The document discusses the incorporation of companies under Malaysian corporate law. It provides: 1) An overview of the key stages in incorporating a company, from the pre-incorporation stage with promoters to registration with the Registrar and becoming an incorporated entity. 2) Details on promoters' duties and potential liabilities, as well as the effect of pre-incorporation contracts. 3) An explanation of the incorporation process, including requirements for a notice of registration and certificate of incorporation. It also discusses a company's constitution and the role of a company secretary.

1. You can cite this information as follows :
 In-text citation : Ng and Chang (2021)
 Reference list : Ng, M.Y. and Chang, C.F. (2021) “Corporate Law of Malaysia: Incorporating a Business in Malaysia” Social Science
Research Network, at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3797479
 Note : These slides may provide extra information or illustration that are not found in the full article. This is to facilitate students’ learning.
Undang-undang syarikat  公司法
Corporate Law of Malaysia :
2. Incorporation of Companies
• Quick reference for Undergraduate Students
• With translation of key terms in “Bahasa” and “中文”

2. Topics in this Series (search SlideShare using this title) URL to the full Article
1 Boleh Law Introduction to Malaysian Company Law & Companies https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3779693
2 Boleh Law Incorporation of Companies https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3797479
3 Boleh Law Corporate Constitution https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3797482
4 Boleh Law Share Capital & Capital Maintenance https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3797487
5 Boleh Law Rights of Shareholders & Members https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3797485
6 Boleh Law Loan Capital https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3797494
7 Boleh Law Directors & Officers https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3806994
8 Boleh Law Accounting and Auditing of Corporate Accounts https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830195
9 Boleh Law Anti-money laundering and anti-terrorist funding https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830185
10 Boleh Law Taxation https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830197
11 Boleh Law Meetings https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830189
12 Boleh Law Rescuing a Company https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830190
13 Boleh Law Winding-up a Company https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830192

3. This is Chapter 2 of a series of 11 chapters.
You can get a clearer picture by reading the previous
chapter before attempting this chapter.

4. Table of Content
These slides cover the following issues :
1) Creation of a company and its life journey
2) Promoters
3) Pre-Incorporation contracts
4) Incorporation
5) Lifting the veil of incorporation

5. See Agenda in the next slides 
1) Creation of a company and its life journey
• Note : “Company” here refers to Sdn Bhd and Bhd
• A company need to be incorporated under the CA 2016 to obtain the permission to
commerce business from the Registrar.

6. Agenda
① Pre-incorporation stage
② Registration with the Registrar. Once Notice of Registration is issued, the business is
incorporated
③ Post-incorporation, the business becomes a company
④ Promoters becomes the shareholders.
⑤ Sometime the promoter will also become the Director of the company
⑥ Assets acquired before incorporation becomes the company’s asset following
incorporation

7. • Pre-incorporation stage is the infancy (peringkat bayi ; 婴儿期) stage prior to submitting
an incorporation application to the Registrar.
• At this stage, the business is yet to be a “company”. In other words, the company does not
exist.
• However, someone need to do the groundwork (persediaan asas ; 基础工程) to start the
business, such as renting office space, purchase furniture, buy stocks, engage professional
advisors ie : accountant, lawyer etc.
• The preparation job rest on a person called “Promoter” (penganjur korporate ; 公司发起
人)
2) Promoters

8. Promoter’s duties
(1) Fiduciary duties
• “Fiduciary” (yang diamanah ; 受信) is a position of trust and confidence.
• Promoter owes the company (not to the shareholders) the duty of utmost honesty ie.
full disclosure of relevant facts or not to make secret profit.
• Promoter may make personal profit if the company so permits him
(2) Duty to account
• promoter is accountable (bertanggungjawab ; 负责) to the company on money
received by him

