Introduction to Company Law (Part 2)

In Part 2, I am going to discuss issues regarding post commencement of a company and also the legal issue regarding company management. Here are some of the common questions;

1) How is the structure of management in a company, sole proprietorship and also partnership?

For a company, members are neither its managers or directors nor its agents. For sole proprietorship, owner owns and manages the firm himself and can employ employees to run and manage the firm for him. Meanwhile, members in partnership are agents of the firm. They are responsible to carry out the business in ordinary course of business and generally entitled to manage the firm.

2) How is the capital and liability are managed for a company, sole proprietorship and partnership?

For a company, capital subscribed by the member s for their shares cannot ordinarily be returned to them, but(in a limited company) they are not liable for its debts once they hold fully paid shares. In contrast, sole proprietor may withdraw capital and his liability for the firm's debt is unlimited. Same with sole proprietorship, partners in a partnership may withdraw capital but their liability for firm's debt is unlimited as well.

3) Can a company,sole proprietorship and partnership borrow fund? What is their borrowing powers?

Companies can borrow for the purposes covered by their objects as contained in their Memorandum of Association. Meanwhile, partners in partnership have unrestricted powers of borrowing in terms of amount and purpose. A sole proprietor has unrestricted powers of borrowing.

4) Can company, sole proprietorship and partnership use its assets as security??

Companies can use its current assets as security by creating floating charges. Defined by Wikipedia, A floating charge is a security interest over a fund of changing assets of a company or a limited liability partnership (LLP). A partnership and sole proprietorship cannot create floating charges but can mortgage the firm's assets.

5) How a company, partnership and sole proprietorship dissolve themselves?

A company can be dissolved using formal procedure such as winding up and liquidation. Partnerships may be dissolved informally, for example, by agreement of the partners. Sole proprietorships may be dissolved informally by the sole proprietor himself.

Introduction to Company Law (Part 1)

This post is to give an insight to readers regarding the company law in Malaysia. Part 1 of the Company Law will introduce the definition of company law and major difference between a company, partnership and sole partnership in terms of formation of the firms.

1) What is Company Law?

Company Law is the law relating to companies in Malaysia contained in the Companies Act 1965 (Revised 1973). There are few key areas of company law based on judicial precedents although company law in Malaysia is based mainly on said act.

2) What is the major difference in structure of a company, partnership and sole partnership?

By definition, sole proprietorship is formed by an individual in business on his own while partnership is formed by two or more persons carrying on business with a view of profit. On the other hand, a company is a person separate from its members.

3) How a company, partnership and sole partnership is registered in Malaysia?

A company need to be registered with Registrar of Companies as a company under Companies Act 1965. Mean while, partnership and sole partnership need to register their business under the Registration of Businesses Act 1956.

4) How is the constitution of company, partnership and sole proprietorship is formed?

A company must be constituted in writing for example, the Memorandum and Articles of Association. A partnership may be formed orally or by writing. For sole proprietorship, there is no agreement needed since sole proprietor is only one person by himself.



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Justice Anywhere??

I saw a movie today titled " Law Abiding Citizen" and here is the trailer from youtube website i get;

The story is about a a guy named Clyde Shelton who is an upstanding family man. His wife and daughter are brutally murdered during a home invasion. When the killers are caught, Nick Rice, a hotshot young Philadelphia prosecutor, is assigned to the case. Over his objections, Nick is forced by his boss to offer one of the suspects a light sentence in exchange for testifying against his accomplice. Fast forward ten years. The man who got away with murder is found dead and Clyde Shelton coolly admits his guilt. Then he issues a warning to Nick: Either fix the flawed justice system that failed his family, or key players in the trial will die. Soon Shelton follows through on his threats, orchestrating from his jail cell a string of spectacularly diabolical assassinations that can be neither predicted nor prevented. Philadelphia is gripped with fear as Sheltons high-profile targets are slain one after another and the authorities are powerless to halt his reign of terror. Only Nick can stop the killing, and to do so he must outwit this brilliant sociopath in a harrowing contest of wills in which even the smallest misstep means death. With his own family now in Sheltons crosshairs, Nick finds himself in a desperate race against time facing a deadly adversary who seems always to be one step ahead.

The movie shows that justice system do have flaws and the prosecutor are not deserved what he get. This changed the life of a normal man drastically. In order to revenge against the suspect, the main actor has been into a no return road. Do our own justice system are flawless that every "bad guy" are actually prosecuted to what they actually deserved?? This is a big thought for all of us. 

