02 Incorporation
Types of Business Organization
i. Sole Proprietor
- Capital, profit and loss (one person)
- Example: ABC Deli
- May have employees
- This type of business must be registered under
the Registration of Business Act 1956, unless
exempted by the Act.
- The proprietor of the business will not enjoy
the advantage of limited liability, like in the
case of a company registered under the
Companies Act 1965.
ii. Partnership
- Capital, profit and loss (two or more persons,
also known as partners)
- Example: ABC Deli
- May have employees
- For the definition of a partnership, refer to s.
3(1) of the Partnership Act 1961.
- This type of business must be registered under
the Registration of Business Act 1956.
- In general, the law governing partnership is
the Partnership Act 1961.
iii. Company
- ABC Deli Sdn Bhd / Bhd ( an entity)
- Directors and shareholders
- Have employees
- Of the types of companies that may be
registered under the Companies Act 1965, the
most important is a company limited by
shares. It is an important business entity.
- It plays an important role in the economy of a
country and in the lives of all individuals.
 When you sue a sole proprietor, you are suing the
Mr X who owned the ABC Deli.
 When you sue a partnership, you are suing Mr X
and Y who owned the partnership of the ABC Deli.
 When you sue a company, you are suing the ABC
Deli And Bhd, because a company is separate entity
with the directors (Mr. X and Y). X and Y can be
Law 3210 Company Law I
 Director is the person who managing and running
the company.
 Shareholder is the person who owns a share in the
company.
 What is share?
 A company needs capital, a shareholder give the
money or pump in the capital the company, and
the company issue a certificate or a piece of paper
showing that you own a share in that company or
shareholders
 Why you buy a share in a company?
 It’s to gain profit by way of dividend from the
money invested in that company
A dividend is a distribution of a portion of a
company's earnings, decided by the board of
directors, to a class of its share-
holders. Dividends can be issued as cash
payments, as shares of stock, or other property.
 What is company law?
 Company Law:
- Provides for the formation and termination of
companies.
- Confers on companies some special features.
For example, limited liability.
- Regulates the relationships between
participants in companies, for example, the
relationship between directors
shareholders
- Facilitates dealings between companies and
outsiders ( customer )
 Company is an entity and subjects to the law in the
same way as all other the legal persons.
 Separate legal personality
 Artificial person
Sources of law
 Companies Act 1965 (main statute) – is modelled
on the English Companies Act 1948 and the
Australian Uniform Companies Act 1961.
 Companies Regulations 1966, additional rules
relate to administration matters.
 Other relevant statutes:
- Securities Commission Act 1993 (SCA)
- Capital Markets and Securities Act 2007 (CMSA)
- Offshore Companies Ac 1990
- Companies Commission of Malaysia Act 2001
(CCMA)
- Registration of Businesses Act 1956
- Partnership Act 1961
- Demutualisation Act 2004
- Anti-Money Laundering and Anti-Terrorism
Financing Act 2001
Regulatory Bodies
Companies Commission of Malaysia – provide
regulatory framework for corporate and business
affairs in Malaysia
How to form a company?
 S14(1) Co. Act - Subject to this Act any two or
more persons associated for any lawful purpose
may by subscribing their names to a memorandum
and complying with the requirements as to
registration form an incorporated company.
 Company’s name must lodge to the Companies
Commission of Malaysia (CCM)
 S22(1) Co. Act - Except with the consent of the
Minister, a company shall not be registered by a
and name that, in the opinion of the Registrar, is
undesirable or is a name, or a name of a kind, that
the Minister has directed the Registrar not to
accept for registration.
(Must not be undesirable, identical, related to
state of country)
 Reservation of name – 3 months
S22(7) Co. Act - If the Registrar is satisfied as to
the bona fides of the application and that the
proposed name is a name by which the intended
company, company or foreign company could be
registered without contravention of subsection (1),
he shall reserve the proposed name for a period
of three months from the date of the lodging of the
application.
