MALAYSIAN

COMPANY LAW
&
SECRETARIAL
PRACTICE
Updated as at Semester 1 2019/2020

1
 TOPIC 1

INTRODUCTION

2
 Outline

⚫ Type of business entities/organisations

– Sole proprietorship
– Partnership
⚫ Element of partnership
– Companies
⚫ Effect of Incorporation
⚫ Veil of Incorporation
⚫ Lifting the veil of incorporation
⚫ Type of companies
⚫ Group of companies
⚫ Foreign companies
⚫ Differences between a company, partnership and
3 sole proprietorship
 Business Entity

Types of
Business
Entities

Business Registered
Firm Companies

Sole Company Company

Partnership Unlimited
Proprietorship Limited by Limited by
Companies
Guarantee Shares

Private Public
Limited Limited
Company Company

4
 Sole Proprietorship

What is sole proprietorship?

⚫ A business which is owned by one owner
⚫ It is the simplest form of business
organization with minimal legal
requirement
⚫ Required to be registered under the
Registration of Business Act 1956

5
 Sole Proprietorship

Nature of business
⚫ A sole proprietorships owns the business by
himself and that his personal properties are
considered as the business assets
⚫ A sole proprietor manages the firm himself
and can employ employees to manage the
firm for him
⚫ A sole proprietor may transfer his business
to someone else
6
 Sole Proprietorship

Right and Liabilities

⚫ A sole proprietor may withdraw his capital at any time
⚫ His liability for the firm’s debts to its creditor is unlimited
⚫ A sole proprietorship is formed informally and information about
the firm need not to be published
⚫ A sole proprietor has unrestricted powers of borrowing
⚫ The only way a sole proprietor can raise capital is by way of loans
from banks, finance companies, money lender, friends and of
course by utilizing his only personal properties
⚫ A sole proprietor may be dissolved informally by the sole
proprietor himself
⚫ If a sole proprietor dies or ceases to carry on the business, the
7 firm may be closed by notifying the ROB
 Partnership

⚫ The law relating to partnership in Malaysia is

contained in the Partnership Act 1961
⚫ Definition of partnership as provided under
section 3 (1)
– Partnership is the relation which subsists between
persons carrying on business in common with a view of
profit
⚫ business entity owned by several individual or
partners
⚫ minimum 2 and maximum 20 partners
8 ⚫ no ceiling for a professional firms
 Characteristic/Element of partnership

1. There must be a relation to constitute a

partnership
⚫ It refers to contractual relation
⚫ A firm may exist with or without an
agreement as long as there is relation
between the parties

9
 Characteristic/Element of partnership

2. There must be an agreement between the

persons, expressed or implied, to have
business in common
⚫ Section 2 of PA provides ‘business’ includes every trade,
occupation or profession
⚫ There must be some commercial venture, a selling of
goods or service for a reward
⚫ Therefore, clubs, societies, home affairs, mutual benefit
organizations and building societies cannot be
considered as partnership
10
 Gulazam v Norzaman and Sobath

Fact :both parties made an agreement to form a

partnership to purchase, breed and sell cattle. The
defendant looked after the cattle and sell them.
Later, the plaintiff asked for the account from the
defendants, however the defendants have no
account to be disclosed. Thus, the plaintiff sued for
the account to be rendered and for the defendants
to pay any sum due to him
Held : there was a partnership because business exists.
Therefore, the plaintiff should succeed in his claim
11
 Ratna Ammal & Anor v Tan Chow Soo

Held : the parties who entered into an

agreement to form a syndicate to sell
condensed milk were parties to a
partnership. This is because all parties
involved in selling condensed milk and
they shared the profit equally

12
 Characteristic/Element of partnership

3. The agreement between the parties to carry

a business for profit
⚫ Each partner is an agent/a principal for the
business. Therefore, if A and B form a
partnership, both are the agents and
principals for their business . A will liable for
B’s action and vice versa
⚫ Is sharing a profit amount to sharing of gross
returns?
13
 Cox v Culson

Fact : Culson agreed to provide his theatre for

one of Mill’s production. Under the
agreement, Culson was to receive 60% of
the gross taking while Mill received only
40%. During the play, the plaintiff was shot
by the other actor. She sought to make
Culson liable because she thought that
Culson and Mill were partners
Held : they were not partner because they were
14 not sharing profits but sharing gross returns
 Business Firm

