INCORPORATION OF A COMPANY AND LEGAL PERSONALITY

(a) How are companies incorporated

(i) A person who desires to form a company must apply for incorporation from
the Registrar.

(ii) The application for incorporation must contain certain particulars which are
stated in s. 14(3) of the Companies Act 2016.

(iii) Additionally, under s. 14(4), the application for incorporation must be

accompanied by a statement from each promoter or director confirming-
To act as promoter or director, as the case may be, and
That he is not disqualified to act as promoter or director.

(iv) If the Registrar is satisfied with compliance of the procedure above and upon
payment of the prescribed fee, the Registrar will (a) assign a registration
number to the company and (b) issue a notice of registration.

(v) As to power of the Registrar to refuse registration of a company, see s. 16 of

Companies Act 2016.

(vi) For requirements relating to the name of a company, see ss. 25 to 30 of

Companies Act 2016.

(b) Effects of incorporation

(i) A company is incorporated on the date specified in the notice of registration

issued by the Registrar (see s. 18(1)). Note that although the Companies Act
2016 provides that the Registrar may issue a certificate of incorporation under
s.17, the notice of registration is conclusive evidence that the company is duly
registered under the Act (see s.19) and thus incorporated as provided under
s.18(1).

(ii) The following are effects of incorporation a company

every person whose name was stated as a member in the application

for incorporation shall be a member of the company (s.18(2))
if the company has share capital, the member shall also be known as a
shareholder (s.18(3))
a company is a body corporate and has legal personality separate from
that of its members
a company continues its existence until it is removed from the register
a company is capable of exercising all the functions of a body
corporate and has full capacity to carry on or undertake any business

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 a company can sue or be sued
a company can acquire, own, hold, develop or dispose of any property,
and
a company can do any act which it may do to enter into transactions.

(c) Separate Legal Personality

(i) The underlying and fundamental basis of Company Law is that when a
company is incorporated, it acquires an independent and separate legal
personality from its members.

(ii) This means once incorporated, a company becomes a legal person with
legal personality separate from its members. As a legal person, the
company can enter into transactions and sue or be sued in its own name.
It can also own land and it continues to exist despite changes to its
membership.

(iii) The principle of separate legal personality was established in the landmark
decision of Saloman v A. Saloman & Co Ltd [1897] AC 22 and is now
codified in s. 20(1) of the Companies Act 2016.

(iv) The principle of separate legal entity also applies to the officers of the
company, such as the directors of the company.

(v) Following from the principle of separate legal personality, there is a veil
of incorporation (the corporate veil) separating the company on one side
and its members and officers on the other side. The debts and obligations
of the company belong to the company and cannot be imputed on the
members and officers of the company.

Refer to Saloman v A Saloman & Co Ltd [1897] AC 22, HL

Macaura v Northern Assurance Co [1925] AC 619, HL
Lee v Lee's Air Farming Ltd [1961] AC 12, PC
Re Application of Yee Yut Ee [1978] 2 MLJ 142
Abdul Manaf Mohd bin Ghows & Ors v Nusantara Timur Sdn Bhd &
Ors [1997] 4 CLJ 437
Foss v Harbottle (1843) 2 Hare 461; 67 ER 189
Abdul Aziz bin Atan & 87 Ors v Ladang Rengo Malay Estate Sdn Bhd
[1985] 2 MLJ 165; [1985] 1 CLJ 255
Fawziah Holdings Sdn Bhd v Metramac Corporation Sdn Bhd & Anor
Appeal [2006] 1 CLJ 996

(d) Lifting the Veil of Incorporation

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(i) Judicial lifting of the corporate veil

The concept of separate legal personality can sometimes be abused. Therefore, in

certain situations, the courts will lift the corporate veil and disregard the concept of
separate legal personality. This will result in the company and members being treated
as one and a personal liability will be imposed on the members or officers for the
companys debts and obligations.

Fraud and avoidance of obligations

The court will not allow the concept of separate personality to be used as an
instrument to perpetuate fraud or to avoid legal obligations.

Gilford Motor Co Ltd v Horne [1933] Ch 935 CA

Jones v Lipman [1962] 1 All ER 442
The Bugle Press [1961] Ch 270
Development & Commercial Bank Bhd v Lam Chuan Co & Anor [1989] 1
MLJ 318
Aspatra Sdn Bhd & Ors v BBMB & Anor [1988] 1 MLJ 97 (SC)
Law Kam Loy & Anor v Boltex Sdn Bhd & Ors [2005] 3 CLJ 355
Vellasamy Pennusamy & Ors v Gurbachan Singh Bagawan Singh & Ors
[2012] 2 CLJ 712

Agency

As a general rule, no relationship of agency exists between a company and its

members. Only in exceptional circumstances will this relationship be deemed
to exist.

BBMB & Anor v Lorrain Osman [1985] 2 MLJ 236

Firestone Tyre Co v Llewellin [1957] 1 WLR 464
Re FG Films [1953] 1 WLR 483
Smith, Stone, Knight Ltd v Birmingham Corporation [1939] 4 All ER 116
Hotel Jaya Puri Bhd v National Union of Hotel, Bar and Restaurant Workers
[1980] 1 MLJ 109

Group Enterprise

It is normal practice for a company to incorporate one or more subsidiary

companies. Generally, a parent company and its subsidiaries are regarded as
separate and independent companies. In exceptional circumstances, the court
will lift the veil of incorporation and treat the parent company and its
subsidiaries as a single group enterprise.

The People's Insurance Company (M) v The People's Insurance Co Ltd [1986]

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 1 MLJ 68
DHN Food Distributors Ltd v London Borough of Tower Hamlets [1976] 3
All ER 462
Adams v Cape Industries plc [1990] Ch 433
Hotel Jaya Puri Bhd v National Union of Hotel, Bar and Restaurant Workers
[1980] 1 MLJ 109
Woolfson v Strathclyde Regional Council (1978) 38 P & CR 521
Sunrise Sdn Bhd v First Profile Sdn Bhd [1996] 3 MLJ 533; [1997] 1 CLJ 529
Edmund Charles Liebenberg v ICB Griffin Manufacturing Sdn Bhd & Ors
[2005] 3 CLJ 613
Ata Management Consultants Sdn Bhd v Makmuran Sdn Bhd [2004] 3 CLJ 53
Epic Quest Sdn Bhd & Anor v. Sheila Eleanor De Costa [2011] 8 CLJ 518
Alcatel-Lucent (Malaysia) Sdn Bhd v. Solid Investments Ltd & Another Appeal
[2013] 2 CLJ 734
Tenaga Nasional Bhd v Irham Niaga Sdn Bhd & Anor [2011] 1 MLJ 752
Tenaga Nasional Bhd v Irham Niaga Sdn Bhd & Anor [2017] 5 CLJ 488

Control by enemy of state

In times of war, the court has the power to lift the corporate veil to determine
if a company is controlled by an enemy of the state.

Daimler Co Ltd v Continental Tyre & Rubber Co (Great Britain) Ltd [1916]
2 AC 307

Justice of the case

Aspatra Sdn Bhd & Ors v BBMB & Anor [1988] 1 MLJ 97 (SC)

(ii) Statutory provisions that lift the corporate veil

The Companies Act 2016 also contains a number of provisions that provide
for the lifting of the corporate veil.

Section 65 pre-incorporation contracts

Section 123 financing of companys shares
Section 186 allotment of shares
Section 244 consolidation of group accounts
Section 539 wrongful trading
Section 540 fraudulent trading
Section 541 misapplication of money