Corporate Law and Governance Essay

dubiety 1 Bryan, Sarah, Jason, Calvin and Rubini ar interested in commencement a travel agency specializing in tours near Sabah. They be crafty in having an bureau at Damai, Kota Kinabalu and to hire a few staff. Their sign upper in slip is RM30, 000 each. They are resemblingly planning to acquire MPV vans to cater to miserable groups of travelers. All of them agreed to be involved in the contestment of the condescension and to irritate decisiveness together. However, they are seeking your advice as to which bloodline bodily structure would best serve their purpose.Advise Bryan, Sarah, Jason, Calvin and Rubini. (15 marks)Question 2 If they live mulish to form a mystic limited federation for their avocation, what are the things they contain to consider in incorporating a comp each? They would like to use neighbourly Tours Sdn Bhd as the anticipate of their melodic phrase. Also, they agreed to give Rubini as the Managing Director of the high society for 5 years. Advise them in the drafting of the Memorandum and Article of tie. (15 marks)Question 3 In May 2013, they would like to expand their business in exporting sporting food and vegetables to Sarawak.They are non sure whether they are in altogetherowed to divert from their initial documental in travel agency business. They also would like to agitate their business make up to Borneo Connection Sdn Bhd. In the newly-fashioned encounter, Sarah was appointed as Managing Director of their business instead of Rubini as give tongue to in the Article of Association. Advise Bryan, Sarah, Jason, Calvin and Rubini in the situations above. (15 marks)Question 1 in that location are three subject fields of business structure which are sole proprietorship, artnership and cont moment. Choosing the by rights type of business structure is one of the most weighty choices of both for which they have to make when starting a business. Not altogether dissolving agent this decision h as an imp cause on their li efficiency, it exit also affect their ability to raise capital, coun interchange and decision qualification rights. Since there are flipper people who are interested in starting new business, it is important for them to compare and choose whether a coalition or alliance pull up stakes best suit to their purpose.According to divide 3(1) of Partnership motion 1961, a confederation is the relation which subsists between persons drooling on business in familiar with a view of profit. In other words, they m overageiness(prenominal) continuously carry on travel agency business and all partners agreed to live the travelling business together with the intention to make profits from it. As for confederation, it is an artificial legal person who is bound by law to manage familiarity. It is a make out legal entity for which its legal identity separates itself from its members, officers, employees and others who form the corporation.In considerat ion of precaution and decision making, there are two types of partners in partnership dormant partner who is not participate in management of the solid and managing partner who manages and makes all business decision of the firm, subject to any sympathy requiring them to obtain consent of all other partners. According to the situation, all five of them are agreed to be involved in the management and to make decision together, so it is confirmed that they are all managing partners of the partnership and it is clearly set out in their written agreement.Hence, they are authorize to manage the partnership together and they have a wider pool of skills, fellowship and experiences collectively from all partners, so they have more inputs and suggestions to a unwrap management of the business. In decision making wise, any major decision relating to any change which will affect the nature of the partnership moldiness obtain the consent of all partners by carrying out formal confluence. For instance, type of business carried on, admission and removal of partners, and dissipation of partnership. new(prenominal)wise, they can freely make decision in their let or perhaps together by carrying out a less formal meeting, provided they are acted in not bad(predicate) faith. As for a accompany, although totally person who are appointed as theater music director has the military group to manage the company, members of the company have the definite select rights in any major decision making. So, director has to comply with statutory requirements, which is to carry out customary meetings by sending out ceremonial occasions of meeting to all members and moldiness choke certain termination from the members in regularise to obtain their consent and reach a decision.Yet, the procedures in decision making in a company compared to a partnership is more boring and time-consuming, especially when facing crucial matters to be solved in condensed enumerate of time. So, it is better to form a partnership in footing of management and decision making. As mentioned previously, partnership is not a separate legal entity and hence, they are having unlimited liability. All partners are individualisedly and conjointly responsible for all debts and obligations of the firm.Not single it might end up with dissolution of the partnership, personal properties of partners can be seized to settle the business when the firms farm animal is insufficient to cover debts and obligations incurred during the ordinary course of the business. foreign a company, it is a separate legal entity which separates itself from its members. As a result, only company is fully liable for debts and obligations incurred by itself while members liability is only limited to the unpaid do of their make dos capital, as established in case Salomon v Salomon & Co Ltd.The creditors claimed that Salomon and his company were one and the same and they should be repaid in top priority. Ho wever, the philander held that he is not liable for debts of the company referable to separate legal