⚫ Business firm must be registered under the

Registration of Business Act 1956 (ROBA)
⚫ Both firms are unincorporated bodies or
association
⚫ No separate legal entity i.e the business and
the sole proprietor or the partners and the
partnership are considered one legal entity

15
 Registered Companies

⚫ Is a company formed by registration under the

Companies Act 1965
⚫ Its incorporation is administered by Companies
Commission of Malaysia (CCM)
⚫ Once registered, it is treated as an artificial person
distinct or separate from it members
⚫ Illustration:
Mr. A and Mr. B formed a company by the name of AB
Sdn. Bhd. Once registered, Mr. A and Mr. B are
separate from AB Sdn. Bhd though they are the
owners of the company. Unlike the partnership and sole
16 trader.
 Effects of Incorporation

Section 16 (5) Companies Act 1965

1. The company has a separate legal entity
distinct from its members
2. May sue and be sued in his own name
3. It has perpetual succession
4. Power to own property
5. The liability of its members is limited

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 1. The company has a separate legal
entity distinct from its members

⚫ A body corporate is a legal person that is created and

given recognition by the law. This legal person is
actually a legal fiction
⚫ It is an artificial legal person unlike human individuals
who are known as natural persons
⚫ A company is a type of incorporation that is
recognised by the law as having powers and liability
like an individual
⚫ The court first recognised the company as an
individual having separate legal personality in the
18 leading case of; Solomon and other local case
 Solomon v. Solomon & Co. Ltd

⚫ Fact: Mr. Solomon incorporated his

business and became its substantial
shareholder. The other shareholders were
his wife and children. When the company’s
business failed, the company’s liquidator
claimed that Solomon should be made
responsible for the company’s debt
⚫ Held: that Mr. Solomon and the company were two
separate entities/persons even Mr. Solomon
owned majority of shares in the company
19
 Abdul Aziz bin Atan & 87 Ors. v.
Ladang Rengo Malay Estate Sdn. Bhd.

⚫ Fact: All the shareholders of the company

sold and transferred their entire shares
to a certain buyer. The question arose
in the dispute was whether the estate
was sold and if so whether a change of
employer took place
⚫ Held: that an incorporated company did not
change its personality or identity even
though all of shares have been
transferred to the new owner
20
 2. May sue and be sued in his own
name

⚫ A company having legal personality likes

human being. It can sue and be sued by
other party on his own name
⚫ The members of a company generally cannot
take any legal action on behalf of the
company. Only the company itself can
enforce its right.
⚫ This principle is well illustrated in the case of;
21
 Foss v. Harbottle

⚫ Fact: Two shareholders of a company

brought action against directors of the
company for misapplication and
improper use of the company’s
property
⚫ Held: As the injury complained of was injury
to the company, the members could
not take action. Only the company
had the right to sue.
22
 3.It has perpetual succession

⚫ After a company is incorporated, it continues

to exist until it is dissolved according to the law
or it struck off by the registrar
⚫ Even if the membership changes or all the
original members die, the company does not
come to an end
⚫ Refer to case of;

23
 Re Neol Tedman Holdings Pty Ltd

Fact: The company had a husband and wife as its only

shareholders. They were also the company’s
director. They dies in an accident and was survives by
an infant child. After their death, the company still
existed. The problem that arose was as the share
holders and directors had died, the shares could not
be transferred as according to the will of the deceased
to the infant child
Held: The court allowed the personal representatives
of the deceased to appoint directors of the company,
so that these directors could allow the transfer of
24
shares to the child
 4. Power to own property

⚫ The company can own other types of property too. The

property of a company is its own and not to the
members or shareholders
⚫ Even if a member holds almost all the shares of a
company, he does not have any proprietary interest in
the company’s property
⚫ Once a person has sold or given his property to a
company, he no longer has any right over it. The
property belongs to the company and the member no
longer has any right or interest
⚫ Refer to the case of;
25
 Macaura v. Nothern Assurance Co. Ltd

⚫ Fact: Macaura sold all his timber to a company in

which he held majority of shares. He took
out fire insurance in his own name. when the
timber was destroyed by fire, Macaura
claimed compensation from the insurance
company.
⚫ Held: Macaura had no right to claim because
when he sold the timber to the company, he
had given up his interest in it. Then timber
was the property of the company and
Macaura no longer had insurable interest in
it.
26
 5. The liability of its members is limited

⚫ Once a company 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 company
that has limited liability
27 ⚫ Refer to the case of;
 Re Application of Yee Yut Ee

⚫ Fact: Yee was a secretary in a company.

