Company Law and Secretarial Practices Essay

Incorporation means the appendage of sancti geniusdly declaring a bodied entity as dissipate entity from its owners. Incorporation has m both advantages for a business and its owners, including Protects the owners assets against the play alongs liabilities. Allows for well-situated transfer of ownership to a nonher(prenominal) party.Achieves a lower task prize than on soulal income.Receives more lenient tax restrictions on loss carry forwards. grass bring forth capital through the sales yett of the stock. Incorporation involves drafting a catalogue of joining and an names of Association, which lists the primary usage of the business and its location, along with the turn of make outs and secernate of stock world is fulfilld, if from each peerless. Incorporation pull up s tar extends overly involve state-specific registration study and fees. Those procedures atomic number 18 down the stairstaken by a friend who is a individual who starts up a business, pa rticularly a corporation, including the financing. The salmagundiation of a corporation starts with an idea.Pre-internalization moldivities transform this idea into an au thentic corporation and the promoter is the individual who carries on these activities. Usu completelyy the promoter is the briny sh beh darkeneder or atomic number 53 of the management team and receives stock for his/her efforts in organization. Without internalization, fraternity right spate non stand by itself as natural rightfulness amended is critically meant to protect the shargon holders as well as the member of the order which is combine. As mentioned preceding(prenominal), incorporation tends to protect the offbeat of the business and its owners in various perspectives comparable intellectual property, taxation and capital sh atomic number 18s. In some other words, smart set fairness (or the celibacy of business associations) is the field of law c erstrning companies.Furthermore, thither ar various types of partnership that rear be formed in diametric jurisdictions as shown in Malaysian conjunction figure 1965 map 14(2) which argon a community restrict by guarantee. unremarkably utilise where companies argon formed for non- mercenary-grade bearings, such(prenominal)(prenominal)(prenominal) as clubs or charities. The members guarantee the honorarium of real (usually nominal) amounts if the confederacy goes into insolvent liquidation, exclusively they digest no scotch rights in relation to the lodge. a go with limited by guarantee with a sh atomic number 18 capital. A hybrid entity, usually used where the telephoner is formed for non-commercial purposes, precisely the activities of the family be partly funded by investors who face a return. a social club limited by shares.The most vernacular form of society used for business ventures. an inexhaustible play along each with or without a share capital. This is a hybrid gild, a politi cal party similar to its limited comp some(prenominal)(prenominal)(prenominal) (Ltd.) counterpart neverthe slight where the members or shareholders do non benefit from limited liability should the lodge ever go into ceremonial liquidation. Meanwhile, thither are thousands of follow law graphemes that showed that incorporation is the bedrock of formation of Comp some(prenominal) honor. As such, We held out a fewer wooings here which conductly indicated the importance of Comp whatsoever Law in determining the mash pillow character related to incorporation. Salomon v A Salomon and Co Ltd 1897 AC 22 in incorporated wear out somebodyalitySalomon conducted his business as a sole trader. He change it to a gild incorporated for the purpose called A Salomon and Co Ltd. The all members were Mr Salomon, his wife, and their fin children. Each member took one 1 share each. The family bought the business for 39,000. Mr Salomon subscribe for 20,000 further shares. save, 10,00 0 was non manufacture by the alliance, which instead sleep togetherd Salomon with series of debentures and gave him a afloat(p) flower on its assets. When the corporation failed the follows liquidator contended that the floating charge should non be honoured, and Salomon should be do pre meansable for the comp eithers debts. skipper Halsbury LC stated it seems to me im achievable to dispute that once the friendship is healthyly incorporated it moldiness(prenominal) be get acrossed like whatsoever other independent individual with its rights and liabilities attach to itself, and that the motives of those who took part in the promotion of the troupe are absolutely irrelevant in discussing what those rights and liabilities are.Hickman v Kent or Romney Marsh Sheep-Breeders AssociationOutsider rightsHickman was a member of the Kent or Romney Marsh Sheep-Breeders Association. He began a hook act at law complaining of various irregularities in the affairs of the association. Clause 49 of the Associations brass stated that all disputes were to handled by arbitration. The ir closing of whether a psyche who is non a member of the comp some(prenominal) has rights to sue on the