Topic 1oumvle.oum.edu.my/oumvle_upload/blockmain/BBUS2103...2 TOPIC 1 INTRODUCTION TO COMPANY LAW the company. The motive of the person/persons behind the formation of a company is

� INTRODUCTION

The first topic of this module introduces you to Company Law. You will begin by looking at the scope and development of Modern Company Law. It is important to identify the main sources of company and the introduction to the Companies Act 1965. The decision in dealing with the most appropriate form of business association is most important. The area of discussion will be on types of business entities and distinctions between the forms of organisations. The registration of different types of companies and the changing of status is allowed by the Companies Act. The legal characteristic of a company allows it to undertake activities in its own right and to sue and be sued in its own name. The separate legal personality characteristic and their implications will be discussed. Although a company is regarded as a person, unfortunately unlike humans, it cannot operate itself as it acts only through agents, either by expressed or implied. The agency principles must be used whenever we wish to attribute responsibility for a contract. The motive behind the formation of a company is relevant. This is because of the way the law treats certain activities carried out in

TTooppiicc 11 � Introduction to Company Law

By the end of this topic, you should be able to:

1. List the types of business entities and its distinctions;

2. Identify the various forms of companies and the changing of status;

3. Discuss the doctrine of separate legal personality and lifting of the veil of incorporation;

4. Describe the agency principles related to company law; and

5. Evaluate the duties of a promoter and the pre-incorporation contracts.

LEARNING OUTCOMES

� TOPIC 1 INTRODUCTION TO COMPANY LAW 2

the company. The motive of the person/persons behind the formation of a company is important.

DEFINITION OF A "COMPANY"

A company is:

� A "corporation" - an artificial person created by law.

� A human being is a "natural" person.

� A company is a "legal" person.

A company thus has legal rights and obligations in the same way that a natural person does. The function of a company in a legal sense is to hold property and carry on a business or other activity, as an entity separate from the participants (investors, managers) in that business or activity. Most corporations that are used to carry on business in Malaysia are "companies," that is, corporations incorporated or treated as being incorporated under the CCompanies Act 1965 (referred to as CCA 1965 hereinafter).

1.1.1 Development of Modern Company Law Company Law in Malaysia has evolved from the English principles of company law. Most of its fundamental principles are of English origin. In order to appreciate the fundamental principles governing Malaysian Company law, one must understand how company law was first developed in the United Kingdom and how these principles became the core principles of Modern Company Law. The concept of registered company was born during the mid-nineteenth century and as such, company law is a comparatively modern legal phenomenon. Nevertheless, prior to the mid-nineteenth century, business associations existed in such a form as to warrant them being properly described as ancestors of and necessary catalysts to our present system of company law. Figure 1.1 illustrates the development of modern Company Law.

1.1

What is the purpose of setting up a company and why is it so important to set up a business?

ACTIVITY 1.1

TOPIC 1 INTRODUCTION TO COMPANY LAW �

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Figure 1.1: Development of Modern Company Law (a) The Chartered Company

Chartered joint stock companies were developed in the seventeenth century, largely as a result of the expansion in the world shipping trade. A joint stock company was an association of members whereby each member contributed capital towards specific trade ventures. The joint company was a sophisticated form of partnership concern, created by royal charter. The charter often provided the association with monopolistic rights in specific trades. The company was also deemed to have a separate legal entity, although unless specifically provided for in the charter, the memberships of such companies were devoid of any form of limited liability. A member of a company would take shares in the company in proportion to his initial contribution towards the companyÊs stock. The growth in joint stock companies mirrored an expansion in the number of share dealings. In 1711, South Sea Company was founded; the objective was to obtain a monopoly of trade with the colonies in South America. The surge of confidence in the South Sea shares resulted in a general that increased in share dealings and speculative boom in the general value of share prices of other companies. Unfortunately, many companies with dubious corporate objectives, many of which had been formed by purchasing chatterers of long extinct companies, thrived as a result of the general acceptance by naive investors that a company share could do nothing but escalate in value.

A collapse in the markets was inevitable, fraudulently conceived companies were prosecuted, members of the government who has been involved in the share dealings fell from grace and Parliament, in an attempt to curb the improper use of the corporate form, passed the so-called Bubble Act 1720.


The objective was to prohibit the promotion and operation of Âdangerous and mischievous undertakings and projects, wherein the undertakers and subscribers have presumed to act as if they were corporate bodiesÊ. The south sea bubble episode was the first speculative boom and crash in British history although it was certainly not to be the last. (b) Unincorporated Associations

The nineteenth century witnessed an increase in the number of companies created by individual Acts of Parliament. Such companies were basically large trading concerns; the expense of incorporating by this method was extremely prohibitive of smaller business ventures. The principal disadvantage of the unincorporated association was that the members of these businesses did not have limited liability. In addition, the legality of the right of members to transfer shares freely in the associations remained undoubtedly questionable under the provisions of the BBubble Act, an Act that was not repealed until 1825.

(c) The Joint Stock Companies Act 1844

The Joint Stock Companies Act 1844 gave birth to the first form of registered company. This allowed a company to be incorporated by a registration procedure as opposed to incorporation by royal charter or by an individual Act of Parliament. This Act also created the RRegistrar of Companies with whom particulars of registered companies had to be lodged. Despite the creation of the registered company, the 1844 Act did not confer limited liability on the membership of these companies.

(d) Limited Liability

The Limited Liability Act was passed in 1855. This Act allowed companies with at least 25 members, each holding shares to the minimum value of £10 with at least one-fifth fully paid up on the share to incorporate with a limited liability status. The 1855 Act was incorporated into the JJoint Stock Companies Act 1856. This Act required a company to have and registered constitutional documents (memorandum and articles of association). It removed the restriction relating to the minimum amount of capital to be contributed by members of a company and also reduced the minimum number of members required for the purpose of incorporation from 25 to 7 members. The companies legislation was consolidated into the Companies Act of 1862. This act introduced companies limited by guaranteed and unlimited companies. Since then, English Company law has consistently undergone a


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series of review and consolidations that ultimately lead to the passing of the English Companies Act 1948 and then Companies Act 1985. It has continued to grow since the United Kingdom inception into the European Union in 1972.

1.1.2 Company Law in Malaysia Sources of Company Law in Malaysia consists of Legislation, Common Law, and Self Regulation as explained in Table 1.1.

