Topic 1-The Corporate Form

Topic 1 - The
Corporate Form

Page References to Dr Chan Wai Meng’s book

Pg 45-47
Sources of Classification Pg 52-60
Pg 49-50 Company Law of Companies Co limited by
in Malaysia shares / Co limited
Company
by guarantee /
compared to sole
Unlimited liability
proprietorship
Co.
and partnership
Pg 60-77
Private Co,
Pg 95-106 Public Co,
Effects of Related
incorporation Companies
of Co
Pg 106-123
Pg 41-45 Lifting /
Introduction, Business Piercing the
organisations, What is a corporate veil
Company
2

1
Topic 1-The Corporate Form

“
Introduction,
Business Organisations,
What is a Company?

Introductory idea

Rey
Kylo Star Wars
Star Wars
Enterprise
Enterprise
Enterprise &Bhd
Sdn Bhd
Co Finn

Poe

Relatives and friends of Kylo,

Rey, Finn & Poe In
future?
It may get listed on Main Market or
ACE Market, with hundreds or
thousands of shareholders
4

2
Topic 1-The Corporate Form

Business organisations in Malaysia

Star Wars
Enterprise
& Co

Sole Proprietorship Partnership Perkongsian 合伙

Milikan Tunggal 独资企业 • An association of 2 or more
• Registration of persons carrying on business in
Business Act 1956 common with a view to profit.
• Assets & liabilities not • Partnership Act 1961
separated • Assets & Liabilities not separated
• No separate legal existence
Limited Liability Partnership:
• Limited Liability Partnership Act 2012
• Assets & liabilities separated
• Separate legal existence from partners
5

Business organisations in Malaysia

3
Topic 1-The Corporate Form

Business organisations in Malaysia

What kind of business
organisations are
these?

Just look at the receipts to find out

Aeon Big (M) Lotus’s Stores GCH Retail (M)
Sdn Bhd (M) Sdn Bhd Sdn Bhd
(24265-T) (521419-K) (667035-P)

4
Topic 1-The Corporate Form

Apex-Pal (M) Secret Recipe Peak Fusion

Sdn Bhd Cakes & Café Sdn Bhd
Sdn Bhd

What is a Company? CWM 41-45

s.9 CA 2016 Company

Name 1 or more 1 or more 1 or more

members shares Directors
having

Limited or Only a
unlimited liability Company
for Co’s debts limited by
and obligations shares has
shares

10

10

5
Topic 1-The Corporate Form

What is a Company? CWM 41-45

s.20 CA 2016 Company will have:

Separate legal personality Continue in existence until

from its members removed from register

s.21 CA 2016 Company will have unlimited capacity

To sue or To acquire To enter into To carry on

be sued and own transactions business and
property activities
11

11

Constitution – CWM 41-45

generally not required
Organisation
Perlembagaan Pertubuhan 组织
宪法 / 章程 07 01 Incorporation
Two decision-
Making bodies process
06 What is a Process
Board of Directors
Company 02 pemerbadanan
Lembaga Pengarah
? 公司注册流程
董事会
05
General meeting
Pemegang syer
03 Artificial legal entity
股东大会
04 with separate legal
personality
Members have Perpetual Entity undang2 buatan
Limited liabilities succession Perwatakan
Liabiliti anggota Kewujudan undang2 berasingan
abadi 人工法人
terhad 独立的法人资格 /
有限责任公司 永久延续. 12
独立的法人实体
12

6
Topic 1-The Corporate Form

Member compared with Shareholder

Anggota 会员 Pemegang syer 股东

Members: Shareholders:
People in a: Invest money in
• Co limited by a Co limited by
shares or shares. They are
• Co limited by issued shares.
guarantee

Shareholders:
Members:
Must be
Have rights of
registered as
members:
members before
voting power,
can enjoy full
attend meeting rights of
members 13

13

Directors, Shareholders/members, Employees

Directors (Pengarah董事)
Manage the Co’s day-to-day operation.
Responsible for policy making.
Be a watchdog to supervise & monitor.
Can be shareholders (sometimes not)
Can be employees (sometimes not)

