COMPANY LAW

• Main Legislation - Companies Act 2016

• Sec 2(1) CA 2016 – “company” means a company

incorporated under Companies Act 2016 or under
any corresponding previous written law.
Types of companies
• Company can be classified according to:
• Liability of members
• Public status
• Relations with other company
• Classification According to Liability of Members
• (a) company limited by shares
• (b) company limited by guarantee
• (c ) unlimited company
 Company limited by shares

• Section 10 (2) of the CA 2016 – a company formed

on the principle of having the liability of its member
is limited to the amount, if any, unpaid on the shares
respectively held by the members.
• The liability of a member of a company limited by
shares will be to any amount unpaid on a share held
by the member.
• Creditors of a company limited by shares shall have no
access to personal property of members in order to satisfy
debts. Debts of a company shall only be satisfied from the
company’s assets.
• In the event the company being wound up, the members
shall be liable to contribute to an the assets of the
company to an amount sufficient for payment of debts
and liabilities which shall not exceeding the amount
undertaken to be contributed by the member, if any,
unpaid on the shares.
 Company limited by guarantee

• A company limited by guarantee if the liability of its

members is limited to such amount as the members
undertake to contribute in the event of its being
wound up.
• Companies limited by guarantees are normally
formed to incorporate trade or research associations.
It is not the normal mode for business operation.
 Unlimited company

• Means a company formed on the principle of having

no limit placed on the liability of its members.
• An unlimited company shall either be a private
company or a public company.
• The name shall end with the word ‘Sendirian’ or the
abbreviation ‘Sdn’
• Classification according to the public status
• Private company
• Public company
 Private company

• Section 42 of CA 2016-characteristic of a private

company
• A company limited by shares
• Limits to not more than 50 shareholders.
• Restrict the transfer of its shares
• The name shall end with the word ‘Sendirian bhd’ or
abbreviation ‘Sdn Bhd’.
• A company limited by shares shall not offer any shares or
debentures of the company to the public.
• Prohibits to allot or agree to allot any shares or debentures of a
company with a view to offer such securities to the public.
• Prohibits from inviting the public to deposit money with the
company for fixed period or payable at call, whether bearing or
non bearing interest.
• Gives the option to a private company to have a
constitution.
• Shall have a minimum of one director.
• Need not hold an annual general meeting in every
calendar year.
• Shall lodge with the Registrar the financial statement and
reports within 30 days from those documents being
circulated to its member under section 258 of CA 2016.
 Single member company

• It is now possible to incorporate a single member whereby

there will be only one shareholder and the same
shareholder can also be director.
• A company with a single member may enter into any
contract with the sole member.
• Pursuant to section 234 of CA 2016, any unwritten
contract entered into not in the ordinary course of the
company business, the company shall ensure the terms of
the contract are recorded in the minutes of the meeting
of the directors immediately after making the contract.
 Exempt private company

• A private company may either be exempt private

company or non- exempt company
• An exempt private company is a private company
who has 20 members or less and none of its
members are themselves companies.
• Section 260 of the CA allows an exempt private
company to lodge with the registrar certificate
relating to its status as an exempt company in lieu of
the requirement in section 259 (1) of the CA 2016.
• The certificate confirms that
• The company is and at all times been an exempt private
company
• Duly audited financial statement and reports has been
circulated to its members; and
• As at the date to which the financial statement has been
made up, the company appeared to have been able to meet
its liabilities as and when the liabilities fall due.
• An exempt private company can keep their financial
information private.
• An exempt private company is not prohibited from
making loans to its directors or entering any
guarantee or from providing any security in
connection with a loan made to its directors by any
other person.
 Public company

