Effect of incorporation Separate legal entity Ability to own property Ability to incur its own liability Ability to sue and be sued Perpetual succession

Incorporation

Sec 16 (5) …a body corporate…exercising all the

functions of an incorporated company of suing and being sued and having perpetual succession….with power to hold land.

Effect of Incorporation

The company is a legal person [artificial] having a distinct entity from its members

Cases:

Salamon v SalamonLee v Lee’s Air FarmingHew Sook Ying v Hiw Tin Hee @ Hew HeePeople’s Insurance Co (M) Bhd

(1) Separate Legal Entity

Facts: S owned a sole proprietorship. Later incorporated a company. Business was transferred to the company. Shares were given to wife and sons. Subsequently the company went into liquidation. There was not enough assets to pay the unsecured creditors, thus the liquidator sued Salamon.

Salamon v Salamon

Trial court and COA: S was liable. Agency principle applied HOL : Incorporation of a company created a

separate person. The company was not an agent or trustees

for the members. Members were not liable in respect of the company’s obligation.

Salamon v Salamon

Lord MacNaghten: The company is at law a different person

altogether from the subscriber to the memorandum & though it maybe that after the incorporation the business is precisely the same as it was before & the same persons are managers & the same hands receive the profits, the company is not in law the agent of the subscriber or trustee for them.

Salamon v Salamon

F: Lee formed company-spreading fertilizers from the air. Held all the shares except one. A director and also an employee-chief pilot. Later Le was killed in an aircraft crash. His wife sued for compensation.

Issue: A worker or an employer

Lee v Lee’s Air Farming Ltd

Hj Mohd Azmi SCJ: “It is a well establish principle of law that a

limited company incorporated under the Companies Act & individuals forming the company are distinct legal entities”

Hew Sook Ying v Hiw Tin Hee

H: Resolution of the BOD of a subsidiary does not bind the parent company.Zakaria J:

The plaintiff Company (subsidiary) is a legal entity by itself. Although it is a subsidiary of the first defendant company, the plaintiff company maintained its own separate entity.

People Insurance Co (M) Bhd

A company can own property in its own name

Cases:Macaura v Northen Assurance Co LtdAbdul Aziz b. Atan

(2) Ability to own property

F: M was an owner of a land which produced timber. Sold all the timber to a company incorporated by him. He took up an Insurance for the timber in his own name. Later the timber was destroyed by fire and Macaura claimed under the insurance policy.

HOL: M had no insurable interest in the timber-belonged to the company, not M.

Macaura v Northen Assurance

F: All the shareholders of the company had transferred their entire share to a certain buyer.

Issue: Whether the land which was the main assets of the company was also sold

Abdul Aziz b. Atan

Held:

An incorporated company is a legal persons, separate & distinct from the shareholders of the company. In the present case the company did not change its identity or personality. It continued to own all its assets.

Refer Macaura’s

‘…a company is a separate person from its shareholders. The latter have no interest, legal or beneficial over the property of the former.’

Perman Sdn Bhd & Ors v European Commodities Sdn Bhd & Anor

Liability of a company is unlimited Liability of members is limited, depends to

the type of company i.e. limited by shares or limited by guarantee.

Cases Re Application By Yee Yut Ee Salamon v Salamon

(3) Ability to incur its own liability

F: Yee was a secretary of a company. The company retrenched its staff and matters concerning retrenchment benefit was referred to Industrial Arbitration Court, which had ordered an award. Meanwhile, Yee was appointed as a director and when the company failed to comply with the award, an action was made against Yee.

Re Application By Yee Yut Ee

A company can sue and be sued in its own name

Any wrong done to the company, only the company can take action

(4) Ability to sue and be sued

F: Shareholders of a company brought action against the company’s directors-alleging misapplication of the company’s property.

H: The injury was an injury to the company. In law, the company and its members are separate entities. Thus, it was the company who should take action/sue.

Foss v Harbottle

A company shall exist until properly wound up or struck off from the register.

It’ s life span does not depend on the life of its members.

Cases: Real Neol Tedman Abd Aziz Atan

(5) Perpetual succession

F: H & W were the only shareholders and directors of company-died. Left an infant child.

H: The personal representative of the deceased members should appoint directors, so that the new directors could assent the transfer of the shares to the beneficiary.

Re Neol Tedman Holdings Pty Ltd

H: The identity of a company remains independently of any change in the shareholdings of a company.

Abdul Aziz b. Atan