Nature of Company

Law-611D

Law of Business Organisation

LL.M (Commercial)

Group 3

Phyu Thiri Khine

Khine Thazin Phoo

Khin Thiri Khit

Khin Ingyin
Nature of Company

The Company type of commercial organization is the most significant in Myanmar.

One of a company's most significant characteristics is that, once it has been legally
established, it has its own legal identity in line with the Company Law. This trait sets it apart
from other commercial organizations like a partnership firm. Therefore, no Member of a
Company shall be accountable for any debts or liabilities of a Company. A member of a
company may, however, in unusual circumstances be held liable for the debts and liabilities
of his or her own firm for a variety of reasons. Legally speaking, these situations are referred
to as lifting the veil.

Typically, the term "company" refers to a group of people who have come together
for a shared goal. The association's members are so numerous that it cannot be referred to as
a business or partnership, and a member may transfer his interest in the association without
the approval of the other members. These two concepts are involved. An organization of this
type may be legally incorporated, at which point it becomes a body corporate with perpetual
succession and a common seal. Then, it is viewed as a legal entity distinct from its members.
However, if it is not so incorporated, it loses its existence as a separate entity and is never
considered by the law as being different from its members. The debts or obligations of the
corporation itself will not be held against a member of the corporation. They will only be
held accountable for the amount they paid for their shares. Once more, a member of a
corporation is free to transfer his share to another as he sees fit without the requirement for
the other members' approval.1

Definition of Company

The corporation is currently the most significant type of business organization in

Myanmar. A company is not a novel idea. Men have long had the notion of conducting
business through an organization that is unaffected by changes in membership. Even if some
of its members passed away, left, or new ones joined, the organizations would continue.
Because of its distinct legal personality, the organization is able to exist independently of its
members.

It can possess property and take advantage of certain rights indefinitely due to its legal
personality. In actuality, traits like a distinct personality and a continuing life are crucial
components of the organization. The corporation is very different from a partnership firm in
1
Nature of Company, Thit Oo Hlaing, University Research Journal,2015, Vol. VI
that it has a separate legal entity; in a partnership firm, the partnership dissolves upon the
death or withdrawal of one of its partners. According to British law, a business is a made-up
individual with a distinct identity from its members. A network of contracts bind the firm's
directors, stockholders, and employees to it, yet the corporation is legally considered
independent from them. "Company" means either an existing company or a company
incorporated and registered under this Act.

Types of Company

Under Section 2 of Myanmar Companies Law 2017, there are three types of body
corporate;

(a) a company limited by shares, which may be either:

(i) a private company which may have no more than 50 members (not including

persons who are in the employment of the company); or

(ii) a public company which may have any number of members;

(b) a company limited by guarantee which may have any number of members; and

(c) an unlimited company which may have any number of members.

As further provided by and subject to Division 9, the following bodies corporate

formed under

this Law or other laws may be registered under this Law:

(a) a business association;

(b) an overseas corporation;

(c) any other corporation which is entitled to register as a company by this Law or any other

applicable law; and

(d) such other entities as may be prescribed by the Union Minister from time to time.

The company is an artificial person, created under the law. A company has a separate
and distinct legal entity. It has no physical existence or body. So, it cannot be touched or
seen. A company, being a legal person, is capable of owing, enjoying and disposing of
property in its own name.
Characteristics features of a company

1. Incorporated association

A company is created when it is registered under the Companies Act. Minimum number
of members required for this purpose is seven in the case of a ‘public company’ and two in
the case of a ‘private company’.

2. Artificial person

A company is an artificial person created under the law, does not possess the body of a
natural being. Being an artificial person, it has to depend upon natural persons, namely, the
directors, officers, shareholders etc., for getting its various works done. However, these
individuals only represent the company and accordingly whatever they do within the scope of
the authority conferred upon them and in the name and on behalf of the company, they bind
the company and not themselves.2 It has the same rights and powers of a person.

3. Separate Legal Entity

One of the fundamental characteristics of a company is its status as a separate legal entity.
This means that a company is treated as an individual under the law, enabling it to enter into
contracts, own assets, and conduct business activities independently. 3

4. Limited Liability

Limited liability of a company is based on the corporate structure. Since a company has
its own legal identity, its members are not liable for its debts. The liability of the members of
a company is limited to the unpaid share of their share value. There are some companies
limited by guarantee, where the liability of each member is determined by such a guaranteed
amount.4

5. Perpetual Existence

Companies have the unique characteristic of perpetual existence, so they can continue to
operate indefinitely, irrespective of changes in shareholders or directors. Death, insolvency,
insanity, retirement etc. of any or even all of its members does not affect the status of a
company.
2
https://www.taxmann.com/post/blog/what-is-a-company-definition-characteristics-and-latest-case-laws/
3
https://www.locusassignments.com/characteristics-of-a-company/
4
https://www.toppr.com/guides/accountancy/accounting-for-share-capital/features-company-kinds-company-
share-capital-company/#3_Limited_Liability
 6. Common Seal

Every company is required by law to have a common seal. The name of the company is
engraved on it. When this seal is affixed in the manner prescribed by the articles of the
company and authorized person sign on any document it is usually presumed to be an
authenticated one and legally binding on the company. But if there is no such seal on the
documents, they cannot be enforced.

