The document provides an overview of company law in Malaysia, including definitions, incorporation procedures, and types of companies. It discusses:
1) The definition of a company and corporation under Malaysian law.
2) The key steps to incorporate a company, including name search, registration, and issuance of a certificate of incorporation.
3) The two main types of companies - limited companies (private and public) and unlimited companies, along with their characteristics.
4) The statutory effects of incorporation, including separate legal personality, ability to sue and be sued, perpetual succession, ownership of property, and limited member liability.
5) Exceptions to the separate legal personality doctrine through statutory and common law means.
The document provides an overview of company law in Malaysia, including definitions, incorporation procedures, and types of companies. It discusses:
1) The definition of a company and corporation under Malaysian law.
2) The key steps to incorporate a company, including name search, registration, and issuance of a certificate of incorporation.
3) The two main types of companies - limited companies (private and public) and unlimited companies, along with their characteristics.
4) The statutory effects of incorporation, including separate legal personality, ability to sue and be sued, perpetual succession, ownership of property, and limited member liability.
5) Exceptions to the separate legal personality doctrine through statutory and common law means.
The document provides an overview of company law in Malaysia, including definitions, incorporation procedures, and types of companies. It discusses:
1) The definition of a company and corporation under Malaysian law.
2) The key steps to incorporate a company, including name search, registration, and issuance of a certificate of incorporation.
3) The two main types of companies - limited companies (private and public) and unlimited companies, along with their characteristics.
4) The statutory effects of incorporation, including separate legal personality, ability to sue and be sued, perpetual succession, ownership of property, and limited member liability.
5) Exceptions to the separate legal personality doctrine through statutory and common law means.
Definition of Company Section 2 of the Companies Act 2016 defines ‘company’ as “a company incorporated under this Act or under any corresponding previous written law”. Section 3 of the Companies Act 2016 defines ‘corporation’ as “any body corporate formed or incorporated or existing in Malaysia or outside Malaysia and includes any foreign company…” The term ‘corporation’ includes any foreign company while the term ‘company’ does not. Incorporation Procedures / Formation of A Company
1. Name Search and Application for Name
➢Before a company can be registered, a name search must be made with the Registrar of Companies. ➢The purpose of this name search is to determine whether the proposed name for a new company is available and for reservation of that name. 2. Registration of A Company ✓ Who can register: any person may incorporate a company. The person who undertakes to form a company and to set it going is known as a ‘promoter’. 3. Submission of company details - Section 14(3), CA 2016 ✓ The name of the proposed company ✓ The status of whether the company is private or public ✓ Nature of business ✓ Company address Certificate of Incorporation Upon the registration, the Registrar will issue a certificate of incorporation certifying that the company is incorporated from the date specified in the certificate. Based on Section 17 of the Companies Act 2016 Types of Company 1. Limited Company (Sdn Bhd or Bhd) 2. Unlimited Company 1. Limited Company (Sdn Bhd or Bhd) a) Sendirian Berhad (SDN BHD) ➢ A private limited company. ➢ A minimum member in a private limited company is TWO (2) and maximum is FIFTY (50). ➢ E.g: AEON Fantasy (Malaysia) Sdn. Bhd., SHELL Malaysia Trading Sdn Bhd, Gas Malaysia Sdn Bhd, etc. ➢ Foreigners (non-Malaysian residents) are allowed to register a private limited company in Malaysia, so long as TWO (2) of the company’s directors are permanent residents in Malaysia. Restriction on transfer of shares ➢Section 43 – Prohibition of private companies to offer shares or debentures or invite to deposit money ➢Rational – to ensure control of a private company. ➢Remarks: Section 41 – conversion from public companies to private companies or private companies to public companies b) Berhad (BHD) ➢ A public limited company. ➢ Section 2 