Shareholders / members
(Pemegang syer / anggota 董事/会员)
Invest in the Co
Do not manage Co or make policies.
Certain major decisions need their approval.
Can be directors (usually not)
Usually are not employees (sometimes can)

Employees (Pekerja 雇员)

Work for the Co
Usually are not shareholders (but can be)
Some directors are senior employees.
14

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7
Topic 1-The Corporate Form

Directors, Shareholders/members, Employees

In a small, private (Sdn Bhd) In a big, public-listed
Company Company
• Directors and shareholders • Directors and shareholders
are usually the same are two separate groups of
people.
people.
• The biggest shareholders
• They manage the Co’s usually appoint themselves or
day-to-day operations and their agents to be directors to
are responsible for policy- ensure they have control of
making. Co’s operations.
• Usually no Independent • Executive directors (day-to
directors to supervise & day operations, usually are
monitor. considered employees)
• Directors are usually not • Non-executive directors
considered employees. (policy-making, monitoring,
not considered employees) 15

15

Resolution Minutes of Meeting

Ketetapan 决议 Minit Mesyuarat 会议纪要
Record of decisions made by Written record of meetings of
directors or members in a directors or members.
company.

16

16

8
Topic 1-The Corporate Form

“
Effects of
Incorporation
of a Company

17

17

CWM 95-106
Effects of Incorporation
Kesan Pemerbadanan 掺入的影响
s.15 CA 2016: s.20 CA 2016:
All requirements
Incorporation A body A company
met, payment of
of a corporate incorporated
prescribed fees
Company under this Act
1 1
Has a legal
Notice of 2 2
personality
Registration separate from
3 3 its members

s.17: Continued in its

Certificate of existence until
Incorporation - removed from
optional the register
18

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9
Topic 1-The Corporate Form

CWM 95-106
Effects of Incorporation
Kesan Pemerbadanan掺入的影响

Co is a Separate Legal Entity,

Co has a Separate Legal Personality
Entiti undang2 berasingan 独立的法人实体
Keperibadian undang2 yg berasingan 独立法人资格

Veil of Incorporation /
Corporate VeilDirectors Members
Tirai Perbadanan
公司面纱
Other
Creditors companies
19

19

CWM 95-97
Body corporate Badan korporat, dgn
with a separate Entiti undang2 yg berasingan
legal entity
Directors and 法人团体, 独立的法人实体
Secretary to be
appointed 01 Perpetual Kewujudan
Pengarah 董事 08 02 succession abadi
Setiausaha 秘书 永久延续

Effects of
Can sue or
Has a registered Incorporation
office
07 s.20 – s.21 03 be sued in its
CA 2016 own name
Pejabat berdaftar
注册办事处
06 04 Has capacity to
Members have 05 enter into
limited liability transactions

Liabiliti anggota Has power to hold Has unlimited capacity

terhad properties in its own to carry out any
有限责任 name business activity
20

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10
Topic 1-The Corporate Form

CWM 103-106
Effects of Incorporation
Kesan Pemerbadanan 掺入的影响
(1) Company is a body corporate with a separate legal entity

Salomon v Lee v Lee Air

Salomon & Co Ltd Farming Ltd
• Can enter into
• Co is a legal person binding contracts
• Has a separate with its members
legal personality
from members. Shareholder
• Can buy business Pemegang syer
from its member 股东
• Doesn’t matter if Governing director
shares are actually Pengarah
held for one Pentadbiran
member. 理事⻓
• Member can be a Employee – Pilot
creditor Pekerja 雇员 21

21

CWM 103-106
Effects of Incorporation
Kesan Pemerbadanan 掺入的影响
(2) Company has a (3) Company
perpetual succession can sue or be
Existence sued in its own
unaffected by name
change, 2 3
retirement, The “Proper
death or Plaintiff Rule” or
incapacity of its the rule in Foss
members v Harbottle
[1843] states:
• Abdul Aziz v
Where a wrong is
Ladang Rengo
done to the
[1985],
Company, only the
• Re Noel Tedman
Company can
Holdings Pty Ltd
sue.
[1967] 22

