COMPANY LAW

(GROUP 1)
PRE-INCORPORATION
CONTRACTS &
INCORPORATION OF COMPANY
1. CHEAH PEI WEI (D20191087097)

2. LIM MING TAT (D20191087107)

3. TEONG JIA MIN (D20191087120 ）

4. NURASIKHIN BINTI MOHD IDRIS (D20191087128)

5. ENG WEI JIE (D20191087131 ）

Learning Outcomes

Explain the concept of

promoters.

Describe the principle of

pre-incorporation contract.

Discuss the effects of

incorporation.

Explain the principle of

lifting of the corporate veil.

Promoters UNDER COMPANY
ACT 2016 2(1)
Definition Promoter in relation to a prospectus
issued by or in connection with a
Those who cause a company to be corporation, means a promoter of the
incorporated and also those who may
corporation who was a party to the
preparation of the prospectus or of
later find persons to act as its any relevant portion of the
directors, arrange for its shares to be prospectus; but does not include any
person by reason only of his acting in
offered to the public or sell assets to
a professional capacity.
it, provided always that in these
There is no precise definition given to
activities they generally
are
the promoter. Instead, it is only
involved in starting the company. referred to for the purpose of liability
on a prospectus.
 Definition of Promoters

Twycross v Grant Tracey v Mandalay Pty Ltd

(1877)
A person who undertakes to form a
company with reference to a given
project and to set it going, and who
takes the necessary steps to
accomplish that purpose.
(1953)
The idea of exertion for the purpose of
getting up and starting a company
and also the idea of some duties
towards the company imposed by or
arising from the position which the so-
called promoter assumes towards it.
 Duties of Promoters

Fiduciary Disclose to the company any

relationship profit which he may secure
They are neither a trustee nor As per the fiduciary (1) To the independent

an agent of the company relationship, they are: board of directors or;

because there is no company (i) not allowed to make any (2) In the article of

yet in existence. Hence, the secret profit and; association of the

proper way to describe their (ii) not allowed to derive any company or;

legal position is that they profit from the sale of his (3) In the prospectus or;

stand in a fiduciary position own property to the (4) To the existing and

towards the company about company unless all material intended shareholders

to be formed. facts are disclosed to: directly.

 Erlanger v New Sombrero
Phosphate Co. (1878)
Facts: Held:
The App. & ors. formed a syndicate to acquire a The contract should be void

lease of an island for the mining of phosphates. because the prospectus that

Members of the syndicate formed a company to offered the company’s shares to

purchase the lease. The comp. then sells its the public did not disclose the

shares to public. After 8 months, the public promoter’s profit.

investors found out the fact that the syndicate

had bought the island at half the price the

company had paid for it. The company sued for

rescission based on non-disclosure.

 Remedies For Breach of
Promoter's Fiduciary Duties

Obtain damages
Rescission of Recovery of for breach of
contract secret profit fiduciary duty
The company can rescind The company is The promoters may pay

the contract and recover entitled to recover the damages to company for

the purchase price secret profit they made breach of their fiduciary

duties apart from

rescinding the contract

 Pre-Incorporation Contracts

Contracts made before a company is

incorporated by promoters because
company before incorporation
1. has no contractual capacity
2. is not a separate entity
3. incapable of gaining contractual rights
or incurring liabilities
 Kelner v Baxter (1866)
Facts
The promoter in behalf of
unformed company accepted an
offer of Mr. Kelner to sell wine,
subsequently the company failed
to pay Mr. Kelner, and he brought
the action against promoters.
Held
The company cannot take the liability of
pre-incorporation contract through
adoption or ratification; because a
stranger cannot ratify or adopt the
contract and company was a stranger
because it was not in existence at the
time of formation of contract. The
promoters are personally liable for the
pre-incorporation contract because
they are the consenting party to the
contract.
 Section 65 (1)
A contract or transaction that purports to be made by or on behalf of a
company at a time when the company has not been formed has effect
as a contract or transaction made with the person purporting to act fot
the company or as agent for it, and he is personally liable on the contract
or transaction accordingly.

Section 65 (2)
Notwithstanding subsection (1), a contract or transaction referred to in that subsection
may be ratified by the company after its incorporation and the company shall be
bound by the contract or transaction as if the company had been in existence at the
date of the contract or transaction and had been a party to the contract or transaction.
The Effect of Section 65
To enable the outsider to
enforce the contract either
1. against the company after it
is incorporated when it
ratifies the contract or
2. against the persons who
purported to execute the
contract on behalf of the
non-existent company if it
does not.
 Once pre-incorporation contract is ratified, the
company is bound by the contract.

