The term “artificial person” might sound a bit strange, but it’s an important concept in business and law. In this guide, we’ll explain what an artificial person is, how it works, and provide examples to make it clear.
Table of Contents
What is an Artificial Person?
Definition of an Artificial Person
An artificial person is a legal entity that is not a human being but is given certain legal rights and responsibilities similar to those of a human. This can include corporations, governments, and other organizations.
Characteristics of an Artificial Person
Artificial persons typically have the following characteristics:
- Legal Rights: They can own property, enter contracts, sue and be sued, and perform other legal actions.
- Separate Entity: They are considered separate from the individuals who manage or own them. This means that the liabilities and assets of the artificial person are distinct from those of its members.
- Perpetual Existence: Unlike humans, artificial persons can continue to exist indefinitely, even if their members change.
Types of Artificial Persons
Common types of artificial persons include:
- Corporations: These are the most well-known type of artificial person. Corporations can conduct business, own assets, and have liabilities separate from their owners (shareholders).
- Government Entities: These include municipal corporations, government agencies, and other public organizations.
- Non-Profit Organizations: These entities operate for charitable, educational, or other purposes without the goal of making a profit.
How Artificial Persons Work
Creation of Artificial Persons
Artificial persons are created through legal processes. For example, a corporation is created when it is incorporated according to the laws of a particular jurisdiction. This involves filing documents, such as articles of incorporation, with the relevant government authority.
Rights and Responsibilities
Once created, artificial persons have specific legal rights and responsibilities.
- Contracts: They can enter into contracts, such as buying or leasing property, hiring employees, and borrowing money.
- Litigation: They can be involved in lawsuits, either as a plaintiff (the party suing) or a defendant (the party being sued).
- Ownership: They can own assets, such as real estate, patents, and trademarks.
Management and Control
Artificial persons are managed by individuals who act on their behalf. For example, a corporation is typically managed by a board of directors and operated by officers (such as a CEO or CFO). These individuals make decisions and take actions in the name of the corporation.
Example of an Artificial Person
Let’s take a look at an example to better understand artificial persons.
Example: XYZ Corporation
XYZ Corporation is a manufacturing company that produces consumer goods. Here’s how it operates as an artificial person:
- Incorporation: XYZ Corporation is incorporated in the state of Delaware. This means it has filed articles of incorporation with the Delaware Secretary of State and is recognized as a legal entity.
- Ownership: The corporation is owned by shareholders who have invested money in the company by purchasing shares of stock.
- Management: The company is managed by a board of directors elected by the shareholders. The board appoints a CEO and other officers to handle day-to-day operations.
- Contracts: XYZ Corporation enters into contracts with suppliers, customers, and employees. For example, it signs a lease agreement for a factory, purchases raw materials from suppliers, and hires workers.
- Litigation: If a customer sues XYZ Corporation for a defective product, the corporation itself (not the individual shareholders) is the defendant in the lawsuit.
- Ownership of Assets: The corporation owns its factories, offices, equipment, and intellectual property. These assets belong to XYZ Corporation, not to the individual shareholders or directors.
Perpetual Existence
XYZ Corporation has perpetual existence. This means that even if the original founders leave the company or pass away, the corporation continues to exist. It can keep doing business, signing contracts, and owning property indefinitely, as long as it complies with the law.
Conclusion
An artificial person is a powerful concept that allows businesses and other organizations to operate as separate legal entities from their owners and managers. This separation provides many benefits, including limited liability for shareholders and perpetual existence. Understanding artificial persons is crucial for anyone involved in business, law, or finance.
Reference
- Legal Dictionary. (n.d.). Artificial Person.
Knowing what an artificial person is can help you better understand how businesses and other entities operate. Whether you’re studying business, law, or finance, this concept is fundamental to grasping the structure and function of modern organizations.