36795542 malaysia company law

7/27/2019 36795542 Malaysia Company Law

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INTRODUCTION

This assignment details the information about the company law.

This assignments content had include the clarification of nature of registered company,

the differences between different trading formats (such as sole trader, partnership and company,

the effect of registration of a company (such as separate legal entity limited liability, perpetual

succession and power to own property), types of companies (such as unlimited company,

company limited by guarantee and company limited by shares), incorporation of a company, the

procedure for incorporation, veil of incorporation, and lifting the evil of incorporation (by

automatic and discretionary)

These details are given in order to give a conclusion on whether to agree or not agree that

various authors have criticized metaphors commonly used by the court in veil-piercing cases

(such as sham, simulacrum, mask, fiction, myth) as being no more than conclusary

terms, which allow the courts to do as they please on the basis of policy.

This assignment was requested by Dr. Gopenathan Raman Nair, Lecturer of Malaysian

Company Law in Binary University. It was prepared by Tan Cheng Ying, accounting student inBinary University and submitted to Dr. Gopenathan Raman Nair on 12th January 2010.

Acknowledgments

"I would like to thank my lecturer, Dr. Gopenathan Raman Nair, for his encouragement

and guidance, for the valuable advice and support he has given me in the writing of this

assignment. My deepest thanks go to my parents, for her/his love, understanding and support."

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QUESTION

Various authors have criticized metaphors commonly used by the court in veil-piercing

cases (such as sham, simulacrum, mask, fiction, myth as being no more than

conclusary terms, which allow the courts to do as they please on the basis of policy. Do you

agree?

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1.0 NATURE OF REGISTERED COMPANY

1.1 What is a Registered Company?

The first point in a study of company law is to define

precisely what is meant by a company.

The definition in the Companies Act 1963 states that a company means a company

formed and registeredunder this Act or an existing company.

As a consequence, a registered company can be defined as a company incorporated by

registration under the Companies Acts, is regarded by the law as a person just as a human being,Mr. Smith or Mr. Jones, is a person (Geoffrey Morse, Company Law).

When a company is formed, it is said to have become incorporated. A registered

company is owned by multiple shareholders and is supervise by a board of directors, which hires

the business's managerial staff.

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2.0 DIFFERENT TRADING FORMATS

There are three basic trading formats: a company, a sole trader and a partnership.

2.1 COMPANY

2.1.1 Structure

One option open to a person setting up a business is to form, or incorporate, a registered

company. There are different types of registered companies, depending on the uses to which they

are to be put.

The most common type of company in Malaysia, and the one we will bear in mind mostcarefully, is the public company limited by shares, the typical

PETRONAS, the short form for Petroliam Nasional Berhad,.

2.2.2 Registration

The process of forming and registering a company in accordance with legislation is

known as incorporation. Thus, the key feature of a company is that it is a

legal entity (or person) in its own right, legally different from the people

who own it, known as a separate legal personality. The advantage of

limited liability results from this.

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2.2 SOLE TRADER

2.2.1 Structure

A sole trader is simply an individual who carries out the trade or business

single handedly. This, he is responsible for the all the affairs pertaining to the

business.

2.2.2 Registration

The sole trader has the choice to trade under his or her own name or under a registered

business name, for example, John & Bakery.

This allows the sole trader to do business with a name other than their legal name and

also allows them to open a business account with banking institutions. However, a registered

business name has no legal implications other than allowing you to use and trade under that

name instead of your own.

2.2.3 Number of members

Usually, in sole trader, there is no one to assist him; it is a sole trader in the sense that

the owner has no partners; though in some cases he might keep an assistant or a helper.

2.2.4 Management

For sole trader, hiring employees may be difficult; this form of business will have limited

liability, therefore, if the business is sued, it is the owners problem. He cannot shrug his

responsibilities. He will not be able to protect himself by saying that the act was committed by

his business and not by him.

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2.2.5 Capital and liability

In the eyes of the law, both the owner and his business are the same. The law does not

make any distinction between the owner and his business. Therefore, his liability is unlimited, if

the business goes bankrupt or receivership, the owner will have to cough money from his own

assets and financial reserves to pay to the creditors and lenders.

A sole trader has no separate legal personality; hence, any profits or losses made by the

business are bear by the sole trader, which is seen as the greatest risk of this form of business.