1.1.3 The Companies Act 1965 The Act came into force in April 15th 1965. The purpose of the Act was to consolidate as well as amend the law pertaining to companies in Malaysia. In view of the historical relationship with Australia and United Kingdom, the judicial pronouncements on the interpretation of their respective companyÊs legislation are highly persuasive in interpreting the equivalent Malaysian provisions. The function of the Act can be seen as an enabling function and regulatory function. S5(1) of the CCivil Law Ordinance 1956 provides that: In all questions or issues which arise or have to be decided in the States of�with respection to the law of partnerships, corporation, banks and banking�. The law to be administered shall be the same as would be administered in England in the like case at the date of the coming into force of this ordinance, if such question or issue had arisen or had to be decided in England, unless in any case other provision is or shall be made by any written law.

Source of company law are explained in Table 1.1

Table 1.1: Sources of Company Law

Sources Explanation

Legislation CA 1965 and its accompanying regulations ((Companies Regulations 1966). In addition to this Act, the other legislation includes the SSecurities Commission Act 1993, the Pengurusan Danaharta National Berhad Act 1998, Securities Industry (Central Depositories) Act 1991 and the Companies Commission of Malaysia Act 2001. This module will be primarily concerned with the CA 1965 (here in after referred to as the „The Act‰ and sections referred to in this module refers to the Act unless stated otherwise.


Common Law The act is not a code and reference are made to the common law for guidance. SS131 (8) state that

„this section shall be in addition to and not in derogation of the operation of any rule of law.‰

Such sections must be read in conjunction with case law, which assists in the interpretation of the legislation.

Sell-Regulation Self-regulatory principles strictly speaking is not law but is particularly relevant in the areas of company listing and measures taken to enhance corporate governance.

In the cases of Re Low Nai Brothers & Co; and Syarikat Import and Export & Perindustrian Timbering Sdn Bhd v Othman bin Taib, it was held by the High Court that English and Australian law could be imported into Malaysian Law. However, in the case of TTan Mooi Liang v Lim Soon Seng & Ors [1974] 2 MLJ 60, the Federal Court declined to accept this practice. Note: Federal Court dealt with the Law of Partnership while the High Court dealt with specific provisions of the Act.

1.1.4 Content of the Companies Act The Companies Act is an extremely long and complicated statute with over 374 sections and 12 parts and nine schedules. The parts are as illustrated in Figure 1.2.

Figure 1.2: Content of the Companies Act

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BUSINESS ENTITIES IN MALAYSIA Any person who wishes to embark on any business venture in Malaysia must register either under the Registration of Business Act 1956 or the CA 1965. The Registrar of Companies and Registrar of Business administer both the Acts.

The types of business structures are as follows:

� Sole proprietorship

� Partnership

� Limited companies

� Unincorporated associations

Foreign investors could not register as the sole proprietors and partnership, and therefore, any foreign investor coming to Malaysia must make use of a limited company as his business vehicle.

FUNDAMENTAL DISTINCTIONS BETWEEN THE COMMON FORMS OF ORGANISATIONS (SOLE TRADER, PARTNERSHIP AND COMPANY)

1.3.1 Sole Proprietorship

The advantage of this form of business is that there are fewer formalities in terms of its formation and registration. The sole proprietor is the taxpayer and the business' losses or profits can be offset against the proprietor's other income.

Surf the following website: www.mgi.aljeffri.com

1.2

1.3


1.3.2 Partnership

However, usually the terms of the agreement between partners are recorded in a formal legal document referred to as a "partnership agreement". Unless otherwise provided in the partnership agreement, whether specifically or impliedly the Partnership Act 1961 will apply.

1.3.3 Why is Partnership Popular? Advantages of the firm as a form of business enterprise.

(a) Partnership can be formed quickly and easily without any great legal formalities (created by contract).

(b) Larger amounts of capital available than would be the case with the sole proprietor.

(c) Each partner can have a say in management of business and can share profits. (Note many inventors worried about losing control of business if it becomes a company). Each partner may specialise in particular aspects of the business according to his abilities and preferences.

(d) Burden of management can be shared.

(e) Discussion is possible and new ideas may develop as a result.

(f) Partnerships are often small - may be closer/more responsive to clients/customers.


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(g) Privacy. No disclosure of accounts etc to public.

(h) Partners bound to one another. Fiduciary duties to each other deal in utmost good faith - no competition with the firm.

(i) Less costs/regulation compared to companies (e.g. no need for statutory meetings).

(j) Partnerships can be dissolved easily - by mere consent (companies elaborate procedure for dissolution and removal of co. name from the Register).

This form of business is most common amongst:

(a) Professionals: Accountants, lawyers, doctors, dentists, architects, surveyors, actuaries, patent agents, etc.

(b) Traders: Plumbers, joiners, electricians.

(c) Family business.

(d) Retail and road haulage.

(e) Pop Groups. For example, the famous band in UK, The Beatles was a partnership worth millions. It came to an end when one of the partners, Paul McCartney, went to the English High Court to ask for a dissolution of the partnership (McCartney v Lennon, Harrison and Starkey) on March 1971. A receiver was appointed to handle the Beatle's assets until the court granted the dissolution of "Beatles Co." in 1975.

(f) Agriculture (many family farms). Disadvantages of Partnership.

(a) Relative lack of resources for expansion. No ability to offer floating charges.

(b) Differences of opinion among partners could threaten existence of the business.

(c) The need for partners to consult one another on important matters creates inflexibility. Adjustments to new situations may be less rapid (than say, sole trader).

(d) Decisions of one partner are binding on all, and could lead to problems if it is a poor decision.

(e) Unlimited ability for debts.

(f) Death or bankruptcy may mean end of the business unless there is a written agreement to the contrary.


Table 1.2: Definition of Unincorporated Joint Venture and Trust

Unincorporated Joint Venture

An unincorporated joint venture is a contractual agreement between two or more people that they will join together to conduct a particular venture. The joint venture is not a separate legal entity and the assets and obligations of the venture are those of the ventures personally.

Trust

Some business is conducted through private trust, often for tax purpose and the unit trust is a common mode of pooling investments with a separate trustee and manager.

1.3.4 Comparison between Companies and Partnership

Below are comparison between companies and partnership.

(a) A company can be created only by certain prescribed methods - most commonly by registration under the CA 1965. A partnership is created by the express or implied agreement of the parties, and requires no formalities, though it is common to have a written agreement.

