Transcript of "Effect of Incorporation in Company Law "
Effect of incorporation
Separate legal entity
Ability to own property
Ability to incur its own liability
Ability to sue and be sued
Sec 16 (5)
…a body corporate…exercising all the
functions of an incorporated company of
suing and being sued and having perpetual
succession….with power to hold land.
The company is a legal person [artificial]
having a distinct entity from its members
Salamon v Salamon
Lee v Lee‟s Air Farming
Hew Sook Ying v Hiw Tin Hee @ Hew Hee
People‟s Insurance Co (M) Bhd
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 Salamon.
Trial court and COA:
S was liable. Agency principle applied
HOL : Incorporation of a company created a
The company was not an agent or trustees for
the members. Members were not liable in
respect of the company‟s obligation.
The company is at law a different person
altogether from the subscriber to the
memorandum & though it maybe that after
the 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.
F: Lee formed company-spreading fertilizers
from the air. Held all the shares except one. A
director and also an employee-chief pilot.
Later Le was killed in an aircraft crash. His
wife sued for compensation.
Issue: A worker or an employer
Hj Mohd Azmi SCJ:
“It is a well establish principle of law that a
limited company incorporated under the
Companies Act & individuals forming the
company are distinct legal entities”
H: Resolution of the BOD of a subsidiary does
not bind the parent company.
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.
A company can own property in its own name
Macaura v Northen Assurance Co Ltd
Abdul Aziz b. Atan
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-belonged to the company, not M.
F: All the shareholders of the company had
transferred their entire share to a certain
Issue: Whether the land which was the main
assets of the company was also sold
An incorporated company is a legal persons,
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.
„…a company is a separate person from its
shareholders. The latter have no interest, legal
or beneficial over the property of the former.‟
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.
Re Application By Yee Yut Ee
Salamon v Salamon
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.
A company can sue and be sued in its own
Any wrong done to the company, only the
company can take action
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.
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
Real Neol Tedman
Abd Aziz Atan
F: H & W were the only shareholders and
directors of company-died. Left an infant
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.
H: The identity of a company
independently of any change
shareholdings of a company.
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