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COMPANY LAW OF

MALAYSIA

INTRODUCTION
In Malaysia, the main legislation on companies are the
Companies Act 1965 and the Companies Regulations
1966.
However, several English and Australian authorities are
relevant in interpreting the equivalent Malaysian
provisions by virtue of Section 5 (1) of the Civil Law Act
1956.
INCORPORATION OF COMPANIES
The CA provides for several steps to be followed in
incorporating a company:
1. Prior to the registration, the applicant must apply to the
Registrar for reservation of the proposed name - which then,
if the Registrar is satisfied, will be reserved for three month.
2. Persons who wish to incorporate a company has to lodge
with the registrar the Memorandum and Article (if any) of the
proposed company together with other required documents.

3. Statutory declaration by the promoters of the


company undertaking not to act in
contravention of the Act also must be filed.
4. Upon being satisfied that all documents are in
order, the appropriate fees and stamp duties
have been paid - Registrar will issue a
certificate of incorporation.
5. From the specified date on the certificate - the
company is now duly incorporated.
As such, from the date of incorporation, the company now
becomes a body corporate by the name contained in the
memorandum and from then on capable of exercising all the
functions and rights of a company.

EFFECT OF
INCORPORATION

THE DOCTRINE OF SEPARATE LEGAL ENTITY


Sec 16(5) of the CA provides for the effect of
incorporation:
1. The company is now a body corporate with the power of an

incorporated company.

The doctrine of separate legal entity of a company was


established by the case SALOMON v. SALOMON CO LTD
- See also LEE v. LEES AIR FARMING LTD
2. It may sue and be sued in its own name.
A company may sue and be sued in its own name - as such
members may not maintain an action on behalf of the
company.
If a company has a right against another party under a
contract - the company should sue under its own name
under the rule in Foss v. Harbotle a.k.a proper plaintiff rule.
The proper organ to commence an action on behalf of the
company is the Board of Directors.

3. It has perpetual succession


A company also will last until it is properly wound up or
struck off the register.
Its identity also will persist independently of any change
in the share holding of the company - Re Noel Tedman Ltd.
/ Abdul Aziz Atan v. Ladang Rengo
4. It may own land.
A company also has the ability to own property in its own
name - not only land
The members have no legal or equitable interest in the
property
- see also MACAURA v. NORTHERN ASSURANCE CO.
5. The liability of the members may be limited.
The liabilities of the company are also its own - not those
of the members i.e. limited liability.
The directors and officers of the company also are not
responsible for its debts - Re Application of Yee Yut Ee

LIFTING THE CORPORATE


VEIL
In certain
circumstances, a court will set aside the separate
legal entity of a company and look to the members of the
company to be - lifting the veil.

JUDICIAL EXCEPTIONS common law


1. Use of company to evade legal obligations / commit fraud.
- Jones v. Lipman
2. Economic Entity - occasionally the court will lift the
corporate veil to recognize a group entity among a group of
companies.- Aspatra Sdn Bhd v. BBMB
3. Where the company is a sham / mere faade designed to
circumvent the law or hide the true state of affairs - the
court may treat it as one with the members - Re FG (Films)
Ltd..

STATUTORY EXCEPTIONS
1. Sec 36 CA - when members of company falls below two,
that member will be liable for all the debts of the
company.
2. Sec 121 (2)(c ) - where a person signs, issues or
authorizes the signing of certain instruments on which the
companys name does not appear properly.
3. Sec 303 (3) and Sec 304 (2) - where debts are contracted
when there is no reasonable or probable expectation of
those debts being paid. Re William C. Leitch Ltd.
4. Sec 304 (1) - if the business has been carried out to
defraud creditors or for a fraudulent purpose - court may
declare the party who knowingly carry out the business be
personally liable.
5. Sec 365 (20 (b) - where dividends are paid when there is
no available profits out of which to pay them - the director
or officers of the company may be liable to the creditors.

