Tutorial 1

1. Compare a sole proprietorship, a partnership, a limited liability partnership and a company in

respect of these aspects:
a) Legal status
b) Ease of formation
c) Membership
d) Management
e) Capital
f) Liability
g) Duration of existence

Aspects Sole Partnership Limited Liability Company

Proprietorship Partnership
Legal Status Not a separate Section 3(1) of Section 3(1) of LLP Act Separate legal entity
legal entity Partnership Act 2012 - Unlike
1961 – A conventional
relationship which partnership, LLP is a
subsists between body corporate and has
persons carrying characteristic of
on business in separate legal entity,
common with a and has perpetual
view of profit succession, it can enter
into contract, sue and
be sued, acquire and
hold properties and do
any other acts and
things as a body
corporate may do
Ease of Not required Not required Form according to the Section 14 of Companies Act
formation formality, only formality terms of LLP Agreement 2016 - Requires formality
registration Section 10, Section 11
Need to register at and Section 12 of the
Need to SSM LLP Act 2012
register as
 SSM
Membership One person Section 47(2) of PA Section 6 of LLP Act Minimum: 1
1961 – Minimum 2012 – Any two or more Public Company: No maximum
member is 2 and members associated for number
maximum number carrying on any lawful Private Company: Maximum
is 20 business with a view to 50
profit may form a LLP.
Exception: There must be at least 2
Professional partners and no
Partnership maximum number of
- Accountant partners
Act
- Legal Section 7(1) of LLP Act
Profession 2012 – If someone
Act carrying on business
- Architects with less than minimum
partners, a LLP may
Section 13 of CA carry such business for a
2016 – Can form period not exceeding 6
more than 20 months or a longer
persons subject to period as determined by
any written law the Registrar but will not
exceed 1 year
Managemen Sole Partners Partners Board of Directors
t proprietor
Capital Own Partners’ Partners’ contribution Shareholders
contribution contribution
Liability Owner is fully Unlimited liability Section 21(1) and 21(2) Company limited by shares –
liable for any for the business of LLP Act 2012 – Members are not liable for the
liabilities debts Partners will not be debts
incurred personally liable unless
Section 11 of PA a partner commits a Company limited by guarantee
1961 – Every wrongful act or omission – Members only liable for the
partner in a firm is amount guaranteed to be aid
 jointly liable with
the other partners Section 10(1), 435(2)(b)
for all debts and
obligations of the
firm incurred
Duration of Ceases to exist Ends with death, Section 3(2) of LLP Act Section 20(b) of CA 2016 –
existence upon the incapacity, 2012 – Perpetual Perpetual succession
death of the withdrawal, or succession
owner bankruptcy of any
partner Dissolution of LLP –
Voluntary winding up

2. List the sources of company law in Malaysia

- Companies Act 2016
- Securities Commission Act 1993
- Capital Markets & Services Act 2007
- Company Commission of Malaysia Act 2001
- Civil Law Act 1956
- Companies Regulation 2017
- Listing requirements of Bursa Malaysia Securities Berhad
- Securities Commission Guidelines
- Best Practices in Malaysian Code on Corporate Governance 2017
- Common law

3. Define the following concepts with examples

a) Separate legal entity

- A person recognised by law. The entity has its own legal rights and obligations, separate to
those running the entity
- According to Section 20 of CA 2016, it is stated that a company that was incorporated is a
body corporate and will have a separate legal entity from its members and will continue its
existence until the company is wound up in certain circumstances
- In the case of Salomon v Salomon, Mr. Salomon was a successful shoemaker. His family
wanted a share in the business. To satisfy them, he turned the business into a company,
 giving some shares to his family and keeping the majority for himself. The company ran into
financial trouble and had to close. People who had loaned money to the company were not
paid back. They sued Mr. Salomon, arguing that the company was just a front, and he should
be personally responsible for the debts. However, the court ruled that the company and Mr.
Salomon were separate, so he wasn't personally responsible. This case established the idea
that a company is legally separate from its owners.
- In the case of HL Bolton Engineering Co Ltd v TJ Graham Sons Ltd, a company in many ways
be likened to a human body. It has a brain and nerve centre which controls what it does

b) Concept of agency and trust

- A consensual, fiduciary relationship in which a party (the agent) acts for the benefit of
another (the principal) and binds the principal by words or deeds.

