PCL0012
Introduction to Commercial Law
TOPIC 1 :TYPES OF BUSINESS
ENTITIES
By Hashvini Rekha Pachappan
BRIEF NOTES TO GO THROUGH BEFORE CLASS
Types of
business
entities
a. Sole
Proprietorship
(or sole trader)
b. Partnership
c. Company
a. Sole Proprietorship (or sole trader)
 Commonly known as Enterprise/Trading Co.
 The simplest and most common structure chosen to start a
business.
 An unincorporated business entity that is owned and run by one
individual and in which there is no legal distinction between the
owner and the business..
(i)Single owner:
(ii)One legal entity:
(i)Single owner:
- The owner directly owns the business, i.e. he personally owns every
asset of the business including the equipment, inventory, and building.
- Normally he controls, manages and operates the business by himself.
He may be helped by his wife and family, or he may employ other
people to work for him, but this does not alter the fact that the
management is entirely in his hands.
- He alone bears the responsibility for running the business. He alone
takes the profits, and he alone pays personal income tax on the profits
of the business.
(ii
)
One legal entity:He enters into contracts in his own name and may be sued
personally.
-
He has unlimited responsibility for all liabilities, losses and debts.
-
More importantly, he has unlimited liability for the debt and obligations of the
business to the full extent of his personal assets.
•A sole proprietor may use a trade name or business name
other than his or
her legal name.
• Registration of sole proprietorships in West Malaysia are
governed by –
o The Registration of Business Act 1956 (Revised 1978) [Act 197]
o The Registration of Business Rules 1957 [L.N. 282/57]
Pros and Cons
Advantages
1.Easy and
inexpensive to form
2. Complete control
3.Easy tax
preparation
Disadvantages
1.Unlimited
personal liability
2. Hard to raise
money
3. Heavy burden
ADVANTAGES



Easy and inexpensive to form: This form of business is cheap, easy to set
up and with minimal documentation. Only small amounts of capital are
needed to start and run a business. It is also easy to organize and least
expensive business structure to establish. No risk of fraud by a partner.
Complete control. Since the owner is the sole owner or boss of the
business, he/she have complete control over all decisions. No requirement
to consult with anyone else when need to make decisions or want to make
changes. It permits a high degree of flexibility to the owner. The owner also
receives all the profit of the business.
Easy tax preparation. The business is not taxed separately, so it’s easy to
fulfill the tax reporting requirements for a sole proprietorship. The tax rates
are also the lowest of the business structures.
Disadvantages



Unlimited personal liability. Because there is no legal separation between owner and
his business. He can be held personally liable for the debts and obligations of the
business. This risk extends to any liabilities incurred as a result of employee actions.
Unlimited liability for business debts. The single owner is responsible for paying all debts
and damages of their business.
Hard to raise money. Sole proprietors often face challenges when trying to raise longterm capital. Banks are hesitant to grant loans because of a perceived lack of credibility
when it comes to repayment if the business fails and its small assets.
Heavy burden. The owner ultimately responsible for the successes and failures of the
business. The enterprise may be crippled or terminated if the owner becomes ill. Since
the business has the same legal entity as the proprietor, it ceases to exist upon the
proprietor's death. If the firm fails, creditors may force the sale of the proprietor's
personal property as well as their business property to satisfy their claim. When the
owner dies, the continuation of the business is difficult, because a new owner must
typically accept all liabilities of the business.
Procedure for Registration
Registration of a new business must be done within 30 days from the date of commencement of the business. (S.5 ofROBA)
He must be a Malaysian Citizen or a Permanent Resident who has attained the age of 18 years and above. Foreigners are not allowed to register sole proprietorship in
Malaysia.
Business may be registered using personal name or using a tradename.
Upon approval, complete the registration of the said business name using Form A (Business Registration Form) (Rule 3 of ROBR). Refer to Guidelines for New Business
Registration.
Deliver such form to the ROB with payment of the registration fee (RM120 – RM150)
- Business Registration can be made for a period of 1 year and not more than 5 years.
Upon receipt of the registration application, the ROB will register the business and issue a certificate of registration for the business as in Form "D” – (Rule 13 (1) of ROBR)
Every registered business must put up a signboard displaying the business name and registration number outside the place of business. (Rule 13A ROBR)
Procedure for Registration
- To start a business in Malaysia, a sole proprietor needs to register his
1.
To business
start a business
in Malaysia, aSyarikat
sole proprietor
needs to(Companies
register his new company with
new
Suruhanjaya
Malaysia
Commission Malaysia) (SSM). Registration of a new business must be
done within 30 days from the date of commencement of the
business. (S.5 of ROBA)
- Registration can be done at any SSM counter or through the eLodgement services
-Failure to register is an offence. S.12 (1) (a) of Act 197 - liable to a
fine not exceeding RM 50,000-00 or to imprisonment for a term not
exceeding 2 years or to both.
Procedure for Registration
2.
be aaMalaysian
Malaysian
Citizen
a Permanent
Resident
has attained
2. He
Hemust
must be
Citizen
or aor
Permanent
Resident
who haswho
attained
the agethe
of
age of 18 years and above. Foreigners are not allowed to register sole proprietorship
in Malaysia.
