Question 3

3.1 Issue

The Issue of this case is whether Mr. Lee should sue Ah Chong or Jaya Sdn Bhd to
recover part or all of his outstanding money in accordance with Malaysian company law.

3.2 The meaning of Company

A company, is a legal entity made up of an association of people, be they natural, legal,

or a mixture of both, for carrying on a commercial or industrial enterprise. Company
members share a common purpose, and unite to focus their various talents and organize
their collectively available skills or resources to achieve specific, declared goals. A
company or association of persons can be created at law as a legal person so that the
company in itself can accept limited liability for civil responsibility and taxation incurred
as members perform (or fail to discharge) their duty within the publicly declared "birth
certificate" or published policy. Companies as legal persons may associate and register
themselves collectively as other companies – often known as a corporate group. When a
company closes, it may need a "death certificate" to avoid further legal obligations
(Wikipedia, n.d.).

3.2.1 Separate Legal Personality

A Company acquires corporate status upon registration under the Companies Act with the
registrar of companies. Section 15(1) provides that upon registration a company must be
given a certificate as proof of incorporation. By incorporation it means a company
becomes a corporation or body corporate. A corporation is an artificial person in law
distinct from its members (Shareholders and employees) with the power to sue and be
sued, enter into legal and contractual relationships, acquire property etc. One distinct
feature of a corporation is its distinct legal personality which is different from its
members. By this members are exempted from personal liability. However, in certain
circumstances the law will deny the corporate status and hold a person (director, agent)
liable or accountable (Lawteacher, 2018).
The case of Salomon v A. Salomon & Co. Ltd established the principle of “separate legal
personality” as was provided in the Companies Act of 1862 and as it is still provided in
the Companies Act of 2006 under the United Kingdom Company Law. In this case Mr
Salomon a shoe manufacturer had sold his business to a limited liability company where
he and his wife and five children where the shareholders and directors of the company (to
comply with the Companies Act of 1862 which required a minimum of 7 members). Mr
Salomon owned 20,001 from the 20,007 shares of the company with the remaining 6
shared equally amongst his wife and children. The company ran into some financial
difficulties and sort a loan of £5,000 from one Mr Edmund Broderip who granted the loan.
Subsequently the company went into more financial difficulties and was unable to pay its
debt of which an action for liquidation was carried out against it. When Mr Edmund’s
failed to realise his unsecured loans he instituted an action claiming for Mr Salomon’s
personal liability. The High Court and Court of Appeal held Mr Salomon liable. Upon
appeal to the House of Lords, it overturned the decision arguing that a company had been
duly created and cannot be deprived of its separate legal personality. In the course of this
essay certain exceptional situations have developed over time through statutory and
judicial decisions where the court will disregard the corporate status and go after natural
person(s) (Law, 2013).

3.3 Type of Companies

Companies can be classified into different types based on their mode of incorporation, the
liability of the members, and number of the members. The most common types of
companies are companies limited by shares, companies limited by guarantee, unlimited
companies, royal chartered companies, statutory companies and others. Companies
limited by shares, companies limited by guarantee and unlimited companies are the
companies which based on the liability of the members (Das, 2019).

A company is limited by shares if the liability of its members is limited to the amount, if
any, unpaid on shares held by the members (Section 10(2), CA 2016). A company limited
by shares can either be a private company or a public company (Section 11(1), CA 2016).
A company is limited by guarantee if the liability of its members is limited to such
amount as the members undertake to contribute in the event of its being wound up
(Section 10(3), CA 2016). A company limited by guarantee shall be a public company
(Section 11(2), CA 2016). A company is an unlimited company if there is no limit on the
liability of its members. An unlimited company shall either be a private company or a
public company (Section 10(4) and Section 11(3) of the CA 2016) (Ong, 2017).

A private company is defined under Section 2 of the CA 2016 as:

Any company which immediately prior to the commencement of the CA 2016 was a
private company under any corresponding previous written law; any company
incorporated as a private company under the CA 2016; or any company converted into a
private company under Section 42 of the CA 2016 (Ong, 2017).

A public company is defined under Section 2 of the CA 2016 as a company other than a
private company (Ong, 2017).

REFERENCES

Wikipedia. (n.d.). Company. Retrieved from : https://en.wikipedia.org/wiki/Company

Das, S. (2019). Types of Companies. Retrieved from : https://www.feedough.com/types-of-

companies/

Ong, K. (2017). Classification of Company. Retrieved from :

https://hhq.com.my/new/article/classification-of-companies/

Teacher, L. (2013). https://www.lawteacher.net/free-law-essays/company-law/separate-

legal-personality.php