Procedure for Registration of Company Private, Public

A minimum ONE s/h for private & public co.

A minimum of 2 directors for public co, & one director private co
A company secretary can either be:
o Anyone member of professional body Ministry of Domestic Trade & Consumer
Affair or o An individual licensed
by the ROC
 Promoters (Sec 4 CA 1965)

• Refers to a person who is responsible who undertakes the responsibility of setting up

a company
• A term which covers the person who actually registers the company
• & also who makes business preparation for the company
• Enter into contract on behalf of company before the company receive its certificate
incorporation

 Fidiciary Duties Erlanger v New Sombrero Phosphate

- A duty not to make a secret profit at the expense of the company

- A duty to account to the company for the benefit of any subsequent

contract to acquire a property which he intends to sell to the company

- A duty not to exercise undue influence or fraud

- A duty not to hide his interest through a nominee

The promoter is in a fiduciary relationship with the company he promotes &

as such he owes fiduciary duties towards it
He is in a position of trust & must all times act honestly
& in good faith for the benefit of the company as a whole
 Remedies for Breach of Duties

• The remedies can only be obtained by the co not the s/h (Habib Abd Rahman v Abd
Cader)
• The promoter must be performing that act in his capacity as promoter & not otherwise
(Re Cape Breton)

 Rescission  Damages

 Where the co has entered a  The co. may also claim damages
contract with the promoter
from the promoter for the breach
of his fiduciary duties.
 The company is entitled to
rescind (revoke) the contract
upon discovery of the breach by Re Leeds & Hanley Theatres of
the promoter
Variaties Ltd

Erlanger v New Sombrero

Phosphate Co
 Recovery of the Secret Profit

 However, it must be borne in

 The co. may also be entitled to
mind that rescission in an
equitable remedy & courts may recover any secret profit made
not grant such a remedy if it is by promoter
inequitable to do so.
Gluckstein v Barnes
Lagunas Nitrate v Lagunas
Syndicate

 Remedy rescission may be lost

when there is undue delay
initiating the action,
where 3rd party has acquired
rights bona fide & for value
parties cant
restore to their original position
 Pre-Incorporation Contract

A pre incorporation contract is one, which is purportedly made by / on behalf of a co. at the
time when the co. has not yet been formed

 English Position  Malaysian Position

At common law – totally VOID Statutory position – Section 65(1) and (2)

Why? Sec 65(1)

 Had no capacity contract (incorp. Co) - Any contract/ other transaction purport to be made by co. a
 Not ratify the contract after its time when the co has not been formed has the effect of
incorporation contract
Kelner v Baxter - Or transaction made with the person purporting to act for the
Held: co/ or as agent for it. He is personally liable on the
The co, was not liable contract/transaction accordingly
However A,B & C were liable but no
ratification could release them from such
liability. Sec 65(2)

- A pre incorporation contract may be ratified by a company

after its incorporation.
- Once its ratification the contract become binding between
the co & other party & each may sue the other to enforce it
(Cosmic Insurance Corpn
Ltd v Khoo Chiang Poh)

- Thus in MY, a pre-incorporation contract is ratifiable by the

co. after its incorporation.

- Once it ratified, either party can sue the other upon contract
 CONSTITUTION OF THE COMPANY

Sec 31(1)

Provides that a company other than co limited by guarantee & a public listed co,
may or may not have a constitution

Sec 21(1) Absence constitution (CA ACT 2016)

A co. shall be capable exercising all the functions of a body corporate & have full
capacity to carry on any business activities

(a) To sue & be sued

(b) To acquire, own, hold, develop or dispose any property
(c) To do any act which it may do / enter into transaction

Adoption of constitution (sec 35(1))

• A co may adopt a constitution by passing a special resolution to that effect

& lodge a copy of the constitution with Registrar Companies within 30
days of adoption (s32)
• A constitution adopted by the co shall be binding on the co, its members &
directors
• The constitution may provide following matters
i. Object of co
ii. Capacity, rights, powers/privilege of co if provision restrict such
capacity….rights.. powers.. iii. Matters contemplated by
CA Act 2016 to be incl constitution iv. Any other matters as the
co wishes to include in its constitution

EFFECT OF COMPANY’S CONSTITUTIONAL DOCUMENTS

 Sec 33(1) CA 2016 A constitution shall, when registered, bind
1. The members to the co
2. The co to the members
3. The members to each other

Members & Members sec 33 (1) Members and Company

The terms of the article are regarded as
terms of contract among members
themselves
& 2. Note that member is only bound on
Therefore, one member may enforce the
articles against other member
Wong Kim Fatt v Leong & co Sdn Bhd
1. Both are contractually bound so must
observe provisions
Hickman Kent
Romney March Sheep Breeders’ Association
provisions that affect the member in his
capacity as a member

Rayfield v Hands

Company & Outsiders

1. An outsider, ie 3rd party

A non-member are not privy to this contract. Therefore, cannot enforce

2. A member will also considered as outsider & not bound if his rights
mentioned is in a capacity other than as a member.
Eley v Positive Govt Security Life Assurance co.

Ultra Vines Doctrine

 • ‘beyond the power’
• It goes beyond its capacity as contained in its object clause
• Effect under common law
Ultra vires act are VOID
- At common law, any ultra vires act/ transaction
of co. was held to be totally void.
- Neither the co. nor the 3rd party can enforce
such transaction (Ashbury Railway co v
Riche) (Re Jon Beauforte)
The principle is known as doctrine of ultra vires
Purpose
To protect the investor of co.
Ie. Its members as creditors who could rest
assured that their money would be applied for the
purpose of stipulated in objects clause
However, the doctrine has the tendency of creating
hardship to the co which could not venture to new
activities without altering the objects clause
Method to overcome ultra vires
(Bell Houses Ltd v City Wall Properties Ltd
)
- The use of subjectively phrased objects
clause,
Effect under statute
Ultra Vires Acts are valid for 3rd party
• Where the 3rd party isn’t aware that its
transaction with the co
• It is submitted that the 3rd party who was
unaware of the co’s lack of capacity when the
contract was made
• Can enforce the contract, the co is bound &
cannot use the lack of capacity as defense to
avoid contract
Rights of the co.
• S213 the duty of director, CFO and any person
primarily responsible for the management of
the co to exercise his powers for a proper
purpose for good faith in the best interest of
the co.
Summary
• The present & former officers of the co may be
made liable to the co. for the transaction.
• The co may also be wound up by the minister
• Completed transaction remain valid as
between the co & 3rd party either party may
sue upon it.
• Ultra vires is no longer applicable for
completed transaction /
• Uncompleted transaction may be stopped
upon ultra vires