Mar 23, 2008

Company Law Tutorial 3&4

1.
Memorandum of Association Article of Association

-External document -Internal document
-Define the relationship between company and outsider -Define the relationship between company and members
-Set out the objective of the company, -Restrict what the members of the company can do or
what a company can do or cannot do cannot do

If there is conflict between MA and AA, we must always follow MA.


2.Contents in MA under Section 18(1) Companies Act, 1965 are name, object clause, limited liability, capital clause and subscriber clause, and association clause.


3. According to Section 33 of Companies Act, 1965, MA and AA constitute a contract between the company and its members and among members inter-se.

(i) company can sue the members if the members do not follow AA.
(ii) the members can sue the company if their personal rights are affected.
(iii) the members can sue other member if their personal right are affected.
(iv) outsider cannot sue company based on AA.. This is because AA is internal document and there is no contract between outsider and company.


4. Ultra vires means acting beyond the power of a company. Ultra vires in common law-Ashbury Railway Carriage v. Riche held that an ultra vires transaction is null and void. According to Section 20 (1) of Companies Act, 1965 , if it is ultra vires transaction in Malaysia, it is still valid if it falls between 3 exceptions-Section 20(2)(a), (b), (c).

According to Section 20(2)(a) of Companies Act, 1965, if the company is going to sell their property or do something that affects the business without the consent of the members, then it is considered ultra vires. If the company does an act like this, the party can apply for the injunction to stop them from doing so, provided the it must be an executory contract (it must be an act not yet been done.)According to Section 20(2)(b) of Companies Act, 1965, if you bring an action against the former or present officers, then it is ultra vires. You can sue them for damages provided it must be an executed contract. According to Section 20(2)(c) of Companies Act, 1965, if there is petition by a minister to wind up a company, such act is recognised as ultra vires. Therefore, when one of these exceptions applies, it is considered ultra vires, which means the contract is not binding.

According to Section 20(3) of Companies Act, 1965, when you sue for damages or compensation, whether you get it or not, it depends on the judge’s discretion



5.
There are 3 proposals, which based on the changing of object clause, conversion of private company into public company and changing of company name.

Changing the object clause is under alteration of MA. According to Section 21 of Companies Act, 1965, the company can alter the MA as long as Companies Act, 1965 allows you to do so. The object clause can be altered under Section 28 of Companies Act, 1965. According to Section 28(1) of Companies Act, 1965, the alteration of object clause can be done by special resolution. Section 28(2) of Companies Act, 1965 requires the company to give 21 days notice of meeting to all the members of Anggur Sdn Bhd. Section 28(3) of Companies Act, 1965 states that notice must be given to all members of Anggur Sdn Bhd about the alteration of object clause. According to Section 152 of Companies Act, 1965, there must be at least 75% majority of the members of Anggur Sdn Bhd agree to change the object clause. Section 28(8) of Companies Act, 1965 states that 21 days after passing the special resolution, any members of Anggur Sdn Berhad can apply to object. Section 28(5) of Companies Act, 1965 states that there must be at least 10% of issued share capital if they want to object. Section 181 of Companies Act, 1965 states any minority, which is less than 10%, can object under this section. Under Section 28(9) of Companies Act, 1965, Anggur Sdn Bhd must lodge with SSM within 14 days. Section 28(10) of Companies Act, 1965 states the alteration of object clause takes effect when the resolution has been lodged.

Conversion of company is under alteration of MA.MA can be altered when the Section 21 of Companies Act, 1965 allows the company to do so. Under Section 26(2) of Companies Act, 1965, Anggur Sdn Bhd is allowed to covert their company from private to public company. The private company subjects to its memo and article, must lodge with Registrar a special resolution, a prospectus and a statutory declaration verifying compliance with Section 52(2)(b) Companies Act, 1965. Registrar will examine whether everything is in order and issue a altered certificate of incorporation. Then, the Anggur Sdn Bhd becomes a public company. Even though the company gets the certificate of incorporation, but it cannot commence the business until the company is issued with the certificate of commencement.

