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Table of Contents.

REMARK…………………………………………………………………….Page

ISSUE ………………………………………………………………………….1

QUESTION

(a)………………………………………………………………………2-5

(b)………………………………………………………………………6-7

(c)………………………………………………………………………8-9

(d)………………………………………………………………………10-11

(e)……………………………………………………………………...12-13

REFERENCE………………………………………………………………….14

APPENDIXCES………………………………………………….................15-43

Memorandum and Article of Association (private limited)…………..15-23

Article of Association (public limited by share)…………………..…..24-33

Article of Association (public limited by guarantee)………………….34-38

Form 48 & 48A……………………………………………………………..39-40

Form 49……………………………………………………………………...41

ROC Circular………………………………………………………………..42

Debentures Form 35 & 36………………………………………………...43

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ISSUE.

Zimam is a successful sole trader of a poultry business where his business reaps huge profits.

For sometime, he has been interested in expanding his business and decides to incorporate it

into a private limited company, Golden Poultry Sdn. Bhd. (GP Sdn. Bhd.). The company

purchases Zimam’s business for the sum of RM50,000 which Zimam received by means of

shares and debentures.

Zimam appointed Chan as the manager. Since the manager has little business experience in

the poultry business, he was given training in poultry business by Zimam. In Chan’s letter of

appointment there is a restrictive covenant, which states that in the event that he leaves GP for

another company, he should not reveal any trade secrets or solicit their customers for another

company.

The business was prosper during the first year. Unfortunately, in the second year, GP business

collapsed due to ‘bird flu” disease. The poultry animals in the farms of this company were

infected with bird flu virus which has caused the farm to be closed down and the animals were

culled. Zimam sought to recoup his losses by claiming insurance compensation.

In anticipation that the company (GP Sdn. Bhd.) may be winding up soon, Chan left and formed

a new company and solicits GP’s. customers.

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a) A company may be incorporated as limited or unlimited company. With reference to the

Company Act 1965, discuss the meaning of limited and unlimited company and the various

types of limited companies according to the Companies Act 1965.

Limited Company and Unlimited Company

Company is a corporation, an artificial legal person created by law; any person (natural person)

who wishes to embark on any business must register under Registrar of Business Act 1956 or

the Company Act 1965. Memorandum and article and other document of the company shall be

lodge to the registrar (s16(1) CA1965). Company is a form of corporation which is a legal entity,

it may be incorporated as a limited company (s14 (2) (a) (b) (c) CA 1965) or unlimited

company(s14 (2)(d) CA 1965) ,as registration of the memorandum and articles of the company,

registrar shall certify and issue a certificate of incorporation that states the company

incorporation status as s16(4)(a)(b)(c)(d) of CA. These two types of incorporation are

distinguished by its limitation of liability between members in the company and the company

itself towards the debts and other legal aspect of liabilities upon winding up or during the

business period (s4(1) CA 1965).

According to Company Act 1965 (s4 (1) CA 1965), Limited Company is regarded as a distinct

legal entity, thus it has unlimited liability to pay all the debs and the liability of members are

limited toward the company debs and liabilities. The members of the company are not liable for

the company debs and liabilities (s18 (1) (d) (e). Limited company could be limited by share,

limited by guarantee and limited by share and guarantee (s14 (2) (a)(b)(c) CA 1965).

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Referred to the s14 (2) (d) of CA 1965, Unlimited company could be incorporated subject to a

lawful purpose and s4 (1) of CA states that Unlimited Company is formed on the principle of

having unlimited place of liabilities of its members (directors/ shareholders). Directors and share

holders are liable to all the company’s debs and liabilities s18 (1) (f). Private assets of directors

and shareholders could be used to satisfy company debs and liabilities.

Various types of Limited Companies

Company Act 1965 subsection 4(1) state that company could be incorporated as private

company or public company limited or unlimited. Pursuant to s4(1) of CA 1965 Private company

is a company that is registered as or public company having share capital that converted into

private company according to subsection 26(1). Names of Private company shall have the

words “Sendirian Berhad” (abbreviation Sdn.Bhd) after the name of the company (s22 (4))

unless it with the consent of the Minister it shall not be register (s22 (1)) and to published in the

gazette (22(2)).

Private company with share capital may be incorporated if its memorandum or articles (s15(1))

(see appendix pg 15 for MAA sample);

- Restrict the right to transfer share.

- Limits not more than 50 shareholders.

- Prohibits the public’s to subscribe for any share or debenture

- Not allowed to undertake certain fund raising activities that requires the issue of

prospectus

A private company is exempted if it has less than 20 members and none of whom is a

corporation s4 (1), exempt private companies can keep their financial information private.