22

11
Topic 1-The Corporate Form

CWM 103-106
Effects of Incorporation
Kesan Pemerbadanan 掺入的影响

(4) Company has (6) Members of

capacity to enter into Company has limited
transactions liabilities
Unlimited capacity to 4 6 Members / Directors
carry out any not liable for Co’s
business or activity debts beyond what
they have paid for
their shares or what
5 they guaranteed to
(5) Company has power
pay.
to hold or own property
Re Application of
in its own name Yee Yut Ee [1978]
Members have no legal or equitable claim
over Company’s properties until Co is
liquidated.
Macaura v Northern Assurance 23

23

CWM 103-106
Effects of Incorporation
Kesan Pemerbadanan 掺入的影响

Company has a
07 registered office

Office of the
Company
Secretary

Directors and Secretary to

be appointed Pengarah 董事 08
Setiausaha 秘书

24

24

12
Topic 1-The Corporate Form

“
A Company compared
to Sole Proprietorship
and Partnership

25

25

Company compared to Sole Proprietorship and Partnership

Syarikat liabiliti terhad Milikan Tunggal Perkongsian
有限责任公司 独资企业 合伙

Governing laws 1 Purpose of Formation: 4

• SP: Registration of • SP: Usually for profit
Business act 1956 • Partnership: “Relations
• Partnership: RBA 1956, subsisting between
Partnership Act 1961 persons carrying on a
• Company: Companies business in common with a
Act 2016 view of profit”
• Co: Needs not be profit-
Separate legal personality 2 making
• SP and Partnership: Do not have
• Company: Has Number of members 5
• SP: 1
Name • Partnership: 2-20, except
• SP: any name except Sdn Bhd, Bhd professional firms
• Partnership: & Partners, & Co • Sdn Bhd: 1-50
• Co: Sdn Bhd or Bhd 3
• Bhd: 1- unlimited 26

26

13
Topic 1-The Corporate Form

Company compared to Sole Proprietorship and Partnership

Members’ liability for debts 6 Duration of existence: 8

• SP: will be liable personally • SP: dissolves when
• Partners jointly liable to the full owner dies/bankrupt
extent • Partnership: Dissolves
• Co: Members’ liability limited to upon retirement, death,
the amount unpaid on their shares bankruptcy of one
or amount they have guaranteed partner, unless
otherwise agreed.
• Co: has perpetual
succession, not affected
Enforcement of legal rights 7 by members.
• SP: In his own name.
• Partnership: by or against all
partners Constitution
• Co is the proper Plaintiff: 9
• SP: Not required
Foss v Harbottle rule • Partnership: Optional
• Company: Optional
27

27

Company compared to Sole Proprietorship and Partnership

Transfer of interest & shares: Formalities, compliance &

12
• SP: By selling off business expenses
• Partners can assign share • SP: No compliance
with consent requirements
• Co: Shareholders generally • Partnership: no compliance
no need consent to sell. requirements. Except: client
Exception: Private Co has accounts to be audited
restriction on transfer. 10 • Co: must keep accounts,
registers, minutes. Hence incur
more costs and expenses
Disclosure of Financial Statements:
• SP and Partnership: No need
Audit & Secretary 13
disclose financial records or audit
SP: No need
accounts.
Partnership: no need unless
• Co: Must lodge Financial
agreement requires
Statements, and these are 11 Co: External Auditor & Secretary
available for inspection
28
28

14
Topic 1-The Corporate Form

Company compared to Sole Proprietorship and Partnership

Management and ownership 14 Ability to own property: 16

• SP: Owner manages alone • SP: Owner’s property same
• Partners: Equal management as business property
rights subject to agreement • Partners have
• Co: Management by directors. interest in partnership
Clear separation in public Co’s. properties
• Co: Members have no legal
or equitable claim on Co’s
property until liquidation.

