COMPANIES

COMPANIES
• Types of Companies
• Incorporating a company
 The process and procedure of incorporation
 The Notice of registration and the certificate of
incorporation
 Restrictions on commencement
• The co as a corporate entity
• The effects of incorporation
• Piercing the corporate veil

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 Types of Companies

• Companies in Malaysia are classified according to (i)

liability, (ii) private or public status.
• S. 10..(1) provides that a company may either be:
• A company limited by shares;
• A company limited by guarantee;
• An unlimited (liability) company.

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 CLASSIFICATION
OF COMPANY
ACCORDING
TO LIABILITY
OF MEMBERS

LIMITED UNLIMITED
LIABILITY LIABILITY

LIMITED BY
LIMITED BY LIMITED BY
SHARES AND
SHARES GUARANTEE
GUARANTEE
 Company limited by shares
• S 10 defines ‘company limited by shares’ as a company formed on
the principle of having the liability of its members limited by
the constitution/memorandum to the amount (if any)
unpaid on the shares respectively held by them.

• This is the most common form of company.

• The liability of a member of this company will depend on whether

his shares are fully paid or not.

• If he holds fully paid shares, he has no further liability to the

company. If the company becomes insolvent, he cannot be made
to contribute to the assets of the company.

• Only if his shares are partly paid, he will be liable to contribute to

the company’s assets, up to the amount still unpaid on his shares.

• A limited liability company is required by S.25(1) to have the word

‘Berhad’ or its abbreviation ‘Bhd.’ as part of its name.
This is to inform the creditors that the liability of the members are
limited and that they can only look to whatever assets the
company has to seek payment of the company’s debt.
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 Company limited by Guarantee…

• Defined by S.10 as a ‘co formed on the principle of having the

liability of its members limited to such amount as the
members may respectively undertake to contribute to the
assets of the company in the event of its being wound up’.

• This type of co does not have a share capital and so does not
require the members to contribute to the co while the co is in
operation.

• The liability of the members is specified in the memorandum of

association/statement of incorporation

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 …Company limited by Guarantee

• If the co is wound up, then a person who has been its member
and has undertaken in the memorandum to contribute a certain
sum of money to the assets upon winding up, may be required to
contribute up to his amount of guarantee towards payment of
debts incurred by the company while he was a member.

• This liability extends to those who had left the co, but was a
member within a year before the co wound up.

• Although this type of co does not have a share capital, it is still a

separate legal entity.

• It is not normally used for trading, but often formed to run

clubs and other organizations that are maintained by
subscription, social activities and donation.

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 Unlimited company…
• An unlimited company is defined by S.10(4) as ‘a
company formed on the principle of having no
limit placed on the liability of its member’.

• In winding up, the members of this company are

liable for the debts of the company without limit
if the company’s assets are not sufficient.

• It is not much different from a partnership.

• This type of company enjoys the advantage of being a

separate legal entity with two special features;
i. unlike other companies, they are free to return
their capital to their members;
ii. they must have their own Constitution

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 …Unlimited company
• This company may or may not have a share
capital and is rarely used as a trading
company.

• It has been used for mutual funds where

the company holds assets as investments
among the shareholders.

• If a shareholder wishes to leave, he may

sell back his shares to the company.

• The name of a private unlimited company

should end with “Sendirian” or “Sdn”
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Company limited by Shares and Guarantee

• This is a company where its members not only

have to contribute to the capital to the
amount still unpaid on the shares held by
them they also have to, on winding up,
contribute to the assets of the company the
amount that they have guaranteed as specified in
the memorandum.

• This type of companies can no longer be formed

as it is prohibited.