A private limited company could be limited by;

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- Limited by share (s14 (2)(a) of CA), where the liabilities of the member is limited by the

memorandum of association, to the amount , if any, unpaid on the share held by them

(s4(1) & s18(1)). A Company limited by share usually has their shareholders as their

members.

- Limited by guarantee (s14(2)(b)),liability of its members limited by memorandum to such

amount as the members may agreed to contribute their assets of the company in the

event of wound up (s4(1)). A company limited by guarantee does not have its

shareholder as a member

- Limited both by share and guarantee (s14(2)(c)), company limited by guarantee and

share has been prohibited to be incorporation this section, came into forced on 1st

February 1986, s14A C 1967 states that no private company are may be formed as a

company limited by guarantee with share capital.

- A Public Limited company is a company that does not have the restriction in s15 of CA

1965. Public limited company must have word “Berhad” after the company name ( s

22(3) of CA ) and may be omission the word “Berhad” by only with Minister consent for a

special purpose operation (s24 of CA1965). In Malaysia Public limited company could be

listed or unlisted on the Bursa Saham Malaysia. Public limited company could be limited

by share or limited by guarantee.

- Public company limited by share (s14 (2)(a) of CA), where the liabilities of the member is

limited by the memorandum of association, to the amount , if any, unpaid on the share

held by them (s4(1) & s18(1)). A Company limited by share usually has their

shareholders as their members. (see appendix pg24 AA limited by share sample).

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- Public Company Limited by guarantee (s14(2)(b)),having liability of its members limited

by memorandum to such amount as the members may agreed to contribute their assets

of the company in the event of wound up (s18(1)(e)). Public Company limited guarantee,

usually operate as charity, Institute of Education, Institute of Research,

Industry/Commercial/Trade,Social,Sports, Art, Recreation, Religious, Club, Environment,

Health colleges, charity organization, clubs, and non government organisation

(NGO’s).Public company that limited by guarantee are allowed to be incorporated under

Company Act 1965 for lawful purpose and only to be incorporated as public company

(see appendix.pg33 AA limited by guarantee sample). Public company that limited by guarantee is

prohibits in England.

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b) GP Sdn Bhd wanted to appoint directors for the company. Advise the company on the

appointment and qualifications of a director. Is there any possibility of removing the director from

the company?

Appointment of Director

GP Sdn Bhd was incorporated as a private limited company, GP Sdn Bhd must have minimum

numbers of two directors (S122 (1) CA1965). The appointment of the first director must be

named in the memorandum or article of the company (s122 (3) CA1965) and the appointed

directors must be in full age and he or she must be a natural person (s122 (2) CA1965).

Directors that are going to be appointed shall before make a lodge with the registrar and the

official Receiver a statutory declaration in a form describe by regulation and not contravene with

the s125 of CA1925 ( undischarged of bankruptcy) and also s130 of CA1965(prohibits certain

person from managing companies as he or she convicted within Malaysia or outside Malaysia).

Forms 48 & 48A must be lodge to the registrar in order to appoint a director s141 (6) CA1965.

(See appendix.pg39,form 48 & 48A). A subsequence appointment could be made after the first

appointment of directors and must follow the Company Act 1965 by passing an ordinary

resolution (simple majority vote) and register of directors shall be made. Register of director

should pursuant to s141 (2) CA1965. Referred to the Malaysia Registrar of Company circular

dated 19th July 2002 and come into forced on 1st August 2002 state that an appointment of

director should submit the form 49 (form sample see appendix pg41) and also a copy of resolution

regarding appointment of director by the company and it must be sign by at least one of the

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company director and company secretary to the registrar one month from the appointment date

s141 (6) CA1965.

Qualification of Appointee Director.

In order to appoint a director, appointee must fulfill the director qualification in order to make the

appointment valid. The appointee directors must be;

- A natural person and full age at the appointment date .(s122(2) CA1965),

- Not over than seventy years old on the appointment date only for public company

(s129(1),but it may be reappoint by a resolution passed by majority of not less than

three-fourths votes (s129(6)).

- Not a directors of insolvent companies (s130A CA1965)

- Not undischarged bankrupt( s 125 CA1965)

- Not a convicted within Malaysia or without Malaysia(s130 CA1965)

- Hold a minimum number of qualified share.(s123(1)(c) CA1965).

Removal of Director.

