Effect of Incorporation in Company Law


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Effect of Incorporation in Company Law

  1. 1.       Effect of incorporation Separate legal entity Ability to own property Ability to incur its own liability Ability to sue and be sued Perpetual succession
  2. 2.   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.
  3. 3.   The company is a legal person [artificial] having a distinct entity from its members Cases: Salamon v Salamon Lee v Lee‟s Air Farming Hew Sook Ying v Hiw Tin Hee @ Hew Hee People‟s Insurance Co (M) Bhd
  4. 4.  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.
  5. 5.     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.
  6. 6.   Lord MacNaghten: 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.
  7. 7.   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
  8. 8.   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”
  9. 9.   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.
  10. 10.  A company can own property in its own name  Cases: Macaura v Northen Assurance Co Ltd Abdul Aziz b. Atan
  11. 11.   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.
  12. 12.  F: All the shareholders of the company had transferred their entire share to a certain buyer. Issue: Whether the land which was the main assets of the company was also sold
  13. 13.  Held: 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.
  14. 14.  Refer Macaura‟s „…a company is a separate person from its shareholders. The latter have no interest, legal or beneficial over the property of the former.‟
  15. 15.  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 Salamon v Salamon
  16. 16.  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.
  17. 17.   A company can sue and be sued in its own name Any wrong done to the company, only the company can take action
  18. 18.   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.
  19. 19.   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:   Real Neol Tedman Abd Aziz Atan
  20. 20.   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.
  21. 21.  H: The identity of a company independently of any change shareholdings of a company. remains in the