3. Business may be registered using personal name or using a trade name.
(i) Personal Name – if business name using personal name as stated in the
identity card is not required to apply for business name approval.
(ii) Trade Name - if the owner intended to use a trade name (e.g. ABC
Enterprise or Perniagaan XYZ), the owner must fill up Form PNA.42, before
registration, in order to obtain an approval from SSM for the proposed
business name.
- Business names approval is according to Rules 15 ROBR.
Procedure for Registration
4. Upon approval, complete the registration of the said business name
using Form A
(Business Registration Form) (Rule 3 of ROBR). Refer to Guidelines for New
Business Registration.
- In Form A, the sole trader must state —
(a)the name of the business;
(b)the nature of the business;
(c)the date of the commencement of the business; and
(d)(the address of the place of business, and in the case of a business having
more than one place of business, the addresses of the branches.
Procedure for Registration
5.Deliver such form to the ROB with payment of the registration fee (RM120 RM150)
-Business Registration can be made for a period of 1 year and not more than 5 years.
6.Upon receipt of the registration application, the ROB will register the business and issue a
certificate of registration for the business as in Form "D” ––(Rule 13 (1) of ROBR
-The certificate of registration must be kept exhibited in a conspicuous place at the principal
place of business (S.11A ROBA)
-Every letterhead, invoice, bill or other document used by a registered business and containing
the name or names of such business must display the number of the certificate of registration.
(Rule 13 (2) ROBR)
-a certificate of registration is a conclusive evidence that ––(S.5F ROBA)
(i ) all the requirements under the Act in respect of the registration and matters precedent and
incidental to such registration have been complied with; and
(ii) the business referred to in the certificate is duly registered under the Act.
-a certificate of registration or a certified copy of any entry in the register in respect of any
business is a prima facie evidence of the truth of the facts stated therein. (S.6 (4) ROBA)
Procedure for
Registration
7. Every registered business must put up a signboard displaying
the business name and registration number outside the place of
business. (Rule 13A ROBR)
A sole proprietorship business may
be terminated for the following
reasons
Dissolution of Business
1. The owner has no interest to
continue the business;
2. The business suffered losses
3. Death of the owner;
4. Bankruptcy of the owner;
5. Pursuant to a court order; or
6. Revocation by the ROB.
DISSOLUTION OF
BUSINESS
 Where a business has been terminated the owner must notify the ROB of such
termination within 30 days of the termination. S.5D
Death of the owner
 However, where a business terminates upon the death of the owner, the
personal representative or the next-of-kin of the deceased must notify the
ROB of such termination within 4 months from the date of such death. S.5D
(2)
 The owner or his personal representative (in case of death of owner) must
notify the ROB of the termination of business by filing a notice of termination in
Form C as prescribed by Rule 7 (1) ROBR.
 The owner also need to surrender the certificate of registration of that business to
the ROB for cancellation. Rule 7 (2) ROBR.
 Upon receipt of the notice of termination in Form C, the ROB will revoke the
registration and cancel the certificate of registration. S.5D (3) ROBA-
DISSOLUTION OF BUSINESS
Revocation by the ROB
 The ROB has been given a power under s.5C(2) and s.5E to revoke the
registration of a business.
 ROB may revokes a registration of a business if the ROB satisfied that the
business is being used for unlawful purposes or any purpose prejudicial to or
Incompatible with the security of the Federation, public order or morality. S.5C
(2)
 S.5E gives power to the ROB to revoke the registration where the Registrar has
reasonable cause to believe that the business is not being carried on or has
ceased its operation.
b. Partnership
•One of the more common modes of business operation in Malaysia.
•Business owned by 2 or more persons but not exceeding 20 persons.
•Exist when two or more persons pool their skills, labor, capital and other
resources together to form a business jointly.
•The members “associate’ or form collectively an association in which they all
participate, as
a rule, in management and in sharing the profits.
•Identity card name can’t be used as business name.
•The law governing such an association are to be found in the Partnership Act
1961 (Revised 1974), which is similar to the English Partnership Act 1890.
Definition of
Partnership
 S.3(1)- Relation which subsists between persons
carrying on a business in common with a view of profit.
 Relation between members of a company
association, cooperative society, club, society and
organizations is excluded from this definition.
 Thus, for a partnership to exist,
(1)Relationship which subsists between persons (2 or more)
 - To form a partnership there must be more than 1 person.
Min 2 and max 20 partners (S.47(2)) cannot exceed 20,
because this contravenes s.14(3)(b) of the Companies Act
1965, unless the partnership is one of professionals, e.g.
doctors, lawyers or accountants.
(2)Carrying on business in common
 - The persons must agree to carry a similar business.
(3) With
a view of profit.
 - The persons must also agree to carry the business for the
purpose of profit.
 - Therefore, if several people group together to raise funds or
to run a charitable or religious organisation, they do not form
a partnership.
 - Associations such as sports clubs and charitable organisations
are not partnerships, as they generally do not conduct their
business with a view of profit.