Ratification operates retrospectively

The company may choose not to ratify

The person who purported to act in the name or on behalf

of the company shall be personally bound by the contract
 Cosmic Insurance Corporation
Ltd. V Khoo Chiang Poh (1981)

Facts
The App. Khoo was offered the post
of managing Director for life in a
letter written by the promoters of
the company. After incorporation, a
resolution was passed confirming
the position of Khoo but with a
slight variation from the earlier
letter.
Issue
Whether the first letter amounted to
a pre-incorporation contract, and if
so, whether it was ratified.
Held
The letter amounted to a pre-
incorporation contract and that the
resolution passed after incorporation
amounted to ratification.
INCORPORATION OF COMPANY

THE EFFECT OF INCORPORATION

Legal Recognition: Companies Act 2016 Section 18

(1) Upon the date of incorporation specified in the notice of registration issued under section 15, there shall
be a company by the name and registration number as stated in the principal register kept by the Registrar
for this purpose.
(2) Every person whose name is stated as a member in the application for incorporation and on the
incorporation of the company shall be entered as members in the register of members, together with such
other persons who may become members of the company from time to time, are a body corporate by the
name statedin the notice of registration.
(3) In the case of a company having a share capital, every person whose name is stated in the application
for incorporation becomesthe shareholder as specified in the application.
(4) The details of the registered office of the company are as stated in, or in connection with, the
application for registration.
(5) The person named in the statementas a director or a secretary, if any, shall be deemed to have been
appointed to that office.
1 SEPERATE LEGAL ENTITY

Legal Recognition:
Companies Act 2016 Section 20

A company incorporated under this Act is a body corporate and shall—

(a) have legal personality separate from that of its members; and

(b) continue in existence until it is removed from the register.

Salomon v A Salomon & Co Ltd [1897] AC 22

Facts
The appellant Aron Salomon was a wholesale supplier of the export quality leather boot, around 30 years back of 1892.
On 1st June 1892, he transferred his business to a company where the appellant, his wife, daughter and four sons were
the subscriber to the memorandum of association. The appellant’s business was sold to Company for the sum of £
38,782 in which £ 16,000 was decided to be paid in form of cash or debenture. This was an excessive price for the value
of the business. Debenture of worth £ 10,000 was issued in favour of Aron Salomon which he later gave to one Mr.
Edmund Broderip as a security for a mortgage for £ 5,000. The appellant took 20,001 of the company’s 20,007 shares
as a payment for his old business. Later on, the company’s business failed and in October 1893, an order was made to
wind up the business of the company. At this date, a company was indebted to £ 7,773 to the unsecured creditors. The
liquidator alleged that the company was merely a sham and brought an action against the appellant to indemnify the
debts of the company.

Issues
Whether the shareholder of a company
could be imposed with the unlimited
liabilities of the company and can be
personally charged for it.
Held
Despite the fact that Mr Salomon controlled the company, it
was not his agent or trustee. The company was treated as
operating the business in its own right, and as being separate
from it controller, Mr Salomon. Therefore, the charge given by
the company to Mr Salomon was valid.
The decision confirms that a company
upon its incorporation, is a SEPARATE
LEGAL ENTITY from its members.

The creditors can look to only the company,

and not its member for repayment.

If a loan is secured, the MEMBER-

CREDITOR HAS PRIORITY OVER THE
PROCEEDS from the secured assets.
2 TO SUE AND BE SUED Section 21(1)(a)

All legal action involving a company must be in its own name.

Newborne v Sensolid (GB) Ltd Foss v Harbottle (1843) 2 Hare 461

[1954] 1 QB 4
A company is a legal person that can
sue and be sued, but it cannot enter
into or be sued on contracts before it
is properly incorporated
Facts:
2 shareholders in the Victoria Park
Company brought an action against the
company’s directors and some other
persons.
Held:
The injury complained of was an injury
to the company. In law, the company
and its members were not the same.
 A company may hold property in its own right,
Section 21(1)(b)
either movable or immovable.

Eg. Macaura v. Northern Assurance Co (1925)

Mr Macaura, sold all timber for share capital of

3 a company.
A policy insuring the timber was taken out in
ABILITY the name of Mr Macaura. A fire destroyed the
TO OWN timber on the estate. Mr Macaura then sought
PROPERTY to claim under the policy he had taken out.
Held: The timber belonged to the company and
that Mr Macaura even though he owned all the
shares in the company had no insurable
interest in the property of the company.
4 Limited liability on members

All liabilities incurred by the company are to be borne by the company

itself and not its members.

The same principle applies to directors and other

company officials. In general, they are not
responsible for debts incurred by the company
despite the fact that a company is run by
directors and company officials.
5 Perpetual succession
The existence of a company does not depend on the existence of its
members.

After a company is incorporated, it continues to

exist until it is dissolved according to the law or it
is stuck off the register. Membership may change
or members may die - the company continues in
existence until wound up.
 Powers of a
6 Company A company, being
an artificial
Lie in the legal person can
memorandum, only act through
company articles natural persons.
and relevant
legal provisions. A company acts
through its agent
7
 Lifting of
Corporate Veil
Recognized that the doctrine is open to abuse and
can in certain situations lead to harsh injustice.

