TOPIC 1 - BUSINESS ORGANIZATION (edited) (1).ppt

7/18/2019 TOPIC 1 - BUSINESS ORGANIZATION (edited) (1).ppt

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LAW 485 - COMPANY LAWLAW 485 - COMPANY LAW

TOPIC 1 – BusinessTOPIC 1 – BusinessOrganizationOrganization



BUIN!

O"#ANI$A-TION

OL!P"OP"I!TO"-

%IP

PA"TN!"%IP COMPANY



OBJECTIVEOBJECTIVE

At the end of this lecture, At the end of this lecture,

students should be able to knowstudents should be able to know

the nature and characteristics ofthe nature and characteristics of

the three modes of businessthe three modes of business

operations in Malasia!operations in Malasia!



T&ree 'ain (or's o( )usinessT&ree 'ain (or's o( )usiness

organizations*entitiesorganizations*entities

Corporate bodCor

porate bod

CompaniesCompanies

"nincorporated"nincor

porated

bodiesbodies #ole#ole

proprietorshipsproprietorships

$artnerships$artnerships



#ole $roprietorship#ole $roprietorship

A soleproprietorship is a A soleproprietorship is abusiness structure wholl ownedbusiness structure wholl ownedb a sin'le indi-idual!b a sin'le indi-idual!

It re.uires no special le'alIt re.uires no special le'aldocuments for its creation!documents for its creation!

/owe-er, it is re.uired to be/owe-er, it is re.uired to be

re'istered under there'istered under the0e'istration of Business Act0e'istration of Business Act12341234



OL!P"OP"I!TO"-

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Nature o(Business

"ig&ts an+

Lia)i,itieso( a o,e

Prorietor



*AT"0E O5 B"#I*E##*AT"0E O5 B"#I*E##

6#O7E $0O$0IETO0#/I$86#O7E $0O$0IETO0#/I$8

There is onl one person in a soleThere is onl one person in a sole

proprietorshipproprietorship

The sole proprietorship owns andThe sole proprietorship owns and

mana'es the firm himself and canmana'es the firm himself and canemplo emploees to mana'e theemplo emploees to mana'e the

firm for himfirm for him

The sole proprietor ma transfer hisThe sole proprietor ma transfer his

business to someone elsebusiness to someone else



"ig&ts an+ Lia)i,ities o( a o,e

Prorietor

A #ole $roprietor ma withdraw his capital antime!

/is liabilit for the firm9s debts to his creditor isunlimited

A sole proprietor has unrestricted powers ofborrowin' A sole proprietor is formed informall and

information about the firm need not be published A sole proprietorship ma be dissol-ed informall

b the sole proprietor himself #ole proprietor can raise capital b wa of loans

and of course b utilisin' his own personalproperties!



.IOLUTION

LIABILITY

"I#%T

AN.

.UTI!

"!LATION

WIT% T%I".

PA"TI!

/O"MATION

AN.

.U"ATION

TYP!

.!/INITION

PA"TN!"-

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%E5I*ITIO* O5 $A0T*E0#/I$%E5I*ITIO* O5 $A0T*E0#/I$

#ection : $artnership Act 1241#ection : $artnership Act 1241

;; $artnership is the relation which$artnership is the relation which

subsists between persons carrin'subsists between persons carrin'

onon business in commonbusiness in common with thewith the

-iew of profit-iew of profit<<



T=$E# O5 $A0T*E0#

A 'eneral partner > partner in the A 'eneral partner > partner in thefullest sensefullest sense An acti-e partner > acti-el participates An acti-e partner > acti-el participates

in the mana'ement of the business andin the mana'ement of the business and

is known to the world as partner is known to the world as partner A dormant 6or sleepin'8 partner > takes A dormant 6or sleepin'8 partner > takes

no acti-e part in the mana'ement but isno acti-e part in the mana'ement but isliable as a partner liable as a partner

A .uasipartner > in fact not a partner A .uasipartner > in fact not a partnerbut liable for debts of the partnershipbut liable for debts of the partnershipas a result of ?holdin' out9 6causin'as a result of ?holdin' out9 6causin'people to belie-e he is a partner8people to belie-e he is a partner8



/O"MATION AN. .U"ATIONAN. .U"ATION

O/ A PA"TN!"%IPO/ A PA"TN!"%IP

Can be formed with or without aCan be formed with or without a

written a'reement > easier to formwritten a'reement > easier to form

than a companthan a compan Anone who is of le'al capacit is Anone who is of le'al capacit is

capable of enterin' into acapable of enterin' into a

partnership a'reementpartnership a'reement



"!LATION B!TW!!N

PA"TN!" AN. T%I".