A company can remove their director before the expiration of the term of the office by using

article of association s29 (5) CA1965 lodge a form 49 (see appendix pg41,form sample) with a copy

of board of directors resolution and to be signed by one of the director to the registrar one

month from the removal date for removal of directors and company secretary.(circular from

SSM, 1st august 2002). Accordance to table A 69 of CA1965 and section 128 states that a

company can remove any directors before the expiration date of his office by an ordinary

resolution. Case “ Tuan Hj Ishak Ismail & ORS v Leong Hup Holdings & other appeal “

shows that director may be removes before the expiration of his or her period in office, by

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passing an ordinary resolution and opposed by simple majority. The removal of directors is still

allowed to do so even it is contrary with the article or agreement between the director and the

company (s128 CA1965).

c) Discuss whether Zimam or GP Sdn. Bhd. could be liable for the company’s debt under the

separate legal personality principle.

Mr. Zimam has incorporated his poultry business from sole proprietor into a private limited

company. Private limited company is a legal entity ( s 4(1) CA 1965 ). Private limited company is

liable for all the debts and liabilities are unlimited. Thus, under separation legal personality, any

of its members, shareholders or directors are not liable for the company’s debts and liabilities.

Company is liable for their own debts as stated in section 18(1)(d)(e) CA1965. The effect of

corporate veil (s16(5) CA1965) between the corporate entity and the membership and

management of the company is to separate its existence, a company is liable for its own debts,

liabilities, property, has a contractual capacity, crimes, perpetual succession, capable of suing

and to be sued and perform borrowing.

The principle of separate legal entity is established by the decision of the House of Lords in

“Solomon v Solomon & Co (1897)”. The House of Lords states that a company that

incorporates accordance to company act is an absolute company and it has a separate legal

entity.

In Mr. Zimam and Golden Poultry Sdn Bhd case the company was incorporated as a Private

Limited Company under Company act 1965 and Mr.Zimam was associate for a lawful purposed

and appointed Chan as a member that made a substantial contribution to the company, it is

proven by appointment and training given to Chan by Mr Zimam. Accordance to company

incorporation, Golden Poultry Sdn Bhd is a valid company that has separate legal personality

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principle. Thus, Mr. Zimam is not liable for any debts that the company owed or any of company

liabilities since separate legal personality principle is applied. Golden Poultry Sdn Bhd is Private

limited company and having share capital, s4 (1) & s18 (1) d) state that a company limited by

share is formed on principle of having the liability of its member limited. Thus, the effect of

Golden poultry Sdn. Bhd. incorporation makes the company liable for all the liabilities and debts

incurred by the company and also others company’s liabilities s16 (5) CA1965. Golden Poultry

Sdn Bhd( private limited company) is the only entity that liable for its own debts and liabilities.

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d) If Zimam is the only secured creditor, will he be able to recover the debt owing to him as a

debentures holder if the company winds up?

Golden poultry Sdn Bhd was incorporated as a private limited company under Company Act

1965 (s14 (1) CA1965). Since the company was incorporated, the effect of corporate veil

principle is applied, the company is a legal entity that are able to own a property, borrowing,

perpetual succession, to sue and to be sued and also the company is responsible to all the debt

and liabilities is unlimited (s16 (5) CA1965), the corporate veil separates the liabilities of the

company towards its members (s18(1)(d)(e) CA1965 ).

According to the case, Golden Poultry Sdn Bhd is a new company and has no capital to start on

poultry business. The company purchased Mr. Zimam’s business for the sum of RM50, 000.00

which Mr. Zimam received by means of shares and debenture to raised company initial capital.

A debentures issued by Golden Poultry Sdn Bhd to Mr Ziman is in a form of secured loan

capital. Under section 4(1) of CA1965 “Debentures” includes debentures stock, bonds, notes

and any other securities of a corporation whether constituting a charge on the asset of the

corporation or not. Thus, debentures (secured loan) have a special right given by the company

over its property to the creditor. Debenture is a secured liability to company, it has a fixed

particular interest rate over a period of time. The charge of the property is in a form of company

property or capital. The debentures is a form of document (certificate) that state the company

acknowledged that it has borrowed money over a period of time (s 38(1) of CA1965). Pursuant

to the s108 of CA1965 a company should make a lodge with the registrar for registration of the

debentures holder personnel details, total amount secured, date, general property charged and

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the name of trustee, thirty days after creation of the charge (s108(5) of CA1965)(see appendix

pg43 for sample form of debentures)

.

Mr. Zimam is the secured creditor based on the company incorporation and also debentures

issued by the company is complied with the Company Act1965. In the case of company winds

up or liquidation Mr.Zimam has a priority over his debenture for the repayment of the debt.

Referred to the landmark case “Solomon v Solomon & Co” it has a similarity where Mr.

