Company Law

Contents

Introduction        2

Promoters, incorporation and fiduciary duties        3

Pre incorporated contacts and validity        7

Conclusion        9

Reference        10

Introduction

A company is referred to as any activity that engages in a business activity.  Companies are structured in several ways. It can be a partnership business, sole proprietor business or even a corporation.  Functioning of a company in a sense of legal manner is to carry on the business activity and hold the property as a separate entity from the investors and managers in that particular business. The corporations established in Malaysia are incorporated under Companies Act 1965. Incorporation is known as the legal procedure used for formation of a company or a corporate entity.   It is common for many companies to face obstacles and disputes in the incorporation process. Hence corporate veil becomes necessary. Corporate veil is a legal conception that split up the personality of a corporation from its shareholders and shields them personally from being liable for entities debts and obligations.  The incorporation results to separation of ownership, identifying contractual capacity, and legal entity. This whole process is carried out by a promoter. A promoter is the one who, undertakes to form a company with reference to a given object and sets it going and takes the necessary steps to accomplish that purpose (Bourne, 2016).

Promoters, incorporation and fiduciary duties

A promoter considers a thought for setting-up a specific venture at a given place and implements different customs required for beginning an organization. A promoter might be an individual, firm, relationship of people or an organization. The parties that help the promoter in finishing different lawful customs are proficient individuals like Solicitors, Counsels, Accountants and so forth and not promoters. A promoter will be responsible to conduct preliminary investigations to make sure that the company future is strong.

The promoter unites different people who consent to connect with him and offer the business duties. In addition to this it is responsibility of the promoter to prepare various documents to begin incorporate process and raise finances to get the company up and going.  Company law does not give any legitimate status to promoters. Promoters are considered neither a specialist nor a trustee of the incorporation, since it is a non-entity before consolidation. Some legitimate cases have attempted to indicate the status of a promoter. He remains in a fiduciary position. Under the supervision of a promoter, the company is formed and established. It is the obligation of the promoter to get most extreme advantages for the organization. He ought not to get mystery benefits from the organization.

In Vali Pattabhirama Rao v. Ramanuja Ginning and Rice Factory (P) Ltd , the promoter obtained a leasehold for the business which he proposed to establish. However, he initially shaped a partnership company and afterwards changed over it into an organization. The Court held that the leasehold to become assets of the company from the beginning of the purchase (Paranjape’s, 2012).

Incorporation undertakes when a decision is taken to create a new legal entity recognized by law to conduct business activities. Incorporation includes drafting of legal documents named "Articles of Incorporation" that lists the primary role of the business, its location and name, the quantity of shares and many more. The law related to incorporation of a business in Malaysia is governed by Malaysian Companies Act, 1965. According to the Act all businesses must be business in Malaysia must registered with the Companies Commission of Malaysia (CCM) (Hanrahan, 2002). Incorporating a business is one of the most ideal ways to protect personal assets.  

A corporation can claim property, bring about liabilities, bear on business and sue or be sued. The corporation is held responsible for the debts since it is a separate legal entity. As a different legitimate element, a company is in charge of its own obligations. This implies that creditors of a corporation can seek out for payment from the assets of the organization and not from the directors or shareholders assets. In actuality, that implies entrepreneurs can conduct business without taking a chance with their cars, homes, investment funds, or individual property. Proprietors of a sole proprietorship or organization, then again, confront boundless risk for both business and individual resources.

One of the advantages of incorporation is that incorporation indicates the level of seriousness of the venture and becomes easy to convince and gather required funding’s from lenders in order to develop the incorporation further more. Another advantage is that incorporated business gets to enjoy lower tax rates. For example, entrepreneurs can modify the compensations they pay themselves in ways that effect on the company's benefits and, in this way, its expense commitments. It can likewise be less demanding for a business to put resources into annuity arranges and other incidental advantages as a partnership in light of the fact that the cost of these advantages can be considered assessment deductible operational expense.  One of the exceptional components of an organization is its free corporate existence. By enrollment under the Companies Act, an organization ends up noticeably vested with personality of the corporation, which is free from its members. An organization is a legitimate individual.

The verdict of the House of Lords in Salomon v. Salomon and Co. Ltd. (1897 AC 22) is an expert on this principle. One S joined an organization to assume control over his private issue of assembling shoes and boots. The seven supporters of the memorandum were all his relatives, each taking just a single share. The Board of Directors made out of S as the managing director and his four children. The business was exchanged to the company for 40,000 pounds. S acquired 20,000 shares of 1 pound every debenture valued 10,000 pounds. In a year the business came to be twisted up and the state if undertakings was this way: Liabilities-Debenturecreditors-10,000 pounds, Assets-6,000 pounds, and unsecured leasers 7,000 pounds. It was contended for the benefit of creditors, however the co was consolidated, and it never did really had an independent presence. It was S himself exchanging under another name, however the House of Lords held Salomon &Co. Ltd. must be viewed as a different individual from S (Goode, 1997).