9. Remedies available to the company if the Promoter breaches his duties
1) Rescind the contract (batalkan kontrak ; 撤销合同)
• Company may choose to terminate the contract made by the promoter, return monies or
property received under the contract to the 3rd party, recover monies paid to the 3rd party
and free all parties from future obligations.
• This has the effect of returning the parties to the position as if the contract has not been
made.
• Restitution (permulihan ; 归还) is not possible if the property cannot be returned in its
original form, e.g. the premise has been demolished or renovated – see : Erlanger v New
Sombrero Phosphate Co. (1878)
2) Recovery of secret profit
• if the contract cannot be rescinded because, e.g. the property is necessary for the business,
then the company can opt to accept the contract and recover the secret profit from the
promoter – see : Gluckstein v Barnes (1900)

10. 3) Claim for damages
• the company can make a claim to the court for damages (ganti rugi ; 赔偿) from the
promoter for negligence (kecuaian ; 疏忽) and for whatever losses that flows from the
secret profit contract – see : Re Leed and Hanley Theatres of Varieties Ltd (1902)
4) Restoration of properties and money
• in the event of winding up, Sec.541 of CA 2016 empowers the Court to compel the
promoter to restore properties or money obtained or used which in breach of trust or duty.
• Interest may be imposed on the amount due.
• Alternatively, the Court may order the wrongdoing promoter to pay compensation to the
company.

11. Erlanger v New Sombrero Phosphate Co. (1878)
Erlanger owned an island that contain phosphates. He later promoted a company of
which he has full control of the Board. He sold the island to the new company at
an inflated price. The Board of the new company was later replaced by a new
Board. They seek to rescind the contract.
Held : Rescission allowed not non-disclosure.
Gluckstein v Barnes (1900)
The defendants lent money to Company A in the form of debenture. They later bought over
Company A and redeemed the debenture held by them at a handsome price. Then they promoted
and incorporated Company B and sold Company A to the former at a profit. The profit was
disclosed to the members of Company B but not the profit they made on the debenture.
Held : Company B is entitled to recover the extra money paid to the debentureholders. The
promoters are wrong for nondisclosure.

12. Re Leed and Hanley Theatres of Varieties Ltd (1902)
A promoter bought 2 music halls through an agent and resold it at a 200% profit.
Both sale and purchase were made in the name of the agent. The promoter's
interest and profit were never disclosed.
Held : The promoter was ordered to pay damages for breach of fiduciary duty.

13. 3) Pre-incorporation contracts
• Prior to registration, the business needs to have some essential matters sorted, such as :
 Office space or place of business – this is necessary as the business address need to be
included in the registration application
 Investors – the investors will be the initial shareholders of the company
 Directors – to manage the company in future. The initial directors recruited will be the
company’s first directors
 Stocks, assets and premise – to enable the company to commerce operation once the
registration application is approved by the Registrar
• As a result, the Promoter need to enter into various contracts to, e.g. employment contract,
purchase contract, rental agreement etc. These contracts and agreements are generally termed as
“pre-incorporation contracts”.
• Note that at the time the contract is made, the company has yet to exist. Hence the contract
cannot be made in the name of the company. The contract is, therefore, made between the
Promoter and the 3rd party supplier.

14. Effect of pre-incorporation contracts
1) The promoter will be personally liable to the pre-incorporation contracts (Sec.65(1), CA
2016).
• Promoter can sue and be sued in his own name.
• The company has no privity (kedudukan undang-undang ; 法律地位) to sue the 3rd party
after its incorporation.
2) The company can ratify (mengesahkan ; 批准) the pre-incorporation contracts after its
incorporation.
• Ratification must be done within reasonable time (dalam jangka waktu yang munasabah ;
在合理的时间内) after incorporation.
• After ratification, the company will be bound by the contract as if it has made the contract
itself (Sec.65(2), CA 2016)
• If the company failed or refused to ratify the pre-incorporation contracts, the Promoter will
continue to be personally liable to those contracts.