Changing of company name is under alteration of MA. MA can be altered if Section 21 of Companies Act, 1965 allows the company to do so. Alteration of company name is governed by Section 23 of Companies Act, 1965.According to Section 152 of Companies Act, 1965, alteration of name can be done by special resolution. Anggur Sdn Bhd must give 21 days notice to its members and at least 75% majority of the members agree to change the name of the company, If the company agrees to change the name, it will be issued a altered certificate of incorporation.


6.(a)
According to Article 1 of 3rd Schedule, it allows the company to have object clause. If a company wants to put such a clause, it is advisable to put such a clause in MA. According to Section 21 of Companies Act, 1965, it is permissible to change MA. Alteration of object clause is governed by Section 28 of Companies Act, 1965. It is very wide if Friends Sdn Bhd intends to alter a clause; therefore, it is better for the company to follow the procedures [Section 28(1), (2), (3), Section 152 by special resolution and at least 75% majority of the members agree to the special resolution, Section 28(8), (9), (10).] The minority can object if they want to do so. It is governed by Section 28(5) of Companies Act, 1965, but there must be at least 10% of the issued share capital. For the minority less than 10% of issued shared capital, they can object under Section 181 of Companies Act, 1965.


6.(b) This is alteration of the Article of Association. According to Section 31 of Companies Act, 1965, AA is freely alterable by special resolution. AA is freely alterable provided it must fulfill the 3 conditions:-
(i) The alteration of AA must be bona fide for the benefit of the company as a whole
(ii) It does not contradict with the MA.
(iii) It does not contradict with the CA 1965.

The article of company to be altered to the effect that no discount on purchases shall be given to members except those who purchase more than RM100,000 worth of goods from the company. This alteration is indeed for the benefit of the company. If Friends Sdn Bhd is going to give discounts on purchase to all the members, the company cannot make any profits The company must check whether the alteration of AA is not against the MA and Companies Act, 1965.. According to Section 152 of Companies Act, 1965, the company can only add such a clause if 21 days notice of meeting be given to all the members and a 75 majority of the of Friends Sdn Bhd members agree to alter AA They cant simply add a clause with 75% consent of the members. Any minority can object the alteration under Section 181 of Companies Act, 1965.


6.(c) Changing of name is under alteration of MA. According to Section 21 of Companies Act, 1965, MA can be altered if Companies Act, 1965 allows you to do so. Under Section 23 of Companies Act, 1965, the Companies Act, 1965 allows to alter the name of company. MA can be altered by special resolution under Section 152 of Companies Act, 1965. The company is required to give 21 days notice to all the members about the changing of company name and 75% majority of members must agree to the special resolution. If any minority members less than 10% of issued share capital want to object, they can do so under Section 181 of Companies Act, 1965.

9 comments:

  1. hye.. great entry u have here.. can u comment on my situation? actually I'm in-charge for our internal COSEC department. We sent to SSM a doc to change object clause. on the F11, we put sec 21(2), 154(1) & 28(8),(9). But in the kueri letter, we've been asked to re-look at those section. I think that all the section is relevant. It's hard to get SSM opinion on matter like this. So, appreciated if u could comment. Thanks!

    ReplyDelete
  2. @ indahnyasisuria :
    Hey there, I appreciate your visit here :)

    For your information, I am not an appropriate person to advise you on that as it has been years since I have last learned and what I have learned is merely basic level.

    I would suggest you to seek consultation from the professional.

    Thank you and have a nice day!

    ReplyDelete
  3. So far, I managed to go though only some of posts you discuss here, but I find them very interesting and informative. Just want say thank you for the information you have shared.
    Read more on: Legal transcription India

    ReplyDelete
    Replies
    1. That's the very intention when I wrote these posts. Glad that it helps!

      Delete
  4. Anonymous6:13 PM

    nice... really helped me a lot... THX ^^

    ReplyDelete
    Replies
    1. You are most welcome :)

      Delete
  5. Anonymous11:37 PM

    thanks. It helps a lot in understanding Section 28

    ReplyDelete
    Replies
    1. Glad to hear it helps you :)

      Delete
  6. May I know how the shareholder of the company can do to prevent about the changing of object clause?

    ReplyDelete

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