Later, he was appointed as a director
in the company. The company later
retrenched its staffs without paying
them retrenchment benefits. The case
was later brought before the High
Court
⚫ Held: The High Court quashed the award,
stating that a director is not liable for
28 the debts of an incorporated company
 Veil of Incorporation
⚫ Incorporation of a company cast a veil over the
true controller of the company
⚫ The company is treated as a separate legal
person (artificial) distinct from its members
⚫ A veil enable a company to own property and
bear liability separate from the true owner of the
company
⚫ The company does not come to an end even
though all membership changes or all the
original members die
29 ⚫ Also known as ‘corporate veil’
 Lifting of the Corporate Veil

Lifting of the
corporate veil

Judicial Exception Statutory Exception

30
 Judicial Exception

1. When the company is used as

sham/deception
2. When the company is used to evade legal
obligation or to commit fraud
3. When the company is used as an
economic/commercial entity

31
 Statutory Exception
1. Section 36
When the company member reduced below two and the company have 6
months to find another members in order to be in existence
2. Section 121 (2) (c)
A person who sign, issue or authorised certain instrument in which the
company name does not appear properly will be personally liable for the
amount due
3. Section 304 (1)
If the business of the company has been carried out to defraud creditors or
for fraudulent purpose, the court will declare that any person who was
knowingly the party to the carrying on the business will be personally liable
for the debt of the company
4. Section 304 (2)
Where debt were contracted by the company and when there is no
reasonable and probable exception that the debt cannot be paid
5. Section 365 2 (b)
When dividend are paid when there are no available profit, the director or
32 manager who permit the payment of dividend will be personally liable to the
creditor of the company
 Types of Companies

Company

Limited Unlimited

By Guarantee By Shares

Public Private

33
 Type of Companies

⚫ The type to which a company belongs

upon its incorporation will be specified
in the certificate of incorporation issued
by CCM
⚫ Different rules and regulations may
apply to the different type of companies
under Companies Act 1965
34
 Unlimited Company

⚫ Is a company which has no limit on the

liability of all its members
⚫ They are responsible for the whole liabilities
if the company is unable to pay all its debt
upon winding up
⚫ A past member is liable only if he had
ceased to be a member less than a year
prior to winding up
35
 Illustration

⚫ ABC Sdn. Bhd. has an outstanding

debts of RM200k and on 1st July
2008 it has been wound up by
creditors
⚫ The company managed to pay
RM150k and the creditor now will
go after its members
36
 Exercise

⚫ A, B & C are the present member of the

company
⚫ D has left the company on 1st June
2008
⚫ E has left the company on 1st June
2006
⚫ Discuss the liabilities of A,B,C,D & E
37
 Company Limited by Guarantee

⚫ Is
a company where the liability of
the members is limited by the
Memorandum of Association to the
amount which they have
undertaken or guaranteed to
contribute to the assets of the
company upon winding up
38
 Illustration

⚫ABC Bhd has 3 members

⚫ A, B and C has guarantees in MOA that
they will be liable for 10k, 20k and 30k
respectively
⚫ Upon winding up, they will liable
according to the amount nominated in
the MOA
39 ⚫ A = 10k, B = 20k & C = 30k
 Company Limited by Guarantee

⚫ Company limited by guarantee must be a

public company and without a share capital
⚫ They are formed for non-profit making
purposes
⚫ Examples are trade associations, charitable
bodies, professional societies and social and
sport clubs which are supported by
subscriptions of their members
⚫ They are sometimes referred to as public or
charitable organisations
40
 Company Limited by Share

⚫ Is a company where the liability of its

members is limited to the amount
unpaid on the shares taken by the
members
⚫ In other words, the liability of its
members is limited or do not exceed
the amount unpaid on the shares when
the company is wound up
41
 Cont

⚫ Shares do not have to be fully paid

upon issue
⚫ A portion of the nominal value may be
left outstanding as ‘uncalled capital’
⚫ If one has paid all his shares in full, he
is not obliged to make any contribution
to the company
42
 Cont