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Classification as Private or Public Companies

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 Private Companies
• According to s. 42(1), a company is classified as a private
company if its memorandum or articles:
i. Restrict the right to transfer shares. There is no prescribed
form of restriction. The articles can state the restrictions, e.g. -
giving right of pre-emption only to other members before shares
can be transferred to other persons, or there is to be no transfer
of shares unless the board of directors approve. These restrictions
will discourage membership as then the shares would be difficult
to sell.

ii. Limit the number of members to not more than 50. If shares
are jointly held they are considered as held by one person.
Employees of the company or its subsidiaries who are not
members are not counted.

iii. Prohibits any invitation or offer to the public to subscribe

for shares in debentures of the company. Section 43.

iv. Prohibit any invitation to the public to deposit money with

the company.

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 …Private Companies
• A private co may have a share capital with ltd or unltd liability.

• As private cos do not seek funds from the public, they enjoy
certain privileges that are not given to public cos.

• A private co. may be distinguished from a public co in having

the word ‘Sendirian’ or the abbreviation ‘Sdn.’ as part of its
name. If the co is a limited liability co, then this word should
come before the word ‘Bhd.’ e.g. the name Syarikat X Sdn.
Bhd. is a private limited co.

• A private co can be exempt or non-exempt.

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 Exempt Private Company
• An exempt private co is according to s.2 :

‘a private co the shares of which no beneficial interest is

held directly or indirectly by any corporation, and which has
not more than twenty members none of whom is a
corporation’.

• Therefore the characteristics of an exempt private company are:

i. Its shares are held by individuals and not companies,
ii.It has a membership of not more than 20 persons,
iii.It is required to prepare a balance sheet and a profit and loss
account for their shareholders, but is exempted from having to
file them with the co.’s annual return with the RoC.
iv.It can also give loans to the directors. Section 224

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 Public Companies
• According to s. 2 a public company is a company other than a
private company.

• As this company raises funds from the public, it is subjected to

more regulatory controls than a private company. The
provisions in the Act are necessary to protect large numbers of
people who are the investing public.

• Public co. may be listed (Bursa Malaysia) or unlisted. All listed

local companies are public companies, but not all public
companies are listed.

Conversion of Private to Public Companies

• A private company may convert to a public company by
loading a special resolution with the Registrar of
Companies.
• It may also involuntarily become a public company if it
contravenes the restrictions of s. 42(4).
• A public company with a share capital may convert to a private
company also by lodging a special resolution.

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 GROUP COMPANIIES
Holding and Subsidiary Companies

• S.4 defines Holding (H) and Subsidiary (S) as:

i. H controls the composition of the BOD of S,
ii. H holds more than half of the voting power of S, or
iii. H holds more than half of the issued share capital of S;
iv. S is a subsidiary of any other corporation which is in turn a
subsidiary of H.

Ultimate Holding Co.section 5

Where another co. is a subsidiary of a company (UH), whilst the
UH is not itself a subsidiary of any corporation.

Wholly-owned subsidiary section 6

A subsidiary in which all the shares are owned by the holding
company or its nominees.

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 Example:

A Ltd (holding co.)

B Ltd (subsidiary) C Ltd (subsidiary) D Ltd (subsidiary)

Eg: HOLDING AND SUBSIDIARY COMPANIES

- S.4(1)(a): ‘A Ltd’ will be the holding-subsidiary of ‘B Ltd’ when

any of the following conditions is met:

i) A Ltd controls the composition of Board of Director of B Ltd, or

ii) A Ltd controls more than half of the voting power of B Ltd, or
iii) A Ltd owns more than half the issued share capital of B Ltd.

(A subsidiary of a subsidiary is also a subsidiary. Thus, if ‘D Ltd’

is a subsidiary of B Ltd, D Ltd will be a subsidiary of A Ltd too).

• B Ltd is related to A Ltd because they are in a holding-subsidiary

relationship.
• C Ltd is related to B Ltd because they are both subsidiaries of a
common holding company (i.e. A Ltd)
 FOREIGN COMPANY
• S.2(1) : ‘Where the company, corporation, society ,
association or other body incorporated outside Malaysia,
but which carries on business in Malaysia or establishes a
place of business in Malaysia…’.