4. Discuss the differences between a private company, public company and exempt private
company.
A company can also be classified as either a private or a public company. A subset of private
companies is exempt private companies. Public companies can be further sub-
classified into public companies whose shares are listed on the Bursa Malaysia ("public listed
company") and public companies whose shares are not listed on the said stock exchange
("public company which is not listed").

First and foremost, the definition of private companies is defined in S.2 of CA (a): any
company which immediately prior to the commencement of this Act was a private company
under any previous written law, (b) any company incorporated as a private company under
this Act, (c) any company converted into a private company under S.41 and ceased to be a
private company under S.42 of CA. On the other hand, a public company is defined in S.2 (1)
of CA as a company other than a private company. While for an exempt private company,
company is defined in section 2(1) as "a private company in the shares of which no beneficial
interest is held directly or indirectly by any corporation. Thus, only a private company limited
by shares can be an exempt private company.

The second difference refers to the name of the companies. According to S.25 (1) (b)of CA
stated that the name of a private company shall end with the word ‘Sendirian Berhad’ or the
abbreviation “Sdn Bhd”. As reaffirmed in S.597 (2) of CA, a company shall use the word
‘Sendirian or Sdn’ as part of its name if the company does not fulfil the requirements fulfilled
by private companies. Hence, the name of ‘Sendirian Berhad’ or ‘Sdn Bhd’ in S.25(1) (b) of
CA shall also apply to an exempt private company. As for a public company, S.25(1) (a)
submits that the word ‘Berhad’ or the abbreviation ‘Bhd’ shall be used at the end of the
name. As prohibited by S.597 (2), the public company must without the name of ‘Sendirian’
or ‘Sdn’.

Third, the membership of the companies. The minimum number of shareholders of a private
company must have at least one or more members, having limited or unlimited liability
for the obligations of the company. This is submitted in S.9 (b) of CA. While for the maximum
number of the shareholders are established in S.42 (1) of CA: "a company limited by shares
having not more than 50 shareholders may be registered as a private company...”. There are
two conditions in the said provision. First, only a company limited by shares maybe a private
company. A company limited by guarantee is not qualified to be a private company
because it does not have a share capital. Contrary to section 11(3), a private company
also cannot be an unlimited company under the CA 2016. The position was
different under the CA 1965 as a private company was then defined in section 15 as "a
company having a share capital ...". A company having a share capital was not necessarily a
company limited by shares. Secondly, the number of members is limited to only 50. In
ascertaining the number of members, section 42(3) says that the following is to be done:
Joint holders will be counted as one and a shareholder who is or was an employee of the
company or its subsidiary when he became a shareholder shall not be counted.
Tutorial 2

1. How companies may be classified by reference to the liability of the members?

- Section 192(1) of CA 2016 provided that a members shall not be liable for an obligation of
company.
- Companies can be classified according to liabilities in THREE according to Section 10(1) of CA
2016:
a) Limited by shares
b) Limited by guarantee
c) Unlimited company
- For a company limited by shares, it was defined in Section 10(2) of CA 2016 as the liability of
its members is limited to the amount of unpaid shares. This can also be supplemented by
Section 435(2)(b) of the CA 2016 where it was mentioned that upon winding up of a
company, the liability of a members can only be limited to unpaid shares
- In the case of Tan Tien Kok v Medical Specialist Centre, the issue was whether the members
of the respondent company were liable for payment of a surcharge. The court held that they
were not liable as such practice is contrary to the concept that the member’s liability is
limited to the extent of unpaid shares only.
- For a company limited by guarantee, it was defined under Section 10(3) of CA 2016 as where
the liability of its members is limited to such amount as the members undertake to
contribute in the event of it being wounded up. This can be supplemented by Section 435(2)
(c) of CA 2016 where no contribution is required to exceed the amount undertaken by the
members.
- For unlimited company, it was defined under Section 10(4) of CA 2016 as a company with no
limit on liability.

2. Unikom Bhd. Holds 33% of the share of Unitele Sdn Bhd and elects 7 out of the 9 members
of the Board of Directors. Unitele Sdn Bhd holds 70% of the shares in Papikom Sdn Bhd and
100% of the ashres in UMW Sdn Bhd. Unikom Bhd also holds 40% shares in Hatch Bhd.
Explain with reference to the relevant provisions of the Companies Act 2016:
(i) The types of each company
- According to Section 25(1)(b) of CA 2016, private company should have the the word
“Sendirian Berhad” or “Sdn Bhd” as part of its name.
- Unitele Sdn Bhd, Papikom Sdn Bhd and UMW Sdn Bhd are private companies.
- According to Section 25(1)(a) of CA 2016, public company should have the word “Berhad” or
“Bhd” as part of its name.
- Unikom Bhd and Hatch Bhd are pubic companies.