Solomon was a sole proprietor, incorporated his leather business into limited company. Mr.

Solomon received GBP 10,000.00 as a debenture and later transfers the debentures to Mr.

Broderip for a loan of GBP 5,000.00. After sometimes the company went to liquidation and Mr.

Broderip appointed a receiver for the debts. House of Lord decides that the company is liable for

the debt and not Mr. Solomon. From the decision made by House of Lords in “Solomon v

Solomon & Co” case, it can be derived that Golden Poultry Sdn Bhd have a common ground

that the company must be liable to the debt owed to Mr. Ziamam, as he is the absolute secured

creditor. The separation of personality s18 (1) (d) (e) is applied. Mr zimam has an absolute right

to recover the debt owing to him plus the debentures interest if the company winds up.

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e) Discuss whether Zimam will be successful in his insurance claim for GP’s losses. Would

your answer be different if the property was insured under Zimam’s name?

Golden Poultry Sdn Bhd was incorporated as a private limited company under Company Act

1965. As a result of the incorporation the company has an effect of corporate veil which enables

the company to liable to its own debts, liable to its liabilities, has power to acquire, hold and

dispose of property, contractual capacity, perpetual succession, borrowing and capability to

suing and to be sued. This corporate veil is stated in section 16(5) of the company Act 1965.

The incorporation of the company also separate legal personality, which separate the company

liabilities and debts from its members (s18 (1) (d) CA 1965).

As the effect of corporate veil, a company owns its own property and the shareholders have no

direct right and cannot insure the company against theft or damage. In Golden Poultry Sdn Bhd

case it, does not state that the property was insured under which party whether Mr. Zimam or

the company (GP Sdn Bhd).

According to the Mr. Zimam case he wills not success in his insurance claim for the Golden

Poultry Sdn Bhd loss whether the insurance is insured under company name or his name. Mr.

Zimam has no personal right to claim the insurance agency for insurance compensation even

property that was insured under the company names and the property is belonging to the

company. Only persons with a legal or equitable interest in property are regarded as having

interest in it, this also applies to the second scenario where the company property was insured

under Mr. Zimam names. From the case “MACAURA v NORTHERN ASSURANCE CO LTD

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(1925) AC 619” clearly shows that that Mr. Macaura had insured the property under his name

but the property is belonging to the company, he was unable to claim for the insurance since

only persons with a legal or equitable interest in property are regarded as having interest in it.

House of Lords decided that the insurers were not liable. Only Macaura’s company, as owner

which had the requisite insurable interest in it and only the company could insure its property

against loss or damage. Shareholders have no legal or equitable interest in their company’s

property. From “Macaura v Northern Assurance Co Ltd (1925)” it can be conclude that Mr.

zimam is not a legal person in claiming the insurance compensation for the loss incurred to the

business, thus Mr. Zimam will not success in claiming the insurance compensation for the loss

incurred, only the Golden Poultry Sdn Bhd has the requisite interest insurable interest in it. Mr.

Zimam wills not success in claiming the insurance compensation as the property was belongs to

the golden Poultry Sdn Bhd.

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REFFERENCE

……………………………………………………………………………………………………………….

Lam.gov.my(2005).Private Limited Company MAA[online].

http://lam.gov.my/MAA(LAM & BEM)web.pdf[27-10-2009]

Latha Chitra Ramalingam(2009). BBUS2103 Company Law (2nd edition).

Malaysia.OPEN UNIVERSITY MALAYSIA

Malalysia Legal Research Board.International Law Book Service(2009).

Companies act 1965 (ACT 125):Regulation,Rules and Order.Syarikat Pencetakan Ihsan.

Md Rodzi Harun(1998).Nature Of Company[online].

http://syarikat.tripod.com/essential1.html[25-10-09]

Md Rodzi Harun(1998).Removal of director[online].

http://syarikat.tripod.com/directorship2.html[25-10-09]

Pnb-LawNet(2006).Company Act 1965 (revised 1973).

[online]. http://www.ssm.com.my/act/fscommand/a125.htm .[21-10-09]

Pnb-LawNet(2006).Guidelines of Incoporation of Company Limited by Guarantee.

[online]http://www.ssm.com.my/en/docs/guidelines/GUIDELINES%20OF%20INCOPORATIO

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%20CLBG%20UNDER%20CA%201965.pdf[27-10-09]

Pnb-LawNet(2006). Pengumumam Awam SSM BIL.3/2002[online].

[online]. http://eaduan.ssm.com.my/media/perkhidmatan/pekeliling1.pdf.[22-10-09]

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