entity. Hence, in the event of winding up, creditors cannot bring actions against members of the company to contri exclusivelye more than their initial contri furtherion in debts settlement and so, their personal assets are not affected. Therefore, it is better to form a company in term of personal liability.Apart from that, they are planning to acquire some(prenominal) MPV vans in order to support their business tho apparently their initial capital contri bution which is totaling RM150, 000 is merely sufficient to acquire one or two gage-hand MPV van. So, in term of raising capital, partnerships fund is raised through capital contribution by all partners. If they appetency to raise more capital by admitting more partners into the business but prior to admission, they moldiness dissolve the partnership and form a new partnership consisting old and new members again, and perhaps their previous written agreement mustiness be re-wrote.However, continuous admission of new partner whitethorn not be the solution if they call to expand the business as the amount of capital contribution from each partner whitethorn not collectively big enough to do so. As for company, a private limited may normally output shares or debentures to family, friends or employees by appearance of a private arrangement while a habitual limited may invite public to subscribe for its shares or debentures. Also, a private limited may convert to public limited by transition special law of closure to raise more capital.Despite the risk of exposure of creation a new business and compilation of statutory procedures, the amount of capital raised may be relatively more than the amount of capital contributed by each partners in the partnership. Therefore, it is better to form a company in term of raising capital and business expansion. Furthermore, partnership is not a separate legal entity and it can be good dissolved upon the death, retirement, or new admission of any partner. Hence, partnerships duration of existence is uncertain and has a finite lifespan.Meanwhile, since company is a separate legal entity, it has the characteristic of perpetual succession. In other words, in spite of any changes occur in its membership, they should not worry about dissolution of the company as it is has an infinite lifespan and exists perpetually until it is legally offend up or deregistered. As much(prenominal) in case Re Noel Tedman Holdings Pty Ltd, a husband and wife who were the only directors and members of the company were killed in an contingency but the court held that the company is not affected by the incident and would continue to exist.Therefore, it is better to form a company in term of duration of existence. In conclusion, compared to a partnership, they are recommended to form a company in terms of limited liability of members, easier to raise more cap ital and its perpetual succession. Question 2 When they have chosen to form a private limited company, they should appoint a promoter to assist them in formation of company by realizeing secretarial services. Firstly, the promoter must conduct name search on the availability of proposed companys name.Next, incorporation documents such as Memorandum of Association (hereinafter referred as MA), Articles of Association (hereinafter referred as AA), statutory declarations and any prescribed forms must be lodged with recording equipment of Companies (hereinafter referred as ROC) within three months from the date of approval of the companys name. Upon submission of documents and payment of fees, ROC will issue present of incorporation to them. In MA, they sine qua non to state the name article, registered office, aspiration article, share capital clause and liability clause.While setting out name clause, they need to admit name search to ROC to check on the availability of their com panys intended name which is Friendly Tours Sdn Bhd. However, care must be taken where they should not register their company in a name that in opinion of ROC is undesirable or unaccepted by the Ministers, and also confusingly similar to the name of an existing company. In addition, they must include Sendirian Berhad or the abbreviation Sdn Bhd in their companys name as it is a private limited company.Once they obtain bona fide approval from ROC, the name is reticent for three months from the date of approval. Next, they should set travel agency business which tours around Sabah as their companys principal object clause and from thenceforth it defines their companys legal capacity when entering into any pin down. Yet, in order to expand their companys legal capacity and hold over ultra vires act, they are advised to draft their object clause in widest possible terms by including many conceivable forms of activities, either capable or single-handed to companys principal objec t clause i. e. ravelling business, and each of it should be regarded as a separate and independent object in its own paragraph.Furthermore, they have to state the amount of companys initial authorized share capital, which is RM150, 000 and its division into shares of a unconquerable amount, which can be 150,000 ordinary shares of RM1 per share. They can ontogenesis or shine their authorized share capital in future by passing ordinary resolution. Also, their liability as a member in the company also must be stated, which is limited to the unpaid amount on their share capital, to protect their personal assets in the event of winding up.Other selective information such as companys registered office which placed at Damai, Kota Kinabalu, subscribers clause and association clause must also be stated in MA. As a private limited company, it is vindicated for them to decide whether to adopt its own AA which meets companys requirements, adopt defer A of Fourth Schedule as its AA or a junto of Table A articles with specific articles designed to meet companys requirements. However, under contribution 30(2) of Companies Act 1965, Table A will be AA of their company if they failed to