For example, there is a cake manufacturer, who is also a sole trader, who introduces a

new variety of cake, thinking that there is demand for this particular variety. If the product turnsout well, he can take the credit. If the product fails and as a result he suffers losses, then he will

be held for the losses.

A sole trader may have difficulty in raising finance, because they are small, many

financial institutions consider sole trader as risky ventures and will not lend them large sums and

they will not be able to use any other form of long-term finance unless they change their

ownership status.

Sole trader may not able to raise capital on his own not like in partnership where they are

able to share the financial burden of raising funds.

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http://www.sooperarticles.com/business-articles/management-articles/difference-between-sole-trader-limited-company-12775.htmlhttp://www.sooperarticles.com/business-articles/management-articles/difference-between-sole-trader-limited-company-12775.html


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2.3 PARTNERSHIP

2.3.1 Structure

A partnership is defined by the Partnership Act 1890 in s. 1(1) as an

association of two or more parties carrying on a business in common with a

view to a profit.

A partnership is alike to the coming together of two or more sole

traders, with all partners sharing the profits and losses.

Partnership can be considered as a form of business organization grew out of thelimitations of individual proprietorship; in sole proprietorship, the financial resources,

managerial skill, risk bearing capacity were limited.

When business activities started expanding, a need for more capital is arise, more persons

are needed to supervise the business affairs, thus, the partnership form of organization was

developed to overcome the weakness of sole trading organization and to meet up the expanding

needs of a business requiting a moderate amount of capital.

2.3.2 Registration

Partnerships, unlike companies, are not required to go through any complications

registration process when they are formed, a partnership only has few requirements to be formed

and there are no minimum or maximum limits for capital, and, again unlike companies, they are

under no obligation to make their accounts public, and, the business for partnership is flexible in

its operations as it can engage in any other operations without any restriction as it may be the

case with the companies.

If the business of a partnership is carried on under a name which consists of the surnames

of all the partners, no restrictions apply (s. 1 Business Names Act 1985).

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2.3.3 Number of members

The maximum number of persons who could be members of a particular partnership was

usually 20 (s. 716 Companies Act (CA) 1985), and it is formed by making a written or oral

agreement that they will jointly assume full responsibility for the conduct of business.

The agreement should identify the partners; their respective business-related duties and

responsibilities; how income will be shared; the criteria for additional investments and

withdrawals; and the guidelines for adding partners, the withdrawal of a partner, and liquidation

of the partnership.

2.3.4 Constitution

The life of a partnership may be set up as a certain number of years by the agreement.

The death, inability to carry out specific responsibilities, bankruptcy, or the desire of a partner to

withdraw automatically will terminates the partnership, if no such

agreement is made. A new partnership agreement is required every time

when a partner withdraws or is added, if the business continues to

operate as a partnership.

The partnership's business may continue with proper requirements, and

the termination or withdrawal of the partnership will be a certification issue that does not impact

ongoing operations of the partnership.

2.3.5 Management

The business of partnership may be carried on by all the partners or by any of them acting

for all. For itself, one partner may legally bind the partnership to a contract or agreement that

appears to be in line with the partnership's operations.

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2.3.6 Capital and liability

Although partners may limit a partner's ability to enter into contracts

on the company's behalf, this limit only applies if the third party entering into

the contract is aware of the limitation. It is the partners' responsibility to notify third parties that a

particular partner is limited in his or her ability to enter into contracts. Thus every partner is an

agent of other partners and at the same time of the firm.

A partnership has no separate legal personality either. When the partnership cannot meet

its obligations, the partners may be called on to use their personal assets to satisfy partnership

debts. The other partners can be held individually liable by the creditor requiring payment, if one

partner does not have enough assets to meet his or her share of the partnership's debt.

2.3.7 Types of partners

There are two types of partners.

General partnership is a partnership in which all partners are individually liable; it has an

obligation of strict liability to third parties injured by the partnership. General partners may have

joint liability or joint and several liabilities depending upon circumstances.

Whereas, a limited partnership has two classes of partners where often known as silent

partner or sleeping partner, their liability is limited to the amount of their investments and is

often used when investors will not be actively involved in the business and do not want to risk

their personal assets. A limited partnership must include at least one general partner who

maintains unlimited liability.

