Problems of Personality of Corporations Theory Implementation in Thailand

Abstract

Major corporate theories are fiction theory and real entity theory. The theories were developed in Germany in the 19th century. The theories explain concept of corporate personality. The fiction theory explains that personality of company is granted by state and corporation’s scope of business is also allowed by the state. Consequently, incorporation shall be permitted by state and corporation’s scope of business is limited by state. While the real entity describes that legal entity of company created by its members, it actually exists and company is capable to hold, without limitation of scope of business, commercial or non-commercial activities. The concept of this real entity theory refuses concept of Ultra Vires Doctrine. Today, most countries, including Germany, UK, US, Singapore adopt the real entity theory. Incorporation under the law of those countries can be without objects. Presently, the Ultra Vires Rule becomes a tool for preventing corporations from holding unlawful objects. In Thailand, the Civil and Commercial Code and the Public Company Limited Act B.E. 2535 (1992) limit ability of companies due to the laws do not allow a corporation to become an incorporator and it cannot act beyond its objects. Although the Civil and Commercial Code section 1023/1 says that company cannot under section 1023 to resist with the right of third person by purport company or director no power to perform; however, section 1167 states that the relations between the directors, the company and third party are governed by the law of agency. This section shows that the fiction theory still exists in Thai corporation laws while the real entity theory adopted by other countries. To develop Thai corporation laws to meet the change of business organizations in the world, the writer recommends that Thailand should revise the company laws to adopt the real entity theory rather than follows the fiction theory.