 The persons forming a partnership are called a firm.
DEFINITION OF PARTNERSHIP
 The business must be registered. S.4(a) ROBA. The procedure is
similar to registration of proprietorship.
 A partnership can be formed with or without a written agreement.
A partnership agreement often governs the partners' relations to each other and
to the partnership.
Types of Partners
Active/General
Partner
Sleeping/Dormant
Partner
Salaried Partner
Partner by Holding
Out/Quasi-Partner
TYPES OF PARTNERS
There are 4 types of partners: active partners, dormant or sleeping partners, salaried
partners and partners by holding out.
 Active/General Partner: Partner who actively and openly engages in the business.
He is also sometimes known as a general partner.
 Sleeping/Dormant Partner: Partner who though possibly known to outsiders as a
partner, takes no active part in the management of the business but, still liable as a
partner. In return for investing in the partnership capital, this partner has a right only
to share in the profits in the proportion agreed upon.
 Salaried Partner: A partner who is held out to be a partner and is being paid a
salary. He may be only an employee, or he may be also actually a partner.
 Partner by Holding Out/Quasi-Partner: A partner who holds himself out as a partner
or caused people to believe he is a partner. In fact, he is not a partner, but in
certain circumstances, he may be held liable as a partner. He may be liable for
debts of the partnership as a result of his ‘holding out’
Part V (s.34 – 37) dealt with dissolution of
partnership. A partnership may be dissolved
in the following ways:
dissolution of partnership.
(i) By agreement
(ii) By operation
of law
(iii)By death or
bankruptcy
(iv)By charging
on shares
(v)
By
supervening
illegalities
(vi)
By court
order
DISSOLUTION OF PARTNERSHIP
By agreement
• The partnership agreement may fix the duration of partnership. The partnership is dissolved on the
expiry of that period.
• The partners may mutually agree to dissolve the partnership at any time.
By operation of law (S.34)
• Expiration: if the partnership is entered into for a fixed term or for a single adventure or undertaking the partnership is dissolved on the expiration of the fixed term or termination of the adventure or
undertaking.
• Notice: if the partnership is entered into for an undefined time (partnership at will) -the partnership
may be dissolved at any time by giving notice to the other partners.
.
DISSOLUTION OF PARTNERSHIP
By death or bankruptcy (S.35(1))
• A partnership is dissolved by the death or bankruptcy of any partner.
By charging on shares (S.35(2))
• If a partner suffers his share of the partnership property to be charged with
payment of his personal debt -the other partners have the option to dissolve
the partnership.
By supervening illegality (S.36)
• A partnership is dissolved by the happening of any event which makes it
unlawful for the business of the firm to be carried on or for the members of
the firm to carry on in partnership.
.
DISSOLUTION OF PARTNERSHIP
By court order (S.37)
-A partnership may be dissolved by a court order on application by a partner.
-A court may order dissolution in any of the following cases:
(a) when a partner become lunatic/of unsound mind;
(b) when a partner, becomes permanently incapable of performing his duties;
(c) when the business of the partnership can only be carried on at a loss;
(d) when a partner conduct is calculated to prejudicially affect the carrying on of the
business;
(e) when a partner willfully and persistently breach the partnership agreement;
(f) when in the opinion of the court, it is just and equitable that the partnership be
dissolved.
COMPANY
C. COMPANY
•A business corporation of 2 or more individuals and registered under the
Companies Act 2016
•Sources of Malaysian Company Law
(i)Statutes
Companies Act
2016
(ii)Case law precedent (Malaysia, UK & Australia)
- when the Act is silent and for interpretation
-S.5 Civil Law Act 1956 – English Common law
SOURCES OF COMPANY LAW
1. Companies Act 2016
2. Securities Commission Act 1993
3. Capital Markets & Services Act 2007.
4. Company Commission of Malaysia Act 2001
5. Civil Law Act 1956
6. Companies Regulations 2017
7. Listing requirements of Bursa Malaysia Securities Berhad (BSMB)
8. Securities Commission Guidelines
9. Best Practices in Malaysian Code of Corporate Governance 2012
10.Common Law
DEVELOPMENT OF MALAYSIAN
COMPANY LAW
COMPANIES ACT
2016
•Amongst the aim of Act 777 are to reflect the importance of developed information
and communication technology, to reflect the cost compliance, to reduce conflicts
between various corporate regulatory bodies and to simplify the operational process
of a company in Malaysia.
•A company incorporated in Malaysia must be registered in accordance with the
Companies Act 2016. (CA)
•The CA 2016 performs 2 functions
• An enabling function; and
• A regulatory function
REGULATORY
BODIES
1. Companies Commission of Malaysia /SSM
2. Securities Commission (SC)
3. Bursa Malaysia Securities Berhad
COMPANIES COMMISSION OF
MALAYSIA (SSM)
(SSM) is a statutory body formed as a result of a merger between the
Registrar of Companies (ROC) and the Registrar of Businesses (ROB) in
Malaysia which regulates companies and businesses.
SSM came into operation on 16 April 2002.The main activity of SSM is to
serve as an agency to incorporate companies and register businesses as well
as to provide company and business information to the public.
