's status as a legal subject with metaphysically inspired constructions, where the company was described as its own "being."

Later, the pendulum swung in the opposite direction. The renowned legal theorist Per Augdahl stated that it was "empty verbosity" to justify the solution of specific legal issues with whether an association is or is not a legal person. He believed this must be determined specifically for each legal rule.

The current legal opinion represents a more pragmatic approach, recognizing that the legal system operates with other subjects of assigning than physical persons while acknowledging that legal persons must act through organs composed physically of persons.

The legal basis for company legal subjectivity

Status rule on legal subjectivity

In modern Norwegian company law, a clear status rule has been established that both private limited companies, public limited companies, and general partnerships are independent legal entities – distinct legal persons. This status rule serves as a starting point when the interpretation of specific legal rules does not provide clear answers.

Legal grounding for private and public limited companies

For private and public limited companies, the status rule follows from well-established unwritten law, confirmed, and assumed in several Supreme Court judgments. This is also indirectly expressed through the Companies Act and the Public Companies Act § 2-20, first paragraph, where it states that the company after registration "as such" can acquire rights and incur liabilities.

This means that a registered private limited company or public limited company can:

• Enter into financial agreements in its own name

• Act as plaintiff and defendant in courts

• Act as a party before administrative bodies

• Own assets and be liable for liabilities

Legal grounding for general partnerships

For general partnerships, the status rule is directly derived from the Partnerships Act § 2-1, which aims to establish that such companies are generally independent legal subjects. This means that general partnerships can also occupy financial and procedural positions in their own name.

The legal subjectivity of general partnerships does not contradict the fact that participants have unlimited personal liability for the company's obligations. The two aspects – the company's status as a legal subject and the participants' liability for the company's obligations – are separate questions.

The relativity of legal subjectivity

Specific interpretation before applying the status rule

Although the main rule is that companies are independent legal subjects, it is important to note that this status rule is not absolute. As Augdahl pointed out, a specific interpretation of the legal rules must occur before relying on the main rule.

This means that companies' legal subjectivity can be relative – a company can be an independent legal subject in some contexts, but not in others. This is also referred to as the theory of relative legal subjectivity.

Examples of exceptions from the main rule

A classic example of the relativity of legal subjectivity is the tax rules for general partnerships. Although general partnerships have traditionally been considered independent legal subjects in financial contexts, they have simultaneously been considered non-independent legal subjects in tax contexts. It has thus been the participants, and not the company itself, who have been the tax subjects.

This illustrates that a company's status as a legal subject can vary depending on the legal context we are in.

Identification and piercing the corporate veil

When company and shareholder can be identified

In company law, questions arise in some contexts about whether the company and shareholder can be identified and whether the corporate form can be pierced. This is particularly relevant when the corporate form is used in a manner that appears to be an abuse or circumvention of rules.

In such situations, courts can exceptionally disregard the company as an independent legal subject and instead identify the company with its owners. This is often referred to as "piercing the corporate veil" or "lifting the corporate veil."

High threshold for corporate veil piercing

Norwegian courts have generally shown restraint in accepting veil piercing. The Supreme Court has stated that a high threshold is required before such identification can occur since it would undermine a fundamental principle in company law – the principle of limited liability.

Veil piercing may, however, be relevant in cases where:

• The corporate form is abused in an improper way

• There is a significantly undercapitalized company

• There is a commingling of the company's and owner's economic affairs

• Other special circumstances suggest that the company and owners should be identified

Practical significance of legal subjectivity

The company's party capacity

An immediate consequence of companies being seen as independent legal subjects is that they have party capacity in a procedural sense. This means that the company itself, and not its participants, can act as a party in legal proceedings.

For companies with many participants (typically private limited companies), it would be highly impractical if all participants had to act as parties in legal proceedings concerning the company. The corporate form allows the company to act as a unit outwardly.

Consequences for the company's financial conditions

The status rule that companies are independent legal subjects also means that the company has its own assets, separate from the participants' assets. This has implications for:

• The company's creditors, who can seek coverage from the company's assets

• The participants' creditors, who in principle cannot seek coverage from the company's assets

• The sale and other dispositions of the company's assets, which must be carried out by the company (through its organs) and not by the individual participant

Corporate legal capacity

As an independent legal subject, the company has legal capacity but must necessarily act through physical persons. The company's legal capacity is exercised through its organs (general meeting, board of directors, managing director) and representatives acting on behalf of the company.

This system of organs and representation ensures that the company can function in a legal context, even though it is not a physical person.

Conclusion

The question of whether companies are independent legal subjects is no longer subject to metaphysical speculation, but has practical significance for a range of legal questions. The clear main rule in Norwegian law is that both private limited companies, public limited companies, and general partnerships are independent legal persons.

At the same time, it is important to recognize the relativity of legal subjectivity – the question must be assessed specifically for each legal rule. In certain cases, there may also be grounds to disregard the company's status as an independent legal subject through veil piercing or liability breakthrough.

The understanding of the company as a legal person represents a balance between practical needs in the business world and fundamental legal principles. It provides companies with the necessary legal status to operate effectively in society while recognizing that companies are ultimately human constructions that must act through physical persons.