COMPANY LAW

CORPORATE PERSONALITY

TOPICS


1. Incorporation and its effects
2. Separate legal personality
3. Case studies

INCORPORATION AND ITS EFFECTS
s.16(5) CA 1965 provides that on and from the date of
incorporation specified in the certificate of incorporation but
subject to the Act the subscribers to the memorandum
together with such other persons as may from time to time
become members of the company shall be a body
corporate by the name contained in the memorandum
capable forthwith of exercising all the functions of an
incorporated company and suing and being sued and
having perpetual succession and a common seal with a
power to hold land but with such liability on the part of
the members to contribute to the assets of the
company in the event of its being wound up as is
provided by this Act.
INCORPORATION AND ITS EFFECTS
Therefore upon incorporation, a company is considered as
an artificial legal person, i.e. a person created by statute.
S.16(5): body corporate
1.A companys obligations and liabilities are its own, and
not those of its participants;
2.A company can sue and be sued in its own name;
3.A company has perpetual succession;
4.A companys property is not the property of its
participants;
5.A company can contract with its controlling participants
THE SEPARATE LEGAL ENTITY DOCTRINE
THE CORPORATE VEIL
The company is a legal person separate from its
participants;
in the event of winding up, members are liable up
to their unpaid shares only. They are not liable to
contribute if they have had paid up their shares.
This means that:
its obligations and property are its own and not those of
its participants
its existence continues unchanged even if the identity
of the participants changes

THE SEPARATE LEGAL ENTITY DOCTRINE
THE CORPORATE VEIL
Thus person from its members and those who
manage its operation
There is a corporate veil that separates the company
from its members
the law treats a company as being a separate





THE SEPARATE LEGAL ENTITY DOCTRINE
THE CORPORATE VEIL
Case studies:
1. Salomon v Salomon & Co. [1897] AC 22
2. Macaura v Northern Assurance Co. [1925] AC 619
3. Lee v Lees Air Farming [1961] AC 12
SALOMON V SALOMON
(1897)
Salomon
sole
trader
Family
Pty Ltd
Company
Leather Business
Cash, Debenture
20,001 shares
6 shares
MACAURA V NORTHERN
ASSURANCE CO. [1925]
Macaura:
Estate &
Timber
Timber
Irish
Canadian
Saw Mill
Share Capital
Insurance
Fire
LEE V LEES AIR
FARMING [1961]
Mr. Lee
Lees Air
Farming
Owned all
Governing
Director
Chief pilot
Incorporation
Plane crash
Death
Compensation
THE SEPARATE LEGAL ENTITY DOCTRINE IN
MALAYSIA
Malaysian courts have accepted the Salomon principle as being
an integral part of Company Law.
In Goh Hooi Yin v Lim Teong Ghee (1977) the court was of the
view that it was incumbent on the courts to apply the doctrine.
THE SEPARATE LEGAL ENTITY DOCTRINE IN
MALAYSIA

Abdul Aziz bin Atan & 87 Ors v Ladang Rengo Malay
Estate Sdn. Bhd. [1985]Shankar J.:

It is trite law that an incorporated company is a legal
person separate and distinct from the shareholders
of the companyThe whole point of forming a
limited company is that the shareholders can have in
their hands the management of the business without
incurring the risk of being under unlimited liability
for the debts of the company
THE SEPARATE LEGAL ENTITY DOCTRINE IN
MALAYSIA
Perman Sdn. Bhd. v European Commodities Sdn.
Bhd. (2005) per Gopal Sri Ram JCA:

a principle which lies at the heart of company law.
It is that a company is a separate person from its
shareholders. The latter have no interest, legal or
beneficial over the property of the former.
SALOMON: PROBLEMS AND ISSUES

In the High Court, the learned judge said the company had a right
of indemnity against Mr Salomon. He said the signatories of the
memorandum were mere dummies, the company was just Mr.
Salomon in another form, an alias, his agent.
SALOMON: PROBLEMS AND ISSUES
The Court of Appeal [1895] confirmed the High
Courts decision against Mr Salomon, though on
the grounds that Mr. Salomon had abused the
privileges of incorporation and limited liability,
which Parliament had intended only to confer on
"independent bona fide shareholders, who
had a mind and will of their own and were not
mere puppets". Per Lindley LJ.
SALOMON: PROBLEMS AND ISSUES
The House of Lords unanimously overturned this
decision, rejecting the arguments from agency
and fraud. They held that there was nothing in the
Act about whether the subscribers (i.e. the
shareholders) should be independent of the
majority shareholder. The company was duly
constituted in law and it was not the function
of judges to read into the statute limitations
they themselves considered expedient.
SALOMON: PROBLEMS AND ISSUES
"The company is at law a different person
altogether from the [shareholders] ...; and, though it
may be that after incorporation the business is
precisely the same as it was before, and the
same persons are managers, and the same
hands received the profits, the company is not in
law the agent of the [shareholders] or trustee for
them. Nor are the [shareholders], as members, liable
in any shape or form, except to the extent and in the
manner provided for by the Act."