PA"TI! $artners are a'ent of the partnership$artners are a'ent of the partnershipfirm, therefore an act or omissionfirm, therefore an act or omissioncommitted b one partner binds thecommitted b one partner binds therest of the partners if it is carried outrest of the partners if it is carried outwithin the ordinar scope of the firm9swithin the ordinar scope of the firm9sbusiness > #ection @ $artnership Actbusiness > #ection @ $artnership Act12411241

Case& Chan in' =ue - 7ee ) on'Case& Chan in' =ue - 7ee ) on'6124861248

The authorit of a partnerThe authorit of a partner ma bea beactual oror ostensibleostensible



Actual Actual authorit > ma be e+press or > ma be e+press or

impliedimplied

Ostensible(Apparent > e+ists when inOstensible(Apparent > e+ists when in

the absence of e+press prohibition,the absence of e+press prohibition,the law pro-ides that if a man sothe law pro-ides that if a man so

conducts his business as to misledconducts his business as to misled

others, he must bears theothers, he must bears the

conse.uences > arises when theconse.uences > arises when the

partner holds out to others that hepartner holds out to others that he

has such authorit!has such authorit!



#ection D $A 1241 > partners are#ection D $A 1241 > partners arebound b acts on behalf of the firm!bound b acts on behalf of the firm!

Case& /ock /in Chan - *' ee ooCase& /ock /in Chan - *' ee oo612448 > The court held that since612448 > The court held that sinceone of the partner has apparentone of the partner has apparentauthorit to issue a bill of sale onauthorit to issue a bill of sale onbehalf of the firm, all other partnersbehalf of the firm, all other partnersare bound b his act!are bound b his act!

#ection 2 > If a partner is usin'#ection 2 > If a partner is usin'credit of the firm for a purpose notcredit of the firm for a purpose not

connected with the firm9s ordinarconnected with the firm9s ordinarbusiness, the firm is not boundbusiness, the firm is not boundunless the act is speciall authorisedunless the act is speciall authorisedb other partners!b other partners!



5or a third part to hold the5or a third part to hold the

partnership liable, the followin'partnership liable, the followin'

conditions must be met&conditions must be met&

The act must be done for theThe act must be done for thepurpose and in the ordinar nature ofpurpose and in the ordinar nature of

the partnershipFthe partnershipF

Act must be done b a partner of the Act must be done b a partner of the

firm in his capacit as partner andfirm in his capacit as partner andnot in his own personal capacitnot in his own personal capacit



"I#%T AN. .UTI! O/

PA"TN!" 0in a)sene o(

agree'ent2 #ection 4#ection 4

6a86a8 All partners are entitled to share All partners are entitled to sharee.uall in the capital and profits of thee.uall in the capital and profits of thebusiness and must contribute e.uallbusiness and must contribute e.uallto lossesFto lossesF

6b86b8 The firm must indemnif e-erThe firm must indemnif e-erpartner in respect of paments madepartner in respect of paments madeand personal liabilities incurred band personal liabilities incurred b

himFhimF6c86c8 A partner is entitled to DG interest p!a A partner is entitled to DG interest p!a

if he make an ad-ance or pamentif he make an ad-ance or pamentbeond the amount of capital whichbeond the amount of capital which

he a'reed to subscribeFhe a'reed to subscribeF



6d86d8 *o partner is entitled to interest*o partner is entitled to interest

on capital before theon capital before the

ascertainment of profitsFascertainment of profitsF

6e86e8 E-er partner ma take part in theE-er partner ma take part in the

mana'ement of the businessFmana'ement of the businessF

6f86f8 *o partner is entitled to*o partner is entitled toremuneration for actin' in theremuneration for actin' in the