Notes: I am just stating my opinion regarding the MOVIE and not on the justice system of any country! PLEASE take note!

Contract law and application

Chong and Wei went shopping and decided to shop at Super Supermarket. Wei looked at the goods which were on display and decided to purchase 3 bottles of face cream which were on offer. She took the bottles to the counter where she paid for them. As they were leaving that supermarket, the cashier came up to them and told them that they have to return the goods.

What are the issues? Discuss the law and cases used as reference in this case. Advise Wei according to Contract Act 1950 and relevant decided case(s).

 The issue on this case is whether Wei should return the goods to the cashier or not.

Let do some analysis on the case. Firstly, Super Supermarket displayed the face cream in it shop and displaying of goods is actually an invitation to treat. Some cases could be use as reference to support this statement, such as Fisher vs Bell case where the defendant displayed flick knives in his shop windows. He was then convicted of a criminal offence of offering such knives for sale. The conclusion of the case is display of any goods with a price tag on it in a shop window was not an offer but rather it was an invitation to treat.

Next, Wei showed his interest by taking the bottles to the counter and Wei offered to buy the goods [Section 2(a) of the Contracts Act]. Then, sale has take place where Wei paid for the items. Thus, the proposal of Wei to buy the goods is said to be accepted since the cashier had took the money from Wei    [Section 2 (b) of the Contract Act].

Followed the law and cases referred to, the contract is said to be legally binding and Wei can resist and not to return the goods to cashier.

Reference: General Principles of Malaysian Law by Lee Mei Pheng

Pros and Cons of Doctrine of Stare Decisis

Followed the definition by Wikipedia, Stare Decisis is the legal principle by which judges are obliged to obey the set-up precedents established by prior decisions. This means that the judges are bound to follow the decision made by other judges before them in dealing with cases with similar facts.

There are discussion on the pros and cons of such system. Advantages of such system are time saving and convenient. If a problem has already answer and been solved it is natural to reach the same conclusion. Besides that, the existence of stare decisis may prevent a judge from making a mistake that he might have made if he had been left on his own without any guidance. Injustice can be also prevented because the decision made is same with similar cases. The interests of justice also demand impartiality from the judge. This may be assured by the existence of a binding precedent, which he must follow unless it is distinguishable. If he tries to distinguish an indistinguishable case his attempt will be obvious. This can ensures impartiality of judge. The most important advantage of Doctrine of Stare Decisis is it provides greater certainty in the law. It allows persons to order their affairs and come to settlements with a certain amount of confidence.

The disadvantages of such system are it limits the development of law. This is because practical law is founded on experience but the scope for further experience is restricted if the first case is binding. Besides, existence of such system may make judges become thoughtless and over reliance on the doctrine of stare decisis. This is because of convenience of the doctrine and limitation of it. Thus, judges may not need to think beyond the limitation. Another disadvantage of stare decisis is there are simply too many precedents to be referred to. The citation of authority in court should be kept within reasonable bounds because it can be costly in terms of time and money. So, when there are too many precedents to be referred to, unnecessary efforts, time and money are wasted. Moreover, stare decisis is an application of argument from authority logical fallacy and can result in the preservation of cases decided wrongly.

History of Law in Malaysia

Malaysian legal history can be traced back some six hundred years. There are three major periods that influence the current law of Malaysia. The first was the founding of the Melaka Sultanate at the beginning of the 15th century; second was the spread of Islam in the indigenous culture; and finally, and perhaps the most significant in modern Malaysia, was British colonial rule which brought with it constitutional government and the common law system.

Sultanate of Melaka

During the realm of the Sultanate, Melaka was an important trading port and the maintenance of law and order was crucial to its prosperity. The administration of justice was placed under the direct charge of the bendahara (or chief minister) who exercised both political and judicial functions. The temenggung (which is the commander of troops and police) was responsible for apprehending criminals, maintaining prisons and generally keeping the peace. The welfare of foreigners residing in the state was looked after by several shahbandars (habour masters and collectors of customs).

Little is known of the legal system in those days but it is generally accepted that the law administered then was a combination of Muslim law and the "Adat Temenggung" (patriarchal Malay customary law). The "Adat Temengung" was the law of the Sultan or the law ordained by the rulers and later adopted in the other regions of Peninsular Malaysia. It was the basis of the law as found in Malay legal digests compiled between the 15th and 19th centuries.

