Legal Aspects of Business Organisations

1. Legal Aspects of Business Organisations The Company

2. Company Law • Companies Act 1965 • Company is defined under s.4(1) – company is a corporate body or corporation • It is an artificial legal person that exists independently of the individuals who at any given time are members of the company.

3. A legal entity • A company is a legal entity on its own • Have right to sue or to be sued in its own name, to deal with property and to enjoy perpetual succession, just like an adult human being.

4. Salomon v Salomon (1897) • Case that distinguish company and its members. • Court held that company – separate legal person/entity. • Principle of veil of incorporation

5. Facts • http://en.wikipedia.org/wiki/Salomon_v_A_Salomon_%26_Co_Ltd

6. Exceptions to the Principle • Statutory exceptions • Judicial exceptions – based on legal interpretations of the courts.

7. Statutory exceptions • S.36 – if number of SH is reduced to below than 2 and carry own with business for 6 months, the person will be personally liable for matters after the 6 months. • Fraud – s.304(1) • S.121(c) – A person signs an instrument (payment) that do not bear the company’s name. • Where debts are contracted when there is no reasonable expectation of those debts being paid. Ss 303(3) r.t. 304(2) • Dividends paid when there are no profits. S.365(2)(b)

8. Judicial Exceptions • Nationality rules – in time of war – Daimler Co ltd v Continental Tyre Ltd (1916) • Holding and subsidiary companies – DHN Food Distributors Ltd v Tower Hamlets LBC (1976) – two companies owned by the same person. • Evasion of legal obligations or abuse of legal rights – Jones v Lipman (1962) • To do justice – AspatraSdnBhd v BBMB (1988) – when there is fraud. Secret profits.

9. Types of companies • Companies limited by: • Shares: company issue shares. Owner of shares becomes shareholders (s.4(1)). Liability of SH corresponds with the value of shareholding. Limited in the sense that his personal property cannot be used to settle debts of the company. It has the abbreviation “Bhd” at the end of its name. • Guarantee: no issue of shares. But members guarantee to pay specific sum to settle the company debts in the event company is wound up. • Both Shares and Guarantee

10. Public and Private

11. Forming a company • SSM • Obtain approval for name • Lodge with SSM certain documents including: • MOA and AOA • Statutory declarations by promoters and directors • Particulars of directors and office • Declaration of compliance • Statement of allotment of shares to the subscribers to the memorandum • Payment of registration fees • http://www.ssm.com.my

12. MOA and AOA • MOA defines the essential components of the structure of the company, objects of the company, set of regulation for management of the company • AOA governs and regulates the internal structure and management of the company – See Table A Fourth Schedule of the Act

13. Advantages of company structure • Limited liability • Perpetual succession • Number of members • Transfer of shares • Employee participation • Financing • Transfer of property • Suing members

14. Disadvantages of company structure • Control by registrar of companies • Documentation • Issues between shareholders and directors • Criminal liability