Capital Contribution 15
• SP: Owner’s own capital & loan
• Partnership: Partners’ capital & Procedures on formation /
loans dissolution
• Company: Share capital and • SP and Partnership: simpler
loan capital • Company: Complex 17

29

29

Advantages and Disadvantages of a Company

 Unaffected by changes in  Many rules & regulations

members  Higher compliance costs
 Members have limited liability (Kos pematuhan 合规成本)
 Shares can be sold or  More exposed to public
transferred to others. scrutiny
 Two separate groups of people (Penelitian awam 公众监督)
(Board of Directors and General
Meeting): Each cannot make
decisions outside its powers
30

30

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Topic 1-The Corporate Form

“
Sources of Company Law,
Governing/Regulatory
Bodies

31

31

CWM 45-47
Sources of Company Law
Sumber-sumber 来源
Companies Case-law from Malaysia,
Companies
Regulations England and
Act 2016
2017 Commonwealth countries

Capital Market and Bursa Malaysia Listing

Services Act 2007 Requirements
(Main Market, ACE Market)

Malaysia Code on Malaysia Code on

Takeovers and Corporate
Mergers 2016 Governance 2021 Accounting
Standards
Code of Ethics For Code of Ethics For • MFRS
Company Directors Company Secretaries • IFRS
32

32

16
Topic 1-The Corporate Form

Governing / Regulatory Bodies

Badan pengawalseliaan / pentadbiran 监管机构

33

33

“
Classification of
Companies

34

34

17
Topic 1-The Corporate Form

CWM 52-60
Classification of Companies
Many ways to classify companies:

Liability of members: Public Status:

• Co limited by shares • Private Co (Sdn Bhd)
• Co limited by guarantee • Public Co (Bhd)
• Unlimited Co

Relationship with Place of Type of

other companies: incorporation: business:
• Holding/parent Co, • Local • Investment
• Subsidiary Co, company company
• subsidiary of the same • Foreign • Financial
holding company company institutions
(“sister” company), • Trust
• Associate Co company
35

35

CWM 52-60
Classification of Companies
s.10(1) Unlimited Co
Limited Co CA 2016 Syarikat liability
Syarikat liability terhad
tidak terhad
有限责任公司
无限公司
Co ltd by
Co ltd by shares guarantee Private Public
股份有限公司 担保有限公司 unlimited unlimited
Terhad oleh Syer Terhad oleh gerenti Co Co

Private Limited Co
Sykt Sendirian Public Limited Co
Berhad Syarikat Awam 上市公司
私人有限公司
Non-listed
Public-listed Co Public Co /
Some are Exempt Syarikat Awam tersenarai Public
private companies 上市公司 Unlisted Co 36

36

18
Topic 1-The Corporate Form


“
Company Limited by
Shares (CLBS)
 Company Limited by
Guarantee (CLBG)
 Unlimited Company
37

37

CWM 53-55
Company Limited by Shares
Terhad oleh Syer 股份有限公司
Liability if: Has a Share
• shares are not Capital
fully paid-up or 07 01 Modal saham股本
• there is “lifting of
corporate veil” Has “Bhd” as part
06 02 of its name
In a liquidation
(winding-up), Suitable for
member needs not 05 03 trading
contribute towards 04
Co’s assets to pay
liabilities. s.10(2): member’s Members’ liabilities:
Only loses all liability is limited to limited
investments the amount unpaid, if Company’s liabilities:
any, on his shares. unlimited 38

38

19
Topic 1-The Corporate Form

CWM 53-55
Company Limited by Shares
Terhad oleh Syer 股份有限公司

Star Wars
Enterprise
Sdn Bhd

Issued Share Capital: RM100,000/-

Each shareholder pays: RM25,000/-

Company’s debts: RM1 million

Company’s assets: RM500,000/-

How much must Kylo contribute? 25% of RM500K?