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3.0 EFFECT OF REGISTRATION OF A COMPANY

3.1 Separate Legal Personality

Corporate personality refers to the fact that as far as the law is concerned a company

really exists.

The registered company like a statutory company or a chartered company is a

corporation, i.e. in the eye of the law it is an artificial legal person as opposed to individuals

who are known as natural persons. As a person, a company can do almost everything a human

person can do; it can make contracts, employ people, borrow and pay money, sue and be sued,

among other things.

The company becomes a legal person in its own right, with powers and liabilities as an

individual but is distinguished from the members it may have from time to time, distinct from the

shareholders and management. This was seen in the famous case of Salomon v Salomon & Co

Ltd (1897).

Salomon v Salomon & Co Ltd (1897) AC 22

Mr. Salomon had a boot manufacturing business which he decided to

incorporate into a private limited company. Mr. Salomon had become the

company's principal shareholder and its creditor in Salomon & Co. Ltd at

the same time, since he sold his business to the newly formed company, A

Salomon & Co Ltd, and took his payment by shares and a debenture or debt

of 10,000. Thus, he has become a secured creditor by taking a mortgage debenture which gives

him a right to be entitled to be paid first as a secured debenture holder when the company into

liquidation some years later.

The liquidator and the other creditors objected to this and asked the court to reserve

Salomons debenture on the ground that he could not owe money to himself, claiming that it was

unfair for the person who formed and ran the company to get paid first.

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However, the House of Lords held that the company was a different

legal person from the shareholders, and thus Mr. Salomon, as a shareholder

and creditor, was totally separate in law from the company A Salomon & Co

Ltd. The result was that Mr. Salomon was entitled to be repaid the debt as the

first secured creditor. The decision confirmed that the use of debentures

instead of shares can further protect investors.

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3.2 Limited Liability

Once incorporated, a companys members enjoy limited liability, provided that their

shares are fully paid up and it is a limited company. For example, if a company goes into

liquidation owing 100, 000, the debt is the debt of the company, not of the shareholders. The

shareholders debts are limited to any money they owe for the purchase of their shares.

A company formed in compliance with the regulations of the Companies Acts is a

separate person and not the agent or trustee of its controller. As a result, the debts of the

company were its own and not those of the members. The members liability was limited to the

amount prescribed in the Companies Act: section 13(3) i.e. the amount they invested.

Another good illustration isLee v Lees Air Farming (1961) A.C. 12 (P.C.). Mr. Lee

incorporated a company, Lees Air Farming Limited which he owned all the shares and also been

employed as chief pilot of the company. In March, 1956, Mr. Lee was killed in the plane crash

while he is working, leaving a widow and four infant children.

The matter came to the New Zealand Court of Appeal who found that Mr. Lee

was not a worker within the meaning of the Workers Compensation Act and so no

social welfare compensation was payable as the widow claimed she was allowed to be

compensated under the Act as the widow of a worker.

However, in the Privy Council in London, it held that there was a contractual relationship

for Mr. Lee to be employed as the chief pilot of the company as the company and Mr. Lee were

distinct legal entities and therefore capable of entering into legal relations with one another. The

widow was therefore entitled to compensation.

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3.3 Perpetual Succession

A company does not die, once it formed, it will continue until such time as its name is

struck off or dissolved through a legal process known as winding up or liquidation even though

without any directors, members, employees, business etc and a good example is shown in the

case ofRe Noel Tedman Holdings Pty Ltd (1967) Qd R 561.

Moreover, inAbdul Aziz Bin Atan & 87 Ors v Ladang Tengo Malay Estate Sdn Bhd

(1985) 2 MLJ 165 case, it shows the fact that a member, even one holding one hundred per cent

of the companys shares, dies has no effect on the legal existence of the company i.e. members

may come and go but this still does not affect the legal personality of the company.

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3.4 Power to own property

A company is capable of owning property, making contracts, employing people and

being sued or of suing. Thus, a company may own property distinct from the property of its

members.

The property of the company belongs to the company itself and not to the individual

members, so that even the largest shareholder has no insurable interest the property of the

company. Therefore, a change in membership of a company will have no effect on the ownership

of the companys assets.

