LAW 485 - COMPANY LAW

TOPIC 1 Business
Organization

BUSINESS
ORGANIZATION

SOLE
PROPRIETORSHIP

PARTNERSHIP

COMPANY

OBJECTIVE

At the end of this lecture,

students should be able to know
the nature and characteristics of
the three modes of business
operations in Malaysia.

Three main forms of business

organizations/entities
Corporate body

Companies

Unincorporated
bodies
Sole
proprietorships
Partnerships

Differences between:
Corporate body

Once
registered, it
becomes a
separate legal
person / entity
Can own
property, sue &
be sued in its
own name,etc

Unincorporated
bodies
No separate
existence apart
from the person
who conducted it
Properties,
obligations in law
is with
owner/partners

Sole Proprietorship

A sole-proprietorship is a
business structure wholly owned
by a single individual.
It requires no special legal
documents for its creation.
However, it is required to be
registered under the
Registration of Business Act
1956

SOLE
PROPRIETORSHIP

Nature of
Business

Rights and
Liabilities
of a Sole
Proprietor

NATURE OF BUSINESS
(SOLE PROPRIETORSHIP)

There is only one person in a sole

proprietorship
The sole proprietorship owns and
manages the firm himself and can
employ employees to manage the
firm for him
The sole proprietor may transfer his
business to someone else

Rights and Liabilities of a Sole

Proprietor

A Sole Proprietor may withdraw his capital any

time.
His liability for the firms debts to his creditor is
unlimited
A sole proprietor has unrestricted powers of
borrowing
A sole proprietor is formed informally and
information about the firm need not be published
A sole proprietorship may be dissolved informally
by the sole proprietor himself
Sole proprietor can raise capital by way of loans
and of course by utilising his own personal
properties.

DEFINITION
DISSOLUTION

TYPES

PARTNERSHIP
LIABILITY

RIGHTS
AND
DUTIES

FORMATION
AND
DURATION

RELATIONS
WITH THIRD
PARTIES

DEFINITION OF PARTNERSHIP

Section 3 Partnership Act 1961

Partnership is the relation which
subsists between persons carrying
on business in common with the
view of profit

TYPES OF PARTNERS

A general partner partner in the

fullest sense
An active partner actively participates
in the management of the business and
is known to the world as partner
A dormant (or sleeping) partner takes
no active part in the management but is
liable as a partner
A quasi-partner in fact not a partner
but liable for debts of the partnership
as a result of holding out (causing
people to believe he is a partner)

FORMATION AND DURATION

OF A PARTNERSHIP

Can be formed with or without a

written agreement easier to form
than a company
Anyone who is of legal capacity is
capable of entering into a
partnership agreement

RELATIONS BETWEEN
PARTNERS AND THIRD
PARTIES

Partners are agent of the partnership

firm, therefore any act or omission
committed by one partner binds the
rest of the partners if it is carried out
within the ordinary scope of the firms
business Section 7 Partnership Act
1961
Case: Chan King Yue v Lee & Wong
(1962)
The authority of a partner may be
actual or ostensible

Actual authority may be express or

implied
Ostensible/Apparent exists when in
the absence of express prohibition,
the law provides that if a man so
conducts his business as to misled
others, he must bears the
consequences arises when the
partner holds out to others that he
has such authority.

Section 8 PA 1961 partners are

bound by acts on behalf of the firm.
Case: Hock Hin Chan v Ng Kee Woo
(1966) The court held that since
one of the partner has apparent
authority to issue a bill of sale on
behalf of the firm, all other partners
are bound by his act.
Section 9 If a partner is using
credit of the firm for a purpose not
connected with the firms ordinary
business, the firm is not bound
unless the act is specially authorised
by other partners.

For a third party to hold the

partnership liable, the following
conditions must be met:
The act must be done for the
purpose and in the ordinary nature of
the partnership;
Act must be done by a partner of the
firm in his capacity as partner and
not in his own personal capacity

RIGHTS AND DUTIES OF

PARTNERS (in absence of
agreement)

(a)

(b)

(c)

Section 26
All partners are entitled to share
equally in the capital and profits of the
business and must contribute equally
to losses;
The firm must indemnify every
partner in respect of payments made
and personal liabilities incurred by
him;
A partner is entitled to 8% interest p.a
if he make any advance or payment
beyond the amount of capital which
he agreed to subscribe;

(d) No partner is entitled to interest

on capital before the
ascertainment of profits;
(e) Every partner may take part in the
management of the business;
(f) No partner is entitled to
remuneration for acting in the
partnership business;
(g) No person may be introduces as
a partner without the consent of
all existing partners;

(h) Any differences connected with the

partnership business may be
decided by a majority of the
partnership, but no change may be
made in the nature of the
partnership business without the
consent of all existing partners;
(i) The partnership books are to be
kept at the place of business of the
partnership or the principal place if
there is more than one place of
business

LIABILITIES OF PARTNERS

Torts
Misapplication
Misappropriation
Contractual liability
Criminal liability
Duration of liability
Liability of persons for holding
out
Liability of retired partners

Torts

In order to make a firm liable under

torts, the tortious act must be
committed by a partner in the
ordinary course of the business or
with authority of the co-partners.