MEMORANDUM OF
Every company must have a MOA before it can be
ASSOCIATION.
registered
to declare the essential elements of its
constitution.

Sec 18 - the MOA must contain the following information:


1. Name of the company.
2. Objects of the company
3. Share capital
4. Liability of its members
5. Association
6. Subscribers.
7. Restrictions and prohibitions (for Pte. Ltd. Company)

The object clause states the business or other activity


which the company is to carry on - whether or not the
company actually engages in all of them.
Usually comprise of the main objects, the dependant
objects and the list of powers

A company therefore cannot do anything that is not


authorized by the object clause in the MOA - such an
act will be ultra vires .
At common law - ultra vires act will be void and will not
bind the company.
However under CA - ultra vires act per se may not
render a transaction invalid - unless objected to by
members or holders of debentures secured by floating
charge.
As such, as far as the creditors are concerned - doesnt
matter if the transaction is ultra vires or not.
Alteration of the MOA
The MOA may be altered ONLY in the manner prescribed
by the Companies Act - so if the Act does not provide
for the alteration of a particular clause, this means that
clause is unalterable.

The CA only provides for the changes of:


1. Companys name
2. Conversion from unlimited company to limited company vice
versa.
3. Change form public to private company, vice versa
4. Alter the object clauses.
5. Alter the share capital.

Although the Act allows for alterations - as a general rule,


a special resolution is required to effect the change.
A notice of the resolution to amend the objects must be
given to all members and a resolution to amend the object
clause needs 3/4 majority of those present and voting.
21 days grace period is given to anyone who want to
object to the alteration - after that the resolution must be
lodged with the registrar within 14 days.
The certificate will be conclusive evidence that all the
requirements of the alterations have been met.

ARTICLE OF ASSOCIATION.
The AOA serve as regulations for the internal
management of the company.
It deals with matters like rights of members, transfer and
transmission of shares, the convening and conduct of
meetings, powers of directors and payments of dividends.
The CA provides a model forms of articles - Table A which
applies to the companies unless it has its own special
articles which totally or partially exclude Table A.
The MOA and AOA binds all the members of the company
in respect of their rights and liabilities to the same extend
as if they have each signed and sealed the documents like that of a contract.
- Hickman v. Kent - article provide for arbitration
- Wood v. Odessa Waterworks - dividend paid by cash only

The clauses of the AOA too may be incorporated as an


implied term of a separate contract - in so far as it does
not contradict the express terms of that contract.
- Re New British Iron - provide for salary of director
- Read v. Astoria Garage - provide for notice of termination.
However, the AOA is a contract only among members and
outsiders are not privy to this contract and thus cannot
enforce any rights in the AOA or MOA.
The AOA also may be added to or altered subject to the
requirement for a special resolution.
In voting for the alteration - it must be done in good faith
for the benefit of the company and the majority cannot
seek to oppress the minority.
However, the company power to alter the AOA may be
restricted by a provision in the MOA prohibiting such action
or that the resolution need to be done by members of a
certain class of shares.

CAPITAL STRUCTURE
Capital - the money on which the company operates.
Two types of capital - share and loan
The amount of capital with which a company proposes
to be registered must be stated in the MOA.
The authorized capital of a company must be divided in
shares of fixed amount and cannot allot more shares
than stated as the authorized amount.
However, the authorized capital may be increased by
the creation of new shares if allowed by the AOA.
The capital structure of the company too may be
altered by consolidating shares into larger nominal
value or sub dividing them into smaller nominal value.
Types of share capital:
1. Subscribed capital
2. Issued capital
3. Paid up capital
4. Uncalled capital

