Chapter 4 - Company Law

By

Noor Zira Azlin Bte Md Zaki

 PREVIEW

01 TYPES

02 FORMATION

03 THE EFFECT OF INCORPORATION

04 DIFFERENCES COMPANY & PARTNERSHIP

05 DIRECTORS DUTIES
 Definition
• The word company is defined to mean a company incorporated under Compa-
nies Act - Section 2 (1), Companies Act 2019
• Incorporated means registered the company under Companies Act 2016
• Section 9, CA2016 – the essential requirement of a company as having : (When
you want to register)

 A name
 One or more members having limited or unlimited liability for the obligations of
the company.
 In the case of a company limited by shares, one or more shares.
 One or more directors requires a public company to have at least two directors.
 Types of Company
• In Malaysia, companies can generally be classified as follows :
 Limited and Unlimited companies
 Public and Private companies

• Section 192(1), CA2016– A company is liable for its debts.

• A member shall not be liable for an obligation of a company by
reason only of being a member of the company.
 The important to know types of companies !!!

• Whether a member is liable for the company’s debts in the

event the company is wound up depends on whether the
company is a limited or unlimited company. – Sec-
tion 192 (1) CA 2016.
 COMPANY LIMITED BY SHARES
• Section 10(1), CA 2016 – a company may be incorporated as a company limited
by shares, company limited by guarantee or unlimited company.
• Section 10(2), CA 2016 & Sec 192(2)(a) – a company is limited by shares if the
liability of its members is limited to the amount, if any unpaid on shares held by
the members.
• Its members has either fully paid up on his shares or otherwise.
• Where a member of a limited company has fully paid up on his shares, the
general principle is that he will not be liable for the debts of the company.
• Even the company is wound up and the assets of the company are
insufficient to meet his liabilities, a member who has fully paid up on his
shares will not called upon to contribute for the companies debts.
• Where a member of a limited company has not fully paid up on his shares,
he may be called upon at any time by the company to pay the unpaid
portion.
• Thus the member of a limited company knows his maximum liability.
At the most, he will lose the amount he has agreed to invest in the
company.
• His other personal assets will not be impacted when the company
becomes insolvent. – Section 435(2) (b) CA2016.
 Company Limited By Guarantee

• A member’s liability is limited to the amount he agrees to contribute in the

event if the company is wound up. – Sec 10(3), Companies Act 2016.
• Section 31 (1), CA 2016 – requires company limited by guarantee to have a
constitution which shall contain matters prescribed:
1. The company is limited by guarantee
2. Object of the company
3. Capacity, rights, power and privileges of the company.
4. Number of members with which the company propose to be incorporated.
5. Others matters required by the CA 2016.
6. Other matters as the company so wishes.
• A member under company limited guarantee do not give upfront financial
to kick start the operation.
• Usually this types of company will not formed to carry on a business but
rather to provide recreation or amusement or promote commerce or any ob-
ject to the community or country. – Sec 45(1) CA 2016.
• Sec 45 (2), CA 2016 – does not allow the company to contributes its profits
as dividend to its members.
• According to Section 11(2), CA 2016 – a company limited by guarantee
shall be a public company.
 Unlimited Company

• Section 10(4), CA 2016 – as a company where there is no limit the liability

of its members.
• Maybe classified under private company or public company – Section 11(3),
CA 2016.
• Sec 25(1), CA 2016 – the name for unlimited company shall end with the
word “Sendirian” or “Sdn”.
• Members of an unlimited company are liable for all the debts of the com-
pany.
• There is no difference between members of an unlimited company and
partners of a partnership.

Q&A : What is the differences between limited company and unlimited

company?
 FORMATION OF A CORPORATION

Formation of a corporation is important procedure for Company to

get registred.

Is a procedure that involved to get a company to get registered.