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 directors and shareholders.  Case laws
02 Incorporation Law 3210 Company Law I

 Submit the relevant documents such as Limited Company Unlimited Company 1. Separate Legal Entity
- Memorandum of association (MOA)  The underlying basis of Company Law is that
- Articles of association (AOA) ii. Limited by guarantee when a company is incorporated, it acquires an
- Other statutory declarations(SD) - Non-trading company independent and separate personality from its
- When the process completed, between 2 weeks - No share capital promoters and members.
to 1 month the CCM will issue certificate of - Non-profit activities The company is a legal person (artificial) having a
incorporation - No shareholders distinct entity from its members
- Online application. - Liabilities arise only
upon winding up. Saloman v A Saloman & Co Ltd [1897] AC 22, HL
Classification of Companies  Facts: S owned a sole proprietorship. Later
incorporated a company. Business was transferred
 Based on Membership to the company. Shares were given to wife and
 Other Types
sons. Subsequently, the company went into
liquidation. There were not enough assets to pay
Public Company Private Company the unsecured creditors. Thus, the liquidator sued
Related Companies Foreign Company
Salomon.
- Any member from - Limited to certain
- Parent / Holding - Formed outside  Trial court & COA held: S was liable. Applied
the public people
Company & Malaysia agency principle.
- Can be listed - S.4(1), S.15(1)
Subsidiary Company - Head office not in  HOL:
- S.4(1) - Has the word ‘Sdn’
- S.5: Malaysia. “Incorporation of a company created a separate
o Control the - S.329 – S.340 person. The company was not an agent or
- Can change from private to public or public to composition of trustee for the members. Members were not
private BOD liable in respect of the company’s obligation.”
- S.26 o Control more than
half of voting Lord Macnaghten: “ The company is at law a
power different person altogether from the subscriber
 In Relation to Liabilities of Membership o Control more than to the memorandum & though it maybe that after
half issued share incorporation the business is precisely the same as
Limited Company Unlimited Company capital it was before & the same persons are managers &
o S.5A, 5B & 6 the same hands receive the profits, the company is
- Limited by Share - Liability of not in law the agent of the subscriber or trustee
- Limited by guarantee member is Effect of Incorporation for them.”
- Has the word ‘Bhd’ unlimited 1. Separate Legal Entity
- Very rare 2. Ability to own property  2 types of creditors:
- May convert to 3. Ability to incur its own liability i. Secured creditors, eg: banks
limited 4. Ability to sue and be sued ii. Unsecured creditors, eg: rental
5. Perpetual succession.
i. limited by Share Lee v Lee's Air Farming Ltd [1961] AC 12, PC
- Most common  S.16(5) Co. Act:  Facts: Lee formed a company, spreading fertilizers
- Liability of members is “…a body corporate …exercising all the functions from the air. Held all the shares except one. Lee
limited to the amount of an incorporated company of suing and being was a director and also an employee (a chief pilot).
of unpaid shares held sued and having perpetual succession …with Later Lee was killed in and aircraft crash. His wife
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 by them
02 Incorporation
 PC: Lee was held to be a worker and
compensation should be paid to the widow. “The
company and the deceased were separate
legal entities.”
Hew Sook Ying v Hiw Tin Hee [1992] 3 CLJ 1325
 Hj Mohd Azmi SCJ:
 “It is a well establish principle of law that a
limited company incorporated under the
Companies Act & individuals forming the
company are distinct legal entities”
People Insurance Co(M) Bhd [1986] 1 MLJ 68
 Held: Resolution of the breach of duty of a
subsidiary does not bind the parent company.
Zakaria J:
The plaintiff Company (subsidiary) is a legal
entity by itself. Although it is a subsidiary of the
first defendant company, the plaintiff company
maintained its own separate entity.
2. Ability to own property
 A company can own property in its own name. Even
if a person owns all the shares in the company, he
does not own the property of the company.
Macaura v Northern Assurance Co [1925] AC
619, HL
 Facts: M was an owner of a land which produced
Timber. Sold all the timber to a company
incorporated by him. He took up an Insurance for
the timber in his own name. Later the timber
was destroyed by fire and Macaura claimed
under the insurance policy.
 House of Lords:
Macaura had no insurable interest in the timber
for it belonged to the company and not to him.