39

39

CWM 55-57
Company Limited by Guarantee
Terhad oleh gerenti 担保有限公司

No share capital Source of funding:

Subscribers’ initial
s.11(2): Must be a contributions,
Public Co members’ fees or
subscriptions,
s.10(3): Members’ grants, donations
liability - limited to
the amount they
guarantee to
contribute upon Usually not to conduct
liquidation business.
E.g. charities,
s.45(1): for recreation, research institutes,
amusement, promote professional or trade
commerce, industry, art, associations, schools,
science, religion, charity. clubs. 41

40

20
Topic 1-The Corporate Form

CWM 55-57
Company Limited by Guarantee
Terhad oleh gerenti 担保有限公司
s.45(2): Cannot s.31(1): Must have a
distribute dividends. Constitution
Profits to be used to
promote its objects It must contain:
• Objects of Company
(activities, business)
If liquidated,
• Co’s capacity, rights
assets to be
and powers
transferred to
• Number of members
another body
• Other matters
with similar
required by CA 2016
objects

• s.25(1): Name must end

s.45(4): To acquire and hold with “Bhd”.
land, need approval from • s.45(2): can apply to
Minister of Domestic Trade, Minister to omit “Bhd”
Co-operatives & Consumerism from its name
41

41

CWM 57, para 2.30

Examples of Co limited by guarantee
Utar Education Foundation

An agency under
42

42

21
Topic 1-The Corporate Form

CWM 57-59
Unlimited companies
Syarikat liability tidak terhad 无限责任公司
Major advantages: s.10(4): A Co
• Separate legal entity 07 01 where there is no
• Perpetual Succession limit on
members’ liability
06
Unlimited
An ideal purpose:
Companies 02 A company, but
To hold assets as members have
investment and 05 unlimited
divides the income 03 liabilities.
from assets 04
among members. s.25(1)(c): Its
name ends with
“Sendirian”
Rare for it to be a trading Co
since it faces stricter It can be either a
regulations as a Co private or a
compared to a partnership public company
43

43

CWM 59-60
Conversion from an unlimited company
to a limited company
• Unlimited to limited Co: Members Creditors

• Limited to an unlimited Co: Members Creditors

• s.40(1) – unlimited Co may convert to a limited Co by:

 Special resolution Ketetapan Khas 特别决议
 Lodge notice for conversion with the SSM.
 SSM’s issuance of notice of conversion.

• s.40(5) and (6) – No impact on Co’s identity, legal rights

and obligations.
• No provision to convert limited to an unlimited Co.
44

44

22
Topic 1-The Corporate Form

“
 Private Company
 Public Company
 Related Companies

45

45

CWM 60-66
Private Limited Company
Sykt Sendirian Berhad 私人有限公司
A public-listed s.42(1):
company (PLC) or a • A company
bank must be a limited by shares,
public Co: Why? 07 01 • not more than 50
shareholders,
Cannot invite the • may be
Private
public to deposit registered as a
money (melabur 06 Limited 02 private Co or
wang 投资的钱) with Co • change status to
the Co a private Co.
05 03 Must be a Co limited by
Cannot offer its shares or
debentures to the public
04 shares, cannot be a Co
limited by guarantee
s.42(2): Its constitution must Not more than 50 members.
contain restriction on transfer Joint holders (pemegang
of shares (pindahmilik syer 转让 bersama 联合持有人):
股份) counted as one 46

46

23
Topic 1-The Corporate Form

CWM 68
Private Limited Company
Sykt Sendirian Berhad 私人有限公司
Compulsory Conversion to a public Co If Co offers shares
or invite public to
s.42(4): When a private Co: deposit money:
• Ceases to restrict transfer of  No compulsory
shares conversion.
• Ceases to have a share  Liability under
capital s.43(5) - 5 yrs,
• Has more than 50 RM3million
shareholders
s.47(2): Co & every officer in
default deemed to commit an
offence. RM50K + RM500 for
each day the offence continues.

SSM serves notice that the It shall be a public Co, must

Co has cease to be a private comply with s.42(5)(c), i.e. lodge
Co from date of notice a statement in lieu of prospectus
47

47

CWM 64-66
Exempt Private Companies
Sykt Persendirian terkecuali 豁免民营企业
s.260: Certificate signed by
s.2: two conditions:
Director, Auditor and Secretary
• Not more than 20 members. confirming:
• All members must be • Co is an Exempt Private Co
individuals, • Audited Financial Statements
cannot hold shares on hv been circulated to members
behalf of a Co or LLP • Co able to meet its
(Co or LLP cannot liabilities as and when
be a shareholder) they fall due

Benefits: s.261: Certificate signed by

Auditor confirming whether:
• Exempted from filing
• Accounting records properly kept
Financial Statements & • Accounts hv been properly audited
reports with SSM. • Auditor’s report subject to any
• Can give loans or financial qualification/opinions
assistance to directors or • Whether Co able to meet its
persons connected. liabilities as and when due
48

48

24
Topic 1-The Corporate Form

CWM 66-68
Public Company
Syarikat Awam 上市公司
• Can have “Bhd” as s.2(1): A company other
part of its name if it is than a private company
a public limited Co
01
• Cannot have “Bhd” if 08 02 Can be limited by
shares,
it is a public limited by guarantee
unlimited Co. or unlimited Co
Public
Cannot have “Sdn
07 Company
03
Can have 1 to
Bhd” as part of its unlimited number
name - s.597(2). of members
06 04
Can invite the public to
05 Need not restrict the
transfer of shares
deposit money with it.
Can offer its shares or debentures
(Debentur 债券) to the public.
Comply with Capital Market and
Services Act 2007. 49

49

CWM 67
Public Listed Co
Syarikat Awam tersenarai 上市公司
Advantages:
Wider access to source of funds. • A public limited company.
PLC can raise much capital.
Ready market for shares. • Company limited by shares.
Investors have greater access to
information. • Companies listed on
6 1
Bursa Malaysia
Unlisted public Co or (Main Market or ACE
5 2 market)
Non-PLC) are those not
listed on Bursa Malaysia. • Its shares are quoted
4 3 and traded on Bursa
Malaysia.

Can issue shares to the

• Shares are traded by way of
electronic trading system, the public, by complying with
Central Depository System Bursa Malaysia Listing
(CDS) Requirements.
• No share certificates issued.
50

50

25
Topic 1-The Corporate Form

Public-listed Companies

51

51

Public unlisted Companies

• Public limited Company
• Limited by shares,
• Not listed on Bursa
Malaysia
Unlisted

Compare
with:
Listed

52

52

26
Topic 1-The Corporate Form

GLICs – Government linked Investment Companies

53

53

GLCs – Government linked Companies

http://www.axiata.co
m/investor/shareholdi
ng-structure
54

54

27
Topic 1-The Corporate Form

CWM 67-68
Differences Between Public Co & Private Co
01 Public company 02 Private Company

 Name cannot have Sdn  Name must have “Sdn”

Bhd before Bhd.
 Can offer shares to the  Cannot offer its shares to
public. Must publish the public. s.43.
prospectus first.  Must have restrictions on
 Not required to have transfer of shares. s.42.
restriction on transfer of
shares.
 Can invite public to deposit  Cannot invite public to
money deposit money.
 No limit on no. of members  Not more than 50 members
 Minimum 2 directors.  Minimum 1 director. s.196.
s.196.
55

55

CWM 67-68
Differences Between Public Co & Private Co
01 Public company 02 Private Company

 Members’ resolution  Members’ resolution can

(ketetapan决议) to be be passed through a
passed through a meeting. written resolution (no
s.290(2). meeting) or through a
meeting. s.290(2).
 Annual General meeting  Annual General Meeting
(Mesyuarat Agung is not required.
tahunan 年度股东大会)
is required. s.340

 Function – run large  Function – mostly

business operations SME’s, run family
business operations
56

56

28
Topic 1-The Corporate Form

CWM 68-69
Conversion from private to public and public to private
Penukaran 转变

Private Co “Going Public” Public Co

• Pass special resolution, follow procedure in s.41(2).

• Another way: Compulsory conversion under s.42(4) – where Co
fails to restric transfer of shares or has more than 50 shareholders

Private Co “Privatisation/taking private” Public Co

• Pass special resolution (Resolusi Khas 特别决议 )

• lodge notice for conversion
• SSM issues notice of conversion.

Effect of any conversion

 No impact on Co’s identity, legal rights and obligations.
 Legal proceedings may still be continued.
57

57

CWM 69, 73-75

Related Companies
Syarikat berkaitan 相关公司
Corporate Group or
Holding Co
Syarikat Induk Group of
控股公司 companies.

Subsidiary Co
Anak syarikat
子公司

“A number of companies which are associated by common or

interlocking shareholdings, allied to unified control or capacity or
control” – Walker v Winborne

s.7 – A Corporation is deemed related to each other if:

 It is a holding company
 it is a subsidiary company
 Both corporations are subsidiaries of the same holding Co.
58

58

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Topic 1-The Corporate Form

CWM 69-72
Holding and Subsidiary Companies
Holding or Syarikat Induk
Parent Co
Siakap Bhd 控股公司

Gelama Bhd Carrygo Sdn Bhd

Subsidiary Co Subsidiary Co
Anak syarikat 子公司 Anak syarikat 子公司

s.4: When a holding-subsidiary

relationship arises:
 Controls the board Mandap Bhd
 Controls >50% of voting powers
 Controls > 50% of issued shares Subsidiary Co
 Subsidiary of another subsidiary of Anak syarikat 子公司
the Holding Co
59

59

CWM 72-73
s.5: Ultimate Holding Companies
Syarikat induk muktamad 最终控股公司

Ultimate Holding
Company
Siakap Bhd

Gelama Bhd Carrygo Sdn Bhd

Subsidiary Co Subsidiary Co
Anak syarikat 子公司 Anak syarikat 子公司

Requirements:
- Ultimate Holding Co is a holding Mandap Bhd
company of another corporation.
- Ultimate Holding Co is not itself a Subsidiary Co
Anak syarikat 子公司
subsidiary of another corporation
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Topic 1-The Corporate Form

CWM 73
s.6: Wholly-owned Subsidiary
Anak syarikat milik penuh 全资子公司

Holding Co Nominee of Holding Co

100%
Penama 被提名人

100% 100% 100%

Wholly-owned
subsidiary
Another
wholly-owned 100%
100%
subsidiary of
the Holding
Co 100%
Nominee
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“
Lifting / Piercing the
Corporate Veil

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Topic 1-The Corporate Form

CWM 106-107
Exception to SLE & limited liability –
Lifting/Piercing the Corporate Veil
Menyingkap tirai perbadanan 揭开公司面纱
• SLE concept can be abused.
• E.g. fraudsters can commit fraud, or directors / members
can carry out wrongful deeds in the name of the Company.
• Thus, “Lifting the veil of incorporation”

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Lifting/Piercing the Corporate Veil

Menyingkap tirai perbadanan 揭开公司面纱
Statutory lifting of Lifting of
Corporate Veil Corporate Veil
(Statutory by Courts
Exceptions) (Judicial
Exceptions)

CWM 73-76

CWM 66-73
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Topic 1-The Corporate Form

CWM 107-117
Statutory Lifting of Corporate Veil
Pre-incorporation contracts
Fraudulent trading Kontrak sebelum pemerbadanan
Perdagangan secara 公司成立前的合同
fraud 01
欺诈性交易 Publication of Co’s
08 02 name and number
Penyiaran 发布
Wrongful trading
Perdagangan yang Statutory
salah 07 Lifting
03
Pengumpukan
错误的交易
(Peruntukan saham)
配股
Consolidated 06 04
Financial 05 Distribution of profits
Statements Pengagihan keuntungan
Penyata kewangan Financial Assistance to 利润分配
disatukan purchase shares
合并财务报表 Bantuan kewangan dalam
urusniaga syer 经济支援 65

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CWM 107-117
Statutory Lifting of Corporate Veil
Financial assistance to Pre-incorporation contract
purchase shares • s.65(1): a person who signs a
• s.123: Co cannot give financial pre-incorporation contract
assistance to help anyone to will be personally liable.
purchase shares in the Co itself
or its Holding Co. Publication of
• Co’s officers must company’s name:
compensate Co or • s.30(2): Co’s name
any person who and number must
suffers loss. be in business
documents. If not,
Co’s officers may
be sued.
Distribution of profits
Allotment of shares
• s.133(2): If directors pay • s.186: shares cannot be allotted unless minimum
cash dividends which subscription amount have been received within 4
exceed Co’s profits, months from the issue of prospectus.
directors will be liable to • Co must refund the money. If not, directors must
compensate Co. refund money with interest rate of 10%. 66