15. 4) Incorporation
Incorporate process began by filing an application to the Registrar with the following detail about the
proposed new company : (Sec.14, CA 2016)
1) Name of the proposed company
2) Indication of whether it is a private or public company
3) Registered address
4) Member’s name, identification, nationality and place of residence. If the member is a corporation, the
place of incorporation, registration number and registered office of the corporation has to be provided
5) Name, identification, nationality and the principal place of residence of every director and secretary (if
any).
6) If the company is limited by shares – details of the class and number of shares
7) If the company is limited by guarantee – the amount up to which the member undertakes to contribute
8) Statutory declaration
9) And any other information that may be required by the Registrar

16. Notice of Registration (“NoR”)
• if the Registrar is satisfied, a NoR will be issued
• NoR is conclusive evidence (bukti muktamat ; 确凿证据) that the statutory requirement
pertaining to registration has been satisfied (Sec.19, CA 2016).
• date of incorporation is the date stated on the NoR.
• the company may commence its operation starting from that date onwards
Certificate of Incorporation (“CoI”)
• will be issued upon payment of some fees.
• mainly used for official matters, e.g. dealings with banks, Tenaga Nasional, wifi
application etc.

17. Common Seal
• Common seal is like the company’s thumbprint. But it is not
compulsory for all companies to have common seal (Sec.61(1), CA
2016). Instead, documents may be signed by the authorized signatories
of the company.
• Common seal is useful if the company has oversea branches where
signatories may be difficult to obtain.
• If common seal is used, these rules must be observed :
1) Company’s name and registration number must be on the seal
2) The official seal (the duplicate seal that is kept at different branch
office) must be the exact copy of the common seal
3) The official seal holder must state in writing the date and place the
seal is affixed on the document where the seal is affixed

18. Company Constitution
• Constitution (perlembagaan ; 宪法) of the company means the Memorandum of Association
(M&A) and the Article of Association (A&A) of the company
• Not compulsory
• If the company choose to have a Constitution, it must submit it to the Registrar within 30 days
after its adoption through special resolution (Sec.32, CA 2016).
• A company limited by guarantee must have a written constitution (Sec.31, CA 2016).
Company Secretary (CS)
• CS help to ensure that the company complies with all regulatory requirement.
• not compulsory to have a CS at the time of incorporation
• Appointment can be made within 30 days from the date of incorporation (Sec.236, CA 2016).
Note :
Detail information about Constitution can be found in “Chapter 3 : Corporate Constitution”
Detail information about special resolution can be found in “Chapter 9 : Meetings”
Detail information about company secretary can be found in “Chapter 7 : Directors & Officers”

19. Effects of Incorporation
a) Separate legal entity (veil of incorporation)
• once incorporated, companies own its own legal personality (seorang individu dalam
undang-undang ; 法律认可的个人) that is separated from its owner.
• Salomon v Salomon & Co Ltd (1897)
b) Perpetual succession
• the company lives perpetually (kewujudan kekal ; 永生) even if it has no business operation
• unless it is being wound up voluntarily, by the Court or by creditors.
• Re Noel Tedman Holdings Pty Ltd (1967)
c) Unlimited capacity
• The company will have full capacity to undertake any business or activity
• no limit to how much a company can borrows
d) Limited liability
• liability of the company is unlimited. The company must pay off its creditors in full.

20. Salomon v. A. Salomon & Co. Ltd. [1897]
Mr.Salomon, his wife and children are shareholders of Salomon & Co, a limited
liability company, that was established to takeover a previous sole proprietor
business belonging to Mr.Salomon too. He remained as the director of the new
company and it is largely under his full control. He gave a loan of £10,000 to the
new company in the form of debenture. Eventually, the company went into
liquidation and Mr.Salomon claimed priority repayment of the loan in his capacity as
secured creditors. Other unsecured creditors contended claiming fraud.
Held : Once incorporated, a limited liability company is separated from its members.
The secured creditors relationship is with the company, not Mr.Salomon as a
member or director.