As the leading authority for the improvement of corporate governance, SSM
fulfils its function to ensure compliance with business registration and corporate
legislation through comprehensive enforcement and monitoring activities so as
to sustain positive developments in the corporate and business sectors of the
Nation.
SECURITIES COMMISSION (SC)
The Securities Commission Malaysia (SC) was established
on 1 March 1993 under the Securities Commission Act
1993 (SCA).
They are a self-funded statutory body entrusted with
the responsibility to regulate and develop the
Malaysian capital market.
Their mission is "to promote and maintain fair, efficient,
secure and transparent securities and derivatives markets;
and facilitate the orderly development of an innovative
and competitive capital market".
BURSA MALAYSIA SECURITIES BERHAD
Bursa Malaysia is an exchange
holding company established in
1973 and listed in 2005.
DEFINITION OF “CORPORATION” &
“COMPANY”
•Corporation = any body corporate formed/incorporated/existing
within Malaysia/outside
Malaysia and includes any foreign company.
•Body corporate = artificial person with separate legal personality
•A company is a type of corporation. Company = a company
incorporated under CA 2016.
ADVANTAGES
 Fund
- raise enormous fund/capital
- allow a large number of people to pool their resources
 Separate legal personality
-simplifies dealing (e.g. the cost of transfer of the assets can be
avoided when new participants are admitted/depart by just
transferring shares instead of assets).
 Limited Liability
- limit a person risk
- transfer risk to the company rather than the members
CLASSIFICATION OF THE
COMPANY
 The Act classifies companies in a variety of ways.
 The significant classifications are according to:
(1) Liability of its members;
(2) Status/Membership;
(3) Relationship with other companies;
(4) Place of incorporation.
CLASSIFICATION ACCORDING TO LIABILITY OF MEMBERS
A. CLASSIFICATION ACCORDING TO LIABILITY OF
MEMBERS
• There are 2 types:
(1) Limited
(2) Unlimited
A. CLASSIFICATION ACCORDING TO LIABILITY
OF MEMBERS
• S. 10 (1) CA 2016
•Case: Tan Tien Kok v Medical Specialist
Centre (JB) S/B (1994) 3 MLJ 469
• Surcharge imposed by the Defendant was
contrary to the concept of limited liability of the
act.
• Relevant section – s 214(1)(d) CA 1965 which is
equivalent to s 435(2)(b) CA2016.
•What is limited liability?
•A privilege granted to shareholders of a
company.
•S. 435 CA 2016: the extent of
contribution that must be made by a
member towards the liability of a
company in the event the company is
wound up.
•S 435(2)(b) CA 2016: contributions to be
• made limited to the unpaid amount.
(1)Limited
company
a. Company
limited by
share
b. Company
limited by
guarantee
(1) LIMITED COMPANY
- Liability of its members is limited
-Debts of company can only be satisfied from assets of the company not from
personal property of its members in case of winding up.
- It must have the word “Berhad” or “Bhd.” as part of and at the end of its name.
(1) LIMITED COMPANY
a. Company limited by share
- A company formed on the principle of having the liability of its members limited to the
amount of unpaid shares held by them. S.10 (2) CA 2016
b. Company limited by guarantee
•A company formed on the principle of having the liability of its members limited by the
memorandum to respective amount that the members undertake to contribute to the property
of the company in the event of its being wound up. S. 10(3) CA 2016
•A company limited by guarantee does no have share capital.
•S. 435(2)(c) CA 2016: Upon winding up, no contribution shall be required from any member
exceeding the amount undertaken to be contributed by him to the assets of the company.
•S. 38 CA 2016: must have a Constitution & submit its Constitution at the point of incorporation.
(2)UNLIMITED COMPANY
•There is no limit of liability on its members. Its members are liable for
the debts of the company without limit if the company has insufficient
assets to meet its debts in case of winding up . S. 10 (4) CA 2016.
•Rare type of company.
•S. 25(c) CA 2016 : Name to have “Sendirian” or “Sdn”
CLASSIFICATION ACCORDING TO STATUS
B. CLASSIFICATION ACCORDING TO STATUS
•
There are 2 types:
(1) Private company
(2) Public company
B. CLASSIFICATION ACCORDING TO
STATUS
•S. 11 CA 2016
•By looking at the status of a company, it can be classified
to either:
•Public Company; or
•Private Company
PRIVATE COMPANY
•Definition : S. 2(1) (a) – (c) CA 2016
•S. 25 CA 2016 : To have the word “ Sendirian” or “Sdn” as
part of its name.
•Amongst the distinguished features of a private company:
• S. 42(2) CA : Restricts the transfer of its shares
• S. 42(1) CA : Limit number of members
• S. 43(1) CA : Prohibits the offer of shares or debentures or invite
public to deposit money.
PUBLIC COMPANY
•Definition: S. 2(1) CA 2016: “A company other than private
company”
•S. 11(2) CA : A company limited by guarantee shall be a
public company.
•S. 11(1) & (3) CA:
• Company limited by shares
•Unlimited company
 A public company shall have no restriction on transfer of shares.