• It is wholly or majority owned (measured in % of shares

held) by non-Malaysians.

• Such a company has to lodge certain documents as laid down in

section 561 of the ‘Companies Act’ 2016 and pay the
appropriate fees before commencing business in Malaysia.

• A foreign company registered under the ‘‘Companies Act’ 2016

has the power to hold immovable property in Malaysia.

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Process and Procedure of Incorporation…
• A company is an artificial creation of the law regulated by the
Companies Act 2016 and the Companies Regulations

• To form a company, certain procedures under the Companies

Act must be complied with.

• Application to incorporate a company must be made to the

Registrar of Companies through the Companies Commission of
Malaysia (or “CCM" in brief), that manage and govern all
companies and businesses in Malaysia. Super form

i. It begins with the reservation of a name for the proposed

company as required under s.25. A name search is conducted.
If the proposed name is available and the Registrar of
Companies is satisfied, the name will be reserved for 30
days.
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…Process and Procedure of Incorporation
ii. Then the persons who desire to form the company will
have to comply with s.14(1) where they have to lodge
with the Registrar of Companies, the incorporation
statement and the constitution of the company
together with other relevant documents required by
the Act and the incorporation fees. The name that has
been reserved must be shown in the statement.

iii. After the pre-incorporation procedures have been fully

completed together with the payment of the necessary
fees, the company would be registered and the Registrar
would issue a notice of registration. Later you apply
for certificate of incorporation. S 17 The notice of
regiatration is conclusive evidence that all requirements of
the Act had been complied with, and with that the
company has been incorporated.

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• one-member company – legal rules and implications;
• Under CA 2016 (s 14) permissible for a director or a member to form a
company. This is applicable only to a private company. In other worlds a
private company can be incorporated with one shareholder or one
director.
•
• For meeting purposes the quorum can be one person. This is new
compared with the position under CA 1965 and the common law on
meetings which required a minimum quorum of two persons.
•
• S 619(1) – person(s) holding office prior to CA 2016, shall remain in office
as if he had been appointed under this Act.
•
• Implications/challenges – issues of lack of accountability and
transparency.

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 INCORPORATION DOCUMENTS
(CA Section 14(3)

New provision

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• Memorandum and Articles of Association of a company is replaced
as “Constitution” of a company.
•
• Section 31 (1) a company, other than a company limited by
guarantee, may or may not have a constitution.
•
• A company registered under CA 2016 may adopt a constitution and
adoption is to be made by way of special resolution – s 32(1)
•
• Effect of constitution – s 33
•
• Contents of a company’s constitution – s 35
•

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 The certificate of incorporation
• The notice of incorporation will be issued by CCM upon compliance
with the incorporation procedures and submission of duly
completed incorporation documents. The Registrar must be satisfied
that all the necessary requirements have been fulfilled.

• The certificate of incorporation is evidence that the company has come

into existence as a body corporate by the name set out in the
Memorandum of Association, but does not give legality to objectives that
are illegal.

• Certificate of incorporation issued on:

i. registration of co.
ii. re-registration of unltd co to ltd co
iii. re-registration of pub. co to private co.
iv. Re-registration of private co to pub. Co.

• Private co can commence business immediately.

• Public co may only commence business after a certificate
to commence business has been issued.(old law)
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• Section 15,16 and 17
• And section 19
• Section 20

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• Effect of incorporation
• Section 18

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 COMPANY AS A SEPARATE LEGAL ENTITY
• A company is a corporate body or a corporation. It is an artificial
legal person, separate from, and independent of the persons
who took steps to form the company and who are seen as
members of that S.18 of the Companies Act 2016 It says:

“On and from the date of incorporation specified in the

certificate of incorporation… the subscribers to the
memorandum together with such other persons as from
time to time become members of the company shall be a
body corporate by the name set out in the
memorandum….”

• In other words, the issue of a certificate of incorporation

Registrar of Companies, brings into existence a new legal entity
(or body), separate from its members.

