Tutorial Questions ABBL3144 Corporate Law & Governance

TUNKU ABDUL RAHMAN COLLEGE

DIPLOMA IN BUSINESS STUDIES

CORPORATE LAW & GOVERNANCE

Tutorial 1

1. What is a company?

Company means a company incorporated under this Act or under any corresponding
previous written law; (Section 2 Companies Act 2016)

Every company has certain basic elements:

o A name which has been reserved by the Registrar of Companies.

o A registered office where the company records are kept.
o An address for service where legal documents can be served.
The very foundation of company law is that:
▪ A company is regarded as an artificial legal person.
▪ It is a body corporate being separate from its members.
▪ Case: Salomon v Salomon & Co Ltd [1897].

2. What are the consequences of incorporation?

• It has a separate legal identity distinct from its members (the veil of incorporation). - S
20 CA 2016

• 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-S 21(1) CA
2016

• It can sue and be sued in its own name - Foss v Harbottle & S 21(1)(a) CA 2016

• It has the ability to own properties distinct from the property of its members - Macaura
v Northern Assurance Co. Ltd. & S 21(1)(b) CA 2016

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• Once incorporated, the Company is now a body corporate with powers to do any act which
it may do or to conduct business transactions. It can enter into contracts with anyone
including its members – Lee v Lee’s Air Farming & S 21(1)(c) CA 2016

• The company as a general rule is responsible for its own debts - Salomon v Salomon &
Co Ltd and Fairview Schools Bhd v Indrani Rajaratnam & Ors [1998].

• It enjoys perpetual succession, meaning the corporation’s existence continues until it is

dissolved by a legal process e.g., upon winding up or due to illegality – Re Noel Tedman
& S 20(b) CA 2016

3. What is meant by limited liability?

Limited liability is a type of liability that does not exceed the amount invested in a
partnership or limited liability company. Liability of the members is limited to the
amount unpaid on the shares held. No further liability if the shares are fully paid.

4. Explain how the company is classified according to the liability of its members.

Unlimited Companies
• Usually, the primary liability is the liability of the company, only when the
company cannot pay its debts, then the members are fully liable.
• There is no limit on the liability of its members. S10(4) CA 2016
• Uncommon kind of company.
• According to S11(3), an unlimited company shall either be a public or a private be a
company.

Companies limited by shares

• Liability of the members is limited to the amount unpaid on the shares held- S10(2)
CA 2016. No further liability if the shares are fully paid.
• According to S11(1), a company limited by shares shall be a private or a public
company.
• This is the most common type of company being incorporated.
• Formed on the principle of having the liability of its members limited by the
memorandum to the amount (if any) unpaid on the shares respectively held by them.

Companies limited by guarantee

• Section 10 (3) – where liability of members is limited to the amount that a member
undertakes to contribute in the event of winding up.
• S11(2)- A company limited by guarantee shall be a public company.
• Not very common. Used for non-trading associations and clubs – usually for non-
profit making organizations. Example – Tun Hussein Onn Eye Hospital

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5. What are the advantages of an exempt private company?

Section 260(1) - An exempt private company may lodge with the Registrar for each
financial year a certificate relating to its status as an exempt private company in lieu of
the financial statements within thirty days from the circulation of the financial statements
and reports.

May lend money to its directors or any person connected with its directors –Section
224(2)(a) & Section 225(1)

6. Describe the characteristics of a private company and a public company.

Public Company

Defined in Section 2 CA 2016 as a company other than a private company.

• Name of limited company ends with ‘Berhad’ or ‘Bhd’.

• May raise capital from the public.
• No limit in the number of shareholders (members).
• Shall have a minimum of one member and two (2) resident directors.

Private company

• Section 2 defines a private company as:

(a) any company which immediately prior to the commencement of the 2016 Act was a
private company under the repealed written laws; (any company which was a private
co. under the CA 1965)

(b) any company incorporated as a private company under the Companies Act 2016 Act;

(c) any company converted into a private company pursuant to S 41 of the 2016 Act,

being a company which has not ceased to be a private company under section 42.

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Characteristics of a private company

➢ Name of company ends with Sendirian Berhad OR Sdn Bhd

➢ Section 42(1)
having not more than 50 shareholders

➢ Section 42(2)
Transfer of shares is restricted.

➢ Section 43(1)
• Shall not offer any shares or debentures of the company to the public or
• allotting or agreeing to allot any shares or debentures of the company with the view to
offer such securities to the public
• invite the public to deposit money with the company

7. Disadvantages of Incorporation:
o Must comply with many formalities required by the Companies Act 2016
o For public companies, all company’s affairs and finances must be disclosed.
o Expensive to incorporate and maintain.
o The rules on maintenance of capital must be strictly complied

8. Distinguish between a company, partnership, and a sole proprietorship.

CHARACTERISTIC SOLE CONVENTIONAL COMPANY

PROPRIETOR PARTNERSHIP

Public :
MAXIMUM NUMBER OF MEMBERS 1 20 unlimited
members
Private:
50 members

LEGAL STATUS
No separate No separate Company is
legal entity legal entity separate from
its members
(except
unlimited co)

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TRANSFERABILITY OF Can sell and Interest can be Public co.:

SHARES/INTEREST/OWNERSHIP/ASSETS transfer the transferred subject Shares can be
assets of the to freely
business to a consent of partners transferred
new owner.
Private co. :
There are
restrictions in
transferring
the shares

LIABILITY Unlimited Unlimited Mostly limited

liability liability liability, but
depends on
the type of
company as
well.

PERPETUAL No perpetual No perpetual Has perpetual

SUCCESSION succession succession succession

REGISTRATION Registration of Registration of Companies

Business Act Business Act 1956 Act 2016
1956

Managed by Managed by Managed by

MANAGEMENT sole trader partners the Board of
himself Directors

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