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Understanding Company Formation: Benefits & Key Differences

School
Sekolah Menengah Jenis Kebangsaan Sin Min**We aren't endorsed by this school
Course
BUSINESS MGT648
Subject
Law
Date
Dec 10, 2024
Pages
24
Uploaded by KidLobsterMaster59
Question 1Benefits of Forming a Company1.Limited Liability: One of the main advantages of forming a company, such as PETCUTESdn. Bhd., is limited liability. In a company structure, the shareholders' liability is limitedto the amount they have invested in the company. If the company incurs debts or is sued,the personal assets of the directors or shareholders are protected, unlike in a partnershipwhere partners are personally liable for the debts of the firm.2.Separate Legal Entity: A company is considered a separate legal entity from its owners.This means that the company can own property, enter into contracts, sue, and be sued inits own name. This separation is not present in a partnership where the business and thepartners are legally inseparable.3.Perpetual Succession: A company has perpetual succession, meaning it continues to existeven if the owners or directors change, retire, or pass away. This provides stability andcontinuity for the business, unlike a partnership, which may dissolve upon the death orwithdrawal of a partner.4.Access to Capital: Companies generally have better access to capital compared topartnerships. They can raise funds through the sale of shares, issuance of debentures, orby obtaining loans from financial institutions. This makes it easier to expand thebusiness, especially when exploring new markets like e-commerce. (Corpnet, 2024)5.Transferability of Shares: Ownership in a company can be easily transferred through thesale of shares, which provides flexibility for investors. In a partnership, the transfer ofownership is more complicated and often requires the consent of all partners.6.Tax Advantages: Companies may enjoy certain tax benefits and deductions that are notavailable to partnerships. Corporate tax rates may also be more favorable compared toindividual income tax rates that apply to partnerships.(Startupnation, 2024)
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Differences Between a Company and a Partnership in this Scenario1.Legal Status and EntityoCompany (PETCUTE Sdn. Bhd.):§Separate Legal Personality: Under theCompanies Act 2016of Malaysia,PETCUTESdn.Bhd.isrecognizedasaseparatelegalentityfromitsshareholdersanddirectors.Thisdoctrineofseparatelegalpersonality,established inSalomon v A Salomon & Co Ltd [1897] AC 22, allows thecompany to engage in legal activities such as entering into contracts, owningproperty, and suing or being sued in its own name. The company’s existence isindependent of its owners, and it is treated as its own “person” under the law.§Scenario Context: When Tomas entered into a contract with Super-Petfood Sdn.Bhd., he did so on behalf of PETCUTE Sdn. Bhd. The contract is legallybinding on the company itself, not on Tomas, Charles, or Tommy personally.The legal liability rests with the company as an independent entity, ensuring thatthe personal assets of the shareholders remain separate from the company’sobligations.oPartnership (PETCUTE Partnership):§No Separate Legal Personality: In contrast, a partnership under thePartnershipAct 1961does not have a separate legal personality. The partners themselvesown the business and are directly involved in its legal matters. This means thatcontractsandobligationsenteredintobythepartnershiparethedirectresponsibilities of the partners, as seen in cases likeHadlee v Commissioner ofInland Revenue [1993] 2 NZLR 385.§Scenario Context: If PETCUTE had remained a partnership and Tomas hadentered into the RM 500,000.00 contract with Super-Petfood Sdn. Bhd., bothTomas and Charles would be personally liable for the debt. They could be sued