The procedure of incorporation can be discussed under two

separate stages which is pre-incorporation and post incorporation.
 Pre- IncorporationProcedure
• The process of incorporation a company is simplified. Only one form is
required.
• The lodgments of the memorandum and articles of association together
with the statutory declaration by the promoters and directors are
waived.
• Sec 27(1), CA 2016 – the promoter to apply to the ROC to confirm the
availability of a proposed name.
• Need to fulfilled the requirement Section 14(3), 14(4), 15, and 18, CA
2016
 Section 14 (3) Companies Act 2016
 The name of the proposed company
 The status of the proposed company whether it is public or
private.
 The nature of business of the proposed company.
 The proposed address of the registered office.
 Details of the members, directors and secretary of the proposed
company.
 If the company limited by shares, details of the class and number
of shares to be taken by the members.
 If the company limited by guarantee, the amount the member
undertakes to contribute in the event if the company is wound
up.
 Section 14 (4) Companies Act 2016
 Requires the promoter to give a statement of his con-
sent to act as a promoter or to his appointment as a
director as well as confirmation that he is not disquali-
fied to act as a promoter / director.

 Section 14(2), CA 2016 – the ROC may

Refuse or reject for any unlawful purpose.

• ROC shall not register a proposed

Company unless he is satisfied that all
Requirement has been complied with law.
 Section 15, CA 2016
• ROC will assign a registration number to the
company and issue the notice of
registration upon compliance of the procedure.

Section 18, CA 2016

• Date of incorporation specified in the notice of
registration.
Question : Under what circumstances ROC will rejected the registration of
the proposed company? – Sec 14(2), Sec 16(2), Sec 16(1), Companies Act
2016.
 Effect of Incorporation: Legal Personality

• After ROC issue of registration and satisfied with the

company application, pay all the payment prescribed fee.
According to section 18(1), CA 2016, a company is
incorporated on the date specified in the notice of
registration.
 There are 8 Effects of Incorporation of a company.

Body corporate and Capacity to enter into

Sue and be sued transaction
separate legal entity

Unlimited capacity Power to hold land

Registered office
Liability of members
Appointment of direc-
tors and Secretary
 Body corporate with perpetual existence
and separate legal entity
 Every person whose name is stated as a member in the application
for incorporation shall become a member in the company. – Section
18(2), CA 2016.
 If the company is a company with a share capital, then he is also
known to be as shareholders. – Section 18(3) CA 2016.
 Section 20, CA 2016 – the body corporate enjoys a separate legal
entity with an existence that does not depend on the identity of its mem-
bers.
 A company incorporated under this Act is a body corporate and shall
–
(a) Have a legal personality separate from that of its members
(b) Continue its existence until it is removed from the register.
 Unlimited Capacity

 Section 21(1) CA 2016 – a company shall be capable of exercising all

functions of a body corporate and have the full capacity to carry on
or undertake any business or activity.
 Section 14, CA 2016- requires the application for incorporation to
include a statement on the nature of business of the proposed
company.
 Section 14(2), CA 2016 – all business of the company must be law-
ful.
 Section 35(2), CA 2016 – limits the capacity of a company if it has a
constitution which sets out the company’s objects.
 Sue and be Sued
 The company can sue for any wrongs committed
against it.
 It also be sued for its wrongful act or omission.
 If a wrong has been committed against the
company, even its members have no cause of
action against the wrongdoer.
 Section 21(1)(a), Companies Act 2016.
 Power to Hold Land

 Section 21(1)(b), CA 2016- A company is also

entitled to hold land.
 A company limited by guarantee shall not hold
land unless the Minister has licensed it to do so. –
Section 45(4), CA 2016.
 A company acquire, own, hold, develop or
dispose of any property.
 Capacity to enter into transactions

 In order for the company to carry on any

business or activity it must enjoys the capacity
to do any act or enter into transactions.
 Liability of members

 Section 192(1) CA 2016- a member shall not be

liable for an obligation of a company by reason
only of being a member of the company.
 The liability of a member depends on whether
the company is limited or unlimited company.
 Registered Office
 Section 18(4) CA 2016- The registered office of
the company shall also be stated in the application
for incorporation.
 Section 30(1), CA 2016- requires both company
name and registration number to be displayed at
its registered office, and all the documentation
must be kept in the company registered office.
 Appointment of directors and secretary