21. Re Noel Tedman Holdings Pty Ltd (1967)
A husband and wife are the only shareholders and directors of the company. They
both died in a tragic accident, leaving an infant child. The child becomes the only
beneficiary to inherit the shares of the deceased parents. However, the company's
article stipulates that shares transfer must be approved by the directors. As such, the
company's stewardship falls into a deadlock.
Held : The deadlock was resolved by allowing the personal representatives of the
deceased shareholders to appoint directors to approve the share transfer to the child.

22. 5) Lifting the Veil of Incorporation
• The principle of separate legal entity is to protect the members from debts, obligations or
misconduct committed by the company
• But this protection can be lifted by : (i) Statute ; (ii) Common law
• “Lifting the veil” (selak tabir ; 揭开帘子) effectively means holding the members liable for the
company’s wrongdoing

23. (a) Lifting the veil by Statute
i) Sec.540(1), CA 2016 – any person can be held liable for a company that carry out fraudulent
trading
ii) Sec.542, CA 2016 – any officers and members can be held liable for criminal offences
committed in the course of winding up the company
iii) Sec.131, CA 2016 – any officers and members can be held liable for making dividend
payment that is not out of the company’s profit
iv) Sec.127, CA 2016 – any members can be held liable for violation of rules pertaining to the
company purchasing its own shares
Note : Detail information about purchase of own shares can be found in “Chapter 4 : Share capital & Capital
Maintenance”

24. (b) Lifting the veil by Common Law
i) The company has been used as a devise to shield its sham.
• see : Gilford Motor Co Ltd v. Horne [1933]
ii) The company has been used as engine to commit fraud
• see : Aspatra Sdn Bhd & 21 Ors v. Bank Bumiputra Malaysia Bhd [1988]
iii) Parent and subsidiary companies are treated as a single entity
• see : Hotel Jaya Puri Sdn Bhd V National Union Bar & Restaurant Workers (1980)
• see : Pek Seng Co. Pte. Ltd. & Ors v. Low Tin Kee & Ors [1990]

25. Gilford Motor Co Ltd v. Horne [1933]
Horne's contract of employment contain a restrictive clause that forbid him
from soliciting with Gilford's customers after his employment ended. Horne
set up another company outside where his wife was the director. The company was
competing with Gilford's business and established contact with its customers. Gilford suited Horne.
Held : Horne has used the company as a sham. He was held liable for stealing Gilford's customers.
Aspatra Sdn Bhd & 21 Ors v. Bank Bumiputra Malaysia Bhd [1988]
Osman was a director of BBMB. The latter bought an action against the former and some
companies owned by the latter to recover secret profits amounted to approximately RM27 million.
The companies were controlled by Osman. BBMB were concerned that Osman may fled the
country along with the assets. Osman argued that the money are the companies' assets, not his.
Held : The Court will lift the veil if fraud is involved.

26. Hotel Jaya Puri Sdn Bhd V National Union Bar & Restaurant Workers (1980)
The restaurant was established independently from the hotel. It is situated inside
the hotel premise. It has the same Managing Director and managers as the hotel.
Most of the restaurant's staff were employed by the hotel. Subsequently, the
restaurant cease operation and the staffs were retrenched. The Union argued that the staffs cannot be
retrenched by reason of cessation of business because the actual employer, which is the hotel, was still in
operation. The hotel claimed separate legal entity.
Held : The corporate veil is lifted. The 2 companies were functionally one entity.
Pek Seng Co. Pte. Ltd. & Ors v. Low Tin Kee & Ors [1990]
The creditors of Pek Seng (parent) obtained a mareva injunction against it and 2 of its wholly owned
subsidiaries. The subsidiaries applied for the injunction order to be lifted.
Held : The application was denied because the managing director of Pek Seng have full control over the
subsidiaries. Hence the 3 companies should be treated as one entity. This lifts the veil of incorporate of Pek
Seng.

27. The End
Check out the next chapter !