(b) A company incurs greater expenses at formation, throughout its life and on dissolution, though these need not be excessive.

(c) A company is an artificial legal person distinct from its members.

(d) A company can have as little as one member and there is no upper limit on membership. A partnership must have at least two members and has an upper limit of 20 (with some exceptions).

(e) Shares in a company are normally transferable (must be so in a public company). A partner cannot transfer his share of the partnership without the consent of all the other partners.

(f) Members of a company are not entitled to take part in the management of the company unless they are also directors of it. Every partner is entitled to take part in the management of the partnership business unless the partnership agreement provides otherwise.

(g) A member of a company who is not also a director is not regarded as an agent of the company, and cannot bind the company by his actions. A partner in a firm is an agent of the firm, which will be bound by his acts.

(h) The liability of a member of a company for the debts and obligations of the company may be limited. A partner in an ordinary partnership can be made liable without limit for the debts and obligations of the firm.

(i) The powers and duties of a company, and those who run it, are closely regulated by the Companies Acts and by its own constitution as contained in the Memorandum and Articles of Association. Partners have more


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freedom to alter the nature of their business by agreement and without formality, and to make their own arrangements as to the manner in which the firm will be run.

(j) A company must comply with formalities regarding the keeping of registers and the auditing of accounts which do not apply to partnerships.

(k) The affairs of a company are subject to more publicity than those of a partnership - e.g. companies must file accounts which are available for public inspection.

(l) A company can create a security over its assets called a floating charge, which permits it to raise funds without impeding its ability to deal with its assets. A partnership cannot create a floating charge.

(m) If a company owes a debt to any of its shareholders they can claim payment from its assets ratably with its other creditors. A partner who is owed money by the partnership cannot claim payment in competition with other creditors.

(n) A partnership (unless entered into for a fixed period) can be dissolved by any partner, and is automatically dissolved by the death or bankruptcy of a partner, unless the agreement provides otherwise. A company cannot normally be wound up on the will of a single member, and the death, bankruptcy or insanity of a member will not result in its being wound up.

CLASSIFICATIONS AND THE CHANGING STATUS OF COMPANIES

The Companies Act allows for registration of various forms of companies. A company may change its status because of its change of activities. This is also permitted by the Companies Act.

1.4.1 The Registered Company

All public and private companies registered under the Companies Act from time to time in force are registered companies. A registered company is a type of corporation, that is, an association of persons, which has, in law, an existence,

1.4

In your opinion, why is partnership much more practical and advantageous than a sole proprietor? Provide your views on this.

ACTIVITY 1.2


rights and duties separated from those of the persons who are from time to time its members. Thus, a corporation is an artificial legal person, which exists despite the demise of its various members. Companies are classified according to the members' liability and according to whether they are public or private.

1.4.2 Public and Private Companies

A public company is one, which fits the definition of public company given in the CA 1965.

A public company and a private company may be differentiated as shown in Table 1.3.

Table 1.3: Differences between Public Company and Private Company

Public Company Private Company

� Limited by shares or limited by guarantee and having a share capital, being a company.

� Public companies may be listed or unlisted.

� All companies listed on the Bursa Malaysia are public companies.

� Any company that is registered as, or converts to a private company under SS4 (1) of the Act.

� S22 (4) States that a private company limited by shares must always include the words "Sendirian Berhad" of the abbreviation "Sdn. Bhd" in its name.

� A private company is exempted if it has less than 20 members and none of its members are themselves companies.

� Exempt private companies can keep their financial information private.

� Must in its memorandum of association, restrict the right to transfer its shares.

� Are not permitted to have more than 50 shareholders.

� Are not allowed to undertake certain fund-raising activities that require the issue of a prospectus.


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Obligations imposed on public company are as shown in Table 1.4.

Table 1.4: Obligations as Imposed on Public Company

CA 1965 Provision

S69L Required to maintain a register of substantial shareholders

S169 (1) Required to lodge financial reports, regardless of the size of the company's operations.

S133 & S133A Restrictions on loans to directors or connected persons.

1.4.3 Limited and Unlimited Company

(a) Limited Companies

A company is a separate legal entity and its liability to pay its debts are unlimited - it must pay all debts due. Where it does not have sufficient assets to meet due debts, the company will go into liquidation, receivership or administration. However, the liability of the members is usually limited, either by shares or by guarantee.

(i) Limited by Shares In this situation the liability of each member is limited to the amount, if any, unpaid don his shares. Table 1.5 explains the provisions governing members liability.

ACTIVITY 1.3

Do you know why limited companies are usually preferred over partnership?


Table 1.5: Provisions Governing Members Liability

Provision Explanation

S4(1) A company limited by shares is "a company formed on the principle of having he liability of its members limited, by the memorandum of association, to the amount (if any) unpaid on the shares respectively held by them."

S18 � Requires these companies to state in their memorandum of association, the amount of share capital and its division into shares of fixed amount.

� It must also state that the liability of its member is limited. However, in exceptional circumstances, the 'veil on incorporation' may be lifted and members or company officers made liable for all or some of the company's debt.

S214 Sets out the liability of members in a company limited by shares to contribute to meet the company's debts on a winding up.

(ii) Limited by Guarantee

Here, the liability of members is limited to the guarantee amount which they have respectively agreed to contribute to the assets of the company in the event of its being wound-up: SS4(1) of the Act. As long as the company is a going concern, no contribution is required. However, it is possible to have a company limited by guarantee and having a share capital.

(iii) Companies Limited by Both Shares and Guarantee

Where members are liable as shareholders and as guarantors. Although there may be members who do not hold shares in a company limited both by shares and guarantee, all member are liable to honor the guarantee. Here, the members must pay for their shares in the normal way and will be liable for the amount, if any, unpaid on the shares and for the guaranteed amount. In practice, guarantee companies are private rather than public companies and are used for charitable or non-trading concerns. Examples include colleges and theater clubs.

(b) UUnlimited Companies

A company may be registered as an unlimited company, in which case the liability of its members is unlimited: SS4(1) of the Act. Thus, the private assets (e.g. house, car) of a shareholder could be used to satisfy debts unpaid by the company. Nevertheless, a few such companies do exist, the chief advantage being is that an unlimited company does not have to file annual accounts with the


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Registrar - its financial affairs are private. It has some similarities to a partnership and has the advantage of other characteristics of incorporation such as the concept of legal personality.