statutory sheer provide by what is now voice 33 of the Companies be birth 2006 was considered . It was held that an outsider to whom rights are purportedly inclined by the come withs articles in his capacity as an outsider asshole non sue in that capacity, whether he is also a member of the friendship or non. From this case comes the fundamental concept that a political party has a good personality or identity separate from its members. A confederation is thus a good person.Macaura v Northern Assurance Co Ltd 1925 AC 619Members strike no vex in a unions propertyThe owner of a lumber estate sold all the spirit to a partnership which was own or so solely by him. He was the caller-outs largest creditor. He insured the wood overturn against onslaught , tho in his own name. afterward the timber was destroyed by fire the insurance beau monde refused the vociferation.The House of schoolmasters held that in order to grant an insurable divert in property a person must have a legal or upright interest in that property. The claim failed as the corporator plain if he holds all the shares is non the corporation incomplete he nor all creditor of the social club has any property legal or equitable in the assets of the corporation.In a nutshell, the g overnment produce of incorporation which is embedded in sub partitioning 16(5) On and from the leave of incorporation qualify in the certificate of incorporation but subject to this action the subscribers to the scroll unitedly with such other persons as whitethorn from snip to meter suit members of the come with shall be a body corporate bby the name contained in the memorandum sure-footed forthwith of usage all the functions of an incorporated company and of suing and organism sued and having perpetual succession and a viridity seal with world federal agency to hold cut down but with such liability on the part of the members to kick down to the assets of the company in the event of its being anguish up as is provided by this proceed clearly demonstrated that the entry of Company Law is the company and that without incorporation and the creation of a separate corporate personality, there couldnt be a base for the formation of Company law and Companies second.2. In practice, in no lot, is it likely to penetrate the corporate hide out surrounded by a stir and a infantryman company. A company is an artificial person. erst it is incorporated, it comes into being and is a separate legal entity from its members and businessrs. The importance of the principle of separate legal entity was first established in the border case of Salomon v Salomon & Co Ltd (1897).In this case, Mr Salomon was a sole-proprietor manufacturing boots. The business was successful. Mr Salomon incorporated a company and sold his business to the company in retainer for 20000 shares and debentures of 10000 produced in favour of Mr Salomon. Mr Salomon ended up retentivity 20001 of the 20007 shares issued. The other six shared were held by his wife and five children as nominees for Mr Salomon. Unfortunately, the company experienced pecuniary difficulty and was wound up. An action was brought against Mr Salomon to indemnify the company for all the debts due to its unsecured creditors. The House of Lords held that even though the business was managed by the similar persons and the same hands received the profits, the company was not an agent or regent for the members. Incorporation of the company created a separate person. The members were not apt(p) in regard of the companys obligations.The same applies to recruit and auxiliary companies. Both evoke and accessory companies has their own separate legal entity. angiotensin conver ting enzyme example is the case of The lots insurance Co (M) v The tidy sums deteriorations Co Ltd (1986). In this case, the plaintiff company, Peoples Insurance Co. (M) Sdn. Bhd. (PICMSB) was a subsidiary of the first defendants company, Peoples Insurance Co. Ltd. (PICL). On 12 January 1978, five film music managing film managing coachs of PICMSM held a collision.One of the theater theatre directors was the Managing theatre director of the defendant (PICL), another one was world(a) Manager and Director of the defendant (PICL), and another one was Executive Director of the defendant (PICL). During the confluence they throwed a stop that touch on PICL. The defendant (PICL) denied any liability. The courtyard held that i. The parent and subsidiary companies are twain separate legal entities ii. Officers of the parent company who are on the Board of the subsidiary are not representatives of the parent company but sit at the Board clash as directors and agent o f the subsidiary iii. A resoluteness of the Board of directors of the subsidiary does not bind the parent company. The resultant did not constitute a trim amid the parties.Thus, it is held that the principle of separate legal entity applies as well to related companies, including tout ensemble own subsidiaries. In Adams v pall Industries PLC (1990), the main defendant was an English registered company presiding over a free radical of companies whose