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Question 1
Saloman, Robert and Patricia want to incorporate a company selling and making
handbags and shoe but unsure about the set up as they are currently attach to a
partnership selling leather handbags and shoes. Two years after they incorporated a
company named Fabulous Sdn Bhd they sold all the leather handbags and shoes to
Fabulous. The sole object of the company of the company was manufacturing and
selling handbags and shoes. Saloman owned 60% of the shares while his brother,
Robert and sister, Patricia owned 20% of the shares each. In order to protect the
handbags, Saloman had insured the handbags in his own name against fire. One year
later, a fire that started in the adjacent factory spread and damaged Fabulous Sdn
Bhd’s store. The fire had destroyed some RM1.5 million worth of handbags. Saloman
Has made a claim on the insurance policy but the insurance company has refused to
meet the claim. Advise Saloman.
In this case, Saloman, Robert and Patricia are currently attach to a partnership under
Partnership Act 1961 which is selling leather handbags and shoes. However they plan to
incorporate a company to sell and make handbags and shoes. Before incorporate a company,
they must decide whether to form a private company or public company. After two years,
they had incorporated a company name Fabulous Sdn Bhd that sell and make handbags and
shoes. After 1 year, the fire had destroyed some handbags which worth RM1.5 million.
However, Saloman cannot claim the money from insurance company. We will discuss about
the partnership they are currently attach under Partnership Act 1961, incorporate company
under Companies Act 1965,distinguish between private company and public company, form
a company under trade name and separate legal entity.
Saloman, Robert and Patricia are currently attach to a partnership.
Partnership is carrying by two or more partner. Minimum number of members is 2
and maximum 20. According to Section 3(1) Partnership Act 1961, partnership is an
institution created with the common view to make profit. Section 2 Partnership Act 1961
stated that “Business” includes every trade, occupation or profession (and it involves goods
and services). Section 3 Partnership Act 1961 however states that charitable organisation or
religious is not a partnership. Partnership does not separate from the individuals who own the
business. Members cannot own any property, take loans from creditors, loan money and sue
or be sued under its firm name. The members will be jointly liable for any misconduct under
Section 11 Partnership Act 1961.
In this case scenario, Saloman, Robert and Patricia are currently attach to a
partnership because they have more than 2 members. Besides that, they have a common view
to make profit which is selling leather handbags and shoes under Section 3(1) Partnership
Act 1961. Upon Saloman, Robert and Patricia are attach to the partnership, they will be bind
together with the business by law. It does not separated business from Saloman, Robert and
Patricia who own the business. This is called unlimited liability.
Saloman, Robert and Patricia want to incorporate a company.
A company in Malaysia must be registered with the Companies Commission of
Malaysia. It is governed by the Companies Act 1965. In Malaysia, registered companies are
called Sdn Bhd/ Bhd/ Sdn. Section 122(1) Companies Act 1965 stated that to form a
company, that company need to have at least 2 shareholders, 2 directors and 1 secretary. The
company is required to pay income tax every year. When the company is incorporated, it will
be a legal entity or a legal person by itself. As a legal person, the company has various rights.
The right to sue or be sued is under company name for any wrongful action by the director. A
company can enjoy perpetual succession and it is allows to take loan under the company
name. The rights to purchases property under the company name. However, the assets of the
company are not the assets of the members. Company’s directors and shareholders cannot sell
the property without the consent of the company and Registrar of Companies. There are two
types of company which are limited company and unlimited company. The memorandum of
association will state whether the company is limited or unlimited company under the
Section 18 Companies Act 1965.
The liability of limited company’s member is limited. According to Section 4(1)
Companies Act 1965, limited companies can be either limited by shares or limited by
guarantee. Where a company is limited by shares, a member cannot asked to pay more than
the amount (if any) unpaid on his shares when the company is wound up. If he has paid in full
his shares, he cannot be asked for any further contribution. Limited company will have the
word ‘Berhad’ or ‘Bhd’ in their name.
In this case scenario, Saloman owned 60% of the shares while Robert and Patricia
owned 20% of the shares each. Thus, the type of the company they can form is company
limited by shares.
Saloman, Robert and Patricia can incorporate the company into private company or
public company.
Private Company is the most popular type of companies and suitable for carrying on
small or medium size businesses which does not require public funding. It is governed by
Section 4(1) Companies Act 1965. The formation of a private company is the company must
have the minimum 2 members and maximum 50 members under Section 15(1) Companies
Act 1965. It must contain the word ‘Sendirian Berhad’ or ‘Sdn Bhd’ as a part of its name
under Section 22(4) Companies Act 1965. Private Company is tends to be incorporated to
manage family run the businesses. It is required a minimum numbers of capital. A private
company is restricted under Section 15(1) Companies Act 1965. Section 15(1)(a)
Companies Act 1965 states that the private company cannot transfer shares to other
members. Section 15(1)(b) Companies Act 1965 states that a private company cannot have
more than 50 members. Section 15(1)(c) Companies Act 1965 state that private company
cannot offer shares to public. Section 15(1)(d) Companies Act 1965 states that private
company cannot ask public to deposit money in the company.
Public Company is the company which is governed by Section 4(1) Companies Act
1965. The formation of public company is the company must have minimum 2 members and
unlimited members. Public company must contain the word ‘Berhad’ or ‘Bhd’ as a part the
company name under Section 22(3) Companies Act 1965. Public company is listed in Bursa
Saham Malaysia. It is more suitable for large businesses which require public funding. It can
issue shares to public. Public company must hold statutory meetings which is first meeting.
The director will be removed at the age 70 year old. Public company must issue a prospectus
that provided a detailed and accurate information of the company’s plans since public
company has the aim of securing investment from the general public.
In this case scenario, the relationship between Saloman, Robert and Patricia are
brother and sister. Thus, they are family members. The company they can choose to
incorporate is private company.
Form a private company under trade name.
In this case scenario, Saloman, Robert and Patricia must obtain approval for the
proposed company name which is Fabulous Sdn Bhd. The company name must approve by
all 2/3 majority. They also need have a business card which stated the company name and the
address clearly. Make a copy of business card and get approval by filling up the Form PNA
42 to avoid the same trade name. They also need to complete the Form A which is
registration a new business together with copy of identify card of two director who are
Saloman and either his brother, Robert or sister, Patricia. Then, lodge with the Registrar of
Companies Commission of Malaysia certain documents, including the Memorandum of
Association and Articles of Association, particulars of directors and registered office. After
that, they need to pay RM60 for the registration fee. On receiving the above documents, the
Registrar of Companies Commission of Malaysia will examine the documents and if the
requirements of Companies Act 1965 have been complied with, the Registrar will then issue
a certificate of incorporation.
Memorandum of Association (MA) and Article of Association (AA)
Under Section 16(1) Companies Act 1965, every company must have a
Memorandum of Association (MA) and Article of Association (AA) before the company can
be register at Registrar of Companies. MA is a document that deals with external matters.
MA is the object clause of the company. The company is allowed to conduct the business