1.4.4 Changing the Status of a Company

A registered company may at some time during the course of its existence wish or be obliged to change the status with which it was originally registered. A rapidly expanding private company limited by shares may decide that the only way in which its expansion can be achieved is to increase its share capital by offering its securities to the general public to secure further capital top finance growth. Where a public company's issued share capital falls below the minimum requirement of share capital permitted for a public company, the public company must re-register itself as a private company.

Is a private company permitted to raise capital from the public and list their shares on the stock exchange?

ACTIVITY 1.4

Which would be the best form of business organisation? If you were given an opportunity to set a business, which type of organisation would you choose and why?

ACTIVITY 1.5


1.4.5 Incorporating a Company and the Legal Consequences

Liability on the part of the members to contribute to the assets of the company in the event of its being wound up is as provided by the Companies Act.

(a) SSeparate Legal Personality/Entity

(i) A company is regarded as a distinct legal entity with a separate existence from its membership and management team.

(ii) The corporate veil is „drawn‰ between the corporate entity and the membership and management of a company so as to separate its independent legal existence from that of its human constituents.

(iii) The principle of the veil of incorporation was tested and finally established by the decision of the House of Lords in Salomon v Salomon & Co (1897).

Refer to the following Salomon's case.


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Held: High Court (HC) The liquidator admitted the validity of Broderip's prior claim to be repaid from the company's assets, i.e. as holder of a secured loan. Nevertheless, the liquidator counter-claimed that the company (and therefore the company's unsecured creditors) was entitled to be reimbursed by Salomon personally. The trial judge, Vaughn Williams J., agreed with this contention. Whilst admitting that on its registration a company was a legal entity distinct form its corporations, the learned judge opinioned that A Salomon Ltd. (the company) was no more than an agent of its principal, i.e. Mr. Salomon. As such, the principal was responsible for the debts of its agent. The basis for the agency argument was that the company was a mere alias of its founder and had not been formed in accordance with the true spirit of the Companies Act 1862. Vaughan Williams J., believed that the 11862 Companies Act, in its requirement for „seven persons associated for a lawful purpose,‰ meant seven persons with a bona fide intention of participating in a trading venture, and not as in the present case, a company which was in reality akin to a one man business. Court of Appeal (COA) The decision of Vaughnan William's J was upheld, although, in the COA's opinion, the correct analogy between the company and Mr. S was that of a trust relationship, i.e. the company held its property on trust for its beneficiary, Mr. S, as such the creditors of A Salomon Ltd. were entitled to a claim against Mr. S through the company. As at first instance, the COA recognised that A Salomon Ltd., in complying with the registration provisions of the Companies Act 1862, had been validly incorporated as a separate legal entity. However, the court would not recognise that the liability of A Salomon Ltd. should be divorced from that of its founder, Mr. S, in so far as they agreed with Vaughn Williams J., that in relation to the requirements of incorporation the correct interpretation of the Companies Act 1862 was that the seven persons who became members of the company should participate in the venture rather than have a superficial interest in the company. Notwithstanding the fact that the business had been profitable prior to its incorporation, Linley J was of the opinion that the manner in which it had been formed indicated that had been created for an illegitimate purpose, that it was 'advice to defraud creditors'. Indeed, in the Court of Appeal's opinion the company's illegitimacy stemmed from the fact that it was in reality a one company. House of Lords (HOL) In reversing the decision of the COA, rigorously denied the belief held by the lower courts that a company could not be formed by one dominant character together with six other persons divorced of a substantial interest in the business


venture. According to the House, the Statutory language of the CCompanies Act 1862 (s 6) was clear. A company could be incorporated providing it had at least seven members irrespective of whether or not all seven members made a substantial contribution to the companyÊs affairs. Although both the HC and the COA recognised that A Salomon Ltd., having complied with the registration provisions of the Companies Act 1862, was a corporate entity, they had not contemplated the fact that once incorporate the company could not be considered as anything other than an independent entity, totally separate and distinct from its founder, Mr. S. The HOL's interpretation of the separate legal identity of as company was, in respect of A Salomon Ltd., absolute. The HOL, in considering the agency and trust arguments of the lowers courts, concluded that both were contradictory to the view that the company was a separate legal entity. The finding of an agency or trust relationship would have meant that Mr. S would have been personally liable for the company's debts.

EFFECTS OF THE CORPORATE VEIL The legal rights and duties of shareholders, in respect of their relationship with the company and fellow shareholders are determined by the company's constitution. A company is a separate person in law from its members. This has several important consequences. The consequences are as shown in Figure 1.3.

1.5

Study the case of Salomon v Salomon and list down the significant and differences of the Judgments give by the Judges that presided in the High Court, Court of Appeal and the House of Lords.

SELF-CHECK 1.1


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Figure 1.3: Important consequences in forming a company

(a) CCompany is Liable for its Own Debts

The shareholders are not liable for the debts and liabilities of the company and cannot be sued by the company's creditors. A shareholder can be a debtor or creditor of the company and can sue or be sued by the company as in Salomon v A Salomon & Co Ltd.

(b) Company's Liability

The fact that the company is a separate person from its shareholders makes limited liability possible. It should be noted that the company's liability is always unlimited. It is the members' liability that is limited and that liability is to the company, not to the individual creditors.

(c) Company's Property

A company owns its own property and the shareholders have no direct right to this or any share of it. Person who no longer wishes to be a member is only entitled to whatever price he can get for his shares. A shareholder has no legal interest in the company's property and cannot insure it against theft, damage, etc.


(d) CContractual Capacity

A company has full contractual capacity - and only the company can enforce its contracts. Companies may also be liable in negligence. Shareholders, on the other hand cannot be made liable for the negligence of the company, unless he was also personally negligent.

(e) Crimes

A company can be convicted of a crime, regardless of whether its directors are also convicted. However, exceptions to the limitations stated that a company cannot be convicted of a crime which requires the physical act of driving a vehicle.

There are particular problems with crimes which require mens rea ("a guilty mind") - most common law crimes require mens rea, while many statutory offences involve strict criminal liability. In order to convict companies of common law crimes, courts may regard the mens rea of those individuals who control the company to be the mens rea of the company.


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However, the courts have been very restrictive in their use of this approach:

� Crimes Against the Company A company can be the victim of crime. It is theft to steal from a

company, even if those accused of the theft are also the company's only shareholders as in the case R v Phippou (1989).