 Section 18(5), CA 2016 – The person named as

director or secretary of the proposed company in
its application for incorporation shall also be
deemed to have been appointed to that office
when the company is incorporated.
• Currently, there are four types of business vehicles available
throughout Malaysia, sole-proprietorship, partnership, limited lia-
bility partnership and company.
• In a partnership, 2 – 20 persons agree to carry on business in
common with a view to profit. Section 3(1), Partnership Act 1961.
• Every partner is an agent of the firm and his other partners for
the purpose of carrying on the partnership business.
• Section 13, CA 2016 – does not prohibit the formation of a part-
nership for profit consisting of more than 20 persons under any
other written laws.
 Does not require the registration of the
partnership with any authority.
 Section 5, Registration Business Act 1956 –
Partnership business need to be registration
and the details of their partner must be given.
 LIABILITY OF PARTNERSHIP
• Section 11, Partnership Act 1967 – every partners is jointly liable
with his other partners for all debts of the firm incurred while he is
a partner.
• Case : IAC (Singapore) Pte Ltd v Koh Meng Wan
“ If the firm fails to pay a debt, the creditor can take action and ob-
tain judgement against the firm.”
 DEBENTUR

Debenture is to include stock, bonds, sukuk, notes and any other securities of a
corporation whether constituting a charge on the assets of the corporation or
not. – Section 2(1), CA 2016.

Case : Bensa Sdn Bhd v Malayan Banking Bhd

“A debenture includes any obligation, covenant or acknowledgement of debt.”

A public company may invite the public to subscribe to its shares or deposit
money with it.
 Rights of debenture holders

1.0 Audited financial statements.

• Section 257, CA 2016 – requires the company to send a copy of its audited accounts to the
debenture holder upon request.

• Section 346, CA 2016 – if the affairs of the company are being conducted in a manner
which is oppressive to him or there is some act of the company which discriminate or
prejudicial to him, he may apply to court for remedy.

• Where the company is fails to repay the loans as stipulated in the debenture or the
company breaches any of its covenants, the debenture holder may take legal action to enforce
the company’s obligation.
2.0 Take possession of assets charged.

• If the company breaches any of its covenants in the debenture and the
debenture is secured by the company assets, the debenture holder will be
taken all the company assets, the proceeds of the sale will be used to settle
the outstanding loans.

• Usually the debenture holder will then seek to appoint a receiver/

manager and sell the charges property.

• A receiver is a person to receive rental and other income, paying

ascertained outgoing but who does not managed the property in the sense
of buying or selling or anything of that kind – Case : Re Manchester & Mil-
ford Railway Co.
 DIRECTORS POWER & DUTIES
A company consists of two organs, namely the board of directors and the
members. All respective power and duties are prescribe under CA 2016.
A director is an agent of the company and thus owes a fiduciary duty
towards the company.
Section 211, CA 2016 – the Board is to manage the company’s business
and affairs subject to the Act and the company’s constitution.
Section 31(2), CA 2016 – the rights, power, duties and obligations of the
directors are prescribed in the CA 2016 unless modified by the company's
constitution.
 DIRECTORS DUTIES
Section 211, CA 2016 – the power to manage the company’s business is usually
vested in the board of directors.
Case : Great Eastern Ry v Turner
“Directors are the mere trustees or agents of the company, trustee of the company’s
money and property,
agents in the transactions which they enter into on behalf of the company”
A director when exercising his powers, owes a fiduciary duty to the company. The director
is to act honestly, good faith for the benefit of the company. He is not abuse his power or
position. He should avoid any conflict of interest.
 DIRECTORS DUTIES

Section 213(1) – A director of a company shall at all times exercise his powers in ac-
cordance with this act, for a proper purpose and in good faith in the best
interest of the company.

Section 213(2) – A director of a company shall exercise reasonable care, skill and
diligence with-
a) The knowledge, skill and experience which may reasonably be expected of a
director having the same responsibilities and
b) Any additional knowledge, skill and experience which the director in fact has.
Thank You
PNG File