CONVERSION FROM UNLIMITED TO LIMITED
COMPANY
CONVERSION FROM PUBLIC
PRIVATE
COMPANY
 Formation
of private companies with a single shareholder : S. 9(b); S. 42
 Requirement of only one director for private companies : S. 9 & S. 196
 Generally, all companies registered in Malaysia, must have a director.
 Requirement of having a director:
 S. 196(1) : minimum number of director of company in Malaysia :
 Public Company : 2 directors
 Private Company : 1 director
ACCORDING TO RELATIONSHIP WITH OTHER COMPANIES
C. ACCORDING TO RELATIONSHIP WITH OTHER
COMPANIES
•
There are 2 types:
(1) Holding company
(2) Subsidiary company
HOLDING & SUBSIDIARY
COMPANIES
(1) HOLDING
COMPANY
- A company to which another company is subsidiary.
- Company that controls the composition of directors, control ½ voting power
and holds more than ½ of the issued share capital in the other company.
- S.4(1)(a)(i) – (iii) - a company is deemed to be a subsidiary of a holding
company if the holding company with respect to the subsidiary:
I ) BOD: Controls the composition of the BOD of the subsidiary company
 How to determine control?
 S. 4(2) CA: If holding company could appoint or remove all or majority of
subsidiary’s directors.
 How?
 S. 4 (2)(a) – (b)
II.) Voting power: Controls more than half of the voting power of the
subsidiaries
III.) Issued capital: Controls more than half of the issued share capital of the
subsidiaries excluding preferences shares.
HOLDING COMPANY
- S.4 (1)(b) – a corporation is also deemed to be a subsidiary if it is a subsidiary of
a holding company that itself a subsidiary.
ULTIMATE HOLDING
COMPANY : S.5
- S.5: A corporation is an ultimate holding company of another corporation if:
a.
That other corporation is a subsidiary of that holding company
b. The holding company is not itself a subsidiary of another
(2) SUBSIDIARY COMPANY
- Company where the composition of its directors and voting power is control by
another company and that other company holds more than ½ of the issued share
capital in this company. (S.6)
https://efinancemanagement.com/financial-management/subsidiarycompany
WHOLLY OWNED
SUBSIDIARY : S.6
Wholly owned subsidiary
- S6: A corporation is wholly owned subsidiary if none of its members is a person
other than
a.
Its holding company
b. A nominee of its holding company
c.
Another wholly owned subsidiary of the holding company, or
d. Nominee of such a wholly owned subsidiary
RELATED CORPORATIONS
: S. 7
A 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.
According to Place of Incorporation
D. ACCORDING TO PLACE OF
INCORPORATION
•
There are 2 types:
(1) Local - Company incorporated in Malaysia.
(2) Foreign - Company incorporated outside Malaysia. (S.2)
FOREIGN COMPANY
: S.2
•A foreign company desiring to establish a place of business in Malaysia must be
registered here.
• S. 2(1) defines “foreign company” :
TYPES OF
COMPANIES
1. COMPANY LIMITED BY SHARES
2. COMPANY LIMITED BY GUARANTEES
3. UNLIMITED COMPANY
4. PRIVATE COMPANY
5. PUBLIC COMPANY
6. RELATED COMPANY
7. FOREIGN COMPANY
INCORPORATION
OF COMPANIES
INCORPORATION OF
COMPANIES
1. Process of incorporation
2. Application
3. Registration
4. Post-Registration Requirements
5. Refusal to register a Company
6. Issuance of Notice of Registration
7. Effects of incorporation
8. Lifting of corporate veil
PROCESS OF
INCORPORATION
CORPORATION :
 Artificial legal person created by law
 Companies Act 2016
 Companies Regulation 2017
 Guideline on Company Names
 Guideline for the Incorporation of Local Companies
 SSM
PURPOSE OF INCORPORATION :
PUBLICITY & DISCLOSURE
 To deter fraud
 Investor and Creditors Protection
 Supervision and control by Registrar
 Corporate Personality : entity separate from members
 Limited Liability : for members
 Legal compulsion : to conduct business legally
 Funding : capital investment / raise funds from public
 Taxation : tax benefit
APPLICATION
• S. 14 CA : APPLICATION FOR INCORPORATION
1) An application to form
company by a person shall be made to
the registrar
2) purpose of incorporation – lawful
3) What must be included in the application form? (a)-(j)
4) The application must be accompanied with the consent statement
from the promoter/director
1)
2)
Consent to act as a promoter or to his appointment as director
That he is not disqualified
• DISQUALIFICATION : S199 CA
• S. 196(1) : Min number of company director
- Private company : 1 director
- Public company : 2 directors
REGISTRATION
S.15 CA: Upon Registrar’s satisfaction with all the compliance & fee payment:
a) To enter particulars of the company in the
register
b) Assign registration number
Issue a notice of registration
 S.15(c) CA : Issue notice of registration
S.19 CA : Notice of registration as conclusive evidence that the company has been
duly registered – Date where the company comes into existence, equip with legal
capacity.