(f) Perpetual Succession

Separate personality means that the existence of a company does not depend on the existence of its members. Membership may change or members may die - the company continues in existence until wound up.

(g) BBorrowing

A company can borrow money and grant a security for a debt. Only a company can create a floating charge. Floating charge is a kind of security for a loan. The charge "floats" because is does not attach to any particular asset, but floats over the companyÊs assets as they exist from time to time. Certain events cause the charge to "crystallise" and attach to whatever assets the company has at the time.


�

LIFTING THE VEIL OF INCORPORATION

Separate legal personality of company operates as a shield. The courts will not normally look beyond the façade of the company to the shareholders who comprise it. The screen separating the company from its individual shareholders and directors is commonly referred to as "the veil of incorporation". Sometimes the law is prepared to examine the reality which lies behind the company façade - this is described as "lifting" or "piercing" the corporate veil. This may occur at common law and under statute.

1.6.1 Common Law Although the judiciary has universally accepted the principle of a company as a separate legal entity divorced for the interest of its membership and management, the corporate veil has, in exceptional instances, been dislodged by the courts. The case law examples generally penetrate deeper and in some instances have had the effect of lifting the corporate veil in its entirety so as to completely abandon the recognition of a company as a separate legal entity. Although the court will, on occasions, disturb the corporate veil, it is nevertheless difficult to classify the justifications which merit the exercise of this power. One possible explanation for this difficulty may be found in the suggestion that a court will seek to dislodge the corporate veil in the pursuit of the application of equitable principles.

1.6

What is the significance of a corporate veil and is it important in a business point of view?

SELF-CHECK 1.2


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In Malaysia, „doing justice‰ appears to be the sole criterion that motivates the courts to exercise their inherent jurisdiction and this has been the case ever since the decision of Hotel Jaya Puri Sdn. Bhd. v National Union Bar & Restaurant Workers & Anor [1980]. The other cases that followed suit were;

(i) Aspartra Sdn Bhd & Ors v Bank Bumiputra Malaysia Bhd [1988]; and

(ii) Yap Sing Hock v Public Prosecutor [1992] 2 MLJ 714 These cases are merely a guide to the courts as to whether it ought to lift the corporate veil or not. They do not determine the final outcome of case. In the Malaysian context, the lifting of the corporate veil is done on a case-to-case basis.

However there are categories provided by writers in England and Australia. The following are the categories: (a) Company Identity Used to Evade Obligations (Fraud or Facade Cases)

The fraud or facade exception will occur where the underlying motive for the incorporation of a company is to enable its membership to impugn an existing binding obligation with a third party or instigate some other form of fraud. In such a case the court may recognise the existence of the corporate entity but may nevertheless dislodge the corporate veil to prevent those involved in the façade or fraudulent act from escaping a liability which would have otherwise been enforceable had the company not been incorporated. In Salomon v Salomon Ltd. had the motive for the companyÊs incorporation been a fraudulent one, the case would have had a different outcome. The evidence in that case suggested that, although Mr. Salomon had overvalued the price of his pre incorporated business, the overvaluation had not been of a fraudulent character. Mr. Salomon had done everything possible to keep A Salomon Ltd. afloat, including disposing of his debentures and using his own personal funds to inject capital into the company.


(b) AAgency Court may lift the veil on the basis that one company is merely carrying on business as the agent of another - so that transactions entered into by the subsidiary can be regarded as transactions of the holding company:

In the case of Aspatra Sdn Bhd v Bank Bumiputra Malaysia Bhd [1988] 1 MLJ 97, the Supreme Court held that it was proper to lift the veil to expose the true owner of the company's assets in granting a Mareva injunction.


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(c) GGroup Entity In the past, courts have been willing to lift the veil on the basis that a group of companies was not a group of separate persons, but a single economic unit:

Later cases have doubted this principle as in the following case.

(i) Woolfson v Strathclyde Regional Council (1978); and

(ii) Adams v Cape Industries Ltd [1990]


National Union of Hotel, Bar & Restaurant Workers v Hotel Malaya Sdn Bhd [1987] Held: The court was not prepared to hold that the hotel company was the employer of the workers of the restaurant company. The general manager was common both to the hotel and restaurant companies. The hotel company only held 90.75% of the paid up capital of the restaurant company. (d) Justice and Equity

Courts have sometimes been prepared to pierce the corporate veil where they feel this is in the interests of justice.

Note: But see: Adams v Cape Industries Ltd


27

Situations where the veil was nnot lifted are as briefly explained in Table 1.6.

Table 1.6: Cases Whereby Lift Was Not Lifted

Case Explanation

Sunrise Sdn Bhd v First Profile (M) Sdn Bhd & Anor [1996]

Where there is no dispute as to the identity of the controller of the company.

Lim Sung Huak & Ors v Sykt Pemaju Tanah Tikam Batu Sdn. Bhd. [1993]

Where there is delay in bringing proceedings by those who seek to lift the corporate veil.

Development & Commercial Bank Bhd v Lam Chuan Co & Anor [1989]

When a company has been duly incorporated and the alleged wrongdoer is not even a shareholder or director of that duly incorporated company.

JH Rayner ) Mincing Lane) Ltd & Ors v Manila Sons (M) Sdn. Bhd. & Anor [1987]

Where the subsidiary whose veil that is sought to be lifted is not wholly owned by the holding company.

Yap Sing Hock & Anor v Public Prosecutor [1992]

Where the company is a victim of fraud or wrongful deprivation by the person who solely controls it.

�(e) LLegislations

Some statutory provisions have the effect of piercing the corporate veil to make directors personally liable (Table 1.7). Presumption is in favour of separate personality and courts will not normally infer that legislation is intended to pierce the corporate veil.

Table 1.7: Statutory Provisions

CA 1965 Provisions

S67 (5)

� If a company contravenes this provision then notwithstanding section 369 the company is not guilty of the offence.

� The officers will be criminally liable and the penalty is imprisonment for 5 years or find of RM100, 000 or both.

S169

Requires the directors of a holding company to prepare consolidated accounts incorporating the financial position of the holding company and its subsidiaries. The act clearly recognises the function of a group related companies as a single commercial entity.

S121

Provides that an officer of the company who signs or is authorised to sign on the company's behalf any bill of exchange, cheque or promissory notes where the companyÊs name is not properly or legibly written is guilty of an offence and is liable to the holder of the instrument or order for the amount due (unless it is paid by the company).

S304 Provides that an officer can be personally liable to creditors for debts incurred by the company.

S36

Provides that if the number of member falls below two (except in the case of a wholly owned subsidiary) and the company carries on business for more than six months , any member who is aware of this is personally liable for debts contracted after the period and is also guilty of an offence.


�

�

��

THE AGENCY RELATIONSHIP An agency is a relationship where one person (the principal, here the company) consents or is deemed to have consented that the other person (the agent eg. director, employee, secretary) should act on its behalf so as to affect its relations with third parties. Whether an individual officer of a company is possessed of an authority to bind the company in a contractual relationship with a third party will be dependent upon the rules of agency.

1.7

Explain how the separate personality of the company facilitates limited liability.

SELF-CHECK 1.3

Give your opinion on the following questions:1. Was „justice‰ done in the Macaura case? 2. Do shareholders own the company? 3. Explain how the separate personality of the company facilitates

limited liability.

ACTIVITY 1.6

1. Why is Salomon v Salomon & Co an important case?

2. Is 'justice' the sole criterion for lifting the corporate veil in Malaysia? Illustrates your answers with case example.

3. When will the court lift the corporate veil?

EXERCISE 1.1


29

At common law, the acts of an agent could only bind the company if they were within the objects of the company as stated in its constitution. Acts outside the scope of the company's objects are ultra vires and were once not binding on the company.

�

�1.7.1 Types of Authority Figure 1.4 indicate that there are two types of valid authority.

�

Figure 1.4: Valid authority Where the Agent Acts within His/Her Actual Authority (express or implied) the Company Is Bound by the Contract "An 'actual' authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties. Its scope is to be ascertained by applying ordinary principles of construction of contracts,

If a transaction within the company's capacity but outside an agentÊs authority is entered into, will it bind the company?

SELF-CHECK 1.4


including any proper implications from the express words used, the usageÊs of the trade, or the course of business between the parties. To this agreement the contractor is a stranger; he may be totally ignorant of the existence of any authority on the part of the agent." Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 (Diplock LJ).

This principle was adopted by in the case of Chew Hock San & Ors v Connaught Housing Development Sdn Bhd [1985]. The (actual) authority of the agent may be limited or entirely absent by virtue of:

� The object clause;

� Clauses in the Articles;

� GM resolution;

� Director's duties to the company; and

� A defective or no appointment.

(a) What Happens if the Agent Exceeds these Limitations? Is the Company

Nevertheless Liable? Under ordinary agency rules, the principal is not bound by the transaction if the 3rd party knew about the limitation on the agent's authority and entered into the contract anyway. In such circumstances the 3rd party did not act in good faith.

(b) What Amounts to Notice under Common Law? NNotice:

(i) Actually knew;


31

(ii) Ought to have known: duty of enquiry where circumstances suspicious; and

(iii) Could have known: constructive notice.

Also known as the iindoor management rule. "If� the directors have powers and authority to bind the company, but certain preliminaries are required to be gone through on the part of the company before that power can be duly exercise, then the person contracting with the directors is not bound to see that all these preliminaries have been observed."

Fountaine v Carmarthen Railway Co (1868) LR 5Eq 316 „� When there are persons conducting the affairs of the company in a manner which appears to be perfectly consonant with the articles of association, then those dealing with them, externally, are not be affected by any irregularities which may take place in the internal management of the company.‰ See also: Mahony v East Holyford Mining Co (1875)

(c) IIf Agent Exceeds his/her Authority

(i) P/company can ratify contract by ordinary resolution (C/F traditional Position re ultra vires)

(ii) Agent incurs liability vis-à-vis P and vis-à-vis third party


Exceptions to TurquandÊs case rule: The operation of the rule is subject to a number of exceptions namely: (i) A third party with actual knowledge of the fact that a transaction is

outside the authority conferred by the companyÊs constitution cannot plead the rule:

Howard Patent Ivory Manufacturing Co (1833) 38 Ch D 156; Pekan Nenas Industries Sdn Bhd v Chang Ching Chuen & Ors [1998].

(ii) A third party cannot rely on the rule in circumstances where he is an

insider, ie an officer of the company: Morris v Kansen [1946] (iii) Where there are suspicious circumstances surrounding the authorisation of

a transaction and the third party should reasonable have been aware of such circumstances, the third party will not be able to rely on the rule:

Underwood v Bank of Liverpool & Martins Ltd [1924] (iv) The rule will not operate where the contractual authorisation was a forgery:

Ruben v Great Fingall consolidated [1906] (v) Where the necessary authorisation for a transaction requires the passing of

a special resolution, a third party will be deemed to have notice of the outcome of the resolution in so fact as this type of resolution requires public registration:

Irvine v Union Bank of Australia (1877)

1.7.2 Doctrine of Ostensible or Apparent Authority The question of ostensible authority always comes in when actual authority (express or implied) was absent. Freeman & Lockyer v Buckhurst Park Properties (Mangel) Ltd [1964] "A principal is bound, not only by such acts of the agent as are within the scope of the agentÊs actual authority, but by such act as are within the larger margin of an apparent or ostensible authority derived from the representations, acts, or default of the principal." Lord Diplock set out four conditions to be fulfilled:

(i) That a representation that the agent had the authority to enter on behalf of the company into a contract of the kind sought to be enforce was made to the contractor;


33

(ii) That such representation was made by a person or persons who had actual authority to manage the business of the company either generally or in respect of those matters to which the contract relates;

(iii) That he (the contractor) was induced by such representation to enter into

the contract, that is, that he in fact relied upon it; and (iv) That under its memorandum or articles of association the company was not

deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent.

See also: Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1976) (a) RRepresentation - Holding Out

Thus, if in the case of a company the board of directors who have „actual authority‰ under the memorandum and articles of association to manage the company's business permit the agent to act in the management or conduct of the company's business, they thereby represent to all persons dealing with such agent that he has the authority to enter on behalf of the corporation into contracts of the kind which an agent (authorised to do acts of the kind which he is in fact permitted to do) usually enters into in the ordinary course of business (Freeman case). Usual authority: generally ostensible authority coincides with the usual authority associated with the particular position.

Note: usual authority may also inform actual implied authority as in the case of Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549,


„Authority is implied when it is inferred from the conduct of the parties and the circumstances of the case such as when the board of directors appoint one of them their managing director. They thereby impliedly authorise him to do all such things as fall within the usual scope of that office.‰

(b) Representation by someone with actual authority First Energy Ltd. v Hungarian International Bank Ltd [1993]

(c) Notice But there is no liability on the basis of ostensible authority if the third party on notice or put on inquiry as to extent of the person's authority. See above: Rule on Turquand

AL Underwood Ltd v Bank of Liverpool [1924] If the third party was on notice about the agent's limited authority and ignored it, then the company is not bound by its agent's unauthorised action. This then means that the third party looses out - depending on the facts: (i) By being liable to the company for its action in reliance of the agent's

apparent authority (e.g. honouring cheques signed by the agent which third party shouldn't have honoured,

Or perhaps more commonly, (ii) By not being able to enforce the purported contract against the company

(see scenarios in TTurquand, Freeman, Rolled Steel, Panorama - but be careful in most of these cases third party was not on notice and thus could enforce the contract).

�

When, if ever, are companies personally liable on contracts their directors have entered into while acting as agents of the company?

ACTIVITY 1.7

EXERCISE 1.2

Explain the actual authority.


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PROMOTER AND PRE-INCORPORATION CONTRACTS

When we are discussing about promoter and pre-incorporation contracts, two questions arises are;

(i) Do those who form a company (called promoter) owe it or the other shareholders any fiduciary duties such as the duty not to make personal profits out of the promotion?; and

(ii) To what extent, if at all, is the promoter able to cause the company to enter

into contractual relationships prior to its existence? These arrangements are usually referred to as pre-incorporation contracts.

1.8.1 Promoters (a) TThe Promotion of a Company

(i) The term „promoter‰ is not defined in the Companies Act. (ii) Case law indicates the necessity to show that the person concerned

contributed some essential element towards the incorporation of the company.

��

Tengku Abdullah Ibni Sultan Abu Bakar & Ors v Mohd Laatiff bin Shah Mohd & Ors and Other Appeals [1996] 2 MLJ 265, Gopal Sri Ram JCA said: „A promoter is one who starts off a venture- any venture- not solely for himself, but for others, but of whom he may be one.‰

1.8


(iii) Persons acting strictly in a professional capacity are not promoters, eg. solicitors, valuers and accountants:

Bagnall v Calton (1877)

(iv) There are two types of promoters:

� Active promoter who undertakes the formation of a company by carrying out the procedure necessary for incorporation; and

� Passive promoter who takes no active part in the incorporation of a company and the raising of its share capital, but leaves this to others on understanding that he or she is to profit from the enterprise.

(b) TThe Promoter's Duties

The promoter owes a fiduciary duty to the company. And as a consequence of this duty:

(i) The promoter must make full disclosure of any personal interest in the promotion process; and accordingly; and

(ii) The promoter must disclose whether he obtained a profit as a result of the promotion of the company concerned.

There are three basic fiduciary duties. These are owed to the company and they are:

(i) A duty not to make a secret profit at the expense of the company. A

profit is not a secret if it is disclosed but the disclosure must be full and frank.

The disclosure must be made to:

� An independent board of directors; or

� Existing and potential members as a whole (potential members via the prospectus).

Note: „Independent‰ in this context would mean;

� Is a question of fact.

� Is satisfied where all the members of a private company are aware of the facts and there is no intention to „go public‰.


37

The above rule was too strict since an entirely independent board of directors would be impossible in the case of most companies.

� Fairview Schools Bhd v Indrani a/p Rajaratnam & Ors (no 2) [1998] Mahadev Shakar JCA said:


"Promoters have a legal duty not to make any secret profit out of the promotion of the company without the company's consent and also to disclose to the company any interest the promoters have in any transaction proposed to be entered into by the company." Disclosure to the same syndicate is not sufficient. In such a case, information should be given in the prospectus.

�

(ii) Where the promotion has started the promoter must account to the company for the benefit of any subsequent contract for the acquisition of property which he or she intends to sell to the company, since this belongs in equity to the company which can insist on taking it at cost.

Hichens v Congreve (1829) Where the promoter acquired the property on his or her own account before the commencement of the promotion it belongs to him or her in law and equity and he or she can sell at a profit provided he discloses the facts. If he or she does not make disclosure the contract is liable to be rescinded.

Ladywell Mining Co v Brookes (1887)

(iii) AA promoter must not exercise undue influence or fraud and in

particular must not hide his or her interest through a nominee.

Cavendish-Benetinck v Fenn (1887)


39

1.8.2 Remedies for Breach of Promoter's Duties

�

Figure 1.5: Remedies for breach of promoter's duties

Figure 1.5 shows the remedies for breach of promoterÊs duties and discuss in detailed below. (a) RRescission

Equitable remedy is available to the company in respect of any contract entered into as a result of non-disclosure or misrepresentation. It is irrelevant that the promoters made no profit or had no dishonest motive in respect of the contract.

The remedy must be exercised on normal contractual principles; the company must not ratify the agreement and this remedy is not available if the company is in liquidation. The remedy may be unavailable to the company if any of the bars to rescission apply: (i) Affirmation (ii) Lapse of time (iii) Intervention of a third party right

(iv) Inability to make restitution in integrum (v) The court's discretion under misrepresentation

Non disclosure of an interest in a contract by the promoter may constitute fraud or misrepresentation.


S17 Contracts Act 1950 - provides the definition for fraud.

(b) AAccounting for the Undisclosed Profit

The primary remedy, if the profit is not disclosed, is rescission and a financial remedy (if any) is usually a claim for damages, if there is the basis for claiming damages at all.

NOTE: The court distinguished the EErlanger case on the ground that, in that case, the appellant purchased the property in order to sell it to the company and so the mines were purchased for the company.

Therefore if the company finds out that the promoter has made a secret profit, it can:

(i) Rescind the contract where the property belonged to him before he started acting as a promoter.

(ii) Affirm the contract and claim damages if the promoter was the agent of the company.

(c) Damages

Promoters may be liable for damages for misrepresentation inducing a contract and not for breach of fiduciary duty as such.


41

Re Jubilee Cotton Mills (1902) Held: The promoter was held liable in damages for taking an allotment of shares as consideration for the sale of his property which was over-valued.