of the Companies Act 2016 defines a ‘public company’ as a company other than a private company. Its shares can be offered to the public for fixed periods and any other forms of subscription. ➢ The minimum amount of members (shareholders) are TWO (2) and maximum of unlimited amount of members. ➢ E.g: Parkson Holdings Berhad, Cahya Mata Sarawak Berhad, CIMB Group Holdings Berhad, Dutch Lady Milk Industries Berhad, Esso Malaysia Berhad, etc. ➢ Sub-categories of limited companies in Malaysia: a) Companies limited by shares ➢ Members’ personal assets and personal income are not liable to any of the company’s debts. ➢ Section 10(2) – a company is limited by shares if the liability of its members is limited to the amount, if any, unpaid on shares held by the members. ➢ This type of company is the most common one in Malaysia. ➢ Section 11(1) – a company limited by shares shall either be a private company or a public company. b) Company limited by guarantee Section 11(3) – a company limited by guarantee shall be a public company. Refer also to Section 10(3) & Section 45 Companies limited by guarantee are often registered by non-profit organizations such as public societies and clubs. E.g: Malaysian Institute of Economic Research, Malaysian Alliance of Corporate Directors. 2. Unlimited Company ➢Section 10(4) defines ‘unlimited company’ as a company formed on the principle of having no limit placed on the liability of its members. ➢In other words, in the event of a winding-up of an unlimited company, its members may be made liable for its debts without limit on their liability. Statutory Effects of Incorporation – Section 20 & 21 of CA 2016 1. Separate Legal Personality 2. It may sue and be sued in its own name. 3. It has perpetual succession. 4. It may own land or property. 5. The liability of the members may be limited. Separate Legal Personality ❖ A company which has been established may becomes an ‘individual’ by having a separate legal personality of its own, apart from the person who comprise it. ❖ The company has its own right and powers which may be enforced and exercised. ❖ Case: Salomon v Salomon ❖ In this case, Salomon who owned a shoe-making business and operated as a sole trader, was convinced by his family to set up a company. ❖ Salomon then ran the company as its director. ❖ As time went by, the company faced financial difficulty and the court held that since Salomon & Co Ltd is a company and therefore had separate legal personality, it could not be said that Salomon owned the company. ❖ Therefore, debts of the company are the responsibility of the company and not its members. It is the company which entered into contracts with the creditors and the creditors can only sue the company and not its shareholders. Solomon liability as a shareholder is limited. ❖ The company and Salomon are two separate legal personalities in law. May Sue and Be Sued In Its Own Name A company may sue to enforce its own right in its own name. If any of its right has been infringed by someone else, the company can bring legal action to sue that person on its own behalf. Case: Foss v Harbottle In this case, the plaintiff was one of the shareholders in the company. He sued the defendants who were the promoters of the company. The plaintiff sought to make the defendants liable for misapplication of the company’s property. The court held that since the property belongs to the company, it is the company’s right to decide in suing the defendants. Therefore, the proper plaintiff was the company itself (board of directors). This rule is known as ‘proper plaintiff rule’. On the other hand if a company breaches its contracts or incurs legal liabilities, the company must be sued. The members cannot be sued for any liability of the company. Having Perpetual Succession ✓ Once a company is registered, the company will live forever until it is properly wound up or struck off by the Companies Commission of Malaysia. ✓ Even if all the members of company died, the company still survives. ✓ Case: Re Noel Tedman Holdings ✓ In this case, the company still existing despite of the fact that all the shareholders and directors were dead. Having Ownership of Its Own Property ➢ According to Section 21(1)(b) of the Companies Act 2016, a company has the ability to hold ‘land’. ➢ It means that a company has the ability to hold property on its own. ➢ The company’s assets belong to the company, not to anyone else. ➢ Case: Macaura v Northern Assurance Co Ltd ➢ Macaura owned land with timber thereon. He sold the land and all the