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 Effects of Incorporation
• Apart from recognizing the company as a legal entity, S.20 states
the effect of incorporation is:

• “…shall be a body corporate…capable forthwith of exercising all

the functions of an incorporated body and of suing and being
sued and having perpetual succession and common seal with
power to hold land but with such liability on the part of the
members to contribute to the assets of the company in the event
of its being wound up...”

• Thus the effect of incorporation as follows:

i. A body corporate comes into existence capable of exercising all
the functions of an incorporated company;
ii. Having the ability to sue and be sued;
iii. Enjoying perpetual succession;
iv. Having power to hold (land) property; and
v. The liability of the members depends on the type of company.

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 …Body Corporate
• A body corporate is an artificial legal person that is created and
given recognition by the law as expressed by Salleh Abas F.J. in
Tan Lai v Mohamed bin Mahmud [1982]1 MLJ 338.

• This legal person is actually a legal fiction having powers and

liabilities like an individual.

• Landmark case recognizing a company as an individual having a

separate legal personality in the case of:

Salomon v A. Salomon & Co. Ltd [1897] AC 22

A. Salomon A. Salomon & Co. Ltd.
(sole trader) incorporate
(S, Mrs S. & 5 Ss)
s
Boots and shoes maker
Payment: £20,000 in fully pd shares
Business sold for £39,000
£10,000 debentures
£ 9,000 (cash)

Main issue : was debenture issued to A.Salomon (the sole trader) valid?

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• ……Salomon v A. Salomon & Co. Ltd [1897] AC 22
Being a debenture holder, Salomon became a secured creditor of co.
He continued to run the business as a one man company. After
sometime business became insolvent. The remaining assets of the co.
were not enough to pay off even the debenture held by Salomon.
Other creditors tried to claim that Salomon had no right to the
remaining assets as the sale of his business to the co. was a sham,
and that his wife and children were merely his nominees, and that
Salomon and the co. were in fact one and the same.
Arguments against :
1. Trial Judge, Vaughan Williams J.: Business was S’s..Co was agent, S as
Principal bound to indemnify agent’s (co) debts.
2. CA disagreed co was S’s agent. Suggested co carried on business as
trustee for S, so S have to reimburse co. for debts incurred.

The House of Lords reversed the above decision:

that upon incorporation, the company and Salomon were two
separate legal entities.
Even if the business was the same as before, and it was still managed
by Salomon himself, the company was not an agent or trustee for the
member. Thus although Salomon beneficially owned all the issued
shares of the company, he and the others are mere subscribers of the
co, & thus, Salomon could be a secured creditor with enforceable
rights against the company.
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 …Effects of Incorporation .…Body Corporate
• The principle establishing the separate legal personality
of the company from the members was applied in:

• Abdul Aziz bin Atan & Ors v Ladang Rengo Malay

Estate Sdn Bhd.[1985]1 CLJ255
All the shareholders of the co sold and transferred their
entire share holdings to a certain buyer, & the court had
to determine whether a change of employer took place.
Court held: an incorporated co is a legal person separate
and distinct from its shareholders. The co, from the date
of incorporation, has perpetual succession and did not
change its identity or personality even though the entire
share holding of the company changed hands.

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 …Effects of Incorporation .…Body Corporate

• Lee v Lee’s Air Farming [1961] AC12

• Lee forms a company, Lee’s Air Farming Ltd. in which he
owned all the shares but one.
• He was the company’s sole director and was also employed by
the company as its chief and only pilot.
• Lee was killed while flying for his company.
• His wife made a claim for workmen’s compensation under the
New Zealand workmen’s compensation legislation.
• Payment of such compensation depended on the fact whether
Lee was a worker or not.
• The New Zealand court refused to hold that Lee was a worker
because a man could not in effect employ himself.
• However, the Privy Council held Mrs. Lee was entitled for
compensation because even though Lee maybe the controller
of the Company, it is a separate legal entity. Personally Lee
was separated from the company. He could enter into a
contract with the company, and could be an employee.

