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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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