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individually, and their personal assets could be at risk if the partnership couldnot meet its financial obligations.2.LiabilityoCompany (PETCUTE Sdn. Bhd.):§Limited Liability: In a company structure, shareholders benefit from limitedliability under theCompanies Act 2016. This principle ensures that theirfinancial responsibility is capped at the amount of capital they have invested inthe company. If the company faces debts or legal claims, the shareholders arenot personally liable beyond their investment, as upheld inLee v Lee's AirFarming Ltd [1961] UKPC 33.§Scenario Context: Since PETCUTE Sdn. Bhd. is a company, if Super-Petfood Sdn.Bhd. decides to sue for the RM 500,000.00, the company as a whole would beresponsible for the debt. Charles, Tomas, and Tommy would not be required topay out of their personal funds; the most they would lose is the capital they haveinvested in PETCUTE Sdn. Bhd.oPartnership (PETCUTE Partnership):§Unlimited Liability: In contrast, partners in a partnership have unlimited liability,as established under thePartnership Act 1961. This means they are personallyresponsible for all the debts and obligations of the business. If the partnershipcannot meet its financial commitments, creditors can pursue the partners'personal assets to satisfy the debts.§Scenario Context: If PETCUTE were still a partnership, the RM 500,000.00 debtwould not only be a liability of the business but also of Tomas and Charlespersonally. They would have to use their personal assets to pay off the debt if thepartnership couldn’t cover it.3.Management and Control
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oCompany (PETCUTE Sdn. Bhd.):§Governance Structure: In a company, management and control are typically vestedin a board of directors, as prescribed under theCompanies Act 2016. The boardis responsible for making strategic decisions and overseeing the company’soperations,whileday-to-day management may be delegated to appointedofficers or executives, in line with the principles established inAutomaticSelf-Cleansing Filter Syndicate Co Ltd v Cuninghame [1906] 2 Ch 34.§Scenario Context: After converting PETCUTE into a company, Charles, Tomas,andTommy,asdirectors,shareresponsibility for making key decisions.However, the actions of any one director (like Tomas entering into a contract)must be in line with the company’s governance rules. If Tomas acted withoutproper authority or failed to consult the other directors, it could lead to internalgovernance issues, but legally, the company is still bound by his actions.oPartnership (PETCUTE Partnership):§Shared Management: In a partnership, management is typically shared among thepartners unless they agree otherwise, as stipulated under thePartnership Act1961. Each partner has an equal say in the decision-making process, and theyoften manage the business directly. This can lead to more straightforward andflexible decision-making but can also cause disputes if partners disagree, as seeninM Young Legal Associates Ltd v Zahid [2006] EWHC 2175 (Ch).§Scenario Context: As partners, Charles and Tomas would have been jointlymanagingPETCUTE.Tomasenteringintoasignificant contract withoutinforming Charles could cause tension and potential disputes. In a partnership,such actions could lead to a breach of the partnership agreement, and Charlesmight hold Tomas personally accountable.4.ContinuityoCompany (PETCUTE Sdn. Bhd.):
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§PerpetualSuccession:Acompanyenjoysperpetual succession under theCompanies Act 2016, meaning it continues to exist regardless of changes inownership or management. The company’s existence is not affected by thedeath, insolvency, or departure of any shareholder or director, as reaffirmed inRidge Securities Ltd v IRC [1964] 1 WLR 479.§Scenario Context: If any of the directors or shareholders of PETCUTE Sdn. Bhd.decides to leave, retires, or passes away, the company would continue to operateas usual. This ensures business continuity, which is crucial for long-termplanning and stability. (Netlawman, 2022)oPartnership (PETCUTE Partnership):§Lack of Perpetual Succession: In a partnership, the business may be dissolved if apartner withdraws, passes away, or becomes insolvent, unless there is anagreement in place to continue the partnership. This can disrupt the business andcomplicate succession planning, as outlined under thePartnership Act 1961.§Scenario Context: If PETCUTE had remained a partnership and one of thepartners, such as Charles or Tomas, decided to leave or faced an unexpectedevent, the partnership might have to be dissolved, causing uncertainty andpotential disruption to the business.5.Capital RaisingoCompany (PETCUTE Sdn. Bhd.):§Access to Capital: Companies have more avenues for raising capital, such asissuing shares, obtaining loans, or issuing debentures, as authorized by theCompanies Act 2016. They can attract investment from a broader range ofsources,includingventurecapitalists,privateinvestors,andfinancialinstitutions, as seen inRe: Bhullar Bros Ltd [2003] EWCA Civ 424.
