1. Discuss the notion of separate legal entity.

Introduction:

Separate legal entity in law is recognized as a “legal person”, and that person is a company. It
was considered as a corporate body/corporation, an artificial legal person that exist
independently. According to Section 20 of Companies Act (CA2016), a company
incorporated under the Companies Act 2016 is a body corporate and shall have legal
personality separate from its members.

Content

According to the case Salomon V A Salomon Co Ltd [1897] AC 22, the issue in the case was
whether the creditor or Salomon should be repaid first. Mr. Salomon was the majority
shareholder of the company, and the one who run the business. The creditor argued that
Salomon and the company are considered as one. In fact, Mr. Salomon should repay the
creditor first. However, once the company has its own entity, the member of a company is not
liable for the debts. Therefore, the court held that the debt will be incurred by the company,
and the creditor can only sue the company, not Mr. Salomon.

According to Section 20 (b), a company will enjoy a perpetual succession until it is struck off
by the ROC in accordance to the law. In Malaysia, Salomon v A Salomon Co Ltd was
applied in the case Abdul Aziz b Atan & 87 ors v Ladang Rengo Malay Estate Sdn Bhd
[1985] 2 MLJ 165. In this case, all the shareholders of the company sold and transferred their
entire shares to a third party (Gemas Bahru Estate Sdn Bhd). After all the shares were
transferred, the employer terminated all the workers. Therefore, the 88 employees were
represented by Abdul Aziz, he took out the case on behalf of himself and others. The court
held that the change of ownership will not change its identity or personality even though the
entire shareholding of the company changed. As the company entity is not affected by the
transfer of the share, due to perpetual succession, so will not affect the company’s continuity,
as the worker is work for the company.

Section 21(c)

A company shall be capable of exercising all the functions of a body corporate and have full
capacity to carry on or undertake any business or activity including to do any act which it
may do or to enter into transactions, and shall have the full rights, power and privileges for
the aforementioned purposes.
In the case Lee v Lee’s Air Farming Ltd [1961] AC 12, a principal shareholder can be a
worker of the company and that didn’t stop him to make a contract of employment on behalf
of the company and himself. The New Zealand Court of Appeal refused to hold Mr. Lee was
a worker, holding that a man could not in effect, employ himself. However, the Privy Council
held that Mrs Lee was able to claim the compensation under the insurance since it was a
separate legal entity from Lee himself.

Section 21 (a)

A company shall be capable of exercising all the functions of a body corporate and have full
capacity to carry on or undertake any business or activity including to sue or be sued.

In the case Foss v Harbottle [1843] 2 Hare 461, two shareholders initiated legal action against
the promoters and directors of the company, alleging that they had misapplied the company
assets and had improperly mortgaged the company property. However, the court rejects their
claims as they don’t have the right to do so. A breach of duty by the directors of the company
was a wrong done to the company. Therefore, the company for it alone could be sue, as the
qualified plaintiff is the company not them.

Section 21 (b),

A company shall be capable of exercising all the functions of a body corporate and have full
capacity to carry on or undertake any business or activity including to acquire, own, hold,
develop or dispose of any property.

In the case Macaura v Northern Assurance Co Ltd [1925] AC 619, the owner of a timber
estate (Macaura) sells all of the timber to a company. Unfortunately, all the timber was
destroyed by fire, and Macaura started to claim from the insurance company. Besides, the
insurance company refused the claims and he decided to sue the insurance company.
However, the court held that even if a person is a beneficial owner of all the shares but once
he sells the timber to others, the timber will not belong to Macaura’s. In summary, Macaura
wants to claim his insurance, but he already sold the timber. Therefore, there is nothing for
him to claim as he doesn’t have any timber.
Section 214(1)(d),

A director is taken to meet the requirements of subsection(1), and their equivalent duties at
common law and in equity, in respect of the judgement if they rationally believe that the
judgement is in the best interests of the corporation.

Section 21(2)

Since the company is a separate legal person having limited liability, it is given the rights,
power, and privileges under the law to perform all activities that are needed for it to manage
its business.

Conclusion

The intention of the law is good because it protect the shareholder of the company. However,
they must make sure that they are running the business in a good condition. Section 214(1)(d)
is the best way to make sure the corporation is in the best interest, and avoid the company
running in an illegal way.
Q2.
Andy was the sole proprietor of a grocery store in Kampar Lama for about 10 years. Two
months ago, he expanded his business into a supermarket occupying a new three storey
closed to his old store. Andy assigned the whole of its assets to a company known as RM10
Supermarket Sdn Bhd. (private company limited shares)
The sales consideration was effected by the allotment to Andy and his wife of 500,000 fully
paid up shares of RM1 each. Andy and his wife are the only shareholders, directors and
employees. They practically run the business as how it has always been. Andy continued to
insure the assets of the business in his own name.
Last week, the business premises of RM10 Supermarket Sdn Bhd was burned down, and the
company incurred losses of about RM450,000. Andy made a claim on the insurance policy,
but the Insurance Company rejected his claim. Advise Andy.

