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Topic 2.4: Incorporation and its effects - Coggle Diagram
Topic 2.4: Incorporation and its effects
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 exceptions
Offence relating to
financial assistance to purchase shares
Section 123
of Companies Act 2016
A
Company shall not give any financial assistance
for the purchase of its own shares to its own officers of the company.
If convicted
, will be
liable for a fine or imprisonment
or both.
Offence relating to
distribution out of profit
Section 131
of Company Act 2016
A
company may only distribute to the shareholders out of profits
of the company if the company is solvent.
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.
Offence relating to
unauthorized distribution
Section 132
of Companies Act 2016
Before a distribution
is made by a company to any shareholder, such
distribution shall be authorized by the directors of the company.
The
directors may authorize the distribution if it is satisfied the company will be solvent immediately
after the distribution is made. (solvent- able to pay its debt within 12 months)
Any director or officer who
authorized improper distribution will be liable
to for a
fine or imprisonment
or both.
Judicial exceptions
The court will lift the corporate veil when justice of the case so requires
Perpetration of Fraud
The
corporate veil may be lifted if the company is used to perpetrate fraud.
Case: Aspatra Sdn Bhd & 21 Ors v Bank Bumiputra Malaysia Bhd & Anor (1988)
Evasion of Legal Obligation
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 party to the contract
Case: Gilford Motor Co. Ltd v Horne (1933)
Enemy in Times of War
In
time of war,
a
company is not permitted to trade with ‘enemy aliens’
A
contract entered into with an enemy alien is at common law void for illegality
as it is
against public policy
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
Case: Daimler Co Ltd v Continental Tyre & Rubber Co (Great Britain) Ltd (191
6)
Holding and Subsidiary Companies
- A group of companies may be treated as a single corporate entity.
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.
Case: Hotel Jaya Puri Bhd v National Union of Hotel, Bar & Restaurant Workers & Anor (1980)
Tax Avoidance
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
Case: Unit Construction Co Ltd v Bullock (1960)