S. 17 CA: The Registrar may issue certificate of incorporation upon application by
the company
REGISTRATION
Notice of registration as conclusive evidence
S.19 CA : The notice of registration is conclusive evidence that the requirements of
this Act is respect of registration and matters precedent and incidental to such
registration have been complied with and that the company duly registered under
this Act.
REGISTRATION
Refusal of registration
S.16 CA: Refusal to register a company – (Registrar’s discretion)
1. If the requirement pertaining to the registration under the Act are not been
complied with.
2. If the Registrar is of the opinion that the company is likely to be used for an
unlawful purpose or for purposes prejudicial to public order, morality or security
of Malaysia.
3. Case : R v Registrar of Companies, ex p More (1931) 2 KB 197
- Objects of the company was unlawful. Thus, the Registrar was correct to refuse its
registration
POST REGISTRATION
REQUIREMENTS
POST- REGISTRATION
S.46 – Registered office
S. 61 – Common seal
1. Optional
2. If have seal, must have the name and registration number – legible romanised
3. Contravention of (2) – offence
4. Personal liability on the person who contravene (2)
S.64 - Company contract
LEGAL NATURE OF COMPANY AND EFFECT OF
INCORPORATION
The powers and liabilities of a company are the direct consequence of its creation
as a distinct legal entity
 In most respects a company is recognized by the law as having the same powers ad
liabilities as an individual.
BODY CORPORATE (CORPORATE
PERSONALITY)
•The most important effect of incorporation is the creation of a new legal entity known as body
corporate/corporation. The company becomes an artificial person and exist independently/separately from it
members and those who manage its operations (directors)
•This principle of separate legal entity was recognized in the case of Salomon v Salomon & Co. Ltd (1897)
AC 22.
•This principle is also known as “the veil of incorporation”/corporate veil. Once a company has been duly
incorporated, the courts usually not look behind the veil to find out the person who actually formed or controls
the company.
•Generally, the members of the company will not be personally liable for the liabilities of the company. Only
the company will be liable for all debts.
•The separate entity principle applies even when companies are related as holding and subsidiary companies.
•A subsidiary’s profit cannot be regarded as the profit of its holding company
People’s Insurance Case [1986] 1 MLJ 68
Although the plaintiff company is a subsidiary of the first defendant company, the plaintiff company maintains
it own separate legal entity.
SALOMON V
SALOMON
- Mr. Aron Salomon run a boot manufacturing business as a sole trader.
- He decided to expand this business by forming a company.
-He incorporated a company Salomon & Co. Ltd under UK Companies Act 1862 whereby he
and his family members were the shareholders. He and 2 of his sons were appointed as
directors.
-He sold the sole business to the company. The company paid part of the purchase price and
indebted the balance. As security, the company issue debenture to him. As a result he become
secured creditor.
-Later, the company floundered and went into liquidation. The value of the company’s assets
was insufficient to paid out the creditors. But, the company paid to Mr Salomon as secured
creditor.
-Dissatisfied, the unpaid creditors through the liquidator sued Mr. Salomon claiming that he
and the company was actually the same entity.
- House of Lords held that it is not contrary to the Act 1862, public policy or detrimental to the
interests of the creditors. Incorporation of a company created a separated person
SALOMON V
SALOMON
Lord Macnaghten:
“The company is at law a different personal together from the subscribers to the
memorandum; and, though it may be that after incorporation the business is precisely
the same as it was before, and the same persons are managers, and the same hands
received the profits, the company is not in law the agent of the subscribers or trustee
for them. Nor are the subscribers, as members, liable in any shape or form, except to
the extent and in the manner provided by the Act”
The effects/consequences of becoming a body
corporate:
(1) It may enter into contracts with anyone, including its members, directors or
employees; suppliers and customers.
(2) The company’s obligations, liabilities and rights are its own and not those of its
participants
(3) It may sue and be sued
(4) It has perpetual succession
(5) It has a common seal
(6) It has power to hold land (and other properties)
THE EFFECTS/CONSEQUENCES OF
BECOMING A BODY CORPORATE:
a. Able to Enter into Contracts
As a separate legal entity, a company is able to enter into contracts with its members,
directors or employees; suppliers and customers.
Lee v Lee’s Air Farming [1961] 1 AC 12
Lee was a pilot and formed a company to conduct the business. Workers insurance
was taken out naming Lee as an employee. Lee was killed when his airplane crashed
and his widow made a claim. Her claim was first rejected on the ground that Lee is
not a worker. Privy Council however held that since the company was a separate
entity, it could enter into a contract of employment with Lee. Therefore, Lee is a
worker for the purpose of insurance.
THE EFFECTS/CONSEQUENCES OF
BECOMING A BODY CORPORATE:
b. Liabilities are its Own
-If a company has incurred obligations in contract it is primarily liable because its debts are
separate from its members.
- Directors are not personally liable for a contract that has been entered by the company.