•Those who are

•Pull aside the responsible
persona may be held
and look to see personally liable for
the acts or purported
who is behind
acts of the company
 Statutory
Sec.31 & Sec.38 Lifting of
Company limited by guarantee
shall have a constitution; other
types of company may or may not
Corporate Veil
have a constitution. It is optional
for them.

Sec.66
Sec.67 The manner to execute documents. If a
company adopts a common seal,
Offence relating to financial document is executed by affixing the
assistance to purchase shares, company's common seal, subject to
etc. the conditions or limitations in the
constitution.
 Sec.540(1)
The business of the
company has been carried
on with intent to defraud its
creditors, so as to have the
individuals responsible for
fraudulent trading to be
personally liable
•Sec. 250(1)
The consolidated
financial statements for
a financial statements
for a financial year
include all the
subsidiaries of a
company.
 Sec. 591
To make or authorize the
making of a statement that a
person knows is false or
misleading and that person may
be liable, upon conviction, to
imprisonment for a term not
exceeding ten years or to a fine
not exceeding RM3million or to
both.
 Sec. 126
Any officer (who includes a
director) of the company who
contravenes the aforesaid
restrictions under section 123 of
the Companies Act 2016 commits
an offence. On conviction, the
officer is liable to a fine not
exceeding RM3,000,000 or to
imprisonment for a term not
exceeding five years or to both.
Sec.196
Provides that a private
company shall have a
minimum of one director who
ordinarily resides in Malaysia
by having a principal place of
residence in Malaysia
(‘resident director’). For a
public company, it shall have
a minimum of two resident
directors.
 Facts
Mr Horne was a former managing director of Gilford Motor Home Co Ltd
(Gilford). His employment contract prevented him from attempting to solicit
Gilford’s customers in the event that Horne left Gilford’s employ. Horne was
fired and he subsequently set up a competing company which undercut
Gilford’s prices. Gilford did not have any legal restraints upon Horne’s
company, only Horne himself. Gilford commenced proceedings against Horne
individually, claiming that Horne’s company was an attempt to evade legal
Fraud or
obligation (not soliciting customers). avoidance
Issue of legal
Had Horne violated his non-compete clause by setting up his competing
company?
obligations
Held Gilford
The English Court of Appeal held that the company was set up to evade
Horne’s contractual obligations. The Court “pierced the corporate veil” and
Motor Co
ordered an injunction against Horne. Courts can “pierce the corporate veil” if a Ltd v Horne
company is simply a mere device to evade legal obligations, though this is
only in limited and discrete circumstances.
[1933]
 Sec. 14(1) CA 2016
provides that a person who desires to form a company

shall apply for incorporation to the Registrar by way of

electronic filing.

Super Form
Procedure of Available online through the MyCOID 2016 portal for ease of

Incorporation access.

of Company The name of the company being proposed

Details of the nature of the business

What type of entity the company would be (private or public)

What the proposed registered address of the company would be

Details of the intended directors, members and the company

secretary
 The Superform essentially combined Form 6 of

the 1965 Act, the company’s Memorandum and

Articles of Association, and Form 48A, making

easier for all those who intend to incorporate a

Procedure of new company.

Incorporation
(Sec.25(1) CA 2016)
of Company
Provides that the name of an unlimited

company shall end with the word ‘Sendirian’

or the abbreviation ‘Sdn.

 (Sec.26(1) CA 2016)
sets the criteria for the Registrar to approve a

company’s name. A name is available if it is not

(a) undesirable or unacceptable,

(b) identical to an existing company, corporation

Procedure of or business,
Incorporation (c) identical to a name that is being reserved
of Company under the CA 2016 or

(d) a name of a kind that the Minister has

directed the Registrar not to accept for

registration.
 Notice of Registration (Sec15 CA 2016)
Approval of company incorporation. CCM will

inform the person who submitted the

company incorporation application (Lodger)

Procedure of
Incorporation
of Company Reservation of Company Name
Reserved for 3 month from the date of

lodgement of application.
 Company Constitution (Sec.32 CA 2016)
MoA & AoA now collectively known as the constitution.

Sec.31(1 ) CA 2016
A company, other than limited by gurantee, may or may

not to have a constitution.

Sec. 38(1) CA 2016

Pre- A company limited by guarantee must have a constitution

Incorporation sec 201 CA 2016

Documents The Declaration by Person before Appointment as Director

is signed individually by all directors before the company

incorporation application is submitted to declare that

they have met the requirements to act as director and

have given consent to the appointment.

 Registration Fee
Depends on the amount of authorized capital.

Pre-
Incorporation
Documents
Certificate of Incorporation
Content
Company number.

Section 19 CA Company name.

Date of incorporation.

2016 (Prev The type of company that has been set up

known as F9) e.g. limited by guarantee or an unlimited

company.

The company’s status e.g. private or public.