Company Law

T1-Legal Entity of A
Company

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 Introduction
 The Companies Act 1965 is the principal legislation
governing the formation and operation of companies in
Malaysia
 The Act enables an association of persons to form
various types of corporate organizations known as
registered companies
 This Act also provides facilities for the incorporation of
companies, its constitution, its relation with members
and creditors, management and winding-up
 Registrar Of Companies enforces and administers the CA
1965
 Every company must register with ROC before
conducting any business activity

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 Incorporation
 A company is a legal entity that is separate and distinct
from its members and shareholders
 When a company is formed, it is said to have become
‘incorporated’
 Has a separate legal personality, separate from its
members
 (Salomon v Salomon and Co) [1897] AC 22- Salomon
had been in the shoe leather trade for some time. He
then formed a company and sold his business to it.
Payment was in the form of cash, debentures. The
company wound up and it was argued that Salomon and
the company were the same person. The HOL held that
it was properly constituted and in law the company was
a distinct legal person

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 Effect of Incorporation
 Fundamental consequences of separate legal
personality:
 Limited liability–only companies are liable for their
own debt
 Business Property – property of the company is
distinguished from that of its members
 (Macaura v Northern Assurance) [1925] AC 619-the P
owned a timber estate. He formed a one-man
company and transferred the estate and continued to
insure it in his name. when the timber was lost in a
fire, it was held that he couldn't claim the insurance
as the timber belonged to the company
 Perpetual succession – continuity of the company is
not affected by the death or incapacity of its
members 4
 Cont…
 Contractual capacity – in its own right and can
sue or be sued in its own name
 Transferable membership – incorporation
greatly facilitates the transfer of members’
interests and shares
 Increased borrowing powers – unincorporated
traders or partnerships would find it easier to
borrow money because of their personal
liability

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 Veil of Incorporation
 In some exceptional cases the company is
identified with its members or directors
 The principle that a company is a person
separate from its members and directors can
produce unsatisfactory results in certain
circumstances
 That is why there are some situations where the
veil was lifted
 There are 2 types of veil lifting:
 Judicial lifting
 Statutory lifting 6
 Judicial Lifting
 Public interest: (Daimler Co Ltd v Continental Tyre &
Rubber) [1916] 2 AC 307- the D company was
incorporated in England, but all its shareholders except
one and all its directors were German residents in
Germany. When war broke out between England and
Germany, it commenced an action for payment of a
trade debt. The solicitors of the D company issued the
writ upon the instructions of the secretary of the
company. The P contended that the company was an
alien enemy company and payment of the debt would
amount to trading with the enemy. It was also
contended that the action had been commenced without
the authority of the company. The COA nonetheless
decided for the D company

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 Evasion of Obligation
 (Gilford Motor v Horne) [1933] Ch 935-Mr Horne
was an ex-employee of The Gilford Motor Co
and his employment contract provided that he
could not solicit the customers of the company.
In order to defeat this he incorporated a limited
company in his wife's name and solicited the
customers of the company. The company
brought an action against him. The COA
regarded it as a mere sham to cloak his
wrongdoings

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 Fraud
 (Jones v Lipman) [1962] 1 WLR 832- a
man contracted to sell his land and later
changed his mind. In order to avoid an
order of specific performance, he
transferred his property to a company.
The courts awarded specific performance
both against Mr.Lipman and the company

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 Agency
 (Smith, Stone & Knight v Birmingham Co)
[1939] 4 All ER 116- SSK owned some land, and
a subsidiary company operated on this land. BC
issued a compulsory purchase order on this
land. Any company which owned the land would
be paid for it, and would compensate any owner
for the business they ran on the land. Since the
subsidiary company did not own the land, BC
claimed they were entitled to no compensation.
The courts held that the subsidiary company
was an agent and BC must pay compensation

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 Group Enterprise
 (DHN Food Distributors v Tower Hamlets)
[1976] 1 WLR 852-A subsidiary company
of DHN owned land which the D’s issued a
compulsory purchase order on. The courts
held that DHN was able to claim
compensation because it and its subsidiary
were a single economic unit

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 Statutory Lifting
 Membership numbers: s 36 CA 1965
 Trading:
1. Fraudulent (s 304(1)
2. Wrongful (s 303(3)
 Dividend payments: s 365(2)
 Taxation: s 140(1)
 Misdescription: s 121(2)

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 Key Terms
 Incorporation-separate legal personality,
distinct from its members

 Two types of lifting-judicial and statutory

 Judicial-case law

 Statutory-Acts
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 References
 Chan Wai Ming, Company Law in
Malaysia, Cengage Learning, 2012
 Concise Principles of Company Law in
Malaysia, 2nd Edition, Shanty
Rachagan, Janine Pascoe, Anil Joshi,
LexisNexis, 2010

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