Group Name : AKM (Group T9V)

Tutorial 1 : Membership & Members Rights

Answers

Question 1 :

(a)

A shareholder is a person or legal entity that legally owns one or more shares in a public or
private company. Shareholders may also be referred to as members of a company.
According to Section 2(1) of Companies Act 2016, in the case of a company limited by
shares, a member means a person whose name is entered in the register of members as the
holder for the time being of one or more shares in the company. The case of Ming Yueh
Holdings S/B v Kong Ming Bank Bhd further states that the correct term to use in reference
to any person having any share in a company would appear to be a member. Even the fact
that a person owns shares does not make him a member of the company. It is possible to
purchase shares without being registered as the holder of those shares in the company’s
register of members.

However, as stated in the case of Raja Khairulzaman Shah v Zaman Indah Sdn Bhd, mere
allotment of shares does not create the status of membership. Therefore, it follows that even
if a person owns shares in a company, he is not yet a member until his name is in the
company’s register of members as also affirmed in the case of Ayer Molek Rubber Co Bhd
v Insas Bhd.

Thus, since Marcella Bhd is a company limited by shares, as per S.2(1) of the Companies
Act 2016 and the case of Raja Khairulzaman Shah and Ayer Molek Rubber Co Bhd, it is
understood that a mere shareholder does not identify itself as a member of the company.
For a person to be a member of the company, even for a shareholder, the name must be
registered in the company’s register of members.

To be incorporated as member of a company, it is understood that there are several ways.

Two of the process is through allotment of shares or by purchase and transfer of shares.

In regards through the allotment of shares, a person may become a member of a company
when he is allotted shares in the company. In this scenario, the company is issuing new
shares and offers the new shares to a particular person. Shares in a company are allotted
when a person acquires the unconditional right to be included in the register of members in
respect of those shares. If he accepts, the company will allot shares to him and enter his
name in the register of members. This
mean allotment creates a right for a person to be registered as a member of a company, but
only once a share has been issued can that person exercise his rights as a member. For this
particular process, S.77 of the Companies Act 2016 underlines the registration of allotment
in the register of members.
Moving on, in regards to the process through purchase and transfer of shares, a person may
purchase the company’s share from an allottee of the shares or any person who is holding
those shares. The purchaser becomes a member of the company when his name is entered
into the register of members as per S.106(1) of the Companies Act 2016. Transfer of shares
is a transaction resulting in a change of share ownership. A shareholder, whether in public
or private company, has a property in his share which he has a right to dispose of, subject
only to any express restriction which may be found in the company’s constitution.

Thus, based on the laws above, once a shareholder has become a member of a company,
then only will that person’s name be registered on the company/s register of members.

Question 2 : Case

e)

Tan Guan Eng v Ng Kweng Hee & Ors [1992] 1 MLJ 487

Facts

The first plaintiff is a shareholder and director of the ninth defendant, Dragon Enterprises
Sdn Bhd ('Dragon'). Dragon is the holding company and controlling shareholder of Thean
Seng Co Sdn Bhd ('TSS'), the eighth defendant. Dragon is in turn a subsidiary of an
incorporated investment company called BH Low Holdings Sdn Bhd ('BHL'). The first
plaintiff is also a majority shareholder and director of BHL. The first and second
defendants were the directors of both Dragon and TSS.

Notice of TSS's extraordinary general meeting ('EGM') was given to pass a resolution to
increase the issued and paid-up capital of TSS by way of a rights issue. The plaintiffs
obtained an ex parte interlocutory injunction to restrain the holding of the EGM, alleging
that the calling of the EGM by the first to seventh defendants was not a proper or bona fide
exercise of their powers as directors of TSS because the calling of the EGM was to effect a
change in the control of TSS in interest or favour of the first to seventh defendants.

Issue
i. Whether calling of TSS's EGM by the first to seventh defendants was a proper
or bona fide exercise of their powers as TSS's directors?
ii. Whether plaintiff has locus standi to sue subsidiary company?
iii. Whether issue of locus standi should be decided as a preliminary point or at
conclusion of trial?

Held

The court by dismissing the application to discharge injunction held that,

The issue whether calling of TSS's EGM by the first to seventh defendants was a proper or
bona fide exercise of their powers as TSS's directors, was neither just nor convenient to be
decided without the process of a full trial.
The term 'locus standi' means entitlement to judicial relief apart from the questions of the
substantive merits and the legal capacity of a plaintiff.

In deciding the question of locus standi, the court will proceed on the basis that allegations
in the statement of claim and in the documents relied upon by the plaintiffs are true. The
jurisdiction to uphold a plea of no locus standi should only be exercised very carefully in
circumstances where there is no possibility of doubt.

The traditional view of 'control' of a company is one of ownership but the new view
considers who has de facto control of a company. In this case, His Lordship pointed out
that shareholding may be one index to determine the question of control. It was held that,
“The obvious and no doubt the easiest way of determining whether the wrongdoer has
control of a company is to have regard to their shareholdings. If the majority of the shares
is held by them, then it goes without saying that they are in control of the company; but if
that is not the case, it does not necessarily follow that they are not in control, for the court
may go behind the apparent ownership of the shares, in order to determine whether the
wrongdoers do in fact control of the company”. “Apparent ownership” could be or
perhaps, even an outsider, through the use of nominee directors, interlocking shareholding,
and agreement of the shareholders or the use of proxies.

Although each company within a group of companies is a distinct entity, in certain

circumstances courts have treated a group of companies as a single corporate entity. In the
circumstances of this case a prima facie case for piercing the corporate veil had been
established.

Both of the plaintiffs had established a prima facie case of locus standi to maintain this
suit; there are also serious questions of law and fact to be tried.

Prepared by,
AMMAR MUSTAQIM BIN ARIFF HAZNAL 1151100066
KESHEN NAIDU 1151102468
MEOR EDLAN 1151100725