Company Law

BT20403/ union faithfulness Business Entities Comp both(prenominal) constabulary of nature Topics covered Types of confederacy Formation of a guild Promoters Pre- subjectiveisation begin entry and Articles of Association Inconsistency between the object and the clubs activities Upon incorporation follow is an artificial sanctioned person Separate intelligent entity Lifting the bodily entomb scs&ismk/ lodge natural honor CONT. 2 The Effect of Incorporation Memorandum of Association & Articles of Directors duties and liabilities association Common practice of equity & statutory answer Limited Liability Winding up Doctrine of Ultra Vires Pre-Incorporation vexDirectors duties and liabilities scs&ismk/ companionship law 3 In Malaysia, the law relating to companies are governed by the Companies act 1965 (CA 1965). scs&ismk/ follow law 4 The word beau monde or corporation is decided under s. 4(1) CA Besides the CA 1965, new(prenominal)(a) relevant legislation s are the Capital Markets Act 2007, the Securities bang Act 1993 and the Companies Commission of Malaysia Act 2001. come with means a order incorporated pursuant(predicate) to this Act or pursuant to any corresponding previous code Although high society law in Malaysia is establish mainly on CA 1965, there are key areas of union law hich are based on judicial precedents. corporation means any body corporate stocked or incorporated or being within Malaysia or outside Malaysia. A play along or corporation is a legal association of people who combine to finance a business. scs&ismk/ conjunction law 5 scs&ismk/ corporation law 6 1 BT20403/Company Law A gild with share capital is a private union if its M&A provides s. 15(1) S. 14(2) S. 14(2) CA 1965 provides the classification of companies restricts the right to transfer shares Limits the yield of ingredients to non more than 50 Prohibits any invitation to man to subscribe any of Type of companies he ships companys sh ares or unguaranteed bonds Prohibits any invitation to public to deposit money Limited by shares Limited by nonplus in charge with the company Unlimited financial obligation A public company is a company other than a private company refer s. 4(1) for ex dapple Limited by both shares and guarantee scs&ismk/company law cont 7 Obtain approval for the proposed name Lodge certain documents with SSM (Suruhanjaya Syarikat Malaysia/ Companies Commission Malaysia (CCM) ) including Defines the inborn companys structure Memorandum and Articles of Association Statutory contract bridge by promoters and theater conductorsParticulars of directors and registered office Declaration of compliance Statement of the bothotment of shares of the address of the company Companys equity Companys indebtedness Object of the company scs&ismk/company law 9 10 severally company must drive its object. Alteration of the general provisions of the Memorandum of Association to the extent and manner p rovided by the CA s. 21. The objects are tell in the Memorandum of Association. The company may, by especial(a) resolution, exchange the muniment by altering or by deleting, the provision, unless the scroll itself prohibits the alteration or deletion of that rovision s. 21A. scs&ismk/company law components 8 3rd party who deals with the company may refer to the companys M&A which is deposited with CCM. establish the registration fees scs&ismk/company law scs&ismk/company law The purpose To define and limit the activities of the company. If there is discrepancy between the object and its activities, indeed such transaction is ultra vires and void. 11 scs&ismk/company law 12 2 BT20403/Company Law By virtue of s. 28(1) CA, the company may alter the provision of its memorandum with respect to the objects of the company. If companys activities inconsistent with the object, rival to Ashbury Railway Carriage & Iron Ltd v Riche (1875) Common law position such ultra activities are ultra vires hence void and unenforceable. It solelytocksnot be ratified. Alteration can but be done by special resolution at the General Meeting. Statutory provision s. 20 Companies Act 1965 such transactions are valid. scs&ismk/company law 13 scs&ismk/company law 14 Alteration of the general provisions of the Articles of Association by special resolution s. 31 CA A sterilize of regulations for internal necessitate sexment of the company. Option The company may adopts Table A, Fourth enrolment of the CA 1965 (s. 30) excludes Table A, Fourth Schedule of the CA 1965 creates its own AA, except does not exclude the application of Table A, Fourth Schedule of the CA 1965, thus Table A volition be applicable in the event of any lacunae. scs&ismk/company law 15 scs&ismk/company law It is a weding contract between the company and its constituents Hickman v Kent Sheep Breeders Assoc (1876) Eley v Positive Government Security Life Assurance Co (1875) forrader a company can be formed, there must be some persons who have an intention to form a company and who fruit the necessary steps to carry that intention into operation. (Setting up the company)It is also a contract between individual members in their capacity as members. Wong Kim Fatt v Leong & Co Sdn Bhd (1976) Rayfield v Hands (1958) 16 Per Cockburn, C. J in Twycross v Grant (1877), a promoter is described as one who undertakes to form a company with reference to a given project and to set it going, and who takes the necessary steps to accomplish that purpose. scs&ismk/company law 17 scs&ismk/company law 18 3 BT20403/Company Law Promoter owes fiducial