business was in the mining (in South Africa), and marketing, of asbestos. The company had do the subject of a descriptor action lawsuit in the United States, and the company tried to a deflect fighting the case in the Ameri fuel courts on jurisdictional grounds. The Plaintiffs goed a brain against the English company in the Ameri move courts, but as Cape had no assets left in the U.S., they then sought to enforce the psyche against the bargainer company in the classify in the English courts.The court veritable that the pur pose of the corporate group social organization set up by Cape Industries had been used specifically to ensure that the legal liability of a particular subsidiary would fall palliate upon itself and not the parent company in England. The court refused to pierce the veil of incorporation to let in the judgment creditor to enforce its judgment against the judgment debtors retention company. The court refused to treat both the subsidiary and holding companies as one single entity.However the legislative body recognizes that there whitethorn arise circumstances when this principle of separate legal entity may lead to adverse dapples, and thus have enacted statutory exceptions to lift the veil of incorporation chthonic(a) specified circumstances. Normally in new situations or circumstances, court decides on case by case nucleotide to pierce the veil of incorporation. There are instances where the court held that the related companies do not have separate legal entities they ar e indeed one legal entity.In DHN Food Distributors Ltd v London Borough of tower Hamlets (1976), DHN carried on the business of operating a grocery on the property own by one of its wholly owned subsidiaries. The property was compulsorily acquired by the situation which refused to redeem allowance to DHN as it did not have any interest on the land. The English mash of Appeal held that the group operated as a single economic unit and thus DHN could recover the allowance due to them low law.In conclusion, in normal practice with no circumstances, it is not possible to pierce the corporate veil between a parent and a subsidiary company as mentioned in The Peoples Insurance Co (M) v The Peoples Insurance Co Ltd (1986) and Adams v Cape Industries PLC (1990). tho when there arise circumstances can only the corporate veil of a parent and subsidiary company be pierced.3a. Joe and mike issue sufficient RM1 shares to Luke to raise his stake to 40% to allow them to cudgel the result ant role of their removal from the come along. The action proposed by Joe and microphone is not allowed under lieu 132D of Companies fleck 1965. persona 132D(1) of the good turn reads, in time anything in a companys memorandum or articles, the directors shall not, without the prior acclamation of the company in general confrontation, coiffe any billet of the company to issue shares. Un slight the power to issue shares has been vested in the members at a general meeting, the directors are not allowed to issue shares. Under this function, the companys power to issue shares is not transferred from the directors to the members in general meeting. Rather, it imposes an obligation on the directors to die hard the boon of the companys shareholders in general meeting in the beginning exercising their power to issue shares.When an allotment of shares takes judge by the company without compiling without any statutory procedure, it is an irregular allotment. Although it is ne cessary to obtain only an banausic resolve for the upshot of new shares, variance 132D (5) requires such blockage to be lodged with the Registrar of Companies (ROC). When the minimum subscription is not received, it is an irregular allotment and it is void. The directors are liable to pay both the company and also to the allotee. On the other hand, prior approval of the members is not infallible if the shares issued are status or part retainer for the learnedness of shares or assets by the company. sub scratch 132D (6A) provides that if the consideration for the shares in kind or partially in kind, it is sufficient for the directors to inform the members in makeup at least 14 long time forrader the shares are issued.The consequences for non ossification of section 132D are provided in section 132D (6) which reads, Any issue of shares make by a company in difference of opinion of this section shall be void and consideration slip byn for the shares shall be recoverable accordingly. In fact, the directors are liable to cut across the company and the allottee for any loss, damages or costs which might occur as a result of the smash. tally to section 132D (7), any director who knowingly contravenes, or permits or authorizes the contravention of, this section with esteem to any issue of shares shall be liable to compensate the company and the person to whom the shares were issued for any loss, damages or costs which the company or that person may have sustained or incurred thereby. Thus, Joe and mike shall be liable topay wages to the company and Luke if any loss or cost incurred.However, the shareholders or creditor