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 Co can sue and be sued
• As the company is a separate legal entity, it can sue and be sued
in its own name.
• It can take legal action and thus sue third parties to get rights
that it has, and if the company has liabilities, third parties may
sue against it.
• The members of the company generally cannot represent the
company to take any legal action on behalf of the company.
Only the company itself can enforce its rights. This is called the
‘proper plaintiff’ rule and it was established in the case of:
Foss v Harbottle [1843] 2 Hare 461
The two shareholders of a company brought action against
directors of the company for misapplication and improper use of
company’s property.
The court held that as the injury complained of was injury to the
company, the members could not take action. Only the company
had the right to sue.

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 Enjoy Perpetual succession
• After a co is incorporated, it continues to exist until it is
dissolved according to the law or it is struck off the register.
Tan Lai v Mohamed bin Mahmud (supra).

• Even if the membership changes or all the original members

die, the co does not come to an end. The co is said to enjoy
perpetual succession meaning that it has a continuous life.
In Re Noel Tedman Holdings Pty Ltd. [1967] QdR 561
The co. had a husband and a wife as its only shareholders.
They were also the co.’s directors. They died in an accident
and were survived by an infant child. After their death the
co. still existed. The problem that arose was as the
shareholders and directors had died, the shares could not be
transferred as according to the will of the deceased to the
infant child.
The court held allowed the personal representatives of the
deceased to appoint directors of the co., so that these
directors could allow the transfer of the shares to the child.

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 Power to own property

• S.21 refers to ‘power to hold land’...meaning that a co can own

other types of property too.

• Property of a co is its own, and not that of its members. Even if

a member holds almost all the shares of a company, he does not
have any proprietary interest in the company’s property. The
property belongs to the company, and the member no longer has
any right or interest.

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 Power to own property

: Macaura v Northern Assurance Co. Ltd. [1925] AC 619;

• Macaura owned an estate. He sold all the timber on the estate to
a company. He and his nominees owned all the shares of the
company.
• Macaura insured the timber that he sold to the company in his
own name. The insurance policy was not transferred into the
company’s name.
• The timber was destroyed in a fire. Macaura claimed the insurance
but the insurance company refused to pay.
The House of Lords held that Macaura had no right to claim,
because when he sold the timber to the company, he had given
up his interest in it. The timber was the property of the company
and Macaura no longer had insurable interest in it.
• Principle applied in Tai Choi Yu v Sykt Tingan Lumber Sdn.
Bhd. [1998]4 AMMR 3807;
Mere shareholder of a co has no interest, legal or equitable in the
property of the co.

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 Liability of the members
• Once a co is incorporated, it is liable for its own debts and
obligations. The members are not responsible for it.

• This is one of the advantages of a co that has limited liability.

• In a co limited by shares, the member will make a contribution to

the capital and he will be given shares. If the co should suffer
losses, the shareholder is not liable to contribute any more to the
co if he has fully paid for his shares. His only loss would be the
amount he has paid for the shares.

• Creditors for the co cannot take any action against the member,
because the members are separated from the company.

• In the application for Re Ye Yut Ee [1978] 2 MLJ 142

The High Court held that Yee as the secretary, who had been
made a director of an American company that had retrenched
their staff, is not liable for the co’s debts. The co had not complied
with the awards related to the retrenchment benefits.

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 Lifting The Veil of Incorporation
• The veil of incorporation is a fictional curtain
separating the company from its members.

• Once a company is incorporated as a legal personality,

normally the court would not look behind the
‘corporate veil’ to see who is behind the company and
why the company was established.

• The strict application of the separate legal entity

principle does have its disadvantages.

• In cases where a company is a limited liability

company, the creditors will suffer if the company
incurs debts which it is unable to pay, as the
shareholders are not liable beyond the amount they
have contributed in full for their shares.