• Public company is a company other than a private

company.
• It can be divided into listed company and non listed
company.
• The name of the public company shall end with the
word ‘Berhad’ or abbreviation ‘Bhd’.
• No restriction on the maximum number of members
of a public company.
• A public company has to be more than 50 members.
• Shall have a minimum of two directors.
• It is a mandatory for every company to hold its
annual general meeting in every calendar year.
• Public companies may borrow from the public by
issuing shares or debentures.
 Classification according to relation
with other companies
Subsidiary Company - sec 4 (1)
• Deemed to be a subsidiary of a holding company
• (a) if the other corp.
• i) Controls the composition of the BOD of the subsidiary
company
• ii) Controls more than half of the voting power of the subsidiaries
• iii) Controls more than half of the issued share capital of the
subsidiaries
• (b)- The corp. is subsidiary of any corp. which is that other corp.’s
subsidiary
• Ultimate Holding Company
• A corporation shall be deemed to be ultimate holding
company of another corporation if
• The other corporation is a subsidiary of the
corporation
• The corporation is not itself a subsidiary of any
corporation.
• Wholly owned subsidiary
• A corporation is a wholly owned subsidiary of another
corporation if it has no members except:
• That other corporation or nominee
• A wholly owned subsidiary of that other corporation or its
nominee
 Related corporation
• Sec 7 – Corporation is deemed to be related to each
other if :
• a. it is the holding company of another corporation
• b. it is a subsidiary of another corporation; or
• c. it is a subsidiary of the holding company of another
corporation
• Lecture hypothetical

• Lolok Bagus Sdn Bhd is the registered shareholder of

35% of the shares in Rasa Sdn Bhd . The other 65% of
the shares are spread amongst 3 shareholders, Shahril,
Desmond and Gerald. Shahril and Desmond each own
15% of the shares in Rasa Sdn Bhd . Rasa Sdn Bhd’s
constitution provides that it must have 5 directors, and
that Lolok Bagus Sdn Bhd has the power to remove 3 of
the directors.

• Is Lolok Bagus Sdn Bhd the holding company of Rasa

Sdn Bhd ?
Incorporation
of company
 Procedures of incorporation
• Online application of MyCOID 2016

First step – Reservation of name

• Sec 27(1) of the CA 2016- apply to the Registrar to confirm availability of
a proposed name.
• Sec 26(1) – name can be approved if it is not:
(a) undesirable or unacceptable
(b) Identical to am existing company, corporation or business
(c )Identical to a name that is being reserved under the CA 2016
(d) A name that the Minister has directed the OC not to accept of registration
• Once the proposed name is approved, it will be reserved for 30 days from
the date of lodgment of the application together with the prescribed fee.
• Second step- Application,Fees& Notice of
Registration
• Sec 14 (3) – requires a list of information/ particulars to
be included in the application form (known as “Super
Form”.
• Sec 15 CA 2016 – if the Registrar is satisfied that the
requirements as to the application for incorporation has
been complied with and upon payment of the prescribed
fee, the Registrar shall enter the particulars of the co. in
the register, assign a registration number to the co. and
issue a notice of registration.
Procedures to set up a company
via electronic filing system
MyCoID
• Please read user manual at
https://mycoid2016.ssm.com.my/document/MyC
oID2016_User_Manual.pdf
Effects of incorporation
of a company
Effects of incorporation of a company
pursuant to Sec 18

• Upon incorporation, there shall be a company by the

name and registration number as stated in the principal
register kept by the Register.
• Every person whose name is stated as a member in the
application for the incorporation and on the
incorporation of the company shall be entered as
members, together with such other person who may
become members of the company from time to time, are
a body corporate by the name stated in the notice of
registration.
Effects of incorporation of a company
pursuant to Sec 18
• In the case of a co. having share capital, every
person whose name is a stated in the application for
incorporation becomes the shareholder
• The details of the registered office of the co. as
stated in the application for registration.
• The person named in the statement as a director or a
secretary, if any, shall be deemed to have been
appointed to that office.
Effects of incorporation of a company
pursuant to Sec 20

• Sec 20 – Co. 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
Sec 21 (1) – Co. shall be capable of exercising all the
functions of a body corp. and have the full capacity to carry
out or undertake any business or activity including –

(a) To sue and be sued

(b) To acquire, own hold, develop or dispose of any property
(c) to do act which it may do or to enter into transactions
 Doctrine of Separate Legal Entity
• The Principle in Salomon v Salomon case

• Salomon v Salomon & Co Ltd (1897)

• The case of Salomon v Salomon established the principle that a

company is a separate legal person from its members/shareholders. This
principle is also known as the veil of incorporation.