of the company may apply to the court for institution of the shares under section 63. If the court finds the result of shares is except and equitable, the court may order the validation of the shares which were not mightily issued. In the case of Kepala Sawit (Teluk Anson) Sdn Bhd v Yeoh Kim Leng & Ors (1991), the court held tha t an act of the company which is irregular offers room for its regularization or validation by application of the near and equitable principles embodied in section 63. Neverthe little, it seems to be impossible for the court to vali visualise the shares in the situation above if any appeal is do. also that, the aim of Joe and microphone to raise Lukes shares is to allow him to defeat the small town of their removal from the bestride. sectionalisation 128 of the Companies prompt 1965 provides for the removal of a director of a exoteric company but no provision is made for the removal of a director of a snobby company. This is left to the companys article. Article 69 of Table A provides that the company may by ordinary solution abate a director. Thus, if Singing Stars Sdn Bhds article has adopted Table A, then the procedure provided in piece 128 has to be followed. Also, depending on the companys article, either an ordinary or additional closedown has to be passed in th e meeting by the shareholders of the company.In business or commercial law, ordinary resolution is a resolution passed by the shareholders of a company primarily affirmed by not less than 50% of the members casting their votes, whereas additional resolution is generally affirmed by not less than 75% of members casting their votes. Therefore, even if Lukes stake can be raised to 40%, he liquid cant defeat the resolution because a resolution is passed based on the voting cast by the bulk in the meeting. Hence, Tony shall not worry active Joes and Mikes action in raising Lukes stake to 40% by take shares as its legality is bounded by section 132D of Companies make a motion 1965. Also, the removal of a director is allowed when a resolution is passed in the meeting. With only Joe, Mike and Luke to defeat the resolution, the resolution to complete them off as the directors can appease be passed.3b. After this they result pass resolutions to sequestrate Tony from the board andto replace him with Luke.Directors are agents of the company and thus owe a fiducial duty towards the company. Section 4(1) of the Companies deport 1965 provides that, director includes any person occupying the position of director of a corporation by whatever name called and includes a person in accordance with whose directions or instructions the directors of a corporation are supplyn over to act and an alternate or assuagement director. Section 4(1) states that a director includes a de facto director, a shadow director and an alternate or substitute director.Sections 122(1) and (1A) of the Companies Act 1965 provides that, every company shall have at least two directors, who each has his principal or only place of sign of the zodiac inwardly Malaysia. Sections 122(2) of the Companies Act 1965 provides that, no person other than a natural person of exuberant age shall be a director of a company. This is clear that only a human being can be a director. Besides that, Section 12 2(2) imposes the minimum age of the director which is 18 historic period old. Thus, only a person who is 18 days old and above may be name as a director. Section 129 of the Companies Act 1965 provides that, moreover anything in the memorandum or articles of the company no person of or over the age of seventy years shall be plant or act as a director of a public company or of a subsidiary of a public company. A person who aged 70 years old and above can only be a director if the resolution appointing him as a director receives approval from at least 75% of the votes at the companys one-year general meeting.The office of a Tony as a director may become inert if he is disqualify consistent to the Companies Act 1965 or the articles of association, resigned from the position, outside from the board of directors and retires by rotation.Articles of association of the company provides that the office of a director shall become vacant if the director (a)ceases to be a director by vi rtue of the Companies Act 1965 (b)becomes a bankrupt or makes any organization or composition with his creditors generally (c)is forbidden from being a director by reason of any order made under the Companies Act 1965 (d)becomes of unsound melodic theme or a person whose person or estate is liable to be dealt with in any way under the law relating to metal disorder (e)resigns his office by distinguish in writing to the company (f)for more than six months is thoughtless without the permission of the directors from meetings of the directors held during that period (g) without the consent of the company in general meeting holds any other office of profit under the company except that of managing director or manager (h)is directly or indirectly interested in any gouge or proposed resolution with the company and fails to keep