InMacaura v Northern Assurance Co. (1925) AC 619, Mr. Macaura who owned anestate and some timber, stored the timber, which amounted to nearly the

entire assets of the company on the estate and he insured the timber in his

own name. Two weeks later, a fire destroyed all the timber on the estate.

The insurance company refused to pay out arguing that he had no

insurable interest in the timber as the timber belonged to the company when

Mr. Macaura tried to claim under the insurance policy but.

The House of Lords held that the timber belonged to the company and not Mr. Macaura.

Even though Mr. Macaura, owned all the shares in the company, but he had no insurable interest

in the property of the company.

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4.0 TYPES OF COMPANIES

A registered company may be limited or unlimited in terms of liabilities.

A limited company possibly limited by guarantee or by shares.

A company limited by shares perhaps is a private or public company.

4.1 An Unlimited Company

In unlimited company, the members are liable for the

debts of the company; the shareholders will lose all their

money if the company goes bankrupt, and also risk losing

their own property in order to pay the company's debts whichis very similar to a partnership or sole proprietorship. They

may be liable without limit or liability may be limited to a

certain figure.

To avail of a corporate structure, for example, when buying property, a person may

choose to form an unlimited company. As well, it has a privacy advantage; unlimited companies

do not have to attach accounts to the annual return

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4.2 A Company Limited by Guarantee

A company limited by guarantee is a company that guarantees to pay its debts up to a

certain limit in the event of the company being wound up, while they are a member or within one

year of their ceasing to be a member.

In Guarantee Company, the members do not provide money to the company on formation

or during its life; it does not have a share capital, but has members who are guarantors instead of

shareholders.

So it is suitable for companies that wish to get legal personality and limited liability but

do not need to raise money from its members. This format is often used for charities, clubs andnonprofit organizations.

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4.3 A Company Limited by Shares

A company limited by shares is the most common type of company in Malaysia, is the

type of company commonly used for forming a small business.

In this type of company, the liability of shareholders for the debts of a company is limited

to any amount unpaid on their shares.

Normally, when shareholders buy shares, they pay for them fully, so they then have no

liability to the company if it goes into debt, they have no responsibility to pay more than the

amount they have invested.

The purpose of this type of company is to trade and make profits Shares are issued and

directors are appointed by the shareholders.

Companies limited by shares may divide into two categories which are public limited

companies and private limited companies.

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4.3.1 A Private Limited Company

A Private limited company restricts the rights to transfers shares of the company; it

cannot sell the shares to general public. The name of private limited company ends with the word

"Sendirian Berhad" or abbreviation "Sdn. Bhd.". The minimum number of member is two for

private limited company; the maximum is fifty, excluding members who are employees or ex-

employees of the company.

4.3.2 A Public Limited Company

Public companies must have a minimum of two members; there is no maximum number

of members. They show their position by using the abbreviation "Bhd." or the word "Berhad"after their name.

Public limited companies increase capital by selling shares and are manage by a board of

directors selected by shareholders. The shares are freely transferable by sale on the Stock

Exchange or elsewhere. Public limited companies can only offer shares to the public if a

prospectus which meets the terms with the requirements of the Companies Act 1965 has been

registered with the Registrar of Companies.

Public listed companies are listed either on the Main Board or the Second Board of the

KLSE. Any subsequent issue of securities such as the issue by way of a rights or bonus requires

the approval of the Securities Commission.

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5.0 VEIL OF INCORPORATION

5.1 What Is the Veil of Incorporation?

Once a company incorporates, it becomes a legal personality, a juristic entity, separate

and distinct from its members and shareholders and capable of having its own rights, duties and

obligation such as owning property or entering into contracts, and it can sue or be sued only in its

own name.

5.2 Function of Veil of Incorporation

The veil of incorporation ensures that a company is a legal person, thus a legal entity,separate and distinct from the people who formed, own or invest in it; they do not get sued, the

corporation does as a result this protect the personal assets of owners and investors from

lawsuits.

Thus, incorporation is a way of limiting the liability of the individuals that own a

corporation. If two persons incorporate a company, the company will become a third person

separate and different from these two persons individually or collectively.

Therefore, the courts usually do not look behind "the veil" to ask why the company was

formed or who really controls it.

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6.0 LIFTING THE COPORAETE VEIL

6.1 Exceptions (Lifting the Veil)

In some cases, the 'veil' that shields the owner(s) from liability can be removed, and the

owners can be enjoined into the law suit. Such incidences happen when a corporation is not

supported with enough assets to balance its debts and liabilities.