duties towards the company Promoters owe fiduciary duties towards the company, not to the individual members of the company. To act in advanced faith To ensure that there is no conflict of fire If the promoter is in breach of his fiduciary duties, it is the company who may take legal action against the promoter. Refer to cases Erlanger v na ked as a jaybird Sombrero Phosphate Co (1878) Gluckstein v Barnes (1900) scs&ismk/company law 19 scs&ismk/company law 20 Failure to disclose, company has options A promoter has to disclose any transaction entered, either by, Company may rescind the contract (Erlanger v disclosing in M&A by communicating to an independent Board of New Sombrero Phosphate), and Directors By communicating to the existing and intended embers of the company. in certain part, company may be able to claim the secret service obtained by the promoter (Gluckstein v Barnes), Company may file suit for change for the breach of fiduciary duties (Re leeds & Hanley Theater), scs&ismk/company law 21 If the company elects to back the contract, company may have a cause of action against promoters for 22 At cadences, promoters pass on have to enter a contract with a third party though the company has yet to be registered. We have to analyse above situation from both position i. e. Common Law and Statutory deceit, fraud negligent misrepresentation cs&ismk/company law scs&ismk/company law 23 scs&ismk/company law 24 4 BT20403/Company Law Pre-incorporation contract is a contract entered by any person on behalf of a company prior to its incorporation one time such contract is ratified by the company then it will be of retrospective effect, s. 35(1). Common law Failure to ratify will render the person who enters the contract to be in-personly bound by the contract, unless there is an express agreement to the contrary, s. 35(2). Company is not bound by a pre-incorporation contract as the principles of agency cannot be invoked (Kelner v Baxter, Newborne vSensolid, Phonogram, Rover Industrial etc). Statute If company ratifies the pre-incorporation contract, the company will be bound by and entitled to the benefit of the contract as if it had been in existence at the date of the contract, s. 35 CA 1965 (Cosmic Insurance potentiometer Ltd v Khoo Chiang Poh (1981) scs&ismk/company law Co mmon Law the pre-incorporation contract is unenforceable on the grounds that the company is not in existence yet, thus law of agency is inapplicable. the company cannot ratify such transaction as there is no principal-agent relationship involves. 25 Statutory 26 Company XYZ was set up on 1 March 2011Ms Kyra (promoter), on behalf of Co. XYZ, entered a transaction with first principle on 15 Feb 2011 Co XYZs first meeting was on 10 March 2011, whereby Ms Kyra bring out the pre-incorporation contract to Co. XYZ. s. 35(1) of CA 1965 allows the company to ratify such transaction, it will bind the company with retrospective effect Cosmic Insurance Corporation Ltd v Khoo Chiang Poh If XYZ has agreed to ratify the contract, thus XYZ is bound by the transaction with ABC with retrospective effect from the date of transaction (i. e. 15 Feb 2011). If XYZ refuses to affirm, promoter will be personally liable, s. 35(2). (1981) Newborne v Sensolid GB) Ltd (1945), Kelner v Baxter, Phonogram, Rove r Industrial etc). scs&ismk/company law scs&ismk/company law 27 scs&ismk/company law 28 Upon incorporation, a company is considered as an artificial legal person, i. e a person created by statute. S. 16(5) CA 1965 provides that on and from the date of incorporation specify in the certificate of incorporation but subject to the Act the subscribers to the memorandum together with such other persons as may from time to time become members of the company shall be a body corporate by the name contained in the memorandum capable forthwith of exercising all the functions of an ncorporated company and suing and being sued and having perpetual succession and a common mould with a federal agency to hold land but with such liability on the part of the members to S. 16(5) As a body corporate, 1. a companys obligations and liabilities are its own, and not those of its participants 2. a company can sue and be sued in its own name 3. a company has perpetual succession 4. a companys attribute i s not the property of its participants 5. a company can contract with its controlling participants play to the assets of the company in the event of its being wound up as is provided by this Act. cs&ismk/company law 29 scs&ismk/company law 30 5 BT20403/Company Law a. k. a corporate overwhelm The company is a legal person sieve from its participants. The law treats a company as being a separate person from its members and those who manage its operation. In the event of winding up, members are liable up to their owing(predicate) shares only. They are not liable to contribute if they have had paid up their shares. This means that Case Salomon v Salomon & Co Significance of the case its obligations and property are its own and not Separate legal entity between members and those of its participants and company. its existence continues unchanged even if the identity of the participants changes scs&ismk/company law cash, debenture Pty Ltd company 20,001 shares Family 32 Facts The co mpany was put into liquidation The assets were realised to make up off the secured creditors Salomon was the debenture holder for Salomon & Co, hence was given priority The unsecured creditors were left empty handed Liquidator sued Salomon shoe business