Legal Aspects of Business OrganisationsThe Company

Company Law

0Companies Act 19650Company is defined under s.4(1) – company is a

corporate body or corporation0 It is an artificial legal person that exists independently

of the individuals who at any given time are members of the company.

A legal entity

0A company is a legal entity on its own0Have right to sue or to be sued in its own name, to

deal with property and to enjoy perpetual succession, just like an adult human being.

Salomon v Salomon (1897)

0Case that distinguish company and its members.0Court held that company – separate legal

person/entity.0Principle of veil of incorporation

Facts

0http://en.wikipedia.org/wiki/Salomon_v_A_Salomon_%26_Co_Ltd

Exceptions to the Principle

0Statutory exceptions0 Judicial exceptions – based on legal interpretations of

the courts.

Statutory exceptions

0S.36 – if number of SH is reduced to below than 2 and carry own with business for 6 months, the person will be personally liable for matters after the 6 months.

0Fraud – s.304(1)0S.121(c) – A person signs an instrument (payment)

that do not bear the company’s name.0Where debts are contracted when there is no

reasonable expectation of those debts being paid. Ss 303(3) r.t. 304(2)

0Dividends paid when there are no profits. S.365(2)(b)

Judicial Exceptions

0Nationality rules – in time of war – Daimler Co ltd v Continental Tyre Ltd (1916)

0Holding and subsidiary companies – DHN Food Distributors Ltd v Tower Hamlets LBC (1976) – two companies owned by the same person.

0Evasion of legal obligations or abuse of legal rights – Jones v Lipman (1962)

0To do justice – Aspatra Sdn Bhd v BBMB (1988) – when there is fraud. Secret profits.

Types of companies

0Companies limited by:0 Shares: company issue shares. Owner of shares becomes

shareholders (s.4(1)). Liability of SH corresponds with the value of shareholding. Limited in the sense that his personal property cannot be used to settle debts of the company. It has the abbreviation “Bhd” at the end of its name.

0 Guarantee: no issue of shares. But members guarantee to pay specific sum to settle the company debts in the event company is wound up.

0 Both Shares and Guarantee

Public and PrivatePrivate Co Public Co

Max number of members is 50. See s.15(1)(b)

No limit

Restriction on right to transfer shares Shares freely transferable

Invitation to public to subscribe shares is prohibited

Shares freely offered

Invitation to public to deposit money with company is prohibited

No prohibition

Forming a company

0 SSM0 Obtain approval for name0 Lodge with SSM certain documents including:

0 MOA and AOA0 Statutory declarations by promoters and directors0 Particulars of directors and office0 Declaration of compliance0 Statement of allotment of shares to the subscribers to the

memorandum0 Payment of registration fees0 http://www.ssm.com.my

MOA and AOA

0MOA defines the essential components of the structure of the company, objects of the company, set of regulation for management of the company

0AOA governs and regulates the internal structure and management of the company – See Table A Fourth Schedule of the Act

Advantages of company structure

0Limited liability0Perpetual succession0Number of members0Transfer of shares0Employee participation0Financing0Transfer of property0Suing members

Disadvantages of company structure

0Control by registrar of companies0Documentation0 Issues between shareholders and directors0Criminal liability