7. Transferability of Shares

Shares in a company are typically transferable, that means shareholders can buy, sell, or
transfer their shares to other parties without the consent of other members. So, the ownership
in a company can be transferred in accordance with the manner provided in the Articles of
Association.

8. Separate property

A company can acquire and have property in its own name. no number has either
individually or jointly a right to the assets of the company during its existence or on its
winding.5

9. Management and Governance

A company is governed by the rule of the majority. Any decision in a company is taken
with the support either of the simple or special majority. The governance of a company is
vested in a board of directors elected by the shareholders. The board is responsible for
overseeing the company's strategic direction, appointing executives, and ensuring
accountability to shareholders. The day-to-day operations are carried out by the company's
management team, led by the Chief Executive Officer (CEO) or Managing Director.

Provisions in Myanmar

Concerning on the nature of the company, Myanmar Companies 2017, Section 4

mentioned that a registered company is required to have a name, constitution, at least one
share depending on the type of company, at least one-member, at least one director residing
in Myanmar, in case of public company, at least three directors and one of them is required to
be Myanmar citizen and lastly, the registered office address in the Union. Subsection (b) also
stated that company is required to appoint a company secretary and have a common seal. 6 A
5
https://www.locusassignments.com/characteristics-of-a-company/
6
Section 4 of Myanmar Companies Law, 2017
company possess separate legal entity which allows it to have its own full rights, powers and
privileges that subjects to this Law and any other law which has both within and outside the
Union full legal capacity to carry on any business including issuing shares and debentures,
granting options to subscribe for shares and debentures, granting a security interest, and
distributing the company’s property accordingly to Section 5 (a). Subsection (b) and (c)
mentioned of the constitution containing provisions relating to the capacity, rights, powers,
etc. and that a company can act as a holding company of another company. 7

The landmark case in UK company law which established the principle of separate
legal personality is Salomon v. A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22. The
case involved a shoemaking business owned by Mr. Salomon, who incorporated it as a
limited liability company and lent money to the company as a secured creditor. When the
company later went into insolvency, Mr. Salomon claimed to be entitled to be paid as a
secured creditor, but the liquidator and other creditors challenged this on the grounds that the
company was a mere "alias" or agent of Mr. Salomon. However, the House of Lords held that
the company was a separate legal entity from its owner and shareholders, and that Mr.
Salomon was entitled to be paid as a secured creditor. This case established the doctrine of
corporate personality, which is a fundamental concept in modern company law and has been
adopted by legal systems in many other countries.8

Differences between Company and Partnership

Company can be distinguished from partnership under 4 conditions. They are as

follows- 1) Formation & Registration, 2) Ownership and structure, 3) Liability, and 4)
Management and decision-making.

While forming the company, particularly corporations, it is required a more formal

and extensive process for establishment. This includes drafting and filing articles of
incorporation and other legal documents with the relevant government authorities. In
Myanmar, company is required to register at DICA according to Myanmar Companies Law,
2017. In terms of general partnerships, it can be formed with greater ease and often do not
require formal registration with government agencies. However, limited partnerships and
limited liability partnerships may involve more formal registration procedures. However, in
Myanmar, the partnership’s rights and obligations are based on the agreement entered into
between the partners. All partnerships formed in Myanmar are of unlimited type. Registration
7
Section 5 of Myanmar Companies Law, 2017
8
https://uollb.com/blog/cases/salomon-v-a-salomon-1897-company-law
of a partnership is not compulsory and the business ends when all partners agree to dissolve
the partnership.9

Secondly, in a company, ownership is divided into shares, and shareholders own these
shares proportionally to their investments. Ownership can easily change hands through the
buying and selling of shares. Additionally, companies often have a more formal
organizational structure with a board of directors and executive officers responsible for
decision-making and corporate governance.10 Section 60 of Myanmar Companies Law, 2017
also mentioned that “the shares or other securities of any member in a company shall be
moveable property, transferable”. Partnerships, on the other hands are formed through
partnership agreements between two or more individuals who share ownership and
management responsibilities. Each partner usually contributes to the partnership's capital and
is actively involved in the business's day-to-day operations. Section 4 of the Partnership Act,
1932 defined it accordingly.