⚫ The creditors cannot go after the

personal assets of the members for the
settlement of company’s debts upon
the company’s winding up
⚫ But if he has not paid the issued shares
in full, upon winding up he will be liable
only up to the amount of the unpaid
shares
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 Illustration

⚫ABC Bhd issues 10,000 shares worth

RM1 each to A, B and C
⚫ A paid RM 10,000 to the company
while B paid RM 5,000 and C paid
RM1,000 only
⚫ If the company wound up, what is the
amount of liability that fall under all the
44
shareholders?
 Types of Companies

Company
Limited by Share

Private Public
Company Company

45
 Private Company/Restrictions

⚫ A company with a share capital (limited or

unlimited) may be formed as a private
company if its MOA & AOA;
a) restrict the right to transfer share
b) limit the number of its member to 50
c) prohibit any invitation to the public to
subscribe for its shares and debenture
d) prohibit any invitation to the public to
deposit money with the company
46
 Public Company

⚫Public company is a company other

than private company
⚫ All restrictions set out for a private
company do not apply to a public
company
⚫ A public company must end with the
word ‘Berhad’ or ‘Bhd.’(Ltd.) whilst a
private company ends with ‘Sendirian
47 Berhad” or ‘Sdn. Bhd.’ (Pty Ltd)
 Comparison between private & public company

No Comparison Private Company Public Company

1 Name of company Must end with the word ‘Sendirian Must end with the word ‘Berhad’
Berhad’
2 Commencement of Can commence business and Can only commence business after the
business exercise borrowing powers as soon issue of the certificate for
as they incorporated commencement of business by the
ROC
3 Statutory meeting Does not apply Must hold a statutory meeting and
lodge statutory reports with the ROC

4 Issue of shares Do not issue prospectus Must issue a prospectus or statement in

lieu of prospectus
5 Age limit of director Director need not retire at the age of Director must retire at the age of 70
70 (CA 2016 no retirement age for director)
6 Removal of director Rules regarding removal of directors Section 126 of the Companies Act
are found in the Article of stipulates that a director can be
48 Association removed by ordinary resolution
 Group of Companies/Holding and
Subsidiary Companies

⚫ If a company (X Co.) holds more than

50% shares in another company (Y
Co.) then Y Co. is treated as a
subsidiary of the of the holding
company X Co.
⚫ A holding company may own all or part
of the subsidiary company
⚫ If it owns all, then it is called as a
49 wholly-owned subsidiary
 Example

TENAGA
NASIONAL
BERHAD
(HOLDING CO.)

TNB TNB SABAH

UNITEN
DISTRIBUTION RESEARCH ELECTICITY
SDN BHD
SDN BHD SDN BHD SDN BHD
100%
100% 100% 80%

50
 Exemption of liability

The holding company is not liable for the

debts of its subsidiaries unless;
⚫ The holding company stands as a guarantor, or
⚫ The holding company has been participating in the
carrying of the subsidiar’s business with the
intention to defraud creditors, or
⚫ The holding company is the only member when
the subsidiary’s membership has remained below
51 the statutory minimum for more than six months
 Foreign Company

⚫ A foreign company cannot carry on

business in Malaysia unless it
incorporates a local company or
registers the company in Malaysia
⚫ A foreign company refers to a
company, corporation, society,
association or other body incorporated
outside Malaysia
52
 Differences between a company,
partnership and sole proprietorship
Sole Proprietorship Partnership Companies

Structure Individual in business on his Two or more persons carrying on A company is a person separate
own business in common with a view of from its members
profit

Asset Personal property of the owner Personal property of all partners Separate legal entity

Registration Registrar of Business under Registrar of Business under ROBA Registrar of Companies under
ROBA 1956 1956 Companies Act 1965

Composition One person Two to twenty but no ceiling for No maximum number but for
professional firm private company limit to 50

Constitutions No agreement needed May be form orally or in writing Must be constituted in writing i.e by
a Memorandum and Article of
Association

Liability Unlimited liability (solely Unlimited liability (collectively Limited liability to the amount
responsible for all debts) responsible for all debts) unpaid on the share

53
Dissolution Dissolved informally by the sole
proprietor himself
Dissolved informally e.g by
agreement of the partners
Striking off
Winding up and liquidation