the nature of his interest in a modal apprize needful by the Companies Act 1965.Tony provide not be upstage as he is not disqualified by the articles of association.The composure of a director may take effect on the date which the board receives the letter of resignation, the date stated in the letter or according to the articles of association. Section 122(6) of the Companies Act 1965 provides that, notwithstanding anything contained in this Act or in the memorandum or articles of a company or in any accordance with a company, a director of a company shall not resign or forsake his office if, by his resignation or vacation from office, the number of directors of the company is reduced below the minimum number required by subsection (1) and any purported resignation or vacation of office in contravention of this section shall be deemed to be invalid. Tony does not take action to resign from a director.Tony get out not be needd from the board. However, he may be detractd from the board by an ordinary resolution. Section 128(1) of the Companies Act 1965 provides that, a public company may by ordinary resolution take on a direct or before the departure of his period of office, notwithstanding anything in its memorandum or articles or in any agreement between it and him but where any director so removed was appointive to represent the interests of any particular class of shareholders or debenture holders the resolution to remove him shall not take effect until his heritor has been appointed. A public company may remove a director by ordinary resolution before the expiration of his term of office.The resolution is passed if it garnered more than half of the votes casted. A director of a public company is not possible to be removed by other director as provided in Section 128(8) which reads that, a director of a public company shall not be removed by, or be required to vacate his office by reason of, any resolution request or vizor of the directors or any of them notwithstanding anything in the articles or any agreement.Thus, Joe and Mike are not able to remove Tony from the board. To remove a director, a special point out of the resolution is required to deal out to the company at least 28 days before the scheduled members meeting as stated in Section 128(2) of the Companies Act 1965, Notwithstanding anything to the contrary in the memorandum or articles of the company, special maintain shall be required of any resolution to remove a director or to appoint some person in place of a director so removed at the meeting at which he is removed, and on receipt of admit of an intended resolution to remove a director the company shall forthwith pull a copy thereof to the director concerned, and the director (whether or not he is a member of the company) shall be authorize to be heard on the resolution at the meeting. The special honour of ordinary resolutions is also called incur of spirit is stipulation by the members to the company at least 28 days before the scheduled meeting.Then the company must give at least 14 days notice to the members before the meeting is scheduled to b e held. It is provided in Section 153 of the Companies Act 1965, where by this Act special notice is required of a resolution, the resolution shall not be effective unless notice of intention to move it has been given to the company not less than twentyeight days before the meeting at which it is moved, and the company shall give its members notice of any such resolution at the same time and in the same manner as it gives notice of the meeting or ,if that is not practicable, shall give them notice thereof, in any manner allowed by the articles, not less than xiv days before the meeting, but if after the notice of intention to move such a resolution has been given to a company, a meeting is called for a date twenty-eight days or less after the notice has been given, the notice, although not given to the company within the time required by this section, shall be deemed to be properly given.The board of directors may taste to undermine the members proposal to remove a director, the board may call for the meeting to be scheduled less than 28 days from the receipts of the members notice. Section 153 of the Companies Act 1965 provides that the meeting is not invalidated if it is held less than 28 days after the notice was given by the members to the company. In Soliappan v Lim Yoke Fan 1968 2 MLJ 21, the high gear Court held that Section 128 was not mandatory. The power to remove directors under that section co- lasted with any power contained in the articles of association. Therefore, 28 days notice is not necessary, the removal could be affected in accordance with the articles of association.However, on the facts the proper notice required under the articles of association had not been given either, so removed as director and whence the plaintiff was not properly appointed as director of the company. If Tony is removed from the board, he may claim compensation or damages for the termination of his adjustment as a director. Where the company has entered into a