Salomon scs&ismk/company law 31 6 shares scs&ismk/company law 34 Lee v Lees Air Farming (1961) AC 12 hook of Appeal Salomon was liable to indemnify the company against the losses.Abdul Aziz bin Atan & 87 others v Ladang Rengo Malay Estate Sdn. Bhd. 1985 2 MLJ 165 House of Lords Reversing the Court of Appeals decision. Salomon and the company were separate persons. scs&ismk/company law scs&ismk/company law 33 35 scs&ismk/company law 36 6 BT20403/Company Law In the Application for Re Yee Yut Ee (1978) 2 MLJ 142 In a company limited by shares, a members liability to contribute to meet the debts of the company is limited to the criterion (if any) remaining unpaid on their shares s. 18(1)(d). The High court held that a director i s not liable for the companys debts.Allows investors to quarantine the risk of a particular venture from their other assets. In practice, creditors may negotiate personal guarantees from ascendances. scs&ismk/company law 38 Once a person has sell or given his property to the company he no weeklong has any right over it. The property belongs to the company, and the member no bimestrial has any right or interest. S. 19 mentions that a company has the power to hold land. This can be taken to mean that a company can own other types of property too. The property of a company is its own, and not that of its members. Macaura v Northern Assurance Co.Ltd. (1925)AC619 . Even if a member holds almost all the shares of a company, he does not have any proprietary interest in the companys property. scs&ismk/company law scs&ismk/company law 37 39 scs&ismk/company law 40 The corporate veil will be lifted in these situations derived from Common law Statutory There are certain circumstances wher eby the Court are asked to lift the corporate veil and ignore the separate legal entity of the company If the court lift up the corporate veil thus it will be able to discover the identity of the participants of the company and impose liability upon them.Thus, the separation between the company and its participants (members and officers) does not exist anymore. scs&ismk/company law 41 scs&ismk/company law 42 7 BT20403/Company Law Common Law In the event of relief valve of contractual obligations Gilford Motor Co v Horne -Jones v Lipman Sham purposes Re FG Films Fraudulent Re Darby The company is an agent or partner of the controller Taxation and nationality rules Daimler Co Ltd v Continental Tyre & Rubber scs&ismk/company law common law(cont) Public interests (when it is just and equittable) Aspatra Sdn Bhd & 21 Ors v rim Bumiputera MalaysiaBhd & Anor . statutory (cont) common law (cont) holding subsidiary s. 5(1) Holding auxiliary S. 169 financial Companies statement Tiu S hiu Kian v Red Where the company is in go Restaurant Sdn the relationship of holding Bhd and subsidiary, SLE is Hotel Jaya Puri Bhd v inapplicable as the Act National Union of requires a consolidated Hotel, Bar and profit and loss account for Restaurant Workers holding and subsidiary company, s. 169 Statutory S. 36- member less than 2 S. 121(1) &(2) misdescription (unless company is willing to ratify) providing share assistance to purchase own shares, . 67(5) Taxation purposes S. 140 Income Tax Act 1967 Payment of dividend from other sources, not from profit S. 365(2) DHN Food Distributors Ltd v Tower Hamlets London Borough Council statutory (cont) issuance of prospectus which is pending approval s. 44(2) s. 48(4) incapable of paying the companys debt S. 303(3) no reasonable or probable expectation two-faced trading s. 304(1) scs&ismk/company law scs&ismk/company law 43 44 Definition S. 4(1) A director is a person occupying the position of director by whatever name cal led. Includes a shadow director not an official irector, but someone whose directions board accustomed to act in accordance with. A director must be a natural person and of upright age s122 (2). The general powers of management rest with the board of directors Article 73 Table A. 45 scs&ismk/company law 46 Disqualification of Directors S. 11 CA makes it a criminal offence for an undischarged bankrupt to act as a director or shadow director without judicial consent. . Company Secretary Every company must have a company secretary. The secretary may be a director of the company, unless there is only one director, in which case the ecretary must be the second individual. scs&ismk/company law 47 scs&ismk/company law 48 48 8 BT20403/Company Law Common Law Fiduciary duties Bona fide To act diligently To ensure that there is no conflict of interest Duty of palm and skills Expectation of a reasonable man Delegation of authority retirement Statutory To disclose any interest s. 13 1 To act in good faith s. 132 Misuse of the companys confidentiality- insider trading- s. 132A & s. 132B Unauthorised transactions that superpower jeopardise the company s. 132C Interest in another company- s. 134 Secret profit- s. cxxxv scs&ismk/company law As agreed Resignation Tender scar as prescribed by the Articles of Association Dismissal/Removal Without postponement for expiry of the term- could lead to another legal suit taken by the director against the company 49 scs&ismk/company law 50 registrars power under s. 308 Defunct companies In approving the scheme of arrangement, the court may order immediately for dissolution of a company s. 178. Voluntary winding up s. 254 The members of the company may pass a resolution to wind up or through winding up by creditors Courts Order s. 217 The grounds as qualify in s. 218(1) scs/company law 51 9