Chapter 4(b) & 5

Basic Introduction to Company Law

 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