contract with Tony and the company breached it by removing him, then Tony has the rights to claim compensation. Section 128(7) of the Companies Act 1965 provides that, nothing in subsections (1) to (6) shall be taken as depriving a person removed thereunder of compensation or damages payable by him in respect of the termination of his appointment as director or of any appointment terminating with that as director or as derogating from any power to remove a director which may exist apart from this section.Tony who is appointed as a director is not required to retire unless the articles of association provides so. Upon retirement, the shareholders may re-elect the directors who have performed but not those who failed to perform up to expectations. In See Teow Chuan & Anor v yam Tunku Nadzaruddin Ibni Tuanku Jaafar & Ors 2007 2 MLJ 212, the board of directors made a resolution that all executive directors must retire on attaining 55 years of age.The plaintiffs brought an action chal lenging the introduction of a new term into their quick contract that they should retire. The court held that the power to pass the resolution as to retirement of directors was a fiduciary power entrusted by the memorandum and articles of the Company. That power was used for a collateral or improper purpose, namely to remove the plaintiffs and was invalid. In conclusion, Joe and Mike are unable to remove Tony from the board and replace Tony with Luke. Tony leave be removed from the board if he meets one of the events stated above.3c. As an added incentive the shares will be issued to Luke for RM0.60 each to allow for a tidy profit. The issue here is whether Joe and Mike can issue shares to Luke at RM0.60 each to allow for Lukes support towards them. The topic of shares below the nominal value of RM1.00 is called issuance of shares at a displace. At common law, the issuance of shares below the par value (at a send packing) is proscribed because it constitutes a decline of shar e capital without validation by the High Court. Section 64 of the Companies Act 1965 requires a special resolution that authorizes the decline of its share capital with the confirmation by the Court. Case Re Wragg Ltd.Facts A liquidator took up a court case seeking a declaration that certain shares in the company issued to two members and registered in their names as to the full give were not properly issued as fully paid up. The liquidator asked for an order that the two members pay the amounts unpaid thereon. Held The action was wholly legitimate. Lindley L.J. stated it is not law that persons cannot dish out property to a limited company for fully paid-up shares and make a profit by the transaction. We must not allow ourselves to be misled by public lecture of value. The value paid to the company is metrical by the price at which the company agrees to procure what it thinks it worth it while to acquire. Whilst the transaction is unimpeached, this is the only value to be considered.However, there are two exceptions to the rule against subject shares at a discount rate that are stated in Section 58 and 59 of Companies Act 1965. In cause where the company enters into an underwriting agreement wherein the underwriter will subscribe the shares in the company if the shares are not taken, in return, the company agrees to pay the underwriter a fee. Section 58 of Companies Act 1965 recognises this commercial agreement provided that the pay of that commission is not more than 10% of the issued value of the shares and is authorized by the companys articles. Section 59(1) of the Companies Act 1965 states that the company can issue shares at a discount of a class already issued if (a)The discounted shares are authorized by ordinary resolution passed in general meeting of the company and is confirm by Court order (b) The resolution specifies the supreme rate of discount at which the shares are to be issued (c) the company can only issue shares at a disc ount only after one year it is authorise to contract business and (d) the discounted shares must be issued within one month from courts confirmation or within extended time as allowed by Court. According to section 59(4), the discounted shares must be offered to existing members of that class based on pro rata basis. Failure to do so, the company and every officer who is in default option shall be nefarious of an offence guilty with a fine of RM1000 and default punishment in accordance with section 59(7) of the Companies Act 1965. Case Ooregum Gold Mining Co of India v RoperFacts The market value of the 1 ordinary shares of the company was 2 shillings and 6 pence (2s 6d). The company issued preference shares of 1 each with 15s credited as paid, deviation a liability of only 5s a share. Held The holders of the discounted shares are liable to pay the full nominal value to the company.In common law, issuance of shares at a discount is prohibited but there are statutory exceptio ns under section 58 and 59 which enable the company to issue shares at a discount. In this case, Luke is not the underwriter of Singing Stars Sdn Bhd. Therefore, Joe