Misapplication

Section 14 - Every partner is liable

jointly and severally for everything
the firm becomes liable under
Section 12 and 13.
Therefore plaintiff can sue all the
partners jointly or may even sue one
or more of the partners concerned.
Where one partner acting within the
scope of his authority receives
money of a third person and
misapplies it, the firm is liable to
make good the loss.

Misappropriation

If a partner acting in his individual

capacity, improperly makes use of
trust property in the business of the
firm, as a general rule, his other
partners are not liable to the
beneficiaries.
However, if the trust money is still in
the firms possession or under its
control, the beneficiaries can recover
the same from the firm.

Contractual liability

All partners in the firm are jointly

liable for all contractual and other
debts and liabilities including tax and
judgment debts which are incurred
while each is a partner.

Criminal Liability

Although partners are jointly liable in

civil cases, they are not jointly liable
in criminal cases

Duration of liability

A new partner who has just been

admitted into a firm is not liable for
the debts incurred prior to his
admission.
However, if the new partner agrees to
be liable for the existing debts of the
firm at the time of his admission, he
would be liable.
A partner is liable for all debts and
liabilities of the firm as long as he is a
partner of the firm.

Liability of persons holding out

Any mode of representation through

oral or written or by conduct
indicating that one is a partner is
sufficient to fix the person making
the representation with liability as a
partner of the firm.

Liability of retired partners

After retirement, a partner is still

liable to persons who deal with the
firm unless he has given notice to
such persons that he is no longer a
partner.

Dissolution of partnership

By Agreement mention in the

agreement or partners mutually agrees
to terminate the partnership.
By death or bankruptcy - Section 35 (1)
By charging on shares Section 35 (2)
By supervening illegality Section 36
By court order Section 37

Notice of dissolution

All customers of the partnership are

entitled to treat all the former
members as continuing to be
members unless notice of dissolution
is given Section 39
For old customers, an advertisement
in the gazette alone is not sufficient.
Notice such as circular letter must be
served on old customers of the firm.

COMPANY
LAW

FORMATION

REGISTRATION

DOCTRINE OF
CONSTRUCTIVE
NOTICE

Formation of company

Any business organization with more

than 20 members must be
incorporated as a company.
Otherwise, it is illegal and can
neither sue to enforce its rights nor
can be sued by members.
If a transaction has been entered
into by illegal partnership, it remains
tainted even though the number of
partners may be reduced below 20
at the time the action is brought.

Registration of a company

Promoter: a person who undertakes

to form a company and to set it
going. Any person can do it on
lodging the requisite documents and
on payment of the prescribed fee,
the company will be registered.
the most important document that
must be lodged is the MOA
(companys constitution.) - Section
16(1)

it will contain the companys name,

its objects, the amount of its share
capital and whether the company is
limited or unlimited either by shares
or guarantee.
First directors must be named in the
MOA and AOA Section 122(3) &
16(7)
the MOA must be signed by persons
called the subscribers (usually the
promoters) in the presence of
witnesses Section 181(2)

if the company has share capital, the

subscriber must agree to take at
least one share each. They will be
the first members of the company.
also contain an incorporation clause
stating that the subscribers are
desirous of being formed into a
company Section 18(1)(h)
upon registration of the MOA, the
registrar will issue a certificate of
incorporation, certifying that the
company is incorporated from the
date specified. [s 16(4). This
certicate of incorporation is the
companys birth certificate.

Constructive notice

An outsider dealing with a company

is deemed to have notice of the
public documents of the company =
doctrine of constructive notice
Where the authority of an agent is
limited by a companys memorandum
or articles, an outsider dealing with
the company is taken to have read
and understood these documents
and to be aware of the agents lack of
authority.

The outsider cannot then hold the

company liable despite
representations made by the
company.
Where a company acts outside its
objects as stated in the
memorandum, outsiders are taken to
be aware of the existence of any
limitations

End of Lecture
Thank You