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Incorporation and its Effect - Coggle Diagram
Incorporation and its Effect
Lifting The Corporate Veil
Exceptions to the principle in Salomon V Salomon.
The corporate veil may be lifted in certain circumstances.
Statutory exceptions
Provisions in Companies Act.
Judicial exceptions
Court or judges are prepared to lift the corporate veil based on justice.
Statutory Exception
Section 131 of Company Act 2016
Offence relating to distribution out of profit
If not comply with this, the company or officer will be liable for imprisonment (not exceeding 5 years) or a fine (not exceeding 3 million ringgit) or both.
A company may only distribute to the shareholders out of profits of the company if the company is solvent.
Section 132 of Companies Act 2016
Offence relating to unauthorized distribution
Before a distribution is made by a company ro any sharehilder, such distribution shall be authorized by the directors of the company.
Any director or officer who authorized improper distribution will be liable to for a fine or imprisonment or both.
The directors may authorize the distribution if it is satisfied the company will be solvent immediately after the distribution is made.
Section 123 of Companies Act 2016
Offence relating to financial assistance to purchase shares
If convicted, will be liable for a fine or imprisonment or both.
A Company shall not give any financial asistance for the purchase of its own shares to its own officers of the company.
Judicial exceptions
Enemy in Times of War
Case:Daimler Co Ltd v Continental Tyre & Rubber Co(Great Britain)Ltd(1916).
A contract entered into with an enemy alien is at common law void for illegality as it is against public policy.
In time of war, a company is not permitted to trade with 'enemy aliens'.
The court is willing to lift the veil of incorporation in wartime to investigate if the shareholders in control and management of a company are enemy aliens or not.
Holding and Subsidiary Companies
Case: Hotel Jaya Puri Bhd v National Union of Hotel, Bar & Restaurant Workers & Anor (1980)
A holding company and any of subsidiary companies are two separate legal entities,but there are instances where these two are not really treated as separate.
Evasion of Legal Obligation
Case: Gilford Motor Co. Ltd v Horne(1933)
The court will not allow the doctrine of independent legal entity to be used by a contracting party to circumvent his contractual obligations lawfully owed to the other other party to the contract.
Perpetration of Fraud
Case: Aspatra Sdn Bhd & 21 Ors v Bank Bumiputra Malaysia Bhd & Anor (1988).
The corporate veil may be lifted if the company is used to perpetrate fraud.
Tax Avoidance
Case: Unit Construction Co Ltd v Bullock (1960)
The court may lift the veil of incorporation,where it is being used to conceal the nationality of the company with the intention of evading taxes.