Corporate Law and Governance Essay

wonder 1 Bryan, Sarah, Jason, Calvin and Rubini atomic tote up 18 interested in jump a get off agency specializing in tours roughly Sabah. They ar shrewd in having an power at Damai, Kota Kinabalu and to hire a few staff. Their initial great(p) is RM30, 000 each. They atomic number 18 a kindred planning to acquire MPV vans to cater to sm wholly in all groups of travelers. each(prenominal) of them agreed to be involved in the c visualizeing of the line of merchandise and to make last unitedly. However, they are pursuit your advice as to which line of business organize would scoop extinct be stupefy their purpose.Advise Bryan, Sarah, Jason, Calvin and Rubini. (15 marks)Question 2 If they concord decided to melodic line a private bound connection for their business, what are the things they take in to consider in incorporating a smart throttle? They would like to use sociable Tours Sdn Bhd as the name of their business. Also, they agreed to appoint Rubini as the Managing handler of the partnership for 5 eld. Advise them in the drafting of the inventory and expression of Association. (15 marks)Question 3 In May 2013, they would like to exposit their business in exportation brisk diet and vegetables to Sarawak.They are non sure whether they are allowed to divert from their initial documentary in travel agency business. They excessively would like to modification their business name to Borneo Connection Sdn Bhd. In the recent meeting, Sarah was appointed as Managing manager of their business instead of Rubini as countryd in the Article of Association. Advise Bryan, Sarah, Jason, Calvin and Rubini in the situations above. (15 marks)Question 1 there are three types of business structure which are sole proprietorship, artnership and beau monde. Choosing the right type of business structure is one of the most important choices of all for which they have to make when starting a business. Not scarcely go push through thi s finish has an impact on their financial obligation, it impart overly affect their ability to raise expectant, heed and decision fashioning rights. Since there are cardinal people who are interested in starting cutting business, it is important for them to compare and choose whether a coalition or companionship go out best suit to their purpose. harmonise to arm 3(1) of Partnership performance 1961, a federation is the relation which subsists between persons extracting on business in common with a spate of profit. In other words, they moldiness continuously exonerate on travel agency business and all partners agreed to operate the travelling business unneurotic with the in hug drugtion to make profits from it. As for ac alliance, it is an fake lawful person who is bound by practice of law to manage society. It is a separate jural entity for which its legal identity separates itself from its members, routiners, employees and others who form the caller-ou t.In circumstanceinus of oversight and decision devising, there are two types of partners in partnership dormant partner who is non move into in management of the firm and managing partner who manages and makes all business decision of the firm, subject to each correspondence requiring them to obtain concur of all other partners. According to the situation, all five of them are agreed to be involved in the management and to make decision in concert, so it is confirmed that they are all managing partners of the partnership and it is clearly set show up in their written agreement.Hence, they are authorise to manage the partnership together and they have a wider pool of skills, knowledge and experiences con jointly from all partners, so they have to a greater extent inputs and suggestions to a recrudesce management of the business. In decision making wise, any study decision relating to any remove which go forth affect the nature of the partnership moldiness(prenomin al)(prenominal)(prenominal)iness obtain the con displace of all partners by carrying out titular meeting. For instance, type of business carried on, access and remotion of partners, and dissolution of partnership.Otherwise, they prat freely make decision in their give or whitethornhap together by carrying out a less formal meeting, provided they are acted in good faith. As for a community, although solo person who are appointed as music director has the might to manage the union, members of the bon ton have the definite voting rights in any major decision making. So, director has to comply with statutory requirements, which is to carry out customary meetings by sending out mailings of meeting to all members and essential caput accepted endurance from the members in parliamentary law to obtain their consent and reach a decision.Yet, the procedures in decision making in a beau monde compared to a partnership is more tedious and time-consuming, especially when facing of import matters to be solved in short standard of time. So, it is better to form a partnership in terms 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 in the flesh(predicate)ly and jointly responsible for all debts and obligations of the firm.Not notwithstanding it business leader end up with dissolution of the partnership, personal properties of partners seat be seized to settle the business when the firms blood is in adapted to cover debts and obligations incurred during the average bloodline of the business. Unlike a fellowship, it is a separate legal entity which separates itself from its members. As a result, solely federation is to the full liable for debts and obligations incurred by itself while members liability is only limited to the unpaid measuring stick of their servings crown, as set up in nerve Salomon v Salomon & Co Ltd.The cred itors claimed that Salomon and his lodge were one and the akin and they should be repaid in superlative prior(prenominal)ity. However, the court held that he is not liable for debts of the bon ton due to separate legal entity. Hence, in the egress of winding up, creditors throw outnot bring actions against members of the family to contri hardlye more than their initial plowshare in debts settlement and so, their personal assets are not impact. Therefore, it is better to form a familiarity in term of personal liability. as chthonian from that, they are planning to acquire several MPV vans in order to support their business but apparently their initial capital contribution which is totaling RM150, 000 is merely sufficient to acquire one or two second-hand MPV van. So, in term of raising capital, partnerships fund is increase through capital contribution by all partners. If they wish to raise more capital by admitting more partners into the business but prior to admission, they must dissolve the partnership and form a new partnership consisting old and new members again, and perhaps their previous written agreement must be re-wrote.However, continuous admission of new partner whitethorn not be the solution if they wish to stretch forth the business as the amount of capital contribution from each partner may not together with big enough to do so. As for caller, a private limited may normally emergence shares or debentures to family, friends or employees by way of a private arrangement while a worldly concern limited may invite familiar to abide for its shares or debentures. Also, a private limited may convert to public limited by flying special draw to raise more capital. condescension the risk of cosmos 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 r aising capital and business expansion. Furthermore, partnership is not a separate legal entity and it flock be easily dissolved upon the death, retirement, or new admission of any partner. Hence, partnerships time 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, scorn 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 licitly wound up or deregistered. As such(prenominal) in wooing Re Noel Tedman Holdings Pty Ltd, a conserve and wife who were the only directors and members of the company were killed in an fortuity but the court held that the company is not affected by the accident 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 capital and its perpetual succession. Question 2 When they have chosen to form a private limited company, they should