register its articles upon registration.Any further alteration of AA is required to pass special resolution under some conditions. In drafting of AA, information such as appointment and removal of directors should be included in AA. To be appointed as a director, Rubini must be a natural person which is at least 18 years old and not being disqualified from being a director. Since they are forming a private limited company, they are allowed to name Rubini as Managing Director of the company and state a five years term of office in AA provided she is not 70 years old and above.Then, they should ensure that the company has at least two directors including Rubini who shall be named in AA as the starting line directors of the company and will hold office until the first Annual General co nflux where they will automatically retire (except Rubini in this situation). If they adopt Articles 64, 66 and 67 of Table A, retiring directors may be reappointed and the company may increase or decrease the number of directors in a general meeting by ordinary resolution.Furthermore, display board of directors may have the position to appoint anyone as a director either to fill in occasional(a) vacancy or addition to existing board members if they adopt Articles 68 of Table A. Also, they have rights as members of the company to remove a director by ordinary resolution before his term of office expires. Yet, it is perpetually subjected to companys AA such as a provision is provided not to remove a director. They should also include the duties and powers of being a director, for display case Rubini must greatly exercise her duties of care, skill and diligence.Other officers such as company secretary and auditor must be appointed at least one in the company and his legal positio n and duties must be clearly set out in companys AA. In addition, they should include rights of various classes of shareholders in terms of companys profitability, repayment of capital, transfer of shares, and decision making process. Detailed information regarding share capital should be clearly furnished such as methods of outlet of shares, transfer of shares, share buyback and reduction of capital.For debenture holders protection, they may need to state rules relating any fixed or floating charges attaching to specific properties as a security to creditors in case of unable to repay any loan or borrowing. Notices and procedures to meeting and winding up also must be stated in AA. Apart from that, they must insert restrictions as contained in Section 15(1) of Companies Act 1965 into MA and AA as a result of being a private limited company. For instance, it restricts its members rights to transfer shares.It also cannot have more than 50 members. The company, too, cannot raise capi tal by a way of offering shares and debentures to public or the public deposit money with the company. In a nutshell, they will receive certificate of incorporation upon successful registration of the company. Certificate of incorporation signifies that their company has been duly registered on date mentioned in it and restrictions in Section 15(1) of Companies Act 1965 will be effective.Besides, incorporation may bring forth effect that the company is a body embodied with the powers of an incorporated company, where it may sue or be sued in its own name, has a perpetual succession, may own property and the liability of its members may be limited. Question 3 During commencement of business, the company may wish to expand its business, change its name or alter provisions relating ingrained management. The company is permitted to do so by holdfast MA and AA by virtues of Section 21 and 31 of Companies Act 1965.MA is allowed to be modify to the extent and in the manner which is prov ided by the Act under Section 21 of Companies Act 1965. Meanwhile, Section 31 of Companies Act 1965 states that articles in AA may be altered or added by special resolution and pay back valid as if originally contained in the articles despite subjected to few limitations. The first issue arises in this question is whether the company is allowed to divert their initial objective in travel agency business and expand their business in exporting fresh food and vegetables.Upon incorporation, the legal capacity of the company is outlined by object clause which has been stated in MA and it is not allowed to enter into any look at with third party, of which the purpose goes against its object. Otherwise, such act by the company is deemed to be an ultra vires act. Hence, the contract cannot be canonic by the company and considered as void contract which is shown in case Ashbury Railway v Riche. The company entered into a contract to build a railway station in Belgium for which the purpose went against their object clause of making, selling and hiring railway carriages.The court held that the contract was considered as void as it was beyond the legal capacity of the company to undertake it. So, in their situation, the company is not supposed to enter into any contract including exporting fresh food and vegetables because their legal capacity is only limited to travel agency business which tours around Sabah. However, Section 20 of Companies Act 1965 has provided that even an ultra vires contract is still valid if it has been executed despite companys pretermit of capacity to enter into it.Meanwhile, if the contract has yet to be executed, minority shareholders may file for enjoining to restrain company from playing the contract. Nevertheless, it is for the companys best interest to evade the purpose of ultra vires doctrine by altering its object clause under Section 28 of Companies Act 1965. In case Bell House Ltd. v City circumvent Properties Ltd. , defendant re fused to pay procuration fee to company on the ground that the contract was made outside companys object clause.However, there was such clause in MA which allowed company to carry on business or any trade whatsoever in opinion of board of directors be advantageously