Salomon v Salomon
In Malaysia, Sunrise S/b v First Profile (M) S/B [1996] 3 MLJ 533
Chong Siew Fai CJ,
“We are in complete agreement with the basic principle of the fundamental attribute of
corporate personality,i.e. that the corpotration is a legal entity distinct from its member, be
they individuals or corporate bodies a principle firmly established since Aron Salamon v
Salomon & Co. Ltd [1987] AC 22”
THE EFFECTS/CONSEQUENCES OF BECOMING
BODY CORPORATE:
c. Right to Sue and Be Sued
-Being separate legal entity, a company may sue others (including its own members) to enforce its rights.
Conversely, it may incur liabilities (such as debts, enter into contracts) and be sued by others and also it
members.
-The rule in Foss v. Harbottle (1843) 2 Hare 461 require the company itself to enforce its right not
through its members.
-The decision to sue or not to sue can be made by the directors or by the members of the company in
general meeting.
Foss v Harbottle (FvH)
In this case two shareholders brought an action against the company’s directors. They alleged that the
property of the company has been misused. Held: The injury complained was an injury to the company.
In law, the company and its members were not the same. Therefore the members cannot maintain such
suit. It was for the company to sue and not the members.
-In other words, the company is the proper plaintiff to initiate actions in respect of wrongs done to it.
Thus, the proper organ to commence the action on behalf of the company is BOD. A single director or
officer of the company cannot sue on the company’s behalf unless specifically authorized to do so.
THE EFFECTS/CONSEQUENCES OF
BECOMING A BODY CORPORATE:
d. Having Perpetual Succession
- Unlike natural person, a company is immortal.
-It does not die and continue to exist as long as it has not been deregistered (wound up, dissolved or struck
off the register).
Tan Lai v Mohamed bin Mahmud [1982] 1 MLH 338
- The death of all company’s members will not affect the existence of the company.
- Even if all company’s shareholders have sold their shares to others and new shareholders come in will not
change its legal personality.
Re Noel Tedman Pty Ltd
The company had a husband and a wife as its only shareholders. They were also the company’s directors. They
died in an accident, leaving behind an infant child. After their death the company still existed. The problem
that arose was, as the shareholders and directors had died, the shares could not be transferred as according
to the will of the deceased to the infant child.
The court thus allowed the personal representative of the deceased to appoint directors of the company, so
that these directors could allow the transfer of the shares to the child.
THE EFFECTS/CONSEQUENCES OF
BECOMING
A
BODY
CORPORATE:
e. Power to Own Property
-Even though in S.16(5) the word used is specific i.e. power to hold land, but being a separate legal entity
a company may also own any other types of property.
- Members do not have a proprietary interest in the property of the company.
- They only own shares in the company.
Macaura v Northern Assurance Co. Ltd [1925] AC 619
Law Kam Loy v Boltex S/B [2005] 3 CLJ 355
Macaura v Northern Assurance Co Ltd (MNA)
In this case Macaura owned an estate and then sold all the timber on the estate to a company, he and his
nominees owned all the shares of the company, he insured the timber that he sold to the company under his
own name. The insurance policy was not transferred into the company’s name. The timber destroyed in a
fire, Macaura claimed the insurance but the insurance company refused to pay.
Held: When Macaura sold the timber to the company, he gave up his interest in it and the company had
become owner of it.
THE EFFECTS/CONSEQUENCES
OF BECOMING A BODY
CORPORATE:
f. Control and management
-Members of a company have no right to interfere in the management of the
company.
- Power to control and to manage the company mainly vested on the BOD
- Members only can involve in management only during company’s meeting or if he is
properly appointed as member in the BOD
THE EFFECTS/CONSEQUENCES
OF BECOMING A BODY
CORPORATE:
g. Liability of Members
•Members of a limited company enjoy the benefits of limited liability.
•Limited liability means the company's debts are its own and members are protected
from personal liability.
•If Co. Ltd by Guarantee – limited to amount nominated/undertaken
•If Co. Ltd by Share – limited to amount of unpaid share
•If this amount has already been fully paid to the company, then the member need
not contribute any more towards the company’s debts.
•It is only when the company has insufficient assets to pay its debts in a winding up
than the members may be liable to contribute.
LIFTING OF
CORPORATE VEIL
INSTANCES OF
PERMITTED LIFTING
To do justice especially where fraud is involved.
Aspatra S/B v Bank Bumiputra (M) Bhd. [1988] 1 MLJ 97
Corporate form being used to avoid legal duty/to commit fraud
Gilford Motors Co. Ltd. v Horne [1933] Ch 935
Jones v Lipman (1962) 1 WLR 832
INSTANCES OF PERMITTED LIFTING
Gilford Motors Co. Ltd. v Horne
• Mr Horne had been the managing director of the claimant company and
was subject to a non• compete covenant in his service contract, restraining him from soliciting
customers of the
• claimant during and after his employment. After leaving his job, Mr Horne
set up a new
• company in his wife’s name and started to solicit the claimant’s customers.
The Court of Appeal
• granted an injunction, not only against Mr Horne but also against the new
company on the
• basis that it “was a mere cloak or sham for the purpose of enabling the
defendant to commit a
• breach of his covenant against solicitation
Jones v Lipman
• Mr. Lipman agreed to sell a land to Mr. Jones. But before the sale was
completed, Mr. L
• transferred the land to a company owned by him. As a result, Mr. J
would not be able to compel Mr. L to transfer the land as it had
been transferred to the company.