(ii) The relationship between all companies

- According to Section 4(1) of CA 2016, a corporation is subsidiary if the other
corporation
a) Controls the composition of BOD
b) Controls more than half of the voting power
c) Holds more than half of the issued share capital
- Unitele Sdn Bhd is the subsidiary company of Unikom Bhd as Unikom Bhd
elects more than half of the BOD.
- Papikom Sdn Bhd and UMW Sdn Bhd are the subsidiary companies for
Unitele Sdn Bhd as Unitele Sdn Bhd owned more than half of the issued share
capital.
- According to Section 5 of CA 2016, a corporation is an ultimate holding
company if
(a) The other corporation is a subsidiary of the corporation.
(b) The corporation is not itself a subsidiary of any corporation.
- Unikom Sdn Bhd is the ultimate holding company.
Additional Tutorial

Question (i)

- Hanse, Sungwon and Gukil Sdn Bhd are the subsidiaries of Doldam Medical Centre Sdn Bhd,
pursuant to Section 4(1) of CA 2016
- Doldam holds more than half of the issued shares.
- Doldam controls the BOD of Sungwon Sdn Bhd
- Doldam holds more than half of the voting power in Gukil Sdn Bhd
- Myungwoo Sdn Bhd is the wholly owned subsidiary of Gukil Sdn Bhd, pursuant to Section 6
of CA 2016
- Section 5 of CA 2016, Doldam Medical Centre Sdn Bhd is the ultimate holding company for
Hanse, Sungwon, Gukil and Myungwoo.
- Section 7 of CA 2016, related companies (CONCLUSION)

Question (ii)

Whether Song Hwa and Jeong Won are the promoters of the company

- Both are promoters, pursuant to Section 2 of the CA 2016

- Cases

Whether Jeong Won has breach his duty as promoters for making a secret profit

- Bought the land for RM 1 million and sold it to Yulje for RM 1.5 million
- Gluckstein v Barnes
- Remedies
1. Recovery of secret profit
- Gluckstein v Barnes
- Fairview
2. Damages

Whether Yulje is liable for the pre-incorporation contract entered into by its promoters, for the
purchase of the iMRI.

- Section 65
- Can enforce the contract if:
a) If the contract has been ratified, the company is liable
b) If the contract was not ratified, the promoters will be liable
- The contract has been ratified by Yulje by way of implied ratification through the
conduct of the company
- Chong Yoke Onn
- The fact that the iMRI was used once has impliedly indicated that Yulje has
ratified the contract entered into by its promoters
Tutorial 3

Question 1

(a) Who is a “promoter”? Discuss briefly his duties.

- According to the Twycross v Grant, promoter is a person who undertakes to form company
with reference to a given object and takes necessary steps to accomplish that purpose
- Duties of a promoter are:
1. Make full and frank disclosure
 Disclose all relevant information to the BOD
 In the case of Erlanger v New Sombrero Phosphate Co, the promoters
purchased an island and sold it at a higher price to a company where the
promoters were the directors. Such purchase was ratified by the BOD but turned
out the island was worth considerably lower. The court held that the promoters
failed to disclose their interests and the contract was voidable
2. Not to make secret profits
 Any profits obtained without the company’s consent
 In the case of Fairview Schools Bhd v Indrani a/p Rajaratnam (No.2), a company
was incorporated to manage a private school where the promoter applied for a
permit to operate the school. The court held that the promoters have a legal
duty to not make any secret profit out of the promotion without the company’s
consent