However, in some conditions, the courts have take place to disregard or ignore the doctrine of

corporate personality and limited liability especially in dealing with group companies and

subsidiaries and where the corporate form is being used as a vehicle to commit fraud or as a

"mere faade concealing the true facts."

The corporate veil can be lifted in two ways:

(1) By specific provision in legislation

(2) And by discretion of the courts.

Although the cases when the veil has been lifted vary with the facts of the cases, there are said to

be three main reasons why this may be done:

(1) To enforce the provisions of company law;

(2) To avoid fraud;

(3) To deal with a group of companies.

Legislative lifting of the veil is usually for purposes of enforcing company law, whereas

the courts usually lift the veil to prevent fraud.

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6.2 Lifting the Veil by LegislationAutomatic

The veil will be lifted automatically and there is no freedom of choice, when it is

specified in the Companies Acts that the corporate veil will be lifted

6.2.1 Where the number of members is less than two

UnderSection 36, CA 1963 if the number of shareholders of a company (except a

company whose issued shares are wholly held by a holding company) is reduced below two and

the company trades for more than six months while the number is so reduced, every shareholder

who knows that the company is trading with less than the statutory minimum, is personally liable

for all the debts of the company contracted after those six months and may be sued therefore, andshall also be guilty of an offence against the Act. The classical case is Nisbet v Shepherd (1994)

BCC 91.

6.2.2 Use of an incorrect company name

UnderSection 121, CA 1963, an officer of a company (the officers of a company are the

directors and secretary) who signs or authorizes to be signed on the companys behalf any bill of

exchange, cheque or promissory note where provided that the company fails to affix its name is

not properly or legibly written thereon, will be personally liable for the amount if unpaid by the

company.

Durham Fancy Goods v Michael Jackson (Fancy Goods) Ltd (1968) 2 QB 839

A director of the defendant company authorized a cheque made out to M. Jackson (Fancy

Goods) Ltd without correcting it as the true name of the company is Micheal Jackson (Fancy

Goods) Limited where M is not an abbreviation of Micheal. The court held that the

plaintiffs had accepted an incorrect version of the name, thus could not rely on section 121.

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Lindholst & Co A/S v Fowler (1988) BCLC 166

The plaintiff prepared four bills of exchange in the name of Corby Chicken Co.. The defendant

was a director of the Corby Chicken Co. Ltd. He signed cheques referring to the Corby Chicken

Co. without adding the suffix Ltd and was liable under section 121 which held by the Court of

Appeal.

6.2.3 Fraudulent Trading

Section 304 (1) of the Act states Persons who were knowingly a party to the carrying on

of any business of the company with the intent to defraud creditors or for any fraudulent purpose

may be personally liable to make such contribution to the assets of the company as the court may

think properFraudulent trading is very difficult to prove and is not defined by statute because it must be

shown that the directors, in incurring the debts in question, knew that the company would be

unable to pay them.

6.2.4 Tax Offences

Unders140 (1) of the Income Tax Act 1967 allows the Director-General of Inland

Revenue to ignore transactions which have the effect of avoiding or escaping tax:SBP Sdn Bhd

v Director General of Inland Revenue (1988) MSTC 243.

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6.3 Lifting the Veil by the CourtsDiscretionary

The cases that deal with the courts lifting of the veil do not fall into neat categories, but

many of the cases have a common thread. In these cases, the court will have considerable

discretion in deciding whether to lift the veil of incorporation.

6.3.1 When the Company Was Formed for Fraudulent Purposes

The court may extremely give an equitable remedy against both the company and the

shareholder, if the company is set up as a cloak or sham with the dishonest purpose of escaping

the promoter or shareholders existing obligations.

Gilford Motor Co v Horne (1933) Ch. 935

G was a manufacturer of vehicles and supplier of spare parts. H was a managing director of the

company, and left G. His contract stated that he wasnt allowed to sell to Gs customers for a

period after leaving. On the termination of his employment, H set up a company which then

approached his former customers; H argued that firstly his company was approaching the

customers, not him; and secondly, if there was a wrongdoing, his company was liable and not

him. The courts held that the company was sham, and granted an injunction against his company

as well as him.