• Re Darby, ex p Broughm [1911] 1 KB 95
• Tiu Shi Kian v Red Rose Restaurant S/B [1984] 2 MLJ 313 – the veil is
a mask to defeat justice
• Hock Hua Bank (Sabah) Bhd v Lam Tat Min & Ors [1995] 1 MLJ 328
INSTANCES OF
PERMITTED LIFTING
Where the company is acting as the agent of the controller
Smith, Stone & Knight Ltd v Birmingham Corporation (1939) 4 All ER 116
To give effect to the true intention of the parties to an agreement
Tay Tian Liang v Hong Say Tee [1995] 4 MLJ 529
The director authorized the tortious acts.
Victor Cham v Loh Bee Tuan [2006] 5 MLJ 359
INSTANCES OF
PERMITTED LIFTING:
The principle of lifting the corporate veil also extended to related corporation
(holding-subsidiary).
In certain situation, a group of companies may be treated as a single corporate
entity, although the general rule is that each company within a group is distinct entity.
This is due to commercial realities.
Adams v Cape Industries Plc [1990] Ch 433
Hotel Jaya Puri Bhd v National Union of Hotel, Bar & Restaurant Workers
[1980] 1 MLJ 109
INSTANCES OF
PERMITTED LIFTING
Hotel Jaya Puri Bhd v National Union of Hotel, Bar & Restaurant Workers [1980] 1 MLJ 109
Jaya Puri Chinese Garden Restaurant Sdn Bhd was closed down and workers were retrenched.
This company was wholly owned subsidiary of Hotel Jaya Puri Bhd whose premises the
restaurant was situated. The Union claimed that the actual employer was the hotel and the
hotel was still in business. Therefore the workers could not have been said to have being
retrenched on the closure of a business.The industrial court allowed this and made order of
compensation against the hotel. The hotel appeals to the High Court.
Held: Although technically the restaurant and the hotel were separate legal entities, in reality,
the companies were functionally as one. Technically, a person working for the restaurant was
an employee of the restaurant; the reality was that the workers were employees of the hotel.
The court ignored the separate identities of the restaurant and the Hotel and treated them as
one single entity.
INSTANCES OF REFUSAL
Sunrise S/B v First Profile (M) S/B [1996] 3 MLJ 533 –no dispute as to the identity of
the controller of the company
Lim Sung Huak v Sykt Pemaju Tanah Tikam Batu S/B [1993] 3 MLJ 527 - The
defendant company applied to set aside an injunction restraining the company from selling,
charging or leasing two lots of land, one lot being registered in the name of the company and
the other in the name of an individual as trustee. The plaintiffs based their application for the
injunction on sale and purchase agreements alleged to have been entered into betweenthe
defendant company and the plaintiffs or the original purchasers who assigned their rights to
the plaintiffs. However, all the agreements (except for one) were entered into with a firm and
not the defendant company. Held, setting aside the injunction:The corporate veil could not be
lifted as the founding subscribers of the defendant, who signed on behalf of the defendant, no longer
appeared to control the defendant company.
Development Commercial Bank Bhd v Lam Chuan [1989] 1 MLJ 318 –the alleged wrongdoer not
even a shareholders
JH Rayner (Mincing Lane) Ltd v Manila Sons (M) S/B [1987] 1 MLJ 312 – the
holding company does not own all the shares in the subsidiary. the court will only lift the
corporate veil of a company if the justice of the case so demands. In the instant case there was no justification
for the court to lift the corporate veil of the second defendant.
Yap Sing Hock v PP [1992] 2 MLJ 714- to justify wrongful taking of company’s assets
LIMITED LIABILITY
PARTNERSHIP
LIMITED LIABILITY
PARTNERSHIP (LLP)
Limited Liability Partnership (LLP) is an alternative business vehicle regulated under
the Limited Liability Partnerships Act 2012 which combines the characteristics of a
company and a conventional partnership.
 It exhibits elements of partnerships and corporations.
LLP is a partnership in which some or all partners have limited liabilities similar to
that of the shareholders of a corporation.
 Any debts and obligations of the LLP will be borne by the assets of the LLP and not
that of its partners’.
One partner is not responsible or liable for another partner's misconduct or
negligence.
D. LIMITED LIABILITY
PARTNERSHIP (LLP)
This is an important difference from the traditional unlimited partnership under the
Partnership Act, in which each partner has joint and several liability.
However, unlike corporate shareholders, the partners have the right to manage the
business directly. In contrast, corporate shareholders have to elect a board of
directors under the laws of various state charters.
The board organizes itself (also under the laws of the various state charters) and
hires corporate officers who then have as "corporate" individuals the legal
responsibility to manage the corporation in the corporation's best interest.
LLP has the legal status of a body corporate which is capable of suing and being
sued in its own name, holding assets and doing such other acts and things in its name
as bodies corporate may lawfully do and suffer.
 LLP also offers flexibility in terms of its formation, maintenance and termination.
THE END OF CHAPTER ONE