SHARES
A share is the interest of a share holder in the company
measured by a sum of money, for the purpose of liability
and interest and also consisting of a series of mutual
covenants entered into by all the members.
Shares also can be said to be a piece of property
conferring rights in relation to distribution of income
and capital.
A companys share capital may be divided into different
classes as provided for in the MOA or AOA.
Each class have their own rights and liabilities and if
these rights are contained in the MOA - cannot be
altered except as provided.
Two types of shares:
1. Ordinary shares
2. Preference shares
There are two ways of obtaining shares I.e directly from
the company(through a prospectus) or from existing
shareholder

LOAN CAPITAL
Other than shares - other source of finance for a
company is from loan .
Both trading and non trading company have power to
borrow and also power to give security for the loan.
Where a company takes a loan - will usually issue a
debenture which acknowledge the loan

DIRECTORS AND
DIRECTORS DUTIES

Every company must have at least two directors and is obliged to


keep a register of directors and other officers in the company - which
is open to public inspection.
Qualification to be a director:
1. Natural person of full age and capacity (max age : 70 years)
2. Shares qualification - the MOA or AOA may provide for the director to obtain
a certain number of shares in order to qualify as a director.

Restriction from becoming a director:


1. Undischarged Bankrupts
2. Disqualification due to the commitment of certain offences
3. If failed to obtain the necessary shares required.

The CA also provides for several ways of removing a director from


office:
1. Retirement
2. Resignation
3. Removal
4. Automatic vacation of office.

POWER OF DIRECTORS
Generally, the powers and functions of a company is vested
in the Board of Directors.
The BOD may exercise this power except those specifically
mentioned to vest in the management.
However, the BOD is not an agent of the members and
cannot be instructed on how they should carry out their
duties.
DUTIES OF DIRECTORS
Sec 132 (1) of the CA - A director shall at all times act
honestly and use reasonable diligence in the discharge of
duties of his office.
Basically, a director has three broad categories of duties:
1. Statutory duties
2. Fiduciary duties
3. Duties of skill, care and diligence.

Basically, these duties are owed not to the individual


members of the company but to the company itself, unless
the members authorized the directors to represent them.
Statutory Duties
Imposed by the Companies Act
Sec 131 - director shall declare nature of interest in any contract.
Sec 133 - loan to directors
Sec 135 - general duty of disclosure

Fiduciary Duties
Duty to act bona fide in the interest of the company.
Duty to act for proper purpose
Conflict of interest.

Duty of Care, Skill and Diligence

MEMBERSHIP AND
MEMBERS RIGHTS
The fact that a person owns shares does not make him a
member of the company.
There are two ways to become a member of a company:
1. Subscribers to the MOA are automatically members to the
company.
2. Any person who agrees to become a member and whose
name are registered in the register of member of the company.

Members cannot interfere with the management of the


company if the power to manage the company is vested
with the Board of Directors.
Whether or not the members can supervise / override the
BOD depends entirely on the construction of the AOA.
However, there are certain circumstances that may
require the BOD to seek the approval of the members at
general meeting.

All members of the company have certain rights


conferred on them by the Act, the articles or the
general law:
1. To have the MOA and AOA observed.
2. To restrain ultra vires and illegal acts.
3. To have access to company records and have certain
information provided to them
4. To attend and vote at general meetings
5. To be treated fairly.
These rights are personal and other person cannot
generally interfere with the exercise of such rights

MEETINGS.

The will of the members are usually expressed through


resolutions passed at GM.
There are three types of meetings:
1. Statutory Meeting
2. Annual Meeting
3. Extraordinary General Meeting

Statutory meeting
Held only once at the beginning by a public listed companies
limited by shares.
Held not less than one month and not more than 3 month from the
date of commencement and to be convened by the directors.
A statutory report must be submitted to every members and also
lodge a copy with the Registrar.
Matters relating to the formation of the company or arising out of
the statutory reports may be discussed.
Failure to hold this meeting - a ground to petition for winding up
of the company.