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 Lifting The Veil of Incorporation
• Due to some of the undesirable consequences of
incorporation, company law recognizes a number of
exceptions to the principle of veil of incorporation.

• Under these exceptional circumstances, the law looks

at the situation and will ignore the separation between
the company and its members or officers.

• This called ‘lifting the veil’. When the court lifts the
corporate veil or pierce the corporate veil, the actual
people who run the company or officers will be
made liable for the company’s obligations.

• The corporate veil is lifted

i. under situations provided by statute, and
ii.according to the judicial decisions under the
common law.
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 LIFTING THE
CORPORATE
VEIL

STATUTORY JUDICIAL
EXCEPTIONS EXCEPTIONS

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 1.INCOME TAX ACT 1967

• S.140 of the Income Tax Act 1967 is a statutory provision

that allows the Director-General of Inland Revenue to ignore
transactions of the company which is intended to
evade or avoid the payment of tax.

• These transactions conceal the true nature of the company’s

affairs and the DG may disregard them in his assessment of
taxes payable.

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 2.COMPANIES ACT
• S. 5 and 6 Relationship of a subsidiary to a holding co.
Although a subsidiary co. is a legal entity in its own right, this
section establishes the link between a subsidiary and its holding co.
by showing the control that a holding co. has over a subsidiary.

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 COMPANIES ACT 2016
• Section 61.if the name of the co does not properly appear on
certain co’s document, liability is imposed on the person who
signs, issues or authorizes the signing or issue of such documents.
states that the co’s name in romanized letters must be clearly
seen on all bills of exchange, promissory notes, cheques,
negotiable in endorsements and orders.

• Case :- Penrose v. Martyr

• H: Comp. secretary was personally liable for not stating the name of the comp. when
accepting the bill.

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 COMPANIES ACT 2016

• Section sect540,541 and 542 deliquent officers.

• S.540 allows the courts to declare persons who carried on

the co.’s business with the intention to defraud
creditors, be personally liable to the creditors of the co.
on winding up.
Case: Re William C Leitch
H: Dics purchased goods on credit for the comp. even though it was insolvent and
thus had no reasonable prospect of paying for the goods was personally liable
for the debts ; since the comp. was carrying on business with intent to defraud
the creditors.

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• Petition for winding up
• Section 464
• Section 465
• -the company has no member
• -just and equitable that the company be
wound up

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Re Yenidje Tobacco Co. Ltd. [1916]
2 Ch. 426
Although the partnership’s business
was thriving, the relationship of the
partners had come to a standstill.
They only communicated through the
secretary of the firm. The court
ordered the dissolution of the firm on
just and equitable ground.
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Ebrahimi v Westbourne Galleries (1973)AC 360

Ebrahimi and Nazar had formed a company agreeing to share equally in the
management and profits. Later Nazar’s son was given shares by both men
and made a director of the company. The company was profitable, but
later Ebrahimi was removed as a director at a meeting by Nazar and his
son after he and Nazar came to some disagreements. He applied to the
courts to wind the company up.
The House of Lords held that as the company was ‘quasi partnership’ in
nature, it would be just and equitable to dissolve the business. The
matters that arose was of ‘a personal character arising between one
individual and another, which may make it unjust or inequitable to insist
on legal rights…’

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 COMPANIES ACT

• Section 131 and section 132makes a director or manager of a co.

personally liable to the creditors of a co. if they paid dividends
to the shareholders when there are no profits available. Accordingly
no dividends may be paid unless there are profit available.

• These provisions quoted above are only some of the provisions of

the Co. Act where the co.’s legal entity is ignored. Other instances
where the officers may be made personally responsible even if the
transactions were made in the co.’s name.

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 JUDICIAL EXCEPTIONS

• In Malaysia, the court will lift the

corporate veil when the justice of
the case so requires.
• Malaysian courts have in the
past lifted the corporate veil in
several circumstances such as
fraud, agency and where
corporations within the group are
essentially one.