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§Scenario Context: After converting to a company, PETCUTE Sdn. Bhd. couldraise additional funds by issuing new shares or taking on new investors. Thiswas evident when Tommy injected RM 100,000.00 as capital to become ashareholder. This financial flexibility is essential for expanding the business intonew markets, such as e-commerce.oPartnership (PETCUTE Partnership):§Limited Capital Raising: In a partnership, raising capital is generally limited to thecontributions of the partners or borrowing against the personal assets of thepartners, as provided under thePartnership Act 1961. This can restrict thepartnership’s ability to grow or invest in new opportunities.§Scenario Context: If PETCUTE had remained a partnership, the ability to raisesignificant capital for expansion would be limited. Charles and Tomas wouldhave to rely on their resources or personal credit, which could constrain thebusiness’s growth potential.(Lawbhoomi, 2024)6.TaxationoCompany (PETCUTE Sdn. Bhd.):§Corporate Taxation: Companies are subject to corporate tax under theIncome TaxAct 1967, which may offer lower tax rates and access to various tax incentivesthat are not available to partnerships. Companies can also take advantage of taxdeductions and credits to reduce their taxable income, as applied inSyarikatJaya v Director-General of Inland Revenue [1979] 2 MLJ 169.§Scenario Context: As PETCUTE Sdn. Bhd., the company may benefit from morefavorable tax rates and incentives, which can lead to significant tax savings. Thisis particularly advantageous as the business expands and its revenue grows.oPartnership (PETCUTE Partnership):
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§Personal Taxation: In a partnership, income is taxed at the individual income taxrates of the partners under theIncome Tax Act 1967, which can be higher thancorporate tax rates. Partners report their share of the partnership’s profits on theirpersonal tax returns, potentially resulting in a higher overall tax burden.§Scenario Context: If PETCUTE had remained a partnership, Charles and Tomasmighthavefacedhighertaxes,especiallyas the business became moreprofitable. The ability to optimize tax liabilities is one reason why converting toa company can be beneficial. (Testbook, 2023)7.Transferability of InterestoCompany (PETCUTE Sdn. Bhd.):§Ease of Transferability: Ownership in a company is easily transferable through thesale of shares, as governed by theCompanies Act 2016. Shareholders can sell ortransfer their shares without disrupting the company’s operations, providingflexibility for both the exiting and incoming shareholders, as demonstrated inO'Neill v Phillips [1999] UKHL 24.§Scenario Context: If any of the shareholders (Charles, Tomas, or Tommy) wish tosell their stake in PETCUTE Sdn. Bhd., they can do so by transferring theirsharestoanotherparty. This ease of transferability allows for smoothertransitions and the potential to bring in new investors without affecting thecompany’s continuity.oPartnership (PETCUTE Partnership):§Restrictions on Transferability: In a partnership, transferring ownership is morecomplicated under thePartnership Act 1961. The consent of all partners istypically required, and such a transfer may lead to the dissolution of thepartnership, depending on the partnership agreement.
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§Scenario Context: If PETCUTE had remained a partnership, any attempt byCharles or Tomas to transfer their interest to someone else could result in thedissolution of the partnership. This could cause instability and make it difficultto bring in new partners or exit the business smoothly.(Setantasolicitors, n.d.)
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Question 1bTomas,oneofPETCUTESdn.Bhd.’sdirectors,signedanRM500,000contractwithSuper-Petfood Sdn. Bhd., for which PETCUTE Sdn. Bhd. can be held accountable. The idea of adistinct legal organization, the authority of directors, and company law principles must all betaken into account while determining responsibility.Separate Legal EntityWith its incorporation under the Companies Act of 2016, PETCUTE Sdn. Bhd. is a distinct legalentity from its directors and shareholders. This implies that the corporation’s debts and liabilitiesare the responsibility of the company, not any one of the individual directors. Tomas signed theagreement with Super-Petfood Sdn. Bhd. as a director, not in his individual capacity but rather onbehalf of the business. Thus, PETCUTE Sdn. Bhd. is responsible for any responsibility resultingfrom the contract.●Companies Act 2016Refer to S20(a) Contract Act 2016, The idea that a corporation is a different legal entityfrom its directors and stockholders is emphasized in this section. The business isresponsible for paying off its debts.●Case LawSimilar cases with Salomon v Salomon & Co. Ltd. [1897]. The fact that a corporation is adifferent legal entity from its directors and stockholders is emphasized in this section.The business is responsible for paying off its debts.Veil of IncorporationThe veil of incorporation is in place in the case of PETCUTE Sdn. Bhd. because the companyhas been incorporated. As a result, the company's responsibilities are kept apart from those ofCharles, Tomas, and Tommy as individuals and directors. As a result, Tomas did not sign acontract with Super-Petfood Sdn. Bhd. in his individual capacity, but rather on behalf ofPETCUTE Sdn. Bhd.
