BP26103 COMPANY LAW

FIRST LECTURE

PART 1: Framework
Course Outline Course Evaluations Suggested Readings Expectations

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INTRODUCTION
Subject aims The functions and structure of companies

Subject aims
Become familiar with the company as a form of business organisation Understand the source, scope and nature of the main legal rules that impact on companies and their participants Recognise the underlying design and concerns of company law, the policy on which it is based, and the arguments for reform

Subject aims (cont)

Understand the potential impact of company law in company decision-making, and how to plan for it Understand the potential impact of company law in company decision-making, and how to plan for it

Methodological aims
Learn to analyse complex fact situations and apply relevant legal rules Develop presentation skills through class contribution Develop written skills in logic, argument and presentation Develop strong self learning techniques

Why study Company Law?

Business is well-managed;
Shareholders trusts Publics confidence Increase in the profit

Legally compliance; Minimise the risk of potential legal suits;

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What is Company Law?

Deals with the formation of a company; Confers special features on companies (separate legal entity, artificial legal person); Regulates the relationship between the participants in companies; Facilitates transactions and dealings between the companies and third parties; Regulates the relationship between the companies and the government
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cont
Scope and operation of company law Sources of company law Regulation of companies

What is company law?

General term used to describe the legal rules governing:
formation and termination of companies characteristics of companies relationships between participants in companies (such as members and officers) aspects of companies dealings with outsiders

What is the purpose of company law?

Aims/purposes include:
investor protection commercial stability and consumer confidence balancing competing interests efficiency

certainty standard form rules

Ask yourself throughout the subject does the law achieve these aims?

Company law in a nutshell

To regulate the relationship between:
Participants in the company; The company and the government; and The company and those whom the company had dealings

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PART 2: Companies
The dominant form of business organisation Over half a million companies in Malaysia Created through a process of registration under statute an artificial legal person Have special legal characteristics (refer to Lecture 3)

The functions and structure of companies

What are companies and why do we have them? What are the key features of a company?

What is the purpose of companies?

Traditionally, a means by which a large group of people with capital and management resources could come together to conduct an enterprise on an ongoing basis Now also widely used for small business and by individuals

Classification of companies
A company limited by shares; A company limited by guarantee; A company limited by both shares and guarantee; An unlimited company

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Foreign Company
Holding and subsidiary company Foreign Company To be discussed during tutorial

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Small and large companies

Most companies are small businesses In 2001, there were 809 companies listed on the then Kuala Lumpur Stock Exchange (KLSE). (Listed companies are companies in which you can buy or sell shares through the BSKL.) What is the current number of companies?

Important developments for small businesses

Distinction between public and private companies Salomons case

The architecture of companies

Capital structure
equity capital (shares) debt capital

Management structure
board of directors and other officers members (shareholders)

Historical development of the corporate form

Corporations aggregate as separate legal persons Joint stock as a means of financial participation Incorporation as of right from mid 19th century Limited liability from mid 19th century

Sources of company law

Where do I look for any rules that may govern a proposed corporate action? Examples:
electing new directors borrowing money from a bank bringing in new investors

Companies Act 1965

Sources of rules (cont)

Case law Other sources
Companies Regulations 1966 Securities Commission Act 1993 SC exemptions, modifications and guidelines Accounting standards and the Financial Reporting Act 1997 Bursa Securities Listing Requirement (for listed companies)

Sources of company law

Companies Act 1965 Securities Commission Act 1993 (amended in 2007) Capital Market and Services Act 2007 Bursa Securities Listing Requirement Code on Take-overs and Mergers 1998 Malaysian Code on Corporate Governance Offshore Companies Act 199 Case law

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The operation of company law

Operates as a source of private rights between individual parties (eg between members of a company) Breach of provisions of the Companies Act can also be a criminal offence or subject to CCM sanctions

Historical background
Prior to the enforcement of the Companies Act 1965, company legislation in Malaysia was administered by separate but similar Ordinances for each individual states. Malaysia company law is greatly influenced by the law enforced in the United Kingdom and Australia
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Companies Act 1965

Malaysias company law statute Came into effect in 1965 Provides provisions on:
registration and formation of companies regulates fundraising activities, shares and debentures regulates company management

Enforcement of CA 1965
CA 1965 is enforced by the Companies Commission of Malaysia (CCM) that came into force on 16 April 2002; Functions of CCM, inter alia, are:
To act as the governments agent To encourage and promote proper conduct among officers of the company; to promote self-regulation; to advise the Minister
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Case law
In a common law system, creates binding legal rules May apply:
in interpreting rules contained in the Companies Act in imposing additional rules

Doctrine of precedent
Consider the significance of the facts

Securities Commission
Responsible to administer securities laws Powers derived from the Securities Commission Act 1993 (SCA) Objective to promote and maintain fair efficient market Functions : sec 15(1) of the SCA 1993
advise Minister on matters relating to securities and futures industry

Securities Commission (cont)

regulate matters relating to securities and futures contracts; suppress illegal and improper market practices to promote development of securities market

BURSA SECURITIES KUALA LUMPUR (BSKL)

Bursa Malaysia is an exchange holding company approved under section 15, CMSA. Exchange related services including trading, clearing, settlement and depository It was known as the KLSE ( or BSKL) which incorporated as a company limited by guarantee under the Companies Act 1965 in 1976
Following demutualisation exercise in 2004, KLSE was renamed as Bursa Malaysia

Bursa Malaysia (cont)

Objectives:
to administer and enforce rules in relation to securities dealings regulates listed companies promotion and protection of investing public

Capital Markets and Services Act 2007(CMSA)

Replaced the 1983 SIA Scope of CMSA:
formation and conduct of stock exchange and clearing house licensing relation between stock exchange and issuers of securities prohibited market practices

Code on Take-overs and Mergers 1998

Repealed the 1987 Take-overs and Mergers Code Modelled on the UK City Code on Take Over and Merger Key legislation on take-overs and mergers Came into force : 1st January 1999

Malaysian Code on Corporate Governance 2000

Set by working group on Best Practices in Corporate Governance (JPK 1) Provides principles and best practices on structures and processes for companies towards achieving optimal governance framework Constructive and flexible rules

Offshore Companies Act 1990

Scope : Offshore companies or foreign companies established in Labuan Provides framework for:
incorporation registration administration of offshore and foreign companies

Preferential tax treatment

Self-quiz
1. Explain private and public company; 2. To what extent does a partnership differ from a limited company; 3. Explain the relationship between the holding and subsidiary company (the explanation for the classification is given through students presentation)
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