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JUDICIAL EXCEPTIONS
• WHERE THE COMPANY IS FORMED TO EVADE LEGAL DUTY OR
USED AS A VEHICLE FRAUD.

Gilford Motors Co. v Horne [1933] Ch. 935

Horne, the MD of the co., had entered into an agreement with the
plaintiff co. not to take away their customers after the end of his
service with them.. The plaintiff company sought an injunction
against Horne to restrain him from breaching their agreement.
The court granted an injunction against Horne, as he had used the
co as instrument for wrong doing.
 Jones v Lipman [1962] 1 WLR 832
In order to avoid a contract having to transfer the house to Jones,
Lipman set up a company called Alamed Ltd. and transferred the
house to it.
• The court held that the company was “…a device and a sham, a
mask which he holds before his face in an attempt to avoid the
eye of equity.”
The court ordered Lipman and the company to specifically perform
the contract to sell the house.

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• Case: Re F G Films
• Comp. in UK had no local employees, no
registered office and no business premise.
Further 90% of the Shares were held by US
shareholders. It was finance by US company.
• H: Purpose of the comp. was to qualify the
film as a UK rather than a US film. The CV is
lifted here.

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In the case of Re Darby [1911] 1 KB 95;
Darby & Gyde, undischarged bankrupts formed a co and became
its directors. This co purchased a quarrying license. It then
promoted another co called Welsh Slate Quarries Ltd. (WSQ) and
sold the quarrying license to WSQ at an inflated price. WSQ went
into liquidation and the liquidator sought to make Darby liable
because he had breached his duty as a promoter by making secret
profit. Darby argued that it was the co and not he who had
obtained the profit.
The court rejected the argument as Darby had set up a ‘dummy
co’ formed for the purpose of enabling him to perpetrate a
fraud.

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• TO ATTRIBUTE MENTAL STATE OR PHYSICAL CHARACTER TO
CO.
A co. is a legal creation and has no mental or physical existence. Its
ability to act is through the human persons behind it. Where it is
necessary to attribute some mental state to the co., then the courts
will have to look at ‘mind and will’ of those controlling the co.

Tesco Supermarkets Ltd. v Nattrass [1972] AC 153; to

determine whether the co. had the guilty mind, the courts
considered whether the person who was the ‘directing mind and will’
of the company had the intention to commit the crime.
The courts did not consider ‘mere employees’ as the ‘directing mind
and will’ of the company. The director will be.

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• 3.TO DETERMINE THE PHYSICAL CHARACTER OR IDENTITY
OF A COMPANY requires the courts to look at who are the
controllers of the company. In times of war, the nationality of the
controllers would determine the nationality of the company.

Daimler Co. Ltd. v Continental Tyre & Rubber Co. (GB) Ltd.
[1916] 2 AC 307 – during the First World War when Britain was at
war with Germany, the English co. was considered an enemy alien
when the courts lifted the corporate veil and looked at the
shareholders who were majority German nationals.

