A) INCORPORATION AND ITS EFFECTS

Question 1) What is the procedure to form a company?

Mode of forming a company is under S.14 (i) - - provides:- _ _ _ any two or more
persons associated for any lawful purpose may be subscribing their names to a memorandum and
complying with the requirements as the registration form an incorporated company.

Question 2) What is the minimum persons required to form a company?

Two, irrespective of the class of the company.

Question 3)What are the procedures to reserve a Company’s name?

1) Applicant must apply in prescribed form to the Registrar for a search as the availability and
reservation of the proposed name of the intended Company.
2) If the proposed name of the intended Company is available and is a proper one, and if the
Registrar is satisfied as to the bonafide of the application, the Registrar will reserve the
proposed name for a period of 3 months from the date of the lodging of the application.
3) Within 3 months, the applicant must, if still wish the incorporation; lodge all the relevant
documents as required under the Act with the Registrar.

Question 4) What are the documents to be lodged with the Registrar?

1) Memorandum of association – a duly signed copy of the memorandum which consist

the company’s statements of its basic purpose and people, a brief factual account of
who they are and what they intend to do. The contents are essentially listed under S18
(1) and vary according to the type of the company to be incorporated. They are the
name clause, the object clause, the capital clause for limited company, the limited
liability clause and the subscriber’s clause.
- S 18 (2) contains the requirements as to the execution of the memorandum by
subscribers.

2) Articles of association – it is a document consist the internal rules and regulations and
mandatory for a company limited by guarantee, a company limited by shares and
guarantee and unlimited company to register it’s articles with the memorandum.
i) A company limited by shares may adopt all or any of the
Regulations contained in Table A as its articles. Articles must
be:- a) printed, b)divided into numbered paragraphs and c)
signed by each subscriber to the memorandum in the presence of
at least one witness who must attest the signature and add his
address.
ii) A statutory declaration in Form 48A signed by all directors is
required to be lodged with the Registrar. A copy of a Form 48A
must also be lodged with the office of the Official Receiver.

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Question 5) Who are the subscribers to memorandum?

S14 (1) – requires 2 or more persons to subscribe their names to a memorandum for the
purpose of incorporation of a company. Where company to have a share capital, the subscriber
must agree to take the number of shares in capital of the company as set out in the memorandum
i) Each subscriber to the memorandum shall, if the company is to have a share capital ,
in his own handwriting state the numbers of share that he agrees to take and sign the
memorandum
ii) The Subscribers to the memorandum are deemed to have agreed to become members
of the Company.

Question 6) How much fee to pay for incorporation?

Depend on the amount of its nominal share capital – stated in Part 3 of Second
Schedule.

Question 7) When can Registrar refuse Registration?

S 18(a) – refuse to receive a memorandum if contains matters contrary to law.

Question 8) How does publication of name of the Company should appear?

The Act provides that the name of a Company and Company Numbers must appear in
legible roman letters on:-
i) it’s seal and (ii) all business letters, statement of account, invoices, official notices,
publications, bills of exchange, promissory notes, endorsement cheques, orders, receipts and
letters of credit of or purporting to be issued or signed by or on behalf of the Company.

Question 9) How to change Company’s name?

S23 (1) allows a company to change it’s name by special resolution.

i) it would be complete and takes effect only when the Registrar issues a new certificate
of incorporation under S23 (2)
ii) where winding up of a company commence within one year after the company has
changed it’s name, the former name and the new name must appear in all notices and
advertisements in relation to the winding up.
iii) a change of name will not effect the identity of the company or any rights or
obligations of the company or render defective any legal proceedings by or against
the Company

Question 10) What is a Certificate of Incorporation?

When the Registrar is satisfied that all necessary requirements under the Act been
fulfilled and upon memorandum being registered he shall certify under his hand and seal that the
company is incorporated on and from the date specified in the certificate. Also specify the class
to which the Company belongs.

Question 11) What is the theory of independent legal entity?

Upon the issue of the certificate of incorporation by the Registrar a company becomes a
body or in other words, a corporation is in the eyes of law a company is an independent legal

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person separate and distinct from its individual members or directors. A company is a “legal
persona just as much as an individual.” A company once created by the law can only be
destroyed by the process of law.
Case: 1) Salomon v A Solomon & Co
2) Goh Hooi Yin v Lim Teong Ghee & Ors
3) Abdul Aziz bin Atan & Ors v Ladang Rengo Malay Estate S/B

Question 12) What are the consequences of independent legal entity?

A company once is incorporated under the Act and the certificate of incorporation issued
by the Registrar; a) is a body corporate, b) is capable of exercising all the functions of an
incorporated company, c) is capable of suing and being sued, d) has perpetual succession, e)
shall have a common seal and f) has power to hold land.

Question 13) What are the circumstances can the Corporate Veil be lifted? i.e by the Act.

a) Reduction of number of members below statutory minimum.