(d) Other remedies:

(i) Promoter could be liable in damages for negligent mis-statement. Hedley Byrne v Heller & Partners Ltd (1964); and Mutual Life and Citizens' Assurance Co ltd v Evatt (1971)

(ii) If the company is in liquidation, the liquidator may recover secret profits and damages from the promoter even if what is recovered is used to pay off all the company's debts.

1.8.3 Remuneration of Promoter (a) Traditional way - obtain reward in form of profit made on property sold to

the company or some other ancillary transaction, provided disclosure was made.

(b) A valid contract providing for remuneration of the promoter cannot be

enforced since the company has no capacity to enter into contract because it has not formed yet.

(c) The company cannot ratify a pre-incorporation contract made on its behalf

to enter into a new contract with the promoter because past consideration is no consideration at all.

(d) A promoter cannot be remunerated because the articles stated that he is

entitled to a certain sum for his services since this does not create a binding contract between the promoter and the company.

(e) Today, the promoter's function is usually carried out by city issuing houses

whose remuneration would be disclosed in the prospectus.


Conclusion to Promoters Duties Much of the case law which is relevant to the extent and enforcement of a promoter's duties is rooted in the mid to late nineteenth century, at a time at which it was quite a common practice for newly incorporated companies to offer shares to the general public. The duties imposed on promoters were a means by which investors would be protected from any fraudulent attempt on the part of a promoter to obtain undeclared and unwarranted profits from the promotion of what was often an unknown and untested business entity. In todays world the vast majority of public issues take place as a result of established private companies electing to become public companies. As such, the likelihood of fraud is less probable. Nevertheless, the protection of the investing public is still necessary, especially in situations where offers for company securities contain untrue or misleading information.

1.8.4 Pre-incorporation Contract Prior to incorporation, the promoter(s) of a company will usually be required to enter into contractual agreements appertaining to the future needs of the pre-incorporation company. However, until a company is incorporated it will not exist as a separate legal entity and therefore cannot be bound by contracts made in its name or on its behalf.

� A company, even after its incorporation, cannot expressly, or by conduct, retrospectively ratify or adopt a contract made in its name or on its behalf.��


43

�Neither the company, nor the party with whom the promoter originally contracted, is obliged to enter into a new contract following the companyÊs incorporation. However, it should be noted following the Court of AppealÊs decision:

� Rover International Ltd. V Cannon Films Sales Ltd. (1988) Held: Where a contract is entered into for the benefit of a company which is not incorporated as of the date of the contract, then monies mistakenly paid by the company to a third party in the belief that the contract was valid may be recovered as against the third party.

Note: In addition, the court may grant a quantum merit award to the company

for services provided during the period in which the company was under the mistaken belief that the pre-incorporation contract was valid.

What is a pre-incorporation contract?

SELF-CHECK 1.5


1.8.5 The Liability of a Promoter The common law „solution".

(a) General Rule A contract which purports to be made by or on behalf of a non existing

company cannot be enforced by or against the company, and ratification by the company is not possible.

� (b) Liability for pre-incorporation personally at common law depended on how

the contract was signed. Until quite recently English law was governed by what seemed two inconsistent decisions.

� If the promoter was to be held liable for contract entered into before the

company was formed and which the company did not take over by entering into a fresh contact to the same effect, could the promoter also enforce that contract? This was a question which arose in:


45

�(c) For a long time it was thought that these two decisions were to be

distinguished by the form of the signature of the contracting parties purporting to act on behalf of the respective companies.

�In fact, their difference was well analysed in the Australian case of Black v Smallwood (1996).

In Kelner v Baxter, the parties intended the promoters to be bound (this could be inferred from the fact that they knew that the company had not yet been registered). In Newborne's case, on the other hand, both parties thought that the company was contracting. Legislative position The common law position proved to be unsatisfactory.


�

�

This section alters the common law position and a company become bound by and is entitled to the benefit of a pre-incorporation contract where:

(i) Such a contract purportedly has been entered into by the company itself; or

(ii) Such a contract has been entered into by any person on behalf of the company; and the company is incorporated thereafter and it ratified the contract.

The case of Black v Smallwood (1966) illustrates what is meant by the phrase „a contract purporting to be entered into by a company.‰ The case of Ahmad bin Salleh & Ors v Rawang Hills Resort Sdn. Bhd. [1995] illustrates the phrase „a contract purportedly entered into by any person on behalf of a company.‰ S35(2) - Where the company does not ratify the pre-incorporation contract as provided by SS35(1), the person or persons who purported to act in the name of or


47

on behalf of the company shall be personally bound by the contract unless there is an express agreement to the contract . This section is subject to agreement to the contrary (i.e. the promoter might exclude his personal liability if and when the company fails to enter into a contract on similar terms). It has now been clearly established (the case below) that such agreement must be express. In the English case of:

(d) It is suggested that in practice the only acceptable form of exclusion of

liability would be one which sought to exclude the promoter from liability once the company had been incorporated (i.e. following the subsequent novation of the pre incorporation contract).

Once the company is incorporated it may become liable not under the original contract but by a „novation‰ of the contract, whereby the promoter's liability ceases and an identical contract is entered into by the company.

What is the nature of the relationship between a promoter and the company?

ACTIVITY 1.8


� During the twentieth century and into the new century the company structure has become the vehicle through which most business is conducted.

� It is well accepted that modern business if often very large and complex.

� A company is a creation of the law; it becomes a legal entity in its own right, separate from its members and controllers.

� A veil of incorporation is created which surround the company, providing a protective shield between it and its members.

� Because the company is one of the preferred legal structures for carrying on a business, the law has recognised the necessity of allowing companies to enter into contract.

� Companies enter into a variety of contracts on a daily basis, but it would be rare situation indeed for a third party to deal directly with the entire board of directors.

� Instead, contracts are usually entered into by one or more of a range of employees of a company, including directors who may be action on behalf of the company or as it s agents.

Agency

Apparent authority

Limited companies

Ostensible authority

Partnership

Promoter

Sole propriertorship

Unincorporated association

Veilot�corporation�

1. What are the legal consequences that flow from the relationship between a promoter and the company he/she is incorporating?

2. What are the duties of a promoter?

EXERCISE 1.3

Documents

Topic 1oumvle.oum.edu.my/oumvle_upload/blockmain/BBUS2103...2 TOPIC 1 INTRODUCTION TO COMPANY LAW the company. The motive of the person/persons behind the formation of a company is