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Malaysian Business Law Week-11 Lecture Notes

This document summarizes Malaysian company law, including key regulatory bodies, types of companies, and the process for forming a company. It also discusses the separate legal entity doctrine, where a company is considered a separate legal person from its owners. However, the corporate veil can be lifted in cases of fraudulent or dishonest behavior by the company or its owners. Some notable court cases that have addressed lifting the corporate veil are also mentioned.

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159 views3 pages

Malaysian Business Law Week-11 Lecture Notes

This document summarizes Malaysian company law, including key regulatory bodies, types of companies, and the process for forming a company. It also discusses the separate legal entity doctrine, where a company is considered a separate legal person from its owners. However, the corporate veil can be lifted in cases of fraudulent or dishonest behavior by the company or its owners. Some notable court cases that have addressed lifting the corporate veil are also mentioned.

Uploaded by

Kyaw Thwe Tun
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Company Law

Refer to Companies Act 2016


Common Law Cases: Salmon’s Case, Macaura’s Case, Lee’s Case
Regulatory Bodies include:
- Companies Commission of Malaysia  for company registration
- Bursa Malaysia Securities Berhad  for public listed companies
- Securities Commission  for display of shares

Companies can be categorized in the following:


- Private company  one person only
- Public company  two or more persons
- Partnerships  two or more persons up to maximum of 20 partners
- Business organization with more than 20 members must be categorized as a “company”
 Exemptions: Partnerships of persons carrying professions: doctors, auditors,
accountants
- Partnership of more than 20 members (except professionals because it is illegal)
 Considered as private companiew
- Private company
 Maximum number of 50 members
 More than 50 members are considered as public companies

Formation of a company
1. Partners must first obtain approval for the proposed company name
2. Lodge using documents with the Registrar of CCM
3. Payment of registration fees

- Once done, a notice of registration/incorporation will be given = company’s birth


certificate
- The company formed can be either:
 A public company  limited by shares or be an unlimited company
 A private company  limited by shares or be an unlimited company

Incorporation of a company and its effect


1. Once a company is formed, it is perceived to be an artificial legal person, a body
corporate, a person created by statute (limited by liability)
2. The company has the ability to:
 Sue and be sued
 Have perpetual succession
 Power to hold land
 Common seal
 Liability on the part of the members to contribute to the assets of the company in
the event of it being wound up
Separate legal entity Doctrine
1. The company is a legal person on its own, being separate from its participants
2. There is a corporate veil that separates the company from its members
3. If a company is wound up, members are only liable to contribute up to their unpaid shares
only. They are not liable to contribute anything beyond their unpaid shares
4. This means that
 It is the obligation and property of the company itself and not those of its
participants
 its existence will continue to be unchanged even if the identity of the participants
(shareholders) change
5. Case: Salomon v Salomon & Co [1897]
 A unanimous decision from the House of Lords states that a company by law is a
separate legal entity from its owner. Therefore, the plaintiff’s liability will be
limited, as protected by the corporate veil. This means that the defendant will be
required to uphold all existing liabilities.
6. This concept is further strengthened by the following cases:
 Case: Macaura v Northern Assurance Co. [1925]
o This case explains that even if the owner of the company owns most of the
shares of the company, the owner and company are identified as separate
entities. Therefore, the defendant has the right to not grant any insurance
claims as request by the plaintiff
 Case: Lee v Lee’s Air Farming [1961]
o Since the defendant is a company and is a separate legal entity from the
plaintiff, the defendant will be liable for damages and compensation
request from the injured victim
7. The Malaysian courts have accepted this principle through the case of Salomon v
Salomon & Co [1897], making it an integral part of the company
 This is seen in the case of:
o Goh Hooi Yin v Lim Teong Ghee [1977]
o Perman Sdn Bhd v European Commodities Sdn Bhd [2005]
o Adul Aziz bin Atan & 87 Ors v Ladang Rengo Malay Estate Sdn Bhd
[1985]

Lifting the Coporate Veil// Separate Legal Entity Principle


The concerned individuals will not be able to take shelter behind the corporate veil under the
following circumstances:

Fraudulent Trading  s 540(1)


- People who are knowingly part of fraudulent trading will be personally liable to make
such contributions to the assets to the company as the court may deem fit
- If a business is carried on with the intent of defraud, every person who was knowingly
part of the act on carrying on the business with that intention will be found guilty of an
offense.
- Penalty: Imprisonment up to 10 years or fine up to RM1,000,000 or both
Dishonest use of the legal entity (company)  Evasion of legal obligation or abuse of legal
rights
- The law will not permit an individual toe evade his obligations by using a company
which he controls to do what he himself is presented from doing
 Case: Gilford Motor Co Ltd v Horne [1993]
o The court held that the company was a sham and that an injunction
(discontinuation) will be granted against the company and the owner
himself
 Case: Jones v Lipman [1962]
o The court held that the company was a sham and it was acting as a mask
for the defendant to protect his assets under the name of the company.
Therefore, instructing for specific performance to release the assets to the
plaintiff

Agency
- A subsidiary company will be bound by the small liabilities and the rights of its holding
company should it be acting as an agent for the holding company
- Case: Adams v Cape Industries plc [1990]
 the court held that the subsidiary company is part of the parent company.
However, since the plaintiff had successfully sued the subsidiary company, it is
then said that the damages have already have paid.

**Note: The Court of Appeal however said that the subsidiary company and the parent
company are separate, enforced by the separate legal entity principle

Justice
- the court will use its power to pierce the corporate veil if it is necessary to achieve justice
irrespective of legal efficiency of the corporate structure
- Case: Aspatra Sdn Bhd v Bank Bumiputra Malaysian Sdn Bhd [1988]
 The court held that it would generally lift the corporate veil in order to achieve
justice particularly when an element of fraud is present despite the consequences
of lifting the veil would vary according to the circumstances of each case.

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