carried on by the company in connection with or ancillary to any of the above business or the general business of the company. Although there was no relationship with main object clause, the court held that it was within plaintiffs legal capacity imputable to the bona fide opinion of board of directors.Therefore, based on their situation, the company can let on the scope of object clause by adding such clause into their MA in order for them to expand their business in exporting fresh food and vegetables. Apart from that, notices must be sent out to all members within 21 age of the general meeting and the company must pass a special resolution from members who attend and vote at the general meeting. Then, if there is no objection to the alteration within 21 days after passing of resolution, the company has to lodge with ROC within 14 days in order for the alteration to come in effective.The second issue arises is whether the company can alter its name in MA from Friendly Tours Sdn Bhd to Borneo Connection Sdn Bhd. Prior to alternation, the company must conduct name search and apply to ROC to check on availability of its proposed new name which is Borneo Connection Sdn Bhd. It must also ensure that the new name is not undesirable or unacceptable in the opinion of ROC or similar to the name of an existing company. Once it obtains approval from ROC, the new name will be automatically reserved for 3 months and the company must perform steps to change its name within the reservation period.Then, under Section 23(1) of Companies Act 1965, the company must provide notice of 21 days to all members of the general meeting and pass a special resolution from members who attend and vote at the general meeting. Upon that, ROC will only re-issue certificate of incorporation under the new name i. e. Borneo Connection Sdn Bhd and effects are taken into place. However, the company remains the same legal entity as the change of name will not affect any rights or liabilities of the company. In the third situation, Sarah was appointed as the Managing Director of the company instead of Rubini as stated in AA.Firstly, the first issue arises is regarding validity of naming Rubini as Managing Director in AA. Section 123 of Companies Act 1965 has stated that a person shall not be named as a director or proposed director in MA or AA or companys course catalogue but this section is not applicable to a private limited company. So, it is valid to name Rubini as the Managing Director. Assuming Rubinis term of office is not stated in AA, she will hold office until the succeeding(prenominal) Annual General Meeting where she will retire automatically and may be re-elected for next appointment.However, ther e is also a possibility where members of the company may remove Rubini as Managing Director by ordinary resolution before her term of office expires. Hence, Rubini should be given special notice of 28 days of the general meeting where she is proposed to be removed. Yet, based on the situation, she was not given any notice regarding removal of her position and Sarah was like a shot appointed as the Managing Director and therefore, it brought up straight to the next issue on whether Sarah is eligible to be appointed as Managing Director.The person must be a natural person who at least 18 years old and above, has consented to appointment and not being disqualified from being a director can be appointed as a director. So, it is assumed that Sarah has fulfilled the criterion and she can be appointed as the Managing Director. Upon successful appointment of Sarah as the Managing Director, it brought up the key issue on whether the contract between Rubini and the company is in breach.Secti on 33(1) of Companies Act 1965 has explained that MA and AA perate as a contract which only binding the company and its members, and members amongst themselves, but not between the company and outsiders. Generally, director is merely an officer but not a member of the company and so, he is considered as an outsider. Since he is not privy to the contracts, he cannot use any rights that MA or AA purport to confer upon them. However, Rubini has been validly named as the Managing Director of the company in AA and so, she has a valid contract between the company and herself.Therefore, she can enforce her rights against the company if the company fails to observe provisions in AA. This situation is support by the case Southern Foundries v Shirlaw. Shirlaw sued for breach of contract because he was removed by Federation Foundries which altered the articles of Southern Foundries to give them power to remove Shirlaw before his ten years term of office was expired. The court held that an alt eration of the articles was not amounted to a breach of contract but their act on altered articles was deemed to be and, therefore, Shirlaw was only entitled to damages.From the case, judge of the case has laid down the general principles where a company is not precluded from altering its articles so as to give itself to act upon altered articles, but playing on altered articles is construed as a breach of contract. Moreover, no injunction can be granted to prevent the adoption of the new articles but damages was the only remedy for breach of contract. In Rubinis situation, there is a breach of contract as the company appointed Sarah as the Managing Director instead of her who has been stated in AA and it was assumed that the alteration of articles was in progress.Yet, she cannot re-enforce her appointment since she cannot prevent company from altering its AA as it is given the power to do so under Section 33(1) of Companies Act 1965. So, she can only obtain damages for wrongful di smissal. In conclusion, the company is allowed to expand its business scope and change its name to a new name as long as it passes special resolution. However, Rubini was only entitled to damages as a result of wrongful dismissal because she cannot restrain the company from performing alteration in articles.