Business Entities, Agency & Company Law – Comprehensive Study Notes

Business Organisations in Malaysia

• Five principal business forms in Malaysia
• Sole Proprietorship
• Partnership
• Company
• Limited Partnership (Labuan-only; two classes of partners)
• Limited Liability Partnership (LLP; nationwide)

Sole Proprietorship

• Simplest, unincorporated structure – business = owner
• Characteristics
• Unlimited personal liability for business debts
• Uses proprietor’s own labour, skill, capital
• Minimal regulation – only general laws + registration requirement
• Statutory obligations
• Register the business within 30 days of commencement (Registration of Businesses Act 1956)
• Provide proprietor’s particulars; obtain & display Certificate of Registration
• Non-registration consequences
• Offence – fine up to RM50{,}000 and/or 2-year imprisonment (s.12)
• Civil: cannot sue to enforce contracts (s.8), yet may still be sued ‑ “can be sued but cannot sue”

Partnership (General Partnership)

• Definition – “relation which subsists between persons carrying on business in common with a view of profit” (s.3(1) PA 1961)
• Governing law – Partnership Act 1961 (Revised 1974)
• Essential attributes
• Unincorporated ▸ no separate legal personality
• Joint & several, unlimited liability of partners
• Number of partners: ext{min}=2, ext{max}=20 (Companies Act 1965, s.14(3))
• Exclusions – co-operatives & statutory authorities (s.3(2) PA)
• Registration
• Peninsular: Registration of Businesses Act 1956; Sabah & Sarawak under local ordinances
• Failure to register ≠ bar partners’ inter-se rights (Gulazam v Noozaman)
• Partnership law supplements – common law & equity (s.47(1) PA)

Limited Liability Partnership (LLP)

• Statute – Limited Liability Partnerships Act 2012
• Hybrid of company + partnership: body corporate with perpetual succession
• Separate legal person ▸ may sue/be sued, own property
• Liability – debts satisfied from LLP assets; partners liable only for own wrongful acts
• Partners: ext{min}=2, no maximum
• Compliance
• MyLLP e-incorporation
• Annual declaration of solvency, but no audit unless partnership agreement requires
• Suitable for professional practices (audit, legal, secretarial) & SMEs

Company

• “Company” = entity incorporated under Companies Act 2016 (CA 2016)
• Incorporated association ▸ separate legal entity (Salomon v Salomon 1897)
• Consequences of incorporation
• Separate personality
• Perpetual succession
• Capacity to contract, sue & be sued, own assets
• Limited liability of members (unless unlimited company)

Comparison: Company vs Partnership vs LLP

• Membership
• Company limited by shares: 1 (private) / 2 (public) → unlimited above; private capped at 50
• Partnership: 2–20 (more for professional firms)
• LLP: ext{min}=2, no cap
• Legal personality
• Company & LLP = separate person
• Partnership = no separate entity
• Liability
• Company & LLP – limited to contribution / shares
• Partnership – joint, several & unlimited
• Formalities
• Company: higher fees, e-lodgement, possible constitution, audits (public)
• Partnership: low fee, simple registration, oral agreement possible
• LLP: online MyLLP, standard agreement if none, annual solvency filing
• Dissolution
• Company & LLP: liquidation / striking-off
• Partnership: informal agreement + deregistration filing

Classification of Companies (CA 2016)

• Limited vs Unlimited (s.10(1))
• Company limited by shares – liability up to unpaid share capital (s.10(2))
• Company limited by guarantee – members guarantee contribution upon winding-up; no share capital; usually non-profit (s.10(3))
• Unlimited company – no liability ceiling (s.10(4))
• Private vs Public
• Private: share-capital company only, subject to
• ext{shareholders}\,\le 50 (s.42(1))
• Share-transfer restrictions (s.42(2))
• Prohibitions on public share/debenture offers & deposits (s.43)
• AGM optional
• Public: any company other than private; must hold AGM; extra disclosure duties
• Holding & Subsidiary (s.4(1)) criteria
• Control board composition
• >50\% voting power or issued share capital
• Tiered subsidiary relationships
• Example chain: Easygo Bhd → Rainbow Sdn Bhd → Sakura Bhd
• Local vs Foreign (s.2(1))
• Local: incorporated in Malaysia
• Foreign: incorporated elsewhere but registered to carry on business in Malaysia; must comply with ss.561{-}579 CA 2016

Law of Agency (Contracts Act 1950 Part X)

• Agency = legal relationship where agent authorised to represent principal vis-à-vis third parties (s.135)
• Dual contracts:
• Principal ↔ Agent
• Principal (through agent) ↔ Third party
• Creation modes
• Express authority (s.140) – oral/written (e.g.A Power of Attorney)
• Implied authority – conduct, custom, prior dealings, partnership (s.140, s.7 PA)
• Ratification (s.149) – principal adopts unauthorised act; requirements include existing, competent principal; full knowledge; whole-act acceptance; no injury to third party (s.149–153). Cases: Keighley Maxted; Kelner v Baxter
• Agency of necessity (s.142) – impossible to obtain instructions + action necessary to prevent loss + good faith. Case: Great Northern Railway v Swaffield
• Agency by estoppel (s.190) – principal’s representation leads third party to rely. Cases: Freeman & Lockyer; Sri Shan Realty