• Facts

• Salomon (S) owned a shoe repair business; he decided to turn this

business into a limited company. He created a company called Salomon
& Co Ltd (S&C); and given the requirements put forth in the
Companies Act 1862 which require the presence of at least seven
shareholders, he made himself, his wife and his five children, all
owning one share each.
 Doctrine of Separate Legal Entity

• S&C Ltd then bought the business from Salomon for £ 39,000. S&C
Ltd paid for the business:
• – £20,000 in shares (priced at £1)
• – £10,000 owed, paid by a debenture (a loan from S to S&C Ltd)
• – some cash

• Soon after the business had been incorporated, the company faced
severe financial difficulties. In the end, however, the business failed.
• Given that, at the time, the company was indebted to unsecured
creditors; an action against the appellant was brought by the company’s
liquidator
 Doctrine of Separate Legal Entity

• The House of Lords ruled that:

• – S was not personally liable for the debts owed by S&C Ltd
•
• – S was entitled to the assets of S&C Ltd, since he was a
secured creditor (through the debenture)
Case Lee v Lee’s Air Farming Ltd
Facts
• Lee formed the company, Lee’s Air Farming Ltd. He owned all the shares
except one. He was the company’s sole governing director. He was also
employed by the company as its chief and only pilot. Lee was killed while
flying for the company.
• His wife made a claim for workmen’s compensation under the New
Zealand workmen’s compensation legislation. Her entitlement to such
compensation depended on whether or not Lee was a worker
• The New Zealand Court of Appeal refused to hold that Lee was a
worker, holding that a man could not in effect, employ himself.
Held

• The Privy Council allowed Mrs Lee’s claim. Lee may have been the
controller of the company in fact but in law, they were distinct persons.
• He could therefore enter into a contract with the company, and could be
considered to be an employee. The widow was therefore entitled to an
award in respect of workmen’s compensation.

• Read : The case of Abdul Aziz b Atan & ors v Ladang Rengo Malay
Estate Sdn Bhd [1985] 2 MLJ 165
 Application of the Principles of Separate Entity

• From this principle of separate legal personality, it follows

that:

• The debts of a company are the responsibility of the

company and not its shareholders/members;
• * A company can own assets and the shareholders have
no share (proprietary interest) in those assets.
• * A company can enter into a contract with a
shareholder;
• * A company must sue in its own name, and not in the
names of its members, for any wrong committed against
it.
 Lifting the Veil of Incorporation
• There are two types of exceptions where the veil
can be lifted:

• i) statutory veil lifting (statutes)

• ii) judicial veil lifting (Cases)

 Lifting the Veil of Incorporation
• corporate veil: A legal concept that separates the
personality of a corporation from the personalities
of its shareholders

• Lifting of the corporate veil means disregarding the

corporate personality and looking behind the real
person who are in the control of the company.
 Lifting the Veil of Incorporation
(under statutes)
• Any person involved in co’s fraudulent trading is liable for the co’s debts - S. 540(1)
of the CA 2016
• If there is improper use of co’s name, the officer who signs so, is personally liable
unless the co is willing to be bound - S.30(2) of the CA 2016.
• A director/manager is liable if dividends are paid although there were no available
profits – S.131 of the CA 2016
• Section 593(3) of the CA 2016 - If in the course of the winding up of a
company or in any proceedings against a company it appears that any business of
the co. has been carried on with intent to defraud the creditors of the co. or
creditors of any person or for any fraudulent purpose, the court may declare that
any person who was knowingly a party to the carrying out of the business in that
manner shall be personally responsible without any limitation of liability, for all the
debts or other liabilities of the co. as the Court directs.
 Judicial Veil Lifting

• i) Perpetration of Fraud

• The corporate veil may be lifted if the company is used

as a means to perpetrate a fraud.
• Aspatra Sdn Bhd & 21 Ors v Bank Bumiputra Malaysia
Bhd & Anor [1988]
 Perpetratation of fraud

• Aspatra Pvt. Limited. v. Bank Bumiputra Malaysia Bhd

(1988) 1 MLJ (Supreme Court of Malaysia)

Bank Bumiputra Malaysia Bhd (BBMB) and its subsidiary,

Bumiputra Malaysia Finance Ltd.. (BMF) claimed Lorrain to
obtain secret profits earned during his employment as a
director and chairman of BBMP BMF.
The company also claimed that the court should not consider
the assets obtained by Lorrain from his secret profits as
Lorrain’s personal assets. Thus, the court lifted the veil of
incorporation to ascertain the actual ownership of assets.
• ii) Evasion of Legal Obligation
• The court will lift the corporate veil to prevent a person
from evading his legal obligations under a legally
binding contract.
• Gilford Motor Co Ltd v Horne (1933)
 Evasion of legal obligation
• Gilford Motors v Horne [1933]