Thirdly, in a company, such as a limited liability company (LLC) or a corporation,

shareholders' liability is generally limited to their investment in the company. This means that
in case of business debts or legal issues, shareholders' personal assets are protected from
being seized to cover these liabilities. Section 293 (iv) mentioned, “in the case of a company
limited by shares, no contribution shall be, required from any member exceeding the amount
(if any) unpaid on the shares in respect to which he is liable as a present or past member”.
However, partnerships, especially general partnerships, expose the partners to unlimited
personal liability. In this scenario, partners' personal assets can be at risk in case of any legal
or financial challenges faced by the partnership. Sections 25,26,45 (1) of The Partnership
Act,1932 stated of every partner is liable of all acts of the firm and even after dissolution, the
partners are continuing to be liable to third parties for any act done. Section 13 (b) also
mentioned that, “the partners are entitled to share equally in the profits earned, and shall
contribute equally to the losses sustained by the firm.”

Lastly, the management and decision-making processes in companies and

partnerships are notably different. In a company, a board of directors to oversee the
company's operations and make significant decisions on behalf of the shareholders. The

9
https://www.charltonsmyanmar.com/forms-of-business-in-myanmar/#:~:text=A%20partnership%20is
%20formed%20by,Myanmar%20are%20of%20unlimited%20type., accessed on 2 Aug 2023
10
https://www.studysmarter.co.uk/explanations/business-studies/introduction-to-business/business-ownership/
#:~:text=The%20ownership%20of%20the%20business,liabilities%20incurred%20by%20the%20business.,
accessed on 2 Aug 2023
board of directors, in turn, appoints executive officers responsible for the company's day-to-
day management.11 In partnerships, management is typically more democratic and
participatory. All partners have equal say in decision-making, unless otherwise specified in
the partnership agreement. This setup allows for more flexible and direct involvement in the
business's operations by all partners. Section 12 of the Partnership Act 1932 briefly stated on
the above mentioned matter.

Rationale for Lifting the Corporate Veil:

The concept of the "corporate veil" refers to the legal separation between a company
and its shareholders, which grants the company a distinct legal personality. This separation
shields shareholders from personal liability for the company's debts and obligations. While
this principle has significant advantages in promoting entrepreneurship and investment, it
also gives rise to certain challenges, such as potential misuse and abuse. As a result, the
doctrine of "lifting the corporate veil" has been developed in legal systems around the world.
Fraud and Evasion of Legal Obligations:
The primary reason for lifting the corporate veil is to prevent fraud and the evasion of
legal obligations. In some cases, shareholders may use the corporate entity to perpetrate fraud
or shield themselves from liability, which may harm stakeholders, creditors, and the general
public. By lifting the veil, courts can identify the true perpetrators and hold them personally
responsible for their actions, thus ensuring justice and accountability.
Alter Ego Theory:
Under the alter ego theory, the corporate veil is lifted when a company is merely a
facade for the personal interests of its shareholders. If the company's operations are
indistinguishable from those of its owners, and the company's affairs are controlled entirely
by the shareholders, the courts may disregard the corporate structure and hold the
shareholders liable for the company's actions.
Group Enterprises and Parent-Subsidiary Relationships:
In the context of group enterprises and parent-subsidiary relationships, the corporate
veil can be lifted to prevent abuse. For example, a parent company might use its subsidiaries
to evade liabilities, which can adversely affect stakeholders and creditors. In such cases, the
courts may pierce the corporate veil to achieve fairness and protect the interests of those
affected.
Implications of Lifting the Corporate Veil:

11
Section 160 (iv) of Myanmar Companies Law, 2017
Enhanced Corporate Accountability:
By allowing courts to pierce the corporate veil in certain situations, the doctrine
enhances corporate accountability. It discourages individuals from misusing the corporate
structure to commit fraud or escape liability. This, in turn, promotes ethical business practices
and safeguards the interests of stakeholders and the public.
Investor Confidence and Business Environment:
The corporate veil plays a vital role in encouraging entrepreneurship and attracting
investment. Investors are more willing to participate in the market when they have limited
personal liability. However, excessive lifting of the corporate veil might create uncertainty
and deter potential investors, which could stifle economic growth and innovation.
Legal Complexity and Judicial Discretion:
The concept of lifting the corporate veil can lead to legal complexities and ambiguity.
Courts must exercise caution and consistency when deciding to pierce the veil to avoid
subjective judgments. Overreliance on this doctrine might also lead to unpredictability in
legal outcomes, creating challenges for businesses to navigate the legal landscape.
Moreover, the lifting of the corporate veil is a fundamental legal doctrine that serves
as a balancing act between encouraging entrepreneurial activities and holding business
owners accountable for their actions. While it is essential to prevent abuse and protect the
interests of stakeholders, careful consideration is necessary to avoid undermining investor
confidence and the overall business environment. Striking the right balance between limited
liability and corporate accountability is crucial for a fair and just legal system that fosters
economic growth and protects the rights of all stakeholders involved in the corporate world.