doctrine of separate legal entity for company law

1. The effect of incorporation
Doctrine of separate legal entity – the company and its
members are two separate/ distinct entities
Salomon lwn. A Salomon co. & Ltd
Lee lwn Lee’s Air Farming Ltd.
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2. Characteristics of a company
S 16(5) CA 1965
Power of a corporation
Can sue and be sued
Perpetual succession
Can hold property under its own name
Liability of a member
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3. Characteristics of a company
1. Power of a corporation
 As from the date of incorporation, a company acquires a legal
entity. It becomes a legal person. It is distinct from its own
members.
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4. Characteristics of a company
2. Can sue and be sued

A company can sue and be sued under its own name
 Foss lwn Harbottle
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5. Characteristics of a company
3. Perpetual Succession

A company will still continue to exist even though all its
members died.
 Re Noel Tedman Holdings Pty Ltd.
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6. Characteristics of a company
4. Power to hold property

A company may hold property under its own name.
 Macaura lwn Northern Assurance Co Ltd.
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7. Characteristics of a company
5. Liability of members

A member would not be personally liable for the company’s
debt. The member’s liability depends on the type of company
being incorporated.
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8. LIFTING OF THE CORPORATE VEIL
The corporate veil refers to the doctrine of separate
legal entity.
All the company’s liabilities is separated from the members’
liabilities.
The Court would not lift the veil in order to find out who
actually is liable on the company’s debt.
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9. LIFTING OF THE CORPORATE VEIL
The Court would however lift the
corporate veil in order to find out who the
wrongdoer is or the person liable for the
company’s debt under TWO
circumstances.
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10. LIFTING OF THE CORPORATE VEIL
2 SITUATIONS:
Statutory exception
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Judicial exception

11. LIFTING OF THE CORPORATE VEIL
Statutory exception
1.
S 36 CA 1965
- Statutory prohibition on carrying a business with members
less than two.
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12. LIFTING OF THE CORPORATE VEIL
Statutory exception
2. S 121(2)(c)
- an officer signing an incomplete document on behalf of the
company would be liable on the mistake so made.
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13. LIFTING OF THE CORPORATE VEIL
Statutory exception
3. SS 303(3) + 304(2)
- the officer making loan on behalf of the company and
believing that the company is incapable of settling the debt;
the officer would then be liable on the loan so made.
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14. LIFTING OF THE CORPORATE VEIL
Statutory exception
4. S 304(1)
- For a company carrying on the business in the form of
fraudulent trading, the Court upon application by creditor/
contributor/ liquidator may order the officer concerned be
made liable for the company’s debt.
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15. LIFTING OF THE CORPORATE VEIL
Statutory exception
5. S 365(2)(b)
- director would be made liable on the dividend paid not from
profit.
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16. LIFTING OF THE CORPORATE VEIL
Judicial Exception
1. The company has been used to manipulate or evade
liability.
- Gilford Motor Co. lwn Horne
- Jones lwn Lipman
- Re Darby
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17. LIFTING OF THE CORPORATE VEIL
Judicial Exception
2. The company has been agent or ‘alter ego’ to its
members.
- Aspatra S/B lwn Bank Bumiputra Malaysia Bhd.
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18. LIFTING OF THE CORPORATE VEIL
Judicial Exception
3. When the company has been used as mask to cover a
wrongful act.
- Re FG(Films) Ltd.
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19. LIFTING OF THE CORPORATE VEIL
Judicial Exception
4. When the Court acts on analogy and equity
- Orri lwn Moundreas
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20. LIFTING OF THE CORPORATE VEIL
Judicial Exception
5. When it involves group of companies
- Hotel Jaya Puri Bhd. lwn National Union of Hotel, Bar & Restaurant
Workers
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