Horne was at one time the Managing Director of Gilford

Motors. One of the terms of his employment contract which
is the non-compete clause stated that if he leaves the
Company, he will not solicit the customers of the Company.
Later, Mr. Horne left the Company and setup his own
Company and through his new company, he had business
dealings with the previous Company’s clients. So, his previous
employer, Gilford Motors, sued Mr. Horne.
• Horne’s claimed that it was not him who doing the business but
the Company itself did the business as according to the law they
were two different entities.

• However the Court lifted the veil of incorporation. In this

instance, Mr. Hornes was just trying to hide behind a Corporate
veil to evade contractual obligations by using the company to do
the act which he is otherwise prevented from doing by contract
and steal business from his former employer.
• Jones v. Lipman

• Lipman agreed to sell properties to Jones. He later changed his

mind and don’t want sell to Jones. He was prepared to pay
damages. Lipman formed a company and sold his property to the
company. Jones made an order of specific performance to perform
the contract.
• Ct held: the specific performance was allowed by the court as the
act of Lipman to sell the properties was to evade legal obligation.
Therefore, the court should treat the company and Lipman as one
and lift the veil.
• However, if the party who bought the property was an innocent or a
bona fide purchaser he will be protected under the law and do not
have to return back the property bought by him or her. The court will
not order specific performance if the property has been sold to an
innocent 3rd party who is a bona fide purchaser for a value.
• iii) Enemy in Times of War

• In time of war, a company is not permitted to trade with

‘enemy aliens’. The court may go behind the veil of
incorporation in order to determine whether a company is to
be characterised as an ‘enemy’ in time of war.

• Daimler Co Ltd v Continental Tyre & Rubber Co (Great

Britain) Ltd [1916]
• Daimler Co.Ltd V. Continental Tyre And Rubber
Co.Ltd
• This case was decided during the time when England
was at war with Germany.
• Continental sued Daimler for money due in respect
of goods supplied. Daimler claimed that the
Company was actually owned by German Nationals
and paying them was illegal under the Trading with
the Enemy Act.
• The Court lifted the Corporate veil to discover if this
was so, and found as a fact that it was the Germans
who were operating the business. Defendant was
therefore successful in its defence.
• iv) Holding and Subsidiary Companies

A holding (or parent) company and any of

subsidiary companies are two separate legal entities,
but there are instances where these two are not
really treated as separate.
Hotel Jaya Puri Bhd v National Union of Hotel,
Bar & Restaurant Workers & Anor [1980]
 Holding and Subsidiary company
• In Hotel Jaya Puri Bhd v National Union of Hotel,
Bar & Restaurant Workers, the Jaya Puri Chinese
Garden Restaurant was closed down and the workers’
contracts were terminated. This restaurant is a
subsidiary company to Hotel Jaya Puri Bhd. The court
found, on the facts, that the hotel was in fact the
employer of the workers since the hotel and the
restaurant were sharing the same management unit and
also same managing director. Thus, the court lifted the
veil of separate legal entity and treated the hotel and
the restaurant as one legal entity. Thus, the court
ordered the hotel to pay compensation.
• V) Tax Avoidance

• The court may lift the veil of incorporation, where

it is being used to conceal the nationality of the
company with the intention of evading taxes
• Case : Unit Construction v Bullock (1960)
Unit Construction v Bullock (1960)
Facts

• A UK parent company had set up a subsidiary company in Kenya.