timber to a company that he formed. ➢ He was the majority shareholder of the company and insured the timber against fire in his own name. ➢ Subsequently, the timber was destroyed in a fire. He claimed against the insurance company to recover his loss but the insurance company refused to pay. ➢ The court held that the insurance company was not obliged to pay since Macaura had no any insurable interest in the company’s assets. Members’ Liability Are Limited ✓Section 192: the members of a company have a limited liability. ✓When a company limited by shares is wound up, the members are liable towards the debts of the company up to the amount of shares subscribed by each of them. ✓Case: Re Application by Yee Yut Ee – a director is not liable for the debts of the company. Exceptions To The Separate Personality Doctrine (Lifting The Corporate Veil)
➢ Sometimes the company members may take
advantage upon the separate personality doctrine. ➢ They used the doctrine as a ‘veil’ or defence for them to do something which is against the law. ➢ Therefore under certain exceptional circumstances, the courts are prepared to lift the corporate veil. ➢ The exceptions can be categorised into two: a) Statutory Exceptions b) Common Law Exceptions Statutory Exceptions ❖ These exceptions are provided under the Companies Act 2016. a) Section 561 – prohibition on carrying on business in Malaysia ▪ Section 561 (1) – a foreign company shall not carry on a business in Malaysia unless the foreign company is registered. ▪ Section 561 (4) - the foreign company and every officer who contravene this section commits an offence. b) Section 595 ➢Section 595(1)(a) – by deceitful or fraudulent or dishonest means or by means of any other fraud induced any person to give credit to the company. ➢Punishment – Imprisonment: not exceeding 10 years and/or fine not exceeding RM 3 million. c) Section 592 – false reports ➢Punishment: Maximum 10 years imprisonment and/or maximum fine for RM 3 million. Common Law Exceptions a) When a company is formed to avoid legal obligations or to commit fraud. ➢ Case: Jones v Lipman ➢ Lipman agreed to sell certain freehold land to Jones. However, Lipman changed his mind. ➢ To avoid the performance of such contract, Lipman incorporated a company. He sold and transferred the property to the company. ➢ Jones sought specific performance of the agreement against the company. ➢ Lipman defended that the company was not a party to the contract. ➢ The court held that the transfer of the property to the company was solely for the purpose of defeating Jones’ right in the contract. ➢ Therefore, both Lipman and the company must specifically perform the contract and the property must be sold and transferred to Jones. b) When a company is treated as an agent
➢ Case: Smith, Stone & Knight Ltd
➢ The plaintiffs were the owner of certain premises on which Birmingham Waste Co Ltd carried on business. ➢ The Birmingham Waste Co Ltd was a subsidiary of Smith. ➢ The premises were then acquired by the defendant. Under the relevant law, an owner was entitled to compensation. ➢ Smith claimed for compensation from the defendant. The defendant refused to pay on the ground that Smith and the company were distinct entities. ➢ The court held that Smith was entitled for the compensation since the Birmingham Waste Co Ltd was carried on for Smith. c) Where the company is mere facade concealing the true facts ➢The theory of separate legal personality may be disregarded where the company members tried to hide behind the establishment of company in order to escape liability. ➢Case: Re Bugle Press Ltd d) Groups of Companies ➢ Generally, each company within a group is a separate entity. ➢ However in certain situations, a group of companies may be treated as a single entity if there is unity of ownership and unity of control. ➢ Case: DHN Food Distributors Ltd ➢ DHN was the holding company in a group of three companies which running a grocery business. ➢ One subsidiary, Bronze Investment Ltd owned the premise on which the business was conducted. ➢ The other subsidiary, DHN Food Transport Ltd owned the vehicles used by DHN. ➢ The land on which the business was conducted was subject to compulsory purchase by the Council. ➢ DHN sought compensation both for the land and for disturbance of its business. However, the Council refused to pay DHN on the basis that they did not have any interest in the land. ➢ The court held that the Council must pay them. The whole group of companies was treated as one commercial entity. • Thank You & Wassalam