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As such, PETCUTE Sdn. Bhd., not Tomas individually, is liable for any liability resulting fromthis contract. To recoup the RM500,000 owed, Super-Petfood Sdn. Bhd. would thus file a lawsuitagainst the business rather than Tomas. The corporate veil effectively shields individual directorsand shareholders from being held personally liable for the obligations of the firm.Lifting or Piercing the Corporate VeilIn some circumstances, the court may "pierce" or "lift" the corporate veil, making the directors orshareholders personally accountable for the company's deeds. But these kinds of cases usuallyentail fraud, wrongdoing, or circumstances in which the business is just a front for private affairs.The corporate veil would stay in place and PETCUTE Sdn. Bhd. would be liable in this case,barring proof that Tomas acted dishonestly or that the business was being used to hide personalwrongdoing.Apply Statutory Exception with Section 540(1) of Companies Act 2016In the event that Super-Petfood Sdn. Bhd. signed the agreement with Tomas in good faith andthought he was able to bind PETCUTE Sdn. Bhd., then S540(1) would be applicable, and thebusiness would be responsible for the RM500,000. But if Super-Petfood Sdn. Bhd. was aware, orought to have been aware, that Tomas lacked the competence to sign such a significant dealwithout the other directors’ approval.The question of whether Super-Petfood Sdn. Bhd. should have been aware of Tomas's lack ofpower may depend on the internal governance procedures followed by the business. For instance,Super-Petfood Sdn. Bhd. may be expected to investigate more before concluding that Tomas hadthe needed power if it was widely known in the sector that major transactions required thepermission of all directors. The protection provided by S540(1) might not be applicable if theydid not comply.Authority of DirectorsIn general, directors of a corporation have the power to sign contracts on the firm's behalf,particularly when those contracts fall under the purview of the business. If Tomas acted withinhis authority as a director, his acts as a director may still be binding on the corporation even
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though he did not tell Charles and Tommy about the contract. Tomas was operating in the regularcourse of business, as evidenced by the fact that the contract was connected to the company'soperations (purchasing pet food from a supplier).Company’s LiabilityTomas was operating inside the company's purview and in his capacity as a director, thereforePETCUTE Sdn. Bhd. is probably responsible for the RM500,000 due to Super-Petfood Sdn.Bhd. The corporation bears the responsibility of carrying out the conditions of the contract, notTomas personally. In order to collect the money owed, Super-Petfood Sdn. Bhd. is thereforeentitled to sue PETCUTE Sdn. Bhd.Internal IssuesCharles and Tommy may deal with Tomas's activities internally, even though PETCUTE Sdn.Bhd. might be held accountable to Super-Petfood Sdn. Bhd. Tommy and Charles may be able tofire Tomas from the company if he violated his fiduciary duty or acted without the requiredauthorization. Nonetheless, the company's liability to third parties, such as Super-Petfood Sdn.Bhd., is unaffected by this internal matter.ConclusionPETCUTE Sdn. Bhd. most certainly bears responsibility for the RM500,000 deal that Tomasmade on the company's behalf. To get the money back, Super-Petfood Sdn. Bhd. may file alawsuit against the business. The internal concerns pertaining to Tomas's conduct are distinct andhave no bearing on the company's obligation to Super-Petfood Sdn. Bhd.
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(c) If Tomas is the agent of Charles, would your answer differ? Discuss the duties ofan agent towards its principal.If Tomas is the agent of Charles, the law of agency applies, meaning that the actions of Tomas, asan agent, would legally bind Charles, the principal. In this scenario, the law of agency governsthe relationship between Tomas (agent) and Charles (principal), and certain duties must beupheld by Tomas towards Charles. In an agency relationship, the principal (Charles) is generallybound by the acts of the agent (Tomas), provided those acts are within the scope of the agent'sauthority. This could mean that Charles, or even PETCUTE Sdn. Bhd. If Tomas was acting onbehalf of the company, might be held liable for the RM500,000.00 debt incurred by Tomas whenentering into the contract with Super-Petfood Sdn. Bhd.Duties of an Agent Towards the Principal:1.Duty to Obey the Principal's InstructionsObligation to Follow Instructions:Core Responsibility: The fundamental duty of an agent is to act in accordance with theprincipal's instructions. This duty is central to the agency relationship because the agent acts onbehalf of the principal and must therefore follow the principal's directives to achieve the desiredoutcomes.Lawful and Clear Instructions: The instructions provided by the principal must be lawful, clear,and specific. The agent is expected to carry out these instructions exactly as given, withoutdeviating from them unless circumstances make it impossible or impractical to do so.Impact on Third Parties:Binding the Principal: Even if the agent acts outside the scope of the principal's instructions,third parties (like Super-Petfood Sdn. Bhd.) may still hold the principal (Charles or PETCUTESdn. Bhd.) liable for the agent’s actions if they had apparent authority. This makes it crucial forthe agent to strictly follow the principal's instructions to avoid unauthorized commitments.
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Internal Consequences: While the third party might be able to enforce the contract against theprincipal, the principal can still hold the agent liable internally for acting beyond the scope oftheir authority.Conclusion: The duty to obey the principal’s instructions is a critical aspect of the agencyrelationship. It ensures that the agent acts according to the principal’s will and protects theprincipal’s interests. In the case of Tomas, failing to follow Charles’s instructions (or actingwithout obtaining instructions) could lead to significant legal and financial consequences forboth the principal and the agent.2. Duty to Render Proper AccountsObligation to Maintain Accurate Records:Core Responsibility: One of the key duties of an agent is to maintain accurate and detailedrecords of all transactions and activities carried out on behalf of the principal. This includeskeeping track of all financial transactions, contracts, correspondence, and any other relevantdocumentation related to the agency.Transparency and Accountability: The purpose of this duty is to ensure transