Effect of Incorporation 2020 PDF

Effect of Incorporation Separate legal entity Ability to own property Ability to incur its own liability Ability to sue and be sued Perpetual succession  Effect of Incorporation S.20 - A company incorporated under this Act is a body corporate and shall— (a) have...

Effect of Incorporation Separate legal entity Ability to own property Ability to incur its own liability Ability to sue and be sued Perpetual succession  Effect of Incorporation S.20 - A company incorporated under this Act is a body corporate and shall— (a) have legal personality separate from that of its members; and (b) continue in existence until it is removed from the register  Sec 21. (1) A company shall be capable of exercising all the functions of a body corporate and have the full capacity to carry on or undertake any business or activity including— – (a) to sue and be sued; – (b) to acquire, own, hold, develop or dispose of any property; and – (c) to do any act which it may do or, to enter into transactions.  (1)Separate Legal Entity The company is a legal person (artificial) having a distinct entity from its members Cases: Salomon v Salomon Lee v Lee’s Air Farming Hew Sook Ying v Hiw Tin Hee @ Hew Hee People’s Insurance Co (M) Bhd  Salomon v Salomon Facts: S owned a sole proprietorship. Later incorporated a company. Business was transferred to the company. Shares were given to wife and sons. Subsequently the company went into liquidation. There was not enough assets to pay the unsecured creditors, thus the liquidator sued Salomon.  Salomon v Salomon Trial court and COA: S was liable.Agency principle applied. HOL: Incorporation of a company created a separate person. The company was not an agent or trustees for the members. Members were not liable in respect of the company’s obligation.  Salomon v Salomon Lord MacNaghten: The company is at law a different person altogether from the subscriber to the memorandum & though it maybe that after incorporation the business is precisely the same as it was before & the same persons are managers & the same hands receive the profits, the company is not in law the agent of the subscriber or trustee for them.  Lee v Lee’s Air Farming Ltd F: Lee formed company – spreading fertilizers from the air. Held all the shares except one. A director and also an employee –chief pilot. Later Lee was killed in an aircraft crash. His wife sued for compensation. Issue: Lee - a worker or an employer. Privy Council: Lee was a worker /employee and compensation should be paid to the widow.  People Insurance Co(M) Bhd H: Resolution of the BOD of a subsidiary does not bind the parent company. Zakaria J: The plaintiff Company(subsidiary) is a legal entity by itself. Although it is a subsidiary of the first defendant company, the plaintiff company maintained its own separate entity  (2) Ability to own property A company can own property in its own name. Cases: Macaura v Northern Assurance Co Ltd Abdul Aziz b. Atan Perman Sdn Bhd & Ors v European Commodities Sdn Bhd & Anor  Macaura v Northern Assurance F: M was an owner of a land which produced timber. Sold all the timber to a company incorporated by him. He took up an Insurance for the timber in his own name. Later the timber was destroyed by fire and Macaura claimed under the insurance policy. HOL : M had no insurable interest in the timber – it belonged to the company , not M.  Abdul Aziz b. Atan F: All the shareholders of the company had transferred their entire shares to a certain buyer. Issue: Whether the land which was the main assets of the company was also sold. H: An incorporated company is a legal person, separate & distinct from the shareholders of the company. In the present case the company did not change its identity or personality. It continued to own all its assets. (3)Ability to incur its own liability Liability of a company is unlimited. Liability of members is limited , depends to the type of company i.e. limited by shares or limited by guarantee. Cases: Re Application By Yee Yut Ee Salomon v Salomon  Re Application By Yee Yut Ee F: Yee was a secretary of a company. The company retrenched its staff and matters concerning retrenchment benefit was referred to Industrial Arbitration Court, which had ordered an award. Meanwhile, Yee was appointed as a director and when the company failed to comply with the award ,an action was made against Yee. H: A director is not liable for the debts of an incorporated company  (4)Ability to sue and be sued A company can sue and be sued in its own name Any wrong done to the company, only the company can take action Cases: Foss v Harbottle Abdul Manaf Mohd b Ghows & Ors 3 MLJ 661 Semesta Insurance 3MLJ 379  Foss v Harbottle F: Shareholders of a company brought action against the company’s directors – alleging misapplication of the company’s property. H:The injury was an injury to the company. In law, the company and its members are separate entities. Thus it was the company who should take action/sue. Abdul Manaf Mohd b Ghows & Ors v Nusantara Timur Sdn Bhd & Ors 3 MLJ 661 F: Shareholders of a company sold their shares to Nusantara Timur, which later defaulted in payment. The shareholders alleged that the directors of NT should be liable. H: The fact that the agreement was executed by the second and third respondents as directors of NT does not make them personally liable. NT is solely liable as the contracting party  (5)Perpetual succession A company shall exist until properly wound up or struck off from the register. It’s life span does not depend on the life of its members. Cases: Re Neol Tedman Abd Aziz Atan  Re Neol Tedman Holdings Pty Ltd F: H & W were the only shareholders and directors of company – died. Left an infant child. H: The personal representative of the deceased members should appoint directors,so that the new directors could assent the transfer of the shares to the beneficiary.