Please enable JavaScript.
Coggle requires JavaScript to display documents.
CHAPTER 4 : PRE-INCORPORATION CONTRACTS & INCORPORATION OF COMPANY -…
CHAPTER 4 : PRE-INCORPORATION CONTRACTS & INCORPORATION OF COMPANY
PROMOTERS
Those who cause a company to be incorporated and also those who may later find persons to act as its directors, arrange for its shares to be offered to the public or sell assets to it, provided always that in these activities they are generally involved in launching the company.
DUTIES OF PROMOTERS:
Duty to disclose secret profits
-Duty of disclosure of interest
-To recover secret profit
-Rescission of contract
-Termination of Promoter's Duties
REMEDIES FOR BREACH:
-
*Rescission - Where promoter has sold his own property to the company, without disclosing this – the company can rescind the contract and recover the purchase price.
Recovery of secret trust and constructive trust - It is not necessary that there need an imputation of evil purpose or conscious fraud.
Damages for breach of fiduciary duty - A company may also have a remedy in damages against its promoters for breach of their fiduciaries duties.
Pre-Incorporation Contracts
-Contracts made before a company is incorporated.
-A company has no contractual capacity prior to incorporation - so contracts cannot be made on its behalf.
-Before incorporation, company is not a separate entity and therefore it is incapable of gaining contractual rights or incurring liabilities.
-The promoters are responsible for acting for the company.
The Effect of Section 35
To enable the outsider to enforce the contract either against the company after it is incorporated when it ratifies the contract or against the persons who purported to execute the contract on behalf of the non-existent company if it does not.
Incorporation of Company
On and from the date of incorporation specified in the certificate of corporation..the subscribers to the memorandum together with such other persons as form time to time become members of the company shall be a body corporate by the name set out in the memorandum
The Effect of Section 16(5)
shall be a body corporate …capable forthwith of exercising all the functions of an incorporated body and of suing and being sued and having perpetual succession and a common seal with power to hold land but with such liability on the part of the members to contribute to the assets of the company in the events of its being wound up
EFFECT OF INCORPORATION
Separate legal entity
-The decision confirms that a company upon its incorporation, is a SEPARATE LEGAL ENTITY from its members.
-The creditors can look to only the company, and not its member for repayment.
-If a loan is secured, the member-creditor has priority over the proceeds from the secured assets.
Can sue and be sued
-All legal action involving a company must be in its own name.
Ability to own property
-A company may hold property in its own right, either movable or immovable.
Limited liability on members
-All liabilities incurred by the company are to be borne by the company itself and not its members.
Perpetual succession
-The existence of a company does not depend on the existence of its members.
Powers of a Company
-Lie in the memorandum, company articles and relevant legal provisions.
A company acts trough its agent
-A company, being an artificial legal person can only act through natural persons.
Statutory Lifting of Corporate Veil
Sec. 304(1) - Liability on officer responsible for fraudulent trading by company.
Sec. 305 - The officer in the company who misapplied or retained the company’s money or property shall be liable to restore or repay in the event company is wound up.
Sec. 303(3) & 304(2) - The officer of the company contracted a debt for a company where he had no reasonable expectation that the company would be able to pay debt.
Sec. 365(2)(b) - If the officers wilfully pays or permits to be paid dividend exceeds the comp’s profits, personally liable to pay creditors.
Sec. 121 - Requires company to use its name in the documents or transaction .
Sec. 46 EPF Act - The employer who failed to comply with the section (contribution) shall be liable
Sec. 67 - Offence relating to financial assistance to purchase shares, etc.
Sec. 108A Emp. Soc. Sec. Act- The employer who failed to provide the SOCSO shall be personally liable for the company.
Sec. 36 - 1 remaining member & carries business for more than 6 months – liable to pay all debts.
Subscribers to Memorandum
-Sec. 14(1) – requires 2 or more to subscribe their names in MoA.
-Full name, addresses and occupation of the subscribers .
-Share capital company – subscribers must agree to take the numbers of shares in capital.
-State the number of shares (>1) in handwriting.
-Must sign the MoA in presence of >1 independent witness.
-Subscribers must sign the AoA as procedures required in MoA.
Subscribers as Members
-Deemed to have agreed to become members
-In its register of members.
-Even if the subscribers are not entered in the register of the members.