partnership businessFpartnership businessF

6'86'8 *o person ma be introduces as*o person ma be introduces asa partner without the consent ofa partner without the consent of

all e+istin' partnersFall e+istin' partnersF



6h86h8 An differences connected with the An differences connected with thepartnership business ma bepartnership business ma bedecided b a maHorit of thedecided b a maHorit of thepartnership, but no chan'e ma bepartnership, but no chan'e ma bemade in the nature of themade in the nature of the

partnership business without thepartnership business without theconsent of all e+istin' partnersFconsent of all e+istin' partnersF

6i86i8 The partnership books are to beThe partnership books are to bekept at the place of business of thekept at the place of business of thepartnership or the principal place ifpartnership or the principal place ifthere is more than one place ofthere is more than one place ofbusinessbusiness



LIABILITI! O/ PA"TN!"

TortsTorts MisapplicationMisapplication MisappropriationMisappropriation Contractual liabilitContractual liabilit Criminal liabilitCriminal liabilit %uration of liabilit%uration of liabilit

7iabilit of persons for holdin'7iabilit of persons for holdin'outout

7iabilit of retired partners7iabilit of retired partners



Torts

In order to make a firm liable under

torts, the tortious act must be

committed b a partner in theordinar course of the business or

with authorit of the copartners!



Misa,iation

#ection 1 E-er partner is liable#ection 1 E-er partner is liable Hointl and se-erall for e-erthin' Hointl and se-erall for e-erthin'the firm becomes liable underthe firm becomes liable under#ection 1 and 1:!#ection 1 and 1:!

Therefore plaintiff can sue all theTherefore plaintiff can sue all thepartners Hointl or ma e-en sue onepartners Hointl or ma e-en sue oneor more of the partners concerned!or more of the partners concerned!

here one partner actin' within thehere one partner actin' within thescope of his authorit recei-esscope of his authorit recei-esmone of a third person andmone of a third person andmisapplies it, the firm is liable tomisapplies it, the firm is liable tomake 'ood the loss!make 'ood the loss!



Misaroriation

If a partner actin' in his indi-idual

capacit, improperl makes use of

trust propert in the business of the

firm, as a 'eneral rule, his otherpartners are not liable to the

beneficiaries!

/owe-er, if the trust mone is still in

the firm9s possession or under itscontrol, the beneficiaries can reco-er

the same from the firm!



Contratua, ,ia)i,it3

All partners in the firm are Hointlliable for all contractual and other

debts and liabilities includin' ta+ and

Hud'ment debts which are incurred

while each is a partner!

Cri'ina, Lia)i,it3

Althou'h partners are Hointl liable inci-il cases, the are not Hointl liable

in criminal cases



.uration o( ,ia)i,it3

A new partner who has Hust been A new partner who has Hust beenadmitted into a firm is not liable foradmitted into a firm is not liable forthe debts incurred prior to histhe debts incurred prior to hisadmission!admission!

/owe-er, if the new partner a'rees to/owe-er, if the new partner a'rees tobe liable for the e+istin' debts of thebe liable for the e+istin' debts of thefirm at the time of his admission, hefirm at the time of his admission, hewould be liable!would be liable!

A partner is liable for all debts and A partner is liable for all debts andliabilities of the firm as lon' as he is aliabilities of the firm as lon' as he is apartner of the firm!partner of the firm!



Lia)i,it3 o( ersons &o,+ing out

An mode of representation throu'h

oral or written or b conductindicatin' that one is a partner issufficient to fi+ the person makin'the representation with liabilit as a

partner of the firm!Lia)i,it3 o( retire+ artners After retirement, a partner is still

liable to persons who deal with thefirm unless he has 'i-en notice tosuch persons that he is no lon'er apartner!



.isso,ution o( artners&i

B A'reement > mention in thea'reement or partners mutuall a'rees

to terminate the partnership!