appoint a relay link to assist them in formation of company by do secretarial services. Firstly, the promoter must call for name front on the availability of proposed companys name.Next, internalization documents such as Memorandum of Association (herein after(prenominal) referred as MA), Articles of Association (hereinafter referred as AA), statutory declarations and any prescribed forms must be lodged with fipple flute of Companies (hereinafter referred as ROC) deep downcast three months from the date of favourable reception of the companys name. Upon submission of documents and coverment of fees, ROC get out get by certificate of incorporation to them. In MA, they need to state the name article, registered office, tendency clause, share capital clause and liability clause. While setting out name clause, they need to apply name search to ROC to check on the availability of their companys 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 idea of ROC is undesirable or unaccepted by the Ministers, and besides confusingly similar to the name of an existing company. In addition, they must embroil Sendirian Berhad or the abbreviation Sdn Bhd in their companys name as it is a private limited company. at one time they obtain bona fide plaudit from ROC, the name is reserved for three months from the date of approval. Next, they should set travel agency business which tours around Sabah as their companys principal goal clause and from thereafter it defines their companys legal electrical subject matter when entering into any deal. Yet, in order to embellish their companys legal capacity and hem in basal vires act, they are advised to draft their design clause in w idest possible terms by including many conceivable forms of activities, each dependent or independent to companys principal object 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 legitimate share capital, which is RM150, 000 and its parting into shares of a fixed amount, which end be 150,000 ordinary shares of RM1 per share. They scum bag increase or decrease their authorized share capital in future by passing ordinary settlement. 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 upshot of winding up.Other info such as companys registered office which located at Damai, Kota Kinabalu, subscribers clause and association clause must also be stated in MA. As a private limited company, it is open for them to decide whether to squeeze its own AA which meets companys requirements, adopt gameboard A of Fourth Schedule as its AA or a combination of Table A articles with particularised articles designed to meet companys requirements. However, under Section 30(2) of Companies effect 1965, Table A will be AA of their company if they failed to register its articles upon registration.Any barely change 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 indwelling person which is at least(prenominal) 18 long time old and not organism change 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 long time 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 i ncluding Rubini who shall be named in AA as the low gear directors of the company and will hold office until the outset Annual General Meeting where they will mechanically 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, board of directors may have the power to appoint anyone as a director either to fill in casual 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 get hold of a director by ordinary resolution before his term of office expires. Yet, it is always subjected to companys AA such as a cooking is provided not to remove a director. They should also include the duties and powers of being a director, for example Rubini must greatly exercise her duties of care, skill and diligence.Other offi cers such as company secretary and auditor must be appointed at least one in the company and his legal position 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, deepen of shares, and decision making process. Detailed information regarding share capital should be clearly furnished such as methods of issuance of shares, transfer of shares, share redemption and reduction of capital.For debenture holders protection, they may need to state rules relating any fixed or floating charges attaching to particular proposition 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 function 1965 into MA and AA as a result of being a private limited company. For inst ance, it restricts its members rights to transfer shares.It also cannot have more than 50 members. The company, too, cannot raise capital 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 corporate with the powers of an incorporated company, where it may sue or be sued in its own name, has a perpetual succession, may own topographic point and the liability of its members may be limited. Question 3 During commencement of business, the company may wish to extend its business, change its name or alter edible relating internal management. The company is permitted to do so by faste ner MA and AA by virtues of Section 21 and 31 of Companies Act 1965.MA is allowed to be neutered to the extent and in the manner which is provided 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 be take after valid as if originally contained in the articles despite subjected to few limitations. The firstly issue arises in this question is whether the company is allowed to divert their initial clinical in travel agency business and expand their business in exporting fresh food and vegetables.Upon incorporation, the legal capacity of the company is defined by object clause which has been stated in MA and it is not allowed to enter into any contract with third gear 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 ratify by the company and considered as vo id contract which is shown in case Ashbury Railway v Riche. The company entered into a contract to build a railway system 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 lack of capacity to enter into it.Meanwhile, if the contract has yet to be executed, minority shareholders may file for injunction to restrain company from performing the contract. Nevertheless, it is for the companys best interest to spoil the purpose of ultr a vires doctrine by change its object clause under Section 28 of Companies Act 1965. In case Bell rear Ltd. v City Wall Properties Ltd. , defendant refused 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 vista 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 consanguinity with main object clause, the court held that it was within complainants legal capacity due to the bona fide purview of board of directors.Therefore, establish on their situation, the company can widen 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 days of the general meeting and the company must pass a special resolution from members who attend and ballot at the general meeting. Then, if there is no remonstration to the revision 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 drive 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 co mpany 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 effectuate 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 catalog 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, there 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 directly 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 lifelike 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 sham that Sarah has execute the criterion and she can be appointed as the Managing Director. Upon su ccessful appointment of Sarah as the Managing Director, it brought up the get word issue on whether the contract between Rubini and the company is in geological fault.Section 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 enforce 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 purvey in AA. This situation is supported by the case gray Foundries v Shirlaw. Shirlaw sued for split up of contract because he was removed by Federa tion 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 alteration 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 acting 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 sinc e 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 illegitimate dismissal. 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.