The formal legal text of traditional Melaka consisted of the Undang-Undang Melaka (Laws of Melaka), variously called the Hukum Kanun Melaka and Risalat Hukum Kanun, and the Undang-Undang Laut Melaka (the Maritime Laws of Melaka). The laws as written in the legal digests went through an evolutionary process. The legal rules that eventually evolved were shaped by three main influences, namely the early non-indigenous Hindu/Buddhist tradition, Islam and the indigenous "adat".

European and British Influence

When Melaka fell into the hands of the Portuguese from 1511 to 1641 and the Dutch from 1641 till 1786, the local people continued to practise Islamic laws and Malay customs. It could be said that the Portuguese and the Dutch laws made relatively little impact on the legal system as a whole other than the political and administrative structures.

In 1786, Britain acquired the island of Penarng, the first territory in Malaysia to fall into British hands. The main preoccupation of the British administrators during the first decades after the founding of Penang, was the maintenance of some form of order and to this end, local customs and law were allowed to continue but tempered by such portions of the English law as were considered just and expedient. Some judgements meted out may seem rather strange by today’s standard but it should be borne in mind that they merely reflected the harsh and often chaotic conditions of those pioneering days. Complaints and petitions were made over many years for a better system of administering justice. Finally, it came in the form of the Royal Charter of Justice of 1807. The Charter established the Court of Judicature of the Prince of Wales’ island (as Penang was then known) to exercise jurisdiction in all civil, criminal and ecclesiastical matters. It was interpreted by the courts as introducing to Penang the law of England as it stood in 1807 insofar as it was suitable to local conditions and circumstances.

When Penang, Singapore, which was founded by the British in 1819 along with Melaka, which fell to the British as a trade-off under the Anglo-Dutch Treaty of 1824, formed the Straits Settlement in 1826, a new charter, the Charter of Justice was introduced. A new court called ‘The Court of Judicature of Prince of Wales’ Island, Singapore and Melaka" was created by this Charter. Penang in a sense had a second statutory reception of English law although it was the first for Singapore and Melaka. In one stroke of the pen, the Straits Settlements received a large dose of English law.

Despite the new Charter, the administration of justice was far from satisfactory. A third Charter of Justice was granted in 1855 which enabled the reorganisation of the court system. In 1867, when the administration of the Straits Settlements from India was transferred to the Colonial Office, the court system was reorganised once again. By Ordinance 5 of 1868, the Court of Judicature of Prince of Wales’ Island, Singapore and Melaka was abolished. A new court known as the Supreme Court of the Straits Settlements was established. In 1873, the Supreme Court was further reorganised under four judges – the Chief Justice, the Justice of Penang, the Senior Puisne Judge and the Junior Puisne Judge. The Court of Quarter Sessions was established as a criminal court and presided over by the Senior and Junior Puisne Judges in Singapore and Penang respectively. A Court of Appeal was also constituted. By then, the judiciary had slowly evolved into its modern form.

English commercial law was formally introduced into the Straits Settlements by Section 6 of the Civil Law Ordinance, 1878. This provision, as re-enacted in the Civil Law Act, 1956 (Revised 1972), is still applicable in Penang and Melaka.

English land law was specifically excluded by sub-section 2. The whole section of this Ordinance was incorporated into the Civil Law Ordinance of 1909 and later re-enacted as Section 5 of the Civil Law Ordinance (Chap. 42 of the 1936 Revised Edition). This was the legal situation in the Straits Settlements until its dissolution in 1946 following the formation of the Malayan Union.

The statutory introduction of English law to the Federated Malay States comprising the states of Perak, Selangor, Pahang and Negeri Sembilan occurred in 1937 with the introduction of the Civil Law Enactment, 1937. The Unfederated Malay States, consisting the states of Kedah, Perlis, Kelantan, Terengganu and Johor, became part of the Federation of Malaya in 1948 and the Civil Law (Extension) Ordinance, 1951, extended the application of the Enactment to these states.

Both enactments were replaced by the Civil Law Ordinance, 1956, which applied to all eleven states of the Federation. When Malaysia was established in 1963, it became necessary to harmonise the law to take effect in Sabah and Sarawak. The 1956 Ordinance was then superseded by the Civil Law Act, 1956 (revised 1972) which came into force on 1 April, 1972.


The article was adapted from Wikipedia - Malaysia Legal Law

Mind Mapping (Chapter 1)

For definition, please click here,

Doctrine of Stare Decisis

Malaysia Court Hierarchy