Abdul Aziz b. Atan v Ldg Rengo [1985] 2 MLJ 165
 Facts: The main assets of the company consisted
power to hold land but with such liability on the
part of the members…”
Law 3210 Company Law I
Held:
An incorporated company is a legal person,
separate & distinct from the shareholders of the
company. In the present case the company did not
change its identity or personality. It continued to
own all its assets.
3. Ability to incur its own liability
 Liability of a company is unlimited.
 Liability of members is limited , depends to the
type of company i.e. limited by shares or limited
by guarantee.
Re Application of Yee Yut Ee [1978] 2 MLJ 142
 Facts: Yee was a secretary of a company. The
company retrenched its staff and matters
concerning retrenchment benefit were referred
to Industrial Arbitration Court, which had
ordered an award. Meanwhile, Yee was
appointed as a director and when the company
failed to comply with the award ,an action was
made against Yee.
 Held:
 It is a cardinal principle of company law that
except in cases of fraud, breach of warranty
of authority and other exceptional
circumstances, a director is not liable for the
debts of an incorporated company. There
was nothing in the Companies Act (Cap.185)
which makes a director personally liable for the
debts of the company. Nor was there anything
in the Industrial Relations Act (Cap. 124) which
modifies this fundamental doctrine of company
law.
Saloman v A Saloman & Co Ltd [1897] AC 22
 Held : The liquidator cannot take action against
Salomon (shareholder and director) for debts of
the company .
4. Ability to sue and be sued
sued for compensation.
 Issue: Was Lee a worker or an employer?
 If the company has any liability against the third
party, the third party should sue the company
and not its members.
Foss v Harbottle
 Facts: Shareholders of a company brought action
against the company’s directors alleging
misapplication of the company’s property.
 Held: The injury was an injury to the company.
In law, the company and its members are
separate entities. Thus it was the company who
should take action/sue.
5. Perpetual succession
 A company shall exist until properly wound up
or struck off from the register.
 It’s life span does not depend on the life of its
members.
Re Neol Tedman Holdings Pty Ltd
 Facts: Husband and wife who were the only
shareholders and directors of a company died.
Leaving an infant child.
 Held: The personal representative of the
deceased members should appoint directors, so
that the new directors could assent the transfer
of the shares to the beneficiary.
Abdul Aziz b. Atan v Laddng Rengo Malay Estate
Sdn Bhd [1985] 2 MLJ 165
 Held: The identity of a company remains
independently of any change in the shareholding
of a company.
Abdul Manaf Mohd b Ghows & Ors v Nusantara
Timur Sdn Bhd & Ors [1997] 3 MLJ 661
 Facts: Shareholders of a company sold their
shares to Nusantara Timur, which later defaulted
in payment. The shareholders alleged that the
directors of Nusantara Timur should be liable.
 Held: The fact that the agreement was executed
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 of land. All the shareholders of the company had
transferred their entire shares to a certain buyer.
 Issue: Whether the land was also sold.
02 Incorporation
Lifting The Veil
i. Judicial exceptions
ii. Statutory exceptions
iii. Company’s liability in crime and tort
 Refer to circumstances where the law or the court
disregards the corporate entity by looking behind it
to determine the reality of a situation.
Judicial Exceptions
 Where the courts lift the corporate veil
 No exhaustive list of circumstances
 However it can be categorised under the following
headings
1. Attribution of some physical or mental state or
character
 In order to determine the residence of a
company, the court will look to the residence of
the person who controls the company.
 To determine the character / nationality of a
company the court will look at the nationality of
the members of the company.
Daimler Co Ltd v Continental Tyre & Rubber Co
Ltd
 Facts: Continental. Tyre was incorporated in
England. Directors and all shareholders (except
one) were German residents. The secretary
resided in England and was a British subject.
 Issue: Whether the company can recover debt
during the state of war between England and
German.
 Held: The Company could not recover the debt
because the company though incorporated in
England was an enemy (German) during the
war.
 A company can sue and be sued in its own name
 Any wrong done to the company, only the
company can take action.
Law 3210 Company Law I
Re FG(Films) Ltd
 Facts: 90 shares of a company were held by an
American director and 10 shares were held by a
British. The company sought to register its film
“Monsoon” as a British film. The Board of trade
refused because in reality it was made by an
American company.
