Company 2 ~ 06/07

COMPANY LAW 2
Allocation
Test 1
Test 2
PBL

Tentative Date
18 Jan 2007
Lecture hours

Marks
15
15
20
40

FINALE FOR COMPANY LAW 2

Directors
Winding up
Partnership

2 questions
No question
4 questions

One compulsory question

One compulsory question

LAW OF THE COMPANY

In law, a company refers to a legal entity formed, which has a separate legal
identity from its members, and is ordinarily incorporated to undertake commercial
business. Although some jurisdictions refer to unincorporated entities as companies,
in most jurisdictions the term refers only to incorporated entities. It has been judicially
remarked that "the word company has no strictly legal meaning", but is taken to
mean a specific form of entity created under the laws of the relevant jurisdiction.
Because of the limited liability of the members of the company for the company's
debts and the separate personality and tax treatment of the company, it has become the
most popular form of business vehicle in most countries in the world.
Companies are also sometimes distinguished for legal and regulatory purposes
between public companies and private companies. Public companies are companies
whose shares can be publicly traded, often (although not always) on a regulated stock
exchange. Private companies do not have publicly traded shares, and often contain
restrictions on transfers of shares. In some jurisdictions, private companies have
maximum numbers of shareholders.
By convention, most common law jurisdictions divide the corporate
constitution into two separate documents:

The Memorandum of Association (in some countries referred to as the

Articles of Incorporation) is the primary document, and will generally
regulate the company's activities with the outside world, such as the
company's objects and powers.

The Articles of Association (in some countries referred to as the by-laws)

is the secondary document, and will generally regulate the company's
internal affairs and management, such as procedures for board meetings,
dividend entitlements etc.

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A corporation or body corporate is a legal person created and recognised by

the law. In this respect it is an artificial legal person as opposed to individuals who are
known as natural persons.
"Corporation" is defined under Sec 4 of the Companies Act as any body
corporate formed or incorporated or existing within Malaysia or outside Malaysia
including any foreign company but not including:

Any body that is incorporated within Malaysia and is by notice of the Minister
published in the Gazette declared to b~ a public authority or an instrumentality
of agency of the government or of any state or to be a body corporate which is
not incorporated for commercial purposes;
Any corporation sole;
Any societies registered under any written law relating to cooperative
societies; or
Trade unions registered under any written law as a trade union.

The most common type of corporation is the company. A company is defined

as a company incorporated pursuant to the Companies Act or pursuant to any
corresponding previous enactment.
Companies have two particularly significant legal characteristics or
attributes that make them able to undertake activities in their own right. They are:
o Separate legal personality: and
o Legal capacity.
These characteristics, and their implications, are discussed below. The third
important legal characteristic of companies limited by shares is that the law provides
members of such companies with limited liability. Limited liability is discussed in the
second part of this Chapter.
Company & its member is separate.
Company is legal person & artificial person
Section 2 of the Interpretation Act 1967 stated as so, where company is
recognised as legal person by the law.
o Member is real person
o Company is artificial person but recognised by the law as a legal
person.
o Person recognised except minor.
Other than company
o Religious bodies
o Waqaf
o Bait al-Mal
o Temples
o Churches
o Mosque
2

Company 2 ~ 06/07

NGOs is not a legal person because form under societies act, association act
and gain any profit (money) from it.
Firm is not a legal person because law does not recognised it as a legal
person.
o Its depends to the law
o Even you are legal person but law does not recognised as legal person.
Artificial
o It is there (exist) but actually it is not there.
o Company is in the existence in the name but in actual fact it is
artificial.
o Company need human being or person to handle or manage or generate
the company.
o Organ of the company consist of
Directors right of dividend
Members right to vote & dividend
o Directors have power to decide either to reject @ accept the member to
be registered in the registered member.
To distinguish between member and non-members.
Members have power in the AGM @ EGM to decide which can be done
within 18 months in the year calendar (cannot say one year @ one and the half
year).
o EGM can be done any time need not to wait till the mature time of 18
months.
o It is important to solve the current problem immediately by passing
special resolution.
Class meeting between the directors or member of company need not in AGM
or EGM.

SEPARATE LEGAL PERSONALITY [ENTITY]

What is separate legal personality [entity]?
The law treats a company as being a separate person from its members and
those who manage its operations. This is the doctrine of separate legal personality.
The central distinguishing characteristic of a company is that it is treated as a
separate person from its participants. Means company can incur and receive
obligations and hold property in its own name. For instance company can borrow or
lend money, enter into contracts, be registered proprietor of land and own chattels
(personal property), be lessee or lessor etc.

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The rights it holds and the obligations it incurs are the companys own, not
those of its managers, the people who have invested in it, or employees.
What are consequences of treating the company
as a separate legal entity?
The effect of incorporation is set out in Section 16 (5) of the Companies Act
1965. On and from the date of incorporation specified in the certificate of
incorporation, the subscribers to the company's memorandum, together with any other
people who from time to time become members of the company, are a body corporate.
That body corporate is capable of exercising all the functions of an incorporated
company; it can sue and be sued, has perpetual (unending) succession and a
common seal and has power to hold land. Liability on the part of the members to
contribute to the assets of the company in the event of its being wound up is as
provided by the Companies Act.

DIRECTOR'S DUTIES
In most jurisdictions, directors owe strict duties of good faith, as well as duties of care
and skill, to safeguard the interests of the company and the members.
The standard of skill and care that a director owes is usually described as acquiring
and maintaining sufficient knowledge and understanding of the company's business to
enable him to properly discharge his duties.
Directors are also strictly charged to exercise their powers only for a proper purpose.
Accordingly, where directors issue a large number of new shares, not for the purposes
of raising capital, but in order to defeat a potential takeover bid, that would be an
improper purposes.
Directors also owe strict duties not to permit any conflict of interest or conflict with
their duty to act in the best interests of the company. The rule is so strictly enforced
that, even where the conflict of interest or conflict of duty is purely hypothetical, the
directors can be forced to disgorge all personal gains arising from it. In Aberdeen Ry
v Blaikie (1854) 1 Macq HL 461 it was expressed by by Lord Cranworth thus:
"A corporate body can only act by agents, and it is, of course, the duty
of those agents so to act as best to promote the interests of the
corporation whose affairs they are conducting. Such agents have duties
to discharge of a fiduciary nature towards their principal. And it is a
rule of universal application that no one, having such duties to
discharge, shall be allowed to enter into engagements in which he has,
or can have, a personal interest conflicting or which possibly may
conflict, with the interests of those whom he is bound to protect... So

Company 2 ~ 06/07

strictly is this principle adhered to that no question is allowed to be

raised as to the fairness or unfairness of the contract entered into..."

However, in many jurisdictions the members of the company are permitted to ratify
transactions, which would otherwise fall foul of this principle. It is also largely
accepted in most jurisdictions that this principle should be capable of being abrogated
in the company's constitution.