Incorporation of Companies

Effect of Incorporation

Separate legal entity (Section 20)

 Have legal personality separate from its members

 Continue to exist until it is removed from the register
 Company members are not responsible for the company’s debt except for the
extent of their investment in the company
 Members of a corporation cannot own any duty of care in respect of company’s
act which they cannot be liable in tort for the company’s acts
 Company continues to exist regardless of the identity of its members unless the
name is removed from the register or deregistered by registrar
 A company is recognized as a legal person
 Enforce legal rights
 Own property
 Be a party to a contract

Salomon v A Salomon & Co Ltd

Mr Salomon incorporated a company and hold most of the shares. The company
became insolvent and action was brought against him to indemnify for the debts

Held: Company is responsible for its own debts and contractual obligation. Members are
not liable. Members of a company can borrow money to the company.

Sunrise Sdn Bhd v First Profile (M) Sdn Bhd

Corporation is a legal entity distinct from its members, be they individuals or corporate
bodies under a principle firmly established since Salomon v Salomon & Co Ltd. This
principle is called corporate veil

Re Noel Tedman Holdings Pty Ltd

Company had 2 shareholders which was also the directors. They both died in an
accident leaving an infant child

Held: Personal representatives of the deceased members can appoint directors so that
the new directors could assent to the transfer of shares to the beneficiary

Lee v Lee’s Air Farming

Mr. Lee was the owner of all shares of the company, the managing director and also
employed by company as a pilot. When accident, his wife claimed payment

Held: Company can enter into contract with anyone including its members. Mr Lee was
the company’s agent giving order to himself as an employee

Hew Sook Ying v Hiw Tin Hee

A limited company incorporated under the CA and individuals forming the company are
distinct legal entities

Foss v Harbottle

2 members of a company instituted an action against the other members for causing the
company to buy property at an inflated price from another company controlled by them

Held: Members and company were different entities thus the members had no cause of
action against the wrongdoer as the wrongdoing was not against them but the company

Abdul Manaf Mohd bin Ghows v Nusantara Timur Sdn Bhd

The fact that the agreement was executed by the second and third respondents as
directors of Nusantara Timur does not make them personally liable for the balance of
the purchase price. The liability is solely Nusantara Timur's, the contracting party. There
is no evidence to show that the appellant had held himself out to be personally liable for
the amount claimed by the respondents

Companies have unlimited capacity

S. 21 (1) – Company can exercise all functions of a body corporate and have full capacity
to:

 Sue and be sued

 Acquire property
 Enter intro transactions

S.31 – Company may choose not to have a constitution

S.33 – If a company chooses to have a constitution then it shall be bound by it

S.35 – A company with constitution has the option to have an ‘object clause’. If they do
then it shall be restricted by its object but have full powers to achieve such objects
unless the constitution states otherwise
Companies Act 1965

S.16(5)

 Companies can sue or be sued

 Has perpetual succession
 May own land
 Limited liability to members

S.16 – Companies to lodge its Memorandum and Articles of Association (M&A) upon
incorporation

S.18 – The M&A shall specify the objects of the company

S.33 – Company bound by its object. Any contradiction from its object is a void act

Exception: Lifting The Corporate Veil

Yap Sing Hock v Public Prosecutor

Even though lifting corporate veil is a violation of the primary principle, but must be
treated correctly as exception. The wrongdoer seeks to lift the corporate veil to justify
the wrongful act of taking corporate assets

S. 75(5) - Exercise of powers of directors to allot shares

S.540(2) - Officer who knowingly contracts a debt with no reasonable ground or

expectation of the company is being able to pay debt is guilty of an offence

Courts have recognized occasions when lifting the corporate veil is necessary but with
caution

Gilford Moter Co v Horne - Defendant under contract not to solicit customers of the
company. He formed a company to solicit which is in violation. Court restrained the
company

Re Darby, ex p Broughm - 2 person formed a company and use it to promote another

company and made secret profit. Court held them liable as they did by represented it to
have been done by corporation

Application for incorporation

S.14(1)-(4) – Application for incorporation

S.15 – Upon registrar’s satisfaction with the compliance & payment:

 To enter particulars of the company in the register

 Assign registration number

S.17 – Registrar may issue certificate of incorporation upon application by company

S.19- Notice of registration as conclusive evidence that the company has been duly
registered. Date where the company comes into existence is when it is equipped with
legal capacity

Tan Lai v Mohamed Bin Mahmud - Provision in S.36 makes it impossible for anyone
to challenge the validity of the existence of the company

S.196(1) – Minimum number of company directors

S.196(4) – Minimum number of directors shall ordinarily reside in Malaysia

S.16(1)(2)– Refusal to register a company (Registrar’s discretion)

R v Registrar of Companies, ex p More – Objects of the company was unlawful thus

Registrar was correct to refuse registration

Post Registration Requirements

S.46 – Registered office

S.61 – Common seal

S.64 – Company contracts

S.66 – Execution of ocuments