Tutorial Questions ABBL3144 Corporate Law & Governance

TUNKU ABDUL RAHMAN COLLEGE

DIPLOMA IN BUSINESS STUDIES

CORPORATE LAW & GOVERNANCE

(For Students Use Only)

Tutorial 2

1. What important rule of company law was established in the case of Salomon v
Salomon & Co. Ltd?

Answer:

The important rule of company law was established in the case of Salomon v Salomon
& Co. Ltd is the veil of incorporation. A company is a separate legal entity. It means
that a company is a distinct legal person entirely different from the shareholders of the
company. Therefore, the liabilities owed by the company can only be responsible by
company itself and not responsible by the members of the company.

2. Discuss with reference to relevant cases the situations in which the veil of
incorporation may be lifted by the courts.
Answer:
The first relevant cases in which the veil of incorporation may be lifted is Jones v Lipman. In
this case, the courts found that the company was a sham and be used by defendant for the
purpose of evading the agreement with the plaintiff. Therefore, the veil of incorporation was
lifted.

The second relevant cases in which the veil of incorporation may be lifted is Gilford Motors
Company v Horne. According to this case, the veil of incorporation was lifted because the new
company set up by the defendant was a mere that allowing defendant to against his contractual
obligation with plaintiff before.

The third relevant cases in which the veil of incorporation may be lifted is Smith, Stone &
Knight Ltd v Birmingham Corporation (1939). The veil of incorporation may be lifted by the
courts from this case is because the courts held that there is agency relationship between the
subsidiary company and the parent company. In fact, the defendant was required to pay
compensation to the plaintiff.

The fourth relevant cases in which the veil of incorporation may be lifted is Hotel Jaya Puri Sdn
Bhd v National Union Bar & Restaurant Workers. From this case, the courts held that the
plaintiff and the defendant was inter-dependent because numbers of senior management such as
managing director and secretary were common to both the holding and subsidiary company.
Therefore, the plaintiff had to responsible for the compensation because of the demand of
justice.
3. Romeo and Juliet wish to start a business manufacturing dolls. They have an initial capital of
RM 10,000 but they estimate that the business would require RM 50,000. Friends and
relatives are willing to invest in this business but Romeo and Juliet wish to be in control in
terms of decision making and voting power. They have plans to export the dolls to Singapore
possibly within two years of operation. They seek your advice on the following matters:

a) What form of business structure would be appropriate for this type of business? Give
reasons for your answers.
Answer:
The form of business structure would be appropriate for this type of business is
private company limited by shares. Their friends and relatives can invest in their
business to raise capitals. Besides that, private company limited by share able to own
property or enter into contract on its own name. It also has perpetual succession and
can sue or be sued by others.

b) Is it true to say that Romeo and Juliet will never be personally liable for the debts of the
business in the event that they form a limited company?
Answer:
Yes, they will never be personally liable because the company is limited liability because
the liability is limited to the amount of unpaid share held. However, based on Section 540
(1) of Companies Act 2016 stated, if there is any business carried out by the company was
with the intention to defraud creditors or for any fraudulent purpose founded by the courts,
the person who were knowingly the parties to conduct the business shall be personally
liable for the liabilities of the company. Therefore, it may have the possibility in lifting of
veil of incorporation.

c) When they expand their business in two years’ time and more capital is required how
should they proceed?
Answer:
They can choose to convert their private company to public company for raising more
capital from the public. The numbers of shareholders of the public company are unlimited,
then they are freely to issue the shares to the public in order to raise funds for expanding
their business.

4. Explain the statutory exceptions in lifting the corporate veil of incorporation.

Answer:
According to Section 540 (1) of Companies Act 2016, if there is any business carried out by
the company was with the intention to defraud creditors or for any fraudulent purpose
founded by the courts, the person who were knowingly the parties to conduct the business
shall be personally responsible for the liabilities of the company.

5. Can a company adopt a constitution?

Answer:
Under section 32(1) of Companies Act 2016 mentioned that the company may adopt a
constitution for the company and the adoption of constitution should be accept by the way
of special resolution.

6. Which types of company must adopt a constitution?

 Answer:
The types of company must adopt a constitution is the company limited by guarantee stated
in Section 31(1) of Companies Act 2016. From this section, a company limited by guarantee
shall have a constitution.

7. What are the contents of a constitution? (Include section)

Answer:
According to the Section 35(1) of Companies Act 2016, the constitution of a company may
include provisions relating to the objects of the company. The capacity, rights, power or
privileges of the company must include in the contents of constitution if the provision
restricted. The matters contemplated by this Act and any other matters that the company
wishes to include in the constitution.

8. What is a notice of registration under the Companies Act 2016? (certificate)

Answer:
From Section 19 of Companies Act 2016, a notice of registration is evidence required by
the Act. It is the evidence about the registration and matters precedent and incidental to
such registration have been complied with and that the company is duly registered under
this Act.

The Registrar will issue a certificate of incorporation in the form and it is a manner as the
Registrar may determine when an application by a company and on payment of a prescribed
fee mentioned in Section 17 of Companies Act.

9. What are objects of a company limited by guarantee?

Answer:
The objects of a company limited by guarantee is stated in Section 45(1) of Companies Act
2016 which are:
– providing recreation or amusement;
– promoting commerce and industry;
– promoting art;
– promoting science;
– promoting religion;
– promoting charity;
– promoting pension or superannuation schemes; or
– promoting any other object useful for the community or country