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Topic 1-The Corporate Form

CWM 107-117
Statutory Lifting of Corporate Veil
Fraudulent trading:
• s.540(1): When an officer caries Consolidated
on Co’s business with intent to Financial Statements
defraud creditors, he will be • s.247, 250:
personally liable for the Co’s Subsidiaries’ financial
debts. year ends must co-
8 6 incide with Holding
 Siow Yoon Keong v H.
Rosen Engineering BV
Co’s financial year
[1997] end
 Chin Chee Keong v • to enable
Toling Corporation S/B consolidated financial
[2016] statements to be
prepared.
7
Wrongful trading
• s.539(3), 540(2): When an officer knowingly allows Co to incur a debt
at the time when he has no reasonable expectation that the Co would
be able to repay, he commits a wrongful trading. Guilty of an offence,
personally responsible to pay that debt.
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CWM 111-114
Understanding wrongful trading and fraudulent trading

Star Wars
Enterprise
& Co

Slow business, bad debts, little assets and tight cash-flows

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Topic 1-The Corporate Form

CWM 107-117
Statutory Lifting of Corporate Veil
• s.101B Employment Act 1955: Misappropriation of money
Where a Co has committed an (penyelewengan 挪用金钱)
offence as an employer, • s.541: Promoter or officer who
those who are directors & misapplied or retained Co’s
managers at the time money or property must repay
of offence or return these
will be charged
11 9 money/property, in
together with the Co. the event the Co is
wound-up.

10

• s.46 Employees Provident Fund Act 1991

• s.108A Employees Social Security Act 1969
Those who were directors at the time when EPF and Socso were not paid,
and at the time when legal action is taken, will be liable with the Co.
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CWM 118-123
Lifting of Corporate Veil by Courts
Fraud or improper purpose
01 • Co is incorporated in order to
Public Policy (Dasar
Awam 公共政策) conduct any fraud (penipuan
If public policy (for the 骗局) or illegal / improper
interest of the society) purposes.
demands it, e.g. the Re Bugle Press Ltd [1960]
court will consider a
Co is an enemy Co if
its shareholders are Avoidance of
enemies. contractual or legal
03 obligations
Daimler Co Ltd v • Co is incorporated
Continental Tyre & 02 in order to avoid
Rubber Co Ltd [1916] an existing
• Jones v Lipman [1962] contractual or legal
• Gilford Motors Ltd v obligation.
Horne [1933] 70

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Topic 1-The Corporate Form

CWM 119-120
Lifting of Corporate Veil by Courts
04 Group of Companies
Generally, companies in a group are separate legal entities.
The People’s Insurance Co (M) v The People’s Insurance Co Ltd [1986]
Adams v Cape Industries PLC [1990]

Exceptions where companies

are one legal entity
Related companies Subsidiary is
operate as a single
i iii
only an agent
economic unit as it is under-
(satu unit ekonomi capitalized
单一经济单位) ii Re FG Films
DHN Food Where a statutory provision protect a
Distributors Ltd v selected class of persons, a Holding Guidelines
Tower Hamlet Co can be held liable for its
London Borough subsidiary’s actions
Council of [1976] Hotel Jaya Puri Bhd v Hotel, Bar &
Restaurant Workers [1980] 71

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Lifting of Corporate Veil by Courts

04 Group of Companies

Smith, Stone & Knight Ltd v Birmingham Corporation [1939]

Guidelines to determine agency relationship

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Topic 1-The Corporate Form

Other methods apart from Lifting of Veil

Apart from lifting the corporate veil, how can creditors protect
themselves?

They can make some people responsible for the Co’s debts &
obligations by signing a contractual agreement. E.g.

Members or directors give a A Holding company gives a

personal guarantee corporate guarantee
Jaminan peribadi 个人保证 Jaminan korporat 公司保证

Company Company

Members Holding
or Directors Company
Syarikat Induk 控股公司 73

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Companies are responsible for employees’ actions on

work-related or official matters. But what if an employee’s
action is done in his/her own personal capacity?

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