(b) If a promoter breaches his duties, what are the remedies available to the company to whom
such duties are owed?
- Rescission
 In the case of Erlanger v New Sombrero Phosphate Co, the contract was
voidable at the company’s option. If company terminates the contract, the island
is returned to the promoters and the money is recovered.
 Conditions to exercise rescission
1. Company did not affirm the contract
 2. Parties must be restored to their original position
 In the case of Lagunas Nitrate Co v Lagunas Syndicate, a syndicate owning
nitrate works incorporated a company and the BOD were identical in both
organization. Such fact was mentioned merely in the public prospectus. Lands
were then purchased and actions were brought two years later, alleging that the
purchase was made at an over-value. The court held that the land was already
mined, therefore not capable to restore it to its original position.
- Recover Secret Profit
 In the case of Fairview Schools Bhd v Indrani a/p Rajaratnam (No.2), it was
ruled that if promoters acquired the property for personal gain, the company
may obtain a constructive trust order and require the promoters to hand it over
at cost.
 The company must prove:
1. There was a failure to disclose
2. Secret profit arose within the period of promotion
3. The secret profit was separated from the contract price
- Damages
 In the case of Re Leeds & Hanley Theatres of Varieties Ltd, F Co contracted to
purchase two music halls and had the property conveyed to a nominee, intending to
sell it to the claimant when the company was formed. F Co then promoted the
formation of the company and sold the music halls at a higher price. The court ruled
that the promoters were liable for damages and the measure of damages being the
promoter’s profit.

(c) What is a pre-incorporation contract? Distinguish a “pre-incorporation” from a “provisional

contract”
- A pre-incorporation contract is a contract formed before the incorporation of a company. The
incorporated will not be liable for any obligations under the pre-incorporation contract
unless ratified.
- In the case of Natal Land Co Ltd v Pauline Colliery Syndicate, an agent for a company not yet
formed, entered a contract with N Ltd for the grant of mining lease. The court ruled that
although the company had the benefit, there was no liability as the contract was formed
before the company existed.
 - Regarding the ratification of contract, it cannot be done retrospectively. In the case of Re
Northumberland Avenue Hotel Co, there was a pre-incorporation contract for the grant to
the company of a building lease. After incorporation, there was no new contract. The court
held that the contract cannot be ratified retrospectively.
- A provisional contract on the other hand was defined under Section 190(5) of CA 2016
where it meant contract made by a company before it is entitled to commence business.
- A Pre-Incorporation contract is not binding unless the company adopts the contract. A
provisional contract becomes binding on the company when it obtains the certificate of
commencement.

Question 2

Ultraman Sdn. Bhd. agreed to sell 2,000 boxes of candles under a contract which read in part: “We
agree to buy from Ultraman Sdn. Bhd. 2,000 boxes of candles …” (signed) Superwoman Sdn. Bhd.
Ultraman Sdn. Bhd. delivered the goods but has never received the price. It has now been discovered
that Superwoman Sdn Bhd was only incorporated the day after this contract was made.

Advise the directors of Ultraman Sdn. Bhd. whether they may recover the price, and if so, from
whom?

Pre-incorporation contract

Issue: Whether Ultraman Sdn Bhd can recover the price against Superwoman Sdn Bhd pursuant to
the pre-incorporation contract

Law + Case: According to Section 65 of the CA 2016, it allows a party to enforce the contract against
the company, if it has ratified such contract after incorporation and to the promoters, if the company
did not ratify. In the case of Natal Land Co Ltd v Pauline Colliery Syndicate, an agent for a company
not yet formed, entered a contract with N Ltd for the grant of mining lease. The court ruled that
although the company had the benefit, there was no liability as the contract was formed before the
company existed. In the case of Kelner v Baxter, promoters entered into a contract on behlf of a
company for the purchase of wine. After incorporation, the wine was consumed and the company
went into liquidation. The court ruled that the promoters were liable as they knew that the company
has not yet in existence. Besides, in the case of Ahmad Salleh v Rawang Hills Resort Sdn Bhd, the
plaintiff entered a contract to sell a piece of land to the defendants and received part of the purchase
price. The issue was that the defendant breached the agreement for being a non-existent company.
The court ruled that the company was liable as the contract was ratified.
Application: The contract that was entered into between Ultraman Sdn Bhd and Superwoman Sdn
Bhd is a pre-incorporation contract and by virtue of Natal Land Co Ltd, such contract is not
enforceable. However, according to Section 65 of CA 2016, such contract is enforceable against
Superwoman Sdn Bhd if they had ratified such contract or against the promoters of Superwoman Sdn
Bhd if such contract has not been ratified. Pursuant to the case of Ahmad Salleh, the facts were silent
on whether such contract has been ratified by Superwoman Sdn Bhd. Therefore, by referring to the
case of Kelner and Section 65, an action can be taken against the promoters of Superwoman Sdn Bhd
as they knew that Superwoman Sdn Bhd was not yet in existence when the contract of candles was
made.

Conclusion: In conclusion, Ultraman Sdn Bhd is entitled to recover the price against the promoters of
Superwoman Sdn Bhd.