Annual General Meeting


To be held once every calendar year.
A company need not hold AGM in the year of its
incorporation or the next year as long as its first annual
meeting is held within 18 months of its incorporation.
Not more than 15 months may elapse between AGM.
Duty to call meeting usually on the directors but the
members may ask the court to order one.
During the AGM - accounts of the company must be laid
out before the members, auditors to be appointed,
general approval for shares, retirement and election of
directors, declaration of dividends etc.
All these are mandated by the Articles

Extraordinary General Meeting.


Any general meeting other than the annual meeting is an
extraordinary meeting.
Two or more members holding not less than 1/10 of the
company issued share capital may call a meeting.
A meeting too can be requisitioned by members of the
company with no less than 10% shareholding with voting
rights.
CONVOCATION AND CONDUCT OF MEETINGS.
A 14 days notice of the meeting must be given to members
of the company and others person as stated in the AOA.
A 21 days notice is required to pass a special resolution.
The notice may be accompanied by statements setting out
the proposed business of the meeting to enable members
to decide whether to attend or not.

The minimum quorum for a meeting is two and they


need not be present through out the meeting, only at
the commencement.
However, lack of quorum does not invalidate the
meeting unless theres injustice done.
If the AOA not specified it -any members may be
elected chairman of the meeting whose job is to ensure
that the meeting is properly run.
Every company too must keep the minutes of all
general meetings and directors meetings.
There are two types of resolution passed in a meeting;
ordinary and special.
Generally, all members are entitled to vote and their
number of votes will be fixed by the AOA.
Nevertheless, a member need not be present personally
to cast his votes as he can appoint a proxy.

WINDING UP OF A COMPANY.
There are two types of winding up:
1. By order of the court.
2. Voluntarily.

BY ORDER OF THE COURT.


A winding up by the court is initiated by the presentation of a
petition by a person entitled to do so.
The petition must be based on the grounds as provided by the
Act:
1. The company has special resolution resolved that it to be wound up by
court.
2. Default in lodging the statutory report in holding the statutory
meeting.
3. The company not commence business within a year of its
incorporation.
4. The number of members is reduced below two.
5. The company is unable to pay its debt.

7. An inspector appointed under the Act has recommended


the winding up of the company.
8. A time fixed for the existence of the company has run out /
the happening of some event as provided by the MOA or AOA.
9. In the opinion of the court, it is just and equitable to wind
up the company.
10. A banking company has its license revoked or carried on
business in contravention.
11. The company carry on multi level marketing.
12. The company is being used for unlawful purpose or
purpose prejudicial to public peace, welfare or national
security.
The presentation of a winding up however does not mean
that the company is wound up from the date on the petition
but the date is significant because once a order has been
made out - the company is deemed wound up from that date.
A company also cannot dispose of any property after the
commencement of a winding up process to prevent improper
alienation of property.

VOLUNTARY WINDING UP.


If the company cannot carry on business by reason of its
liabilities, the directors must make statutory declaration to that
effect.
If not - a meeting must be called to pass a special resolution to
wind up.
No resolution can be passed if a petition has been presented to
that effect unless by leave of court.
In any event, liquidators will be appointed by the members or
the creditors.
The company is thus deemed wound up from the date of the
statutory declaration or the date of the resolution being passed.

EFFECT OF COMMENCEMENT OF WINDING UP.


Notification must be made to those who deals with the
company.
The business of the company too ceased from the
commencement of the winding up, except where the
liquidators thinks its beneficial to the co.

The powers of the directors too ceased as far as is


allowed by the liquidators or the members.
The making of a winding up order by the court too
operates as a notice of discharge to all companys
employees.
There must not also be any disposition of companys
property or transfer of shares.
Any creditors who have not completed execution or
attachment against the company may not received the
benefits of his execution against the liquidators.
However, a company may be dissolved without going
through the process of liquidation - through mergers/
amalgamation or after being strike of the Register.
The court however has the power to declare the
dissolution of a company to be void at any time within
two years of the dissolution.

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