ANSWER:
Identification of Issues:
 Whether Andy as an insurable interest in the assets of RM10 Supermarket Sdn Bhd?
 Whether Andy can claim the losses suffered by RM10 Supermarket Sdn Bhd from
insurance company?
Explanation of Law:
According to Section 20 Companies Act 2016, company has a legal personality separate
from its members, officer and employees. In the case of Salomon v A Salomon Co Ltd
[1897] AC 22, the court held that even though there is one member hold a huge number of
shares or there is close relationship among the members, the company which are registered
are separated with the members. So, the members are not liable for the company debts.
Next, Section 21(a) Companies Act 2016 mentioned that the incorporated company can sue
or be sued by its own name. In the case of Foss v Harbottle [1843] 2 Hare 461, 2
shareholders of Victoria Park Company take action against the company’s director and some
of the members for misapplied the property. The court held that the injury complained of was
an injury to the company, so it is suitable for the company take action against the employee
not the shareholders.
Furthermore, according to Section 21(b) Companies Act 2016, it stated that a company shall
be capable of exercising all functions of an incorporated company and have capacity to carry
business includes to acquire to own hold develop or dispose of any property and to do any act
which may do to enter into transactions.
In an addition, rights, liabilities, assets and properties belong to the company and not its
shareholders. In the case of Macaura v Nothern Assurance Co Ltd [1925] AC 619, Macaura,
the owner of the timber estate sold all the timber to the company which was owned almost
solely by him. Later, he insured the timber to the company which was owned almost solely
by him. Later, he insured the timber against fire, but in his own name. After the timber was
destroyed by fire, the insurance company refused the claim. The court held that Macaura did
not have the insurable interest because the timber had sold to the company. The timber is
belonging to the company and the company own the insurable even though Macaura own all
the share of the company. From this case, all the things belong to the company not the
shareholders or members. Once the property sold to the company, it belongs to the company
and not you even though you are the director of the company because the company and you
are separated.
Application of Law:
According to Section 20 Companies Act 2016 and the case of Salomon v A Salomon Co
Ltd [1897] AC 22, ‘RM10 Supermarket Sdn Bhd’ is different and separate from Andy and his
wife, no matter both of them hold all shares of the company.
According to Section 21(a) Companies Act 2016 and the case of Foss v Harbottle [1843] 2
Hare 461, the premises that was burned down cause the company suffers loss and injury. The
members of the company could not maintain the suit. ‘RM10 Supermarket Sdn Bhd’ which is
suffers loss and injury needs to present itself to claim the insurance.
According to Section 21 (b) Companies Act 2016 and the case of Macaura v Nothern
Assurance Co Ltd [1925] AC 619, Andy and his wife did not have the insurable interest of
the business premises which was burned down, the insurable interest is belonged to the
‘RM10 Supermarket Sdn Bhd’ even though all the shares is owned by Andy and his wife.
In this particular case, even though Andy is the one holding all assets, the assets are belongs
to company. So, now the company burned does, is the company suffered losses. By right, the
company can claim compensation from Insurance Company, but the company does not have
insurance policy. On the other hand, Andy insured all the assets in his own name but he is no
assets because the assets that burned down, does not belongs to him anymore. In this case, he
actually does not suffered losses. If he does not suffer losses, the insurance company cannot
compensate him.
Concluding Advice:
‘RM10 Supermarket Sdn Bhd’ is separate from Andy and his wife and the company ‘RM10
Supermarket Sdn Bhd’ is liable to claim the insurance policy from Insurance Company for
his damaged company but not Andy. However, the company does not have the insurance
policy. Therefore, cannot claim. As for Andy, even though he has an insurance policy, but he
does not suffers losses, so he cannot claim compensation from insurance company.
Q3. Explain a single member / a sole director company and its legal implications with
reference to Companies Act 2016.
Introduction
A single member company is a private company, which incorporated by one single member.
A single member can belong to a natural person or an artificial person. S.196 Companies Act
2016 (CA2016) stipulates that if a single member company want to be incorporated as a
private company, the sole member/single director must be a resident (foreigner also can apply
for it if want to be director) in Malaysia and meet the requirement- must be above 18 years
old, sound mind, not bankrupt, did not offence the law in Malaysia under S.14(2) CA 2016.

Content
S.209 CA 2016 mentioned that the sole director or the remaining director of the company
cannot resign and leave unless he has call for shareholders meeting, give notice of his
decision to resign from the company and has appointed a new director.

In the case that the single director of the company vacated due to the reason provided in
S.209(3) CA 2016 (a) dies, (b) disqualified, (c) mentally unsound or (d)vacate office in
accordant with constitution of company, the company secretary must call for meeting of next
of kin or personal representative. However, if the company secretary cannot fulfill the
requirement as stated in S.209(3) CA 2016, the registrar will strike off the company after 6
months- S.209(5) CA 2016.

By referring to S.66(2) CA 2016, the document is valid if it is signed on behalf of the

company who in case of sole director, by that director in the presence of a witness who attests
the signature. The witness has to be a natural person to prove that the director has signed the
document, the witness also needs to know the details about this particular document.

According to S.234 CA 2016, a contract that is not related to the ordinary business activity
which not expressed in written form, the terms of the contract must immediately record in the
minutes of meeting after the contract is made.

S.344 CA 2016 mentioned that if sole member takes any decision that may be taken by the
company in the meeting of members and has effect as if agreed by the company in the
meeting of members, he/she shall provide the company with details of decision, unless
decision is taken by way of a written solution.
Conclusion
The intention of the law is good because this sole member/ single member director company
is actually acted to encourage young entrepreneurs to enter the business, to protect them from
limited liability. However, the law maker also needs to understand that will be situation that
may be affect others especially the single member does not comply with the section as stated
above (eg: S.14 (2) CA 2016, S.66 CA 2016, S.196 CA 2016, S.209 CA 2016, S.234
CA2016, S.344 CA 2016)