 Held: The film was not a British film.
2. Use of company as a sham or to commit fraud
 When a company was incorporated to evade or
avoid a legal obligation
 Where the incorporation of company was used
to hide the true state of affairs.
Gilford Motor Co. v Horne
 Facts: H was employed as a managing director
in the P’s company. There was a covenant… not
to solicit customers of the company after
leaving its employment. Later when H left the
company, he set up his own company and in
contravention of the covenant solicited the P’s
customers. P applied an injunction against H.
 Held: Injunction granted.
- ‘Of course in law the Def. Co. is a separate
entity from H but the reason for the creation
of the company was the fear of H that he
might commit breaches of the covenant’
- ‘The company was formed as a device, a
stratagem, in order to mask the effective
carrying on of a business of Mr. Horne’
Jones v Lipman
 F: L agreed to sell his house to J. Later L changed
his mind and to avoid the transfer, he set up a
company and transferred the house to the
company. The company was wholly owned and
controlled by L. J brought an action against L.
 Held: Specific performance of the contract
by the second and third respondents as directors
of Nusantara Timur does not make then
personally liable. Nusantara Timur is solely
liable as the contracting party.
Re Bugle Press
 Facts: The shares in Bugle Press were held by S
& J –4500 shares each and T – 1000 shares. S & J
wanted to buy T’s shares. For this purpose they
incorporated a company which made an offer to
purchase all the shares in Bugle Press. S & J
agreed except T. Thus they invoked Sec 209
(equiv. To Sec 180) i.e. if a co. acquired 90%, it
could compulsorily buy out the remaining 10%.
 Court of Appeal: Rejected the application of
Sec 209.
“ the section had been used …for the purpose of
enabling majority shareholders to
expropriate or evict the minority”
Tiu Shi Kian v Red Rose Restaurant Sdn Bhd
 Facts: There was a dispute between P & D.
Injunction was granted restraining the D from
interfering with the P’s business until the action
went for trial. One night the P found the premise
was locked, so he sought an order for contempt
of court. D claimed that it was not Red Rose but
Hotel Berjaya. ( D was wholly owned and
controlled by it)
 Held: Red Rose and Hotel Berjaya were
functionally one entity. Therefore there was
contempt of court.
TNB v Irham Niaga Sdn Bhd [2011] 1 MLJ 752
 Facts: Irham Niaga entered into agreement with
TNBT (Sub of TNB). Dispute resolved by
arbitration in favour of Irham Niaga. Arbitration
award cannot be enforced – TNBT has no fund.
Irham Niaga alleged that TNB had used TNBT as
its contracting vehicle to commit fraud in its
dealing with Irham Niaga.
 Irham Niaga try to lift the veil to show there is
fraud.
 Held: The court found no fraud and the court
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02 Incorporation
3. Company employed as an agent of it controllers
 A company may act as an agent of another
company. In such situation based on the agency
principle, the principal will be liable for the act of
the company.
Smith, Stone & Knight Ltd v Birmingham
Corporation
 F: Birmingham Waste Co. Ltd (the waste
company), carrying on business on premises
belonging to SS. The waste company was a
subsidiary of SS. When BC acquired the premises,
SS claimed compensation . BC refused because in
law SS and the waste company were distinct
entities.
 Held: Compensation claimed by SS was
granted.
Atkinson J: The question is whether the
subsidiary was carrying on the business as
the holding’s business or as its own.
In his view the business belonged to SS.
 Six requirements must be established:
i. The profits of sub. must be treated as the
profits of the holding
ii. The person conducting the business must be
appointed by the holding
iii. The holding must be the head and brain of
the trading venture
iv. …
4. Corporation…
Hotel Jaya Puri Bhd Case
 Facts: A restaurant retrenched its workers. The
restaurant carried on business on premise
belongs to Hotel Jaya.
 Issue: Whether the workers were employees of
Hotel Jaya.
was ordered.
Russel J: ‘…the company was a creature of L,
a device and a sham, a mask which he holds
before his face in an attempt to avoid the eye of
equity’
Law 3210 Company Law I
Held: The companies were operating as single
economic unit.