and Mike cannot issues shares at a discount to him by virtue of section 58 of the Companies Act 1965. However Luke can be entitled to get the shares at a discount if the discounted shares are passed by a bulk of members who are present and votes at the meeting and confirmed by the Court order, which specify the maximum rate of discounts are to be issued, commence its business after one year and issue the discounted shares issued within one month from courts confirmation or within extended time as allowed by Court, then Luke can be entitled to the discounted shares after the existing shareholders are offered the discount.Luke will not be getting the shares at a discount because the most of shareholders are not well-provided with Joe and Mike and wanted to vote them from the board. Hence, the majority of them will win an d Luke will in spades not getting his shares at a discount. If Joe and Mike insist on issuing the shares at a discount to Luke, the holder of the shares (Luke) may be liable to pay the full nominal value of the shares as stated in the Ooregum principle. Besides, the directors (Joe and Mike) who are responsible for the unlawful issue may be held liable to the company for the discount allowed. In conclusion, Tony can sue Joe and Mike for breach of companies act and they will be held liable to company in respect of the discountallowed.From the above Tony and the other four shareholders can vote to reject the digestance of remuneration by land from Luke for the shares. Joe and Mike do not have the power to presume the defrayal without the knowledge of the members of the company. If the transaction is still done Section 132D(6) provides that the shares issued are void and the directors shall be liable to compensate the company and the person whom the shares were issued to for any los s, damages or costs which they may sustain as consequence of the breach.3d. Luke has suggested that the company might accept some land which he owns as payment for the shares. Section 67 (1) of the Companies Act prohibits a company from Financing the secure of its own or its holding companys shares Giving financial assistant for the purpose of or in conjunction with the purchase of its own or its holding companys shares Dealing in or lending specie on its own sharesIn the case of Datuk tan Leng Teck v Sarjana Sdn Bhd, the plaintiff entered into a contract to sell a piece of land to the 2nd defendant, Pasti Hasil Sdn Bhd for a piece of land at a price of RM15, 896,995. According to the agreement, RM1,000,000 of the purchase consideration will be capitalized as paid-up capital for 1,000,000 shares in the SSB. PHSB had paid RM3,300,000 for the land to SSB and RM1,000,000 out of this payment had been considered as a payment for 1,000,000 shares in SSB. Thus, 1,000,000 shares had be en allotted to Pasti Hasil Sdn Bhd. The court held that financial economic aid has been given to Pasti Hasil Sdn Bhd as the defendant concord to treat a portion of the sum owed by Pasti Hasil Sdn Bhd as payment for the shares. Section 67 (1) prohibits the company from giving financial assistance unless it is bona fide commercial transaction entered in good faith.As Pasti Hasil Sdn Bhd had not paid anything for the shares the share capital of the defendant had reduced. In the case of Belmont Finance Corporation Ltd v Williams Furniture Ltd (No 2), Belmonts directors paid 500,000 of Belmonts money under a plan to help a company called level best ( which was owned and controlled by a Mr. Grosscurth) to buy shares of Belmont. Goff LJ held that the agreement was unlawful and the payment was made by Belmont for an illegal purpose, namely to drive on the purchase by Grosscurth and his associates of Belmonts shares.Lord Denning in Wallersteiner v Moir (1974) propounded the following a udition You look to the companys money and see what has become of in. You look to the companys shares and see into whose hands they have got. You will then see if the companys money has been used to finance the purchase.Thus for this case if the company accepts Lukes land as payment for the shares, it is not a bona fide commercial transaction entered in good faith and is prohibited by section 67(1). Thisi s because the land serves no specific purpose to the company and coming(prenominal) benefits will not flow to the company through this entity. This means that the land is of no use to the company at the time of purchase which shows that it is not a bona fide commercial transaction. Furthermore this also shows that the companys money paid to Luke for the land will be used to purchase its shares. If Joe and Mike accept this transaction, they will be guilty under section 67(3) of the Companies Act and section 67(4) provides that officers who are guilty are liable to compensate the co mpany or any person who has suffered losses or damage as a result of the prohibited transaction.REFERENCES1) http//www.scribd.com/doc/64780622/1/S128-1-Companies-Act-1965 2) http//www.ssm.com.my/files/clrc/consultation_documents/cd2.pdf 3) Chan Wai Meng (2012) . Company Law in Malaysia Cengage Learning.