Jones v Lipman (1962) I All ER 442

Lipman sold to Jones a house by a written contract but refused to complete

the sale and then wished to get out of the contract. He formed a company,

transfers the house to it, to avoid the transaction and then claimed he could

no longer sell the house to Jones. The court held that this company was formed as a device or

sham to frustrate the sale contract, and an order of specific performance of the sale contract was

granted to Jones.

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6.3.2 When the courts recognize an agency relationship.

If a subsidiary company having power to act as an agent may do so as an

agent for its parent company, or certainly for all or any of the individual

members if it or they authorize it to do so, it may be bound by the same

liabilities and rights of its holding company.

So long as those acts are within actual or apparent scope of the authority, the parent

company or the members will be bound by the acts of its agent.

But in the absence of an express agreement, there is no presumption of any such

relationship between the parties; it will be difficult to establish one.

Thus, the corporate veil shall be lifted and the principal shall be liable for the acts of the

agent in cases where the agency agreement holds good and the parties concerned have expressly

agreed to such an agreement.

Though, no court has yet found subsidiary companies liable for their holding companys

debts.

Smith, Stone & Knight Ltd v Birmingham Corporation (1939) All ER 116

Smith, Stone & Knight Ltd owned some land, and a subsidiary company operated on this land.

The subsidiary company is Birmingham Corporation that occupied the land and operated a

business there. Birmingham Corporation had issued an enforced purchase order on this land. Any

company which owned the land would be paid for it, and would reasonably compensate any

owner for the business they ran on the land. Birmingham Corporation claimed they were entitled

to no compensation since they did not own the land. The courts held that the subsidiary company

was an agent and Birmingham Corporation must pay compensation.

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6.3.3 When the entities are considered to be a single economic unit.

As a general rule, the courts have treated each company in the group as separate: one

company is not liable for anothers debts, and this generally extends to other liabilities.

D.H.N. Food Distributors Ltd. v Tower Hamlets London Borough Council [1976] 3 All ER

462

A subsidiary company of DHN Food Distributors Ltd owned land which London Borough of

Tower Hamlets issued a compulsory purchase order on. The company running the business was

the holding company and the premises were owned by the companys wholly owned subsidiary.

The courts held that DHN Food Distributors Ltds subsidiary was a single economic unit and

was able to claim compensation because it.

Adams v Cape Industries plc and Another (1991) 1 All ER 929

A worker, Adams who worked for a US subsidiary of Cape Industries plc, which marketed

asbestos in the US had suffered injuries through exposure to asbestos

dust and wanted to sue. This case was brought against the UK parent

company because its US subsidiary had no assets, he would have

received no compensation since there was no money to pay out. The

court of appeal refused to treat the UK parent company, its US subsidiary and an independent US

corporation through which it marketed asbestos in the United State as a single economic unit, or

to lift the veil of incorporation. This means that the plaintiff even if successful in their action

against the US subsidiary would receive no compensation since the subsidiary had no assets.

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6.3.4 In cases ofnational emergency, the courts may need to consider ownership of

companies.

The courts have occasionally raised the veil and looked at the shareholders to disclose a

companys nationality in wartime, or other national emergencies where sanctions are imposed.

Daimler Co Ltd v Continental Tyre and Rubber (GB) Ltd (1916) 2 AC 307

Continental Tyre and Rubber (GB) Ltd were registered in Britain. Continental Tyre and Rubber

(GB) Ltd sued Daimler Co Ltd for debts owing. Continental Tyre and Rubber (GB) Ltd was a

UK company; however all shareholders but one were German; almost all

of the shares were German owned. Daimler Co Ltd claimed that they

should not pay the debt to German individuals to prevent money goingtowards Germanys war effort. The court held that Continental Tyre and

Rubber (GB) Ltd (1916) was German.

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7.0 Conclusion

Through this assignment, we can understand and know that a company once

incorporated, it becomes an artificial legal person which recognized by the law that separate and

distinct from its members and shareholders and capable of having its own rights, duties and

obligation and can sue or be sued in its own name.

Thus, just like Ambrose Bierce(1842-c. 1914), American writer said "Corporation. An

ingenious device for obtaining individual profit without individual responsibility.".