B death or bankruptc #ection :3 618

B char'in' on shares > #ection :3 68

B super-enin' ille'alit > #ection :4

B court order > #ection :@



Notie o( +isso,ution

All customers of the partnership are All customers of the partnership are

entitled to treat all the formerentitled to treat all the former

members as continuin' to bemembers as continuin' to be

members unless notice of dissolutionmembers unless notice of dissolutionis 'i-en > #ection :2is 'i-en > #ection :2

5or old customers, an ad-ertisement5or old customers, an ad-ertisement

in the 'aette alone is not sufficient!in the 'aette alone is not sufficient!

*otice such as circular letter must be*otice such as circular letter must beser-ed on old customers of the firm!ser-ed on old customers of the firm!



COMPANY

LAW

/O"MATION "!#IT"ATION .OCT"IN! O/CONT"UCTI!

NOTIC!



/or'ation o( o'an3

An business or'aniation with morethan K members must beincorporated as a compan!

Otherwise, it is ille'al and can

neither sue to enforce its ri'hts norcan be sued b members! If a transaction has been entered

into b ille'al partnership, it remains

tainted e-en thou'h the number ofpartners ma be reduced below Kat the time the action is brou'ht!



"egistration o( a o'an3

$romoter& a person who undertakes$romoter& a person who undertakesto form a compan and to set itto form a compan and to set it'oin'! An person can do it on'oin'! An person can do it onlod'in' the re.uisite documents andlod'in' the re.uisite documents and

on pament of the prescribed fee,on pament of the prescribed fee,the compan will be re'istered!the compan will be re'istered!

the most important document thatthe most important document thatmust be lod'ed is the MOAmust be lod'ed is the MOA

6compan9s constitution!8 #ection6compan9s constitution!8 #ection1461814618



it will contain the compan9s name,it will contain the compan9s name,its obHects, the amount of its shareits obHects, the amount of its share

capital and whether the compan iscapital and whether the compan islimited or unlimited either b shareslimited or unlimited either b sharesor 'uarantee!or 'uarantee!

5irst directors must be named in the5irst directors must be named in theMOA and AOA > #ection 16:8 )MOA and AOA > #ection 16:8 )146@8146@8

the MOA must be si'ned b personsthe MOA must be si'ned b personscalled the ?subscribers9 6usuall thecalled the ?subscribers9 6usuall thepromoters8 in the presence ofpromoters8 in the presence of

witnesses > #ection 1D168witnesses > #ection 1D168



if the compan has share capital, theif the compan has share capital, thesubscriber must a'ree to take atsubscriber must a'ree to take atleast one share each! The will beleast one share each! The will be

the first members of the compan!the first members of the compan! also contain an incorporation clausealso contain an incorporation clause

statin' that the subscribers arestatin' that the subscribers aredesirous of bein' formed into adesirous of bein' formed into a

compan > #ection 1D6186h8compan > #ection 1D6186h8 upon re'istration of the MOA, theupon re'istration of the MOA, the

re'istrar will issue a certificate ofre'istrar will issue a certificate ofincorporation, certifin' that theincorporation, certifin' that the

compan is incorporated from thecompan is incorporated from thedate specified! Ls 1468! Thisdate specified! Ls 1468! Thiscerticate of incorporation is thecerticate of incorporation is thecompan9s birth certificate!compan9s birth certificate!



Construtie notie

An outsider dealin' with a compan

is deemed to ha-e notice of thepublic documents of the compan

doctrine of constructi-e notice

here the authorit of an a'ent islimited b a compan9s memorandum

or articles, an outsider dealin' with

the compan is taken to ha-e read

and understood these documentsand to be aware of the a'ent9s lack of

authorit!



The outsider cannot then hold thecompan liable despiterepresentations made b thecompan!

here a compan acts outside itshere a compan acts outside itsobHects as stated in theobHects as stated in thememorandum, outsiders are taken tomemorandum, outsiders are taken tobe aware of the e+istence of anbe aware of the e+istence of anlimitationslimitations



Thank =ouThank =ou

End of 7ectureEnd of 7ecture

TOPIC 1 - BUSINESS ORGANIZATION (edited) (1).ppt

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