S14 (1) requires two or more persons to subscribe their names to the
memorandum for the purpose of a company. However, a sole remaining member
of a company may be liable for payment of the debts of the company under S36 if
at any time the number of a company is reduced to below two and it carries on
business for more than 6 months while the number is so reduced.
Case: Wong Kim Fatt v Leong & Co Sdn Bhd & Anor – that the reduction in
S36 would include resignation or loss of right to remain as member.

b) Offence relating to financial assistance purchase shares etc

The privilege of limited liability accorded to a member may be lost if he is
convicted of an offence under S67. If court is satisfied that the company or
another person has suffered loss or damage as a result of the contravention
that constituted the offence order the convicted person to pay compensation to
the company or the person of such amount as court specifies. The order so
made may be enforced as if it were a judgement of the court. Briefly, S67
involves the prohibition on a company providing financial assistance for the
purpose of connection with a purchase or subscription of its own shares or in
any way purchasing, dealing in on lending money on its own shares.
A new section S67A was inserted whereby public companies are allowed to
buy back their own shares in certain prescribed circumstances.

c) Signing of bill of exchange etc

If any officer of a company or any person on its behalf signs, issues or
authorises to be signed or issued on behalf of the company any bill exchange,
promissory note or other negotiable instrument or any endorsement there on
order wherein the name and former name of the company is mentioned he
should be liable to the holder of the instrument or order for the amount due.

d) Issuing of shares by directors

The prerogative of directors to issue shares in a company has been eroded by
the Act S132D prohibits the directors from exercising any power of the
company to issue shares unless the power is exercised with the prior approval
of the company in general meeting. No provision in the memorandum or the
articles of a company can override this statutory prohibition. Where such

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 prohibition applies, any shares issued by the company in contravention of the
statutory provision shall be void and consideration given for the shares shall
be recoverable accordingly. A director who knowingly contravenes or permits
or authorises the contravention of the prohibition is liable to compensate the
company and the person to whom the shares were issued for any loss,
damages or costs which the company or that person may have sustained or
incurred.

e) Consolidated accounts
Where companies are in the relationship of holding and subsidiary, the Act
generally puts aside the independent legal entity concept by requiring a
consolidated profit and loss account of the holding company and of its
subsidiary companies.

f) Wrongful Trading
S303 (3) – an officer of a company may be guilty of an offence under the Act,
if in the course of winding up or in proceedings against a company, it appears
that the officer was knowingly a party to the contracting of a debt had no
reasonable or probable ground of expectation after taking into consideration
the other liabilities of the company at the time, of the company being able to
pay the debt. The knowledge of the officer must be tested at the time when the
debt was contracted.
- Where an officer of a company has been convicted of an offence under
303(3), the court may, if thinks proper so to do on an application made declare
that the officer be personally responsible without limited on of liability for the
repayment of the whole or part of the debt.

g) Fraudulent Trading – the privilege of independent legal entity is lost if in the course of
the winding up of a company or in proceedings against a company, it appears that any
business of the company has been carried with intent to defraud creditors of the company
or creditors of any other persons or any fraudulent purpose.
- “intent to defraud” and “fraudulent purpose” were considered in:-
i) H Rosen Engineering BV v Siew Yoon Keong whereby the
“reasonable expectations of an honest businessman” test was
applied.
ii) Eng Iron Works Ltd v Ting Ling Kiew & Anor – Section
304(1) could apply prior to the winding up of the company Fraud
for the purposes of this section is “actual dishonesty involving,
according to the current rations of fair trading among
commercial men, real moral blame”.

h) Payment of dividends out of capital

It is improper for a company to pay dividends to its members out of the share
capital of the company where any dividend of a company is paid except out of
profits or pursuant to section 60, every director or manager of the company
who will fully pays or permits to be paid the dividend shall in addition to the
criminal liability penalty be liable to the creditors of the company.

LIFTING OF CORPORATE VEIL – COMMON LAW EXCEPTIONS:-

Case: Littlewood Mail Order Stores Ltd v Inland Revenue Commissioners _ _ _ doctrine
laid down in Solomon v Solomon & Co _ _ has to be watched carefully _ _ _ The courts can

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often do draw the veil aside. They can, and often do pull the mask. They look to see what really
lies behind _ _.

a) Enemy aliens – a contract entered into with an alien enemy is at common law void for
illegality as it is against public policy. The court will be willing to lift the veil of
incorporation if the company is in substance controlled and managed by enemy aliens, it
is incapable of suing and any payment to it would be illegal as a trading with the enemy.
Case: Daimler Co Ltd v Continental Tyre and Rubber Company

b) Fraud or improper purpose

Case: Lim Kar Bee v Duafortis Properties (M) S/B
- It is well settled the courts have discretion to lift the corporate veil for the purpose of
discovering any illegal or improper purpose where a façade is alleged, the motive of the
perpetrator may be highly material.

c) Avoidance of Contractual Covenants

The court will not allow the doctrine of independent legal entity to be used by a
contracting party to circumvent his contractual obligations lawfully owed to the other
party to the contract especially is a new company is set up for the purpose of avoiding the
contractual covenants.

d) Agency
The act of a company may only be carried out through the agency of a human. The courts
have seemed willing to construe an express or implied agency of the company for its
members.

Question 14) How does theory of independent legal entity affect group enterprise?

Under Malaysian Law it recognises the creation of subsidiary companies which though in
one sense the creatures of their companies, will nevertheless under the general law be treated as
separate legal entity with all the rights and liabilities which would normally attach to separate
legal entities.
Case: Goh Hooi Yin v Lim Teong Ghee

Question 15) What are the circumstances corporate veil will be lifted in a group
enterprise?

The major reason courts are reluctant to lift the corporate veil in a group enterprise is
because each company in a group may not have identical creditors with identical claims.
Cases:
i) Aspatra S/B @ 21ors v Bank Bumiputra Malaysia Bhd & Anor
ii) Hotel Jaya Puri Bhd v National Union of Hotel, Bar & Restaurant Workers & Anor