However, there still have some circumstances that this doctrine or principle of corporate

personality which carries with the concept of limited liability may disregard or ignore by thecourt especially in dealing with group companies and subsidiaries and where the corporate form

is being used as a vehicle to perpetrate fraud or as a "mere faade concealing the true facts."

The image ofSir Edward Coke (1552-1634), English jurist and parliamentariansaid

that "Corporations cannot commit treason, or be outlawed or excommunicated, for they have no

souls."had truly shown that a company is only an artificial person only not a real person.

Although it can sue people and make contract under its name but it didnt have mind and spirit to

commit fraud or illegal action or even disloyalty. Thats why there is an exception for the

company not to lift the veil of incorporation because there may have someone used this

advantages as a vehicle to carry out fraud.

Thus, in my view, I will agree that various authors have criticized metaphors commonly

used by the court in veil-piercing cases (such as sham, simulacrum, mask, fiction, myth

as being no more than conclusary terms, which allow the courts to do as they please on the basis

of policy. This is because these criticized metaphors shows the courts responsibility for giving a

truthfully and acceptable judgment based on the veil-piercing cases they heard.

In general, the main reason of forming a company certainly is to earn profits by running

the business smoothly just like Alexandre Dumas (1802-1870), prolific French author of

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plays, popular romances, and historical novel said that "Business, that's easily defined; it's

other people's money."

Harold S. Geneen, an American businessman said that "In business, words are words;

explanations are explanations, promises are promises, but only performance is reality.

So in order to earn more money in the business, the performance that should contribute in

the business, the efficiency of using the knowledge and skill of handling a business in turn to

success is important although we have know the advantages and disadvantages of our business

form. And based on this, we also should use the advantages of business form that we have in

proper way not inappropriate way just like those veil-piercing cases that had shown in the

assignment.

We should use our ability of running the business properly, we should find solution to cut

the losses in which to eliminate the disadvantages appear in the business, and let the profit run

sufficiently where using the advantages of the business efficiently not sinking at the back of the

veil of incorporation doing something that is not the purpose for running a business, for forming

a company.

Thus, I think that those criticized metaphors commonly used by the court in veil-piercing

cases are necessary since this give those outlaw a lesson and this also show the degree of

illegitimate that they had committed which let the people know the rules and regulation more

clearly and precisely.

Thus, in the end, we must learn that, we should run the business legitimately and should

be down-to-earth, instead of surreptitiously running it improper on the sly because this

nevertheless will be found and held by the court once and for all.

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REFERENCE

Books:

Geoffrey Morse. Charlesworths Company Law. 13th edition.

Notes:

Notes from lecturer, DR. GOPENATHAN RAMAN NAIR

Internet:

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Law ... [Online]

http://www.helplinelaw.com/article/nepal/293 [accessed 29 Dec 2009]

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http://www.experiencefestival.com/salomon_v_salomon_amp_co_-_background [accessed 29

Dec 2009]

Wkipedia. 2006. Salomon v. Salomon & Co. Summary [Online]

http://www.bookrags.com/wiki/Salomon_v._Salomon_&_Co. [accessed 29 Dec 2009]

Md. Rodzi Harun. 1998. Nature of a Company [Online]

http://members.tripod.com/~syarikat/essential1.html [accessed 29 Dec 2009]

Wikimedia Foundation, Inc. 2009. Limited liability company - Wikipedia, the free

encyclopedia [Online]

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Fairfax Digital. 2009. The Sole Trader [Online]

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2009]

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Wikimedia Foundation, Inc. 2009. Sole proprietorship - Wikipedia, the free encyclopedia

[Online]

http://en.wikipedia.org/wiki/Sole_proprietorship [accessed 29 Dec 2009]

eHow, Inc. 1999-2009 . What Is the Veil of Incorporation? | eHow.com [Online]

http://www.ehow.com/about_4727895_what-veil-incorporation.html [accessed 29 Dec 2009]

Business Law: CIMA Year One Lifting the Veil of Incorporation [Online]

http://www.economic-truth.co.uk/cima/notes/law13.pdf [accessed 29 Dec 2009]

Jones Communications Ltd. 2005 - 2009. Lifting The Veil Of Incorporation [Online]

http://www.jonesbahamas.com/news/135/ARTICLE/11675/2007-02-23.html [accessed 29 Dec2009]

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