Refer:
 Edmund Charles Liebenberg v IGB-Griffin
Manufacturing Sdn Bhd & Ors [2005] 3 CLJ
613
 Group companies; why the court lifted the
corporate veil.
5. Other circumstances
Aspastra Sdn Bhd v BBMB [1988] 1 MLJ 97
 Facts: Respondent Company applied Mareva
injunction against L, alleged that L had
channeled certain secret profit when he was a
director of Respondent Company to Aspatra.
 Held: Corporate veil should be lifted to
determine whether the assets of Aspatra were
his. Court found there were element of fraud.
Pek Seng Co Pte Ltd & Ors [1990] 1 MLJ 75
 Mareva injunction prohibited plaintiff from
dealing its assets and assets of its subsidiaries.
These companies were controlled by a person
who was the dominant directors.
 Court lifted the corporate veil to prevent the
dominant director from concealing the
assets from the creditors.
(Malaysia courts – there must be actual fraud or
some conduct amounting to fraud)
Chandler v cape Plc
 Held: Holding company is responsible for the
health and safety of its subsidiary employees.
(Corporate veil lifted in compensation claim)
will not lift the corporate veil. TNB could not be
made liable for the obligation of its subsidiary.
The court upheld the general principle that
“Holding & Subsidiary” is separate entity.
Statutory Exceptions
 Sec 36 – when the members below 2 for more than
six months, the one member will be personally
liable.
 Sec 67(3) – officer who is in default would be
guilty
 Sec 169 – requires directors of a holding company
to prepare consolidated accounts of holding and its
subsidiaries
 Sec 121- an officer who signs any cheque or
promissory note on behalf of the company would
be personally liable when the company’s name is
not properly written.
 Sec 304- an officer would be personally liable for
fraudulent trading
 Sec 140 of Income Tax Act – for tax purposes, the
court may pierce corporate veil and company’s
officer would be made liable for avoiding tax..
Company’s liability in crime
 A company as an artificial person function through
the human beings
 In crime – mens rea and actus reus
 A company will be liable for crime when there is
mens rea.
 Whose mens rea?
 The mens rea of the directing mind and will of
the company.
 Thus when the directing mind and will has the
criminal intention it will be attributed to the
company and the company may be guilty for the
criminal offences. In such situation the corporate
veil has actually been lifted.
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  Industrial Court ( Upheld by the High Court): Prest v Petrodel Resources Ltd and Others
Based on functional integrality and unity of  Court consider lifting corporate veil in
establishment between Hotel and restaurant they distribution of matrimonial assets.
constituted a single unit. Having same managing
director who had the ultimate authority over the
restaurant’s employees and shared senior offices.
02 Incorporation Law 3210 Company Law I

Lennards Carrying Co Ltd Liability in Torts

 HOL:
‘…the mental state of a person who is the
directing mind and will of the corporation
may be attributed to the corporation itself’.
Who is the directing mind & will?
 Depend to the circumstances of a case
 Board of Directors, members, managing director
etc.
H.L. Bolton(Engineering) Co Ltd
 Lord Denning: …Some of the people in the
company are mere servants and agents who are
nothing more than hands to do the work and
cannot be said to represent the mind & will.
Others are directors and managers who
represent the directing mind and will of the
company & control what it does…
 A company may be vicariously liable for the
negligence acts of its servants in the course of the
employment.
 A company may also be liable for torts committed
by its directing mind and will.
 Exception:
- A company will not be liable either in crime or
tort if the person who represents the
company’s directing mind and will is acting
in fraud of the company.
- His knowledge/intention will not be imputed to
the company.

Tesco Supermarket Ltd

 Facts: Tesco – a chain of supermarket. Charged
under UK Trade Description Act;…offer goods at
one price and sell them at a higher price…unless
by mistake of other person. One of T advertised a
good at an offer price but sold at a higher price
because…Shop assistant failed to inform the
manager.
 HOL: For the purpose of company’s criminal
liability, the branch manager did not represent its
directing mind and will but were merely a
subordinate.
 Thus the company could not be liable because the
mistake was done by the manager of the store.

Important Note
 A company cannot be sentenced to
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 imprisonment, only fined.
 Thus in certain criminal cases a company cannot
be convicted