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• 4.WHERE CO. IS USED AS AN AGENT OR ALTER EGO OF ITS
CONTROLLERS.
A co. has the capacity to act as an agent. The courts have not excluded
the possibility of the members or controllers using the co. as such, and
so have on occasions construed an implied or express agency of the co.
for its members. As such the principals would be liable for the acts the
co. has entered into.
• Smith, Stone & Knight Ltd. v Birmingham Corporation [1939]4 AIIER 116
Smith, Stone & Knight Ltd. (SSK) was a co that carried on its business
through a subsidiary, Birmingham Waste Corp. (BWC). The local
authority compulsorily acquired land owned by SSK which was occupied
by BWC that was operating a business on it. Owner-occupier was
entitled to compensation on the basis of disturbance of business. SSK
claimed compensation. The local authority refused to pay as BWC being
the occupier was a separate entity from SSK. SSK claimed that
although BWC had in fact conducted the business, the business in every
aspect was owned and controlled by SSK.
• The court held that the subsidiary co was an agent of the parent co and
so the occupation by the subsidiary amounted to occupation by the
parent co.
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• The courts have also ignored the separate personality of a co. when
the persons who bring the co. into existence use the co. as an
extension of themselves. It would be seen that there is no
difference between the assets of the co. and that of their own. The
court would take action against the controllers in such cases,
especially where fraud is involved.
Aspatra Sdn. Bhd. v Bank Bumiputra Malaysia [1988]MLJ 97;
• Lorrain was the director of Bank Bumiputra (BBMB) and chairman
of its subsidiary BMF was sued by them for making secret profits
while in office. An application was also made to restrain Lorrain
from transferring his assets out of jurisdiction, and this order was
extended to his cos including Aspatra. The co challenged the order
on the grounds that the co’s assets should not be treated as
Lorrain’s.
• Held that court could lift the corporate veil in order to determine
whether the assets of the co were really owned by them, or
whether Lorrain had abused the principle of the separate entity.
The court found that Lorrain was, in fact, the alter ego of the co.

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• WHERE THE CO. IS USED AS A FRONT TO HIDE THE TRUE
FACTS.
The advantages of incorporation which gives the co. a separate
personality from the members have sometimes been abused. The
corporators of the co. take advantage of the law establishing a co.
as a front to hide the true facts. In realizing this, the courts will
lift or pierce the corporate veil and treat the co. and the members
as one.
Re Bugle Press Ltd. [1961] Ch.270;
Two of the co’s shareholders, who together held 9,000 of the co’s
shares wanted to buy out the third shareholder. They incorporated
a co and this co offered to buy up all the shares of the co. The
third shareholder refused the offer, but the other two agreed.
They tried to have the sale put into effect by invoking a provision
of the Companies Act that allows a co. holding 90% of the shares
of another co. to buy up the remaining 10%.
The court held that although the law have been complied with, it
was obvious that the co. was formed to hide the true intention of
the members.

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• In cases of CO.S ASSOCIATED AS A GROUP
Although the general rule is that a co. is a distinct legal entity, the
courts have sometimes been willing to look at a group of co.s as
one economic unit.
Under s.169(5) of the Co. Act, directors are required to report on the
state of affairs of a holding co. and all its subsidiaries.
• Although there are cases where the courts refuse to recognize a group
of cos as a single entity, there have been English and M’sian cases
where the courts have treated a co within the same group as one
commercial entity.
• DHN Food Distributors Ltd. v Tower Hamlets London Borough
Council [1976]3AIIER462;
This was a case of three cos within a group that ran a grocery
business. One co owned the freehold premises; DHN ran the business
on the premises, while the third co owned the vehicles for transport.
• The court held that as the three cos are in actual fact one co entity,
DHN had a right to claim compensation for disruption of business .

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• Hotel Jaya Puri Bhd. v National Union of Hotel, Bar and
Restaurant [1980] 1 MLJ 109;
A restaurant that was run by a subsidiary co. of Hotel Jaya Puri
Bhd. had retrenched their workers when they closed down. The
union claimed for the workers dismissed from employment, but
first had to determine the actual employer. The subsidiary that
employed the workers was no longer in existence, but the Hotel
was still in existence.
The court held that although technically the subsidiary and the
hotel were two separate entities, in reality the two companies
were one. 

• It is important to note that the above instances where the courts

have treated the companies as one, two aspects are present;
unity of ownership and unity of control.

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 Popular question
• 1.. Explain the effect of incorporation of a
company .
• -need to discuss Salomon, section 18, 20 and
21
• And cases.
• 2. Please advise on how to incorporate a
company
• Section 25,26,27, 14,15,16,17
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 Popular question
• 3. Explain the meaning “lifting the corporate
veil.
• Explain meaning and illustrate through cases.
• 4. Illustrate the statutory lifting and judicial
lifting of the corporate veil

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