Duties in Agency

• Agent → Principal
• Obey lawful instructions (s.164)
• Reasonable care & skill (s.165)
• Render accounts (s.166)
• Communicate material facts (s.167)
• Pay sums received (s.171)
• Avoid secret profits/bribes (s.168–169); remedies include contract repudiation & disgorgement (Mahesan case)
• Principal → Agent
• Pay commission / agreed remuneration
• Indemnify for authorised acts (s.175, 176)
• No indemnity for criminal acts (s.177)

Authority of Agents

• Actual authority – express + implied/incidental/customary
• Apparent (ostensible) authority – representation to third party; principal estopped
• Acts within authority bind principal; excess authority binds only if ratified

Discharge of Contract (Contracts Act 1950)

• Modes
• Performance (exact & precise) – tender requirements: unconditional, proper time/place, reasonable inspection opportunity (s.39)
• Agreement – novation, alteration, rescission (s.63–64); remission (accept lesser performance)
• Frustration – impossibility at formation (s.57(1)) or subsequent impossibility/illegality (s.57(2)); effects: contract void, restitution of benefits (s.66)
• Grounds: destruction of subject matter (Taylor v Caldwell), failure of common purpose (Krell v Henry), death/incapacity, supervening illegality
• Breach – due-date breach, breach during performance, anticipatory breach (s.40); remedies: rescission + damages (s.76), restitution (s.65)

Partnership Law – Internal Matters

• Partnership agreement advisable; may cover capital, profit sharing, management, admission, property, etc.
• Where silent, default PA 1961 rules (s.26, 41): equal shares, equal management rights, no remuneration, unanimity for new partners or change of nature, partnership property solely for firm use
• Mutual agency – each partner is agent of firm (s.7).
• Chan King Yue v Lee & Wong: borrowing within ordinary course binds firm
• Liability (s.11)
• Contractual: joint & several, extends to estate of deceased partner
• Criminal: individual liability unless participation proven (Chung Shin Kian case)
• Dissolution grounds
• By agreement / expiration / notice (s.34)
• Bankruptcy or death (s.35)
• Illegality (s.36)
• Court order on listed grounds incl. lunacy, misconduct, deadlock, just & equitable (s.37)

Limited Liability Partnership – Additional Points

• Perpetual succession; partner changes do not affect entity
• Compliance officer – qualified company secretary appointment mandatory
• Records: minute book, accounting records; audits only if partners agree

Separate Legal Entity Doctrine (Companies)

• Core principle – company distinct from members/officers (Salomon)
• CA 2016 codification: s.20 (body corporate), s.21 (capacities)
• Effects summarised: corporate personality, right to sue/be sued, own property, contractual capacity, limited liability, perpetual succession
• Cases reinforcing doctrine
• Lee v Lee’s Air Farming – sole shareholder can be employee
• Macaura – shareholder has no insurable interest in company assets
• Foss v Harbottle – proper plaintiff rule

Lifting / Piercing the Corporate Veil

• Statutory exceptions (CA 2016)
• s.30 – failure to disclose company name on negotiable instruments → signatory personal liability
• s.131 – unlawful dividend distribution → director liability
• s.186(4)(b) – failure of minimum subscription in a share issue
• s.539(3) & s.540 – fraudulent trading; reckless incurring of debt
• Other statutes
• Income Tax Act s.140(1) – anti-avoidance re-characterisation
• EPF Act s.46(1) – directors jointly & severally liable for unpaid contributions
• Judicial grounds
• Fraud / improper purpose – Re Bugle Press, Lim Kar Bee
• Evading contractual duties – Jones v Lipman; Gilford Motor v Horne
• Single economic entity – DHN Food; Hotel Jaya Puri
• Public policy / enemy character – Daimler v Continental Tyre

Termination of Agency

• By act of parties
• Mutual agreement
• Revocation by principal (prior to authority exercised); may owe damages
• Renunciation by agent – reasonable notice (s.159) if indefinite; liability for premature exit in fixed-term (s.158)
• By operation of law
• Performance of purpose (s.154)
• Expiry of fixed term / reasonable time lapse
• Death or insanity of principal or agent (s.161–162)
• Bankruptcy
• Frustration / impossibility (e.g., war – Stevenson v Aktiengesellschaft)

QUICK REFERENCE – NUMERICAL HIGHLIGHTS

• Sole-prop registration deadline: 30 days; penalty up to RM50{,}000
• Partnership size: 2–20
• Private company shareholders: \le50
• LLP partners: \ge2, no upper limit
• Company incorporation: separate legal entity – established in 1897 by Salomon case