They appointed a Board, all residents of Kenya, company
incorporated in Kenya. The Board (Kenya Co) was specifically
prohibited under the articles from meeting in UK. The purpose was to
ensure that it was non-resident. If a subsidiary incurred tax losses, its
parent could use those tax losses, but it was limited to transfer of
losses from UK subsidiaries. Company originally set up as a company
not resident in UK, now they wanted it resident in UK to obtain tax
losses. UK parent claimed the losses. The Issue is where was the
Kenyan company resident? Court had to determine where central
management and control was for the company.
Held
• Basically, company is a resident where the head and
brains are resident so
• The Board of the subsidiary never made any decisions.
The decisions were all made in UK by Board of Directors
of parent company.
• Central management and control was in UK. Accordingly,
the African subsidiaries were resident in the United
Kingdom and the subvention payments were deductible in
computing the profits of the English subsidiary
• Thus, the subsidiary company in Kenya was treated as a
UK resident.
The Constitution of a Company
Definition and nature
• Company constitution (Previously known as
Memorandum of Association & Articles of
Association)
• is a crucial document for a company.
• It defines the rules by which a company must operate.
• It outlines the scope of the company’s activities, its legal
name and the procedures by which its members will
interact and conduct business.
• It establishes the procedural matters for the company’s
administration.
• It also specifies the rights and privileges of the
company and those of its members and officers.
• By law, the company must – at all times – act in
accordance with its constitution.
 Requirement of Constitution

• Sec 31(1) - A company may, but does not need a

constitution except for company limited by
guarantee.
 Adoption of Constitution
• Sec 32 – A company may adopt Constitution by way of special
resolution and lodge a copy of constitution with registrar of
Companies within 30 days of the adoption. Failure to lodge the
constitution – the company and officer in default shall be fined for
an amount not exceeding RM 50, 000 or a further fine not
exceeding RM500 for each day the offence continues after
conviction.
• Sec 32(2) - The Constitution has no effect to the extent that it
contravenes the Act.
• Sec 33(1) – Effect of the constitution- bind the company, directors
and the members
 The Contents of the Constitution
• Sec 35(1)
(a) The objects of the co. ( So, companies have full capacity to
achieve the objects unless the constitution provides otherwise).
(b) The capacity, rights, powers or privileges of the co if the
provision restricts such capacity, rights, powers or privileges
(c) Matter contemplated under this Act to be included in the
constitution
(d) Any other matters as the company wishes to include in the
constitution
• Sec 38 (1)- A company limited by guarantee shall have a
constitution
• Sec 38 (3)- The constitution shall state
(a) The company is a company limited by guarantee
(b) Objects
(c) Capacity, rights, powers and privileges of the company
(d) Number of proposed members for the incorporation
(e) Matters contemplated in the Act to be included in the
constitution
(f) Any other matters as the company wishes to be included in
the constitution
 DOCTRINE OF ULTRA VIRES

• The doctrine of ultra vires is no longer relevant ( Previously, the

doctrine is embedded in sec 20 of Companies Act 1965).
• Reason: - Companies have the full capacity of a natural person
under the Companies Act 2016.
• However, discussion as to the effect of an ultra vires transaction is
still relevant for :-
(a) companies that choose to have the objects clause
(b) companies limited by guarantee which must have the object clause
• The co. shall be restricted from carrying on any business or activity
which is not within those objects [Sec. 35 (2)]
 PROMOTER
• Meaning:
• Sec 2(1)- “in relation to a prospectus issued by or in connection with a corporation, means a
promoter of the corporation who was a party to the preparation of the prospectus or of any
relevant portion of the prospectus; but does not include any person by reason only of his acting
in a professional capacity”.
• Person who takes steps to form co – Tengku Abdullah ibni Sultan Abu Bakar v Mohd Latiff bin
Shah Mohd [1996] 2 MLJ 265
• A promoter, I apprehend, is one 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” -
Twycross v Grant;
• A promoter is one who starts off a venture- any venture- not solely for himself , but for others,
of whom he may be one’
• Person who is a party to pre-incorporation contract.
• Even if do not take active part but benefits from forming co, can be considered as promoter –
Tracy v Mandalay Pty Ltd (1953) 88CLR 215
• Professionals who prepare documents for co formation are not promoters (eg. Solicitors)
 Pre- incorporation contract

• Meaning – contract entered by the promoter before co is formed but for the benefit
of the co
• Who is bound by PIC if after co is formed, co refuses to be bound?
• Under common law:
• Promoter bound if signs in own name – Kelner v Baxter (1866) LR 2 CP 174;
• Promoter not bound if sign on behalf of co’s name because co is not formed yet –
Newborne v Sensolid (Great Britain) Ltd (1954) 1 QB 45
• S.65(2) - If co ratifies PIC, co is bound
• Ratification can be express/implied and by the BOD/GM – Cosmic Insurance
Corporation v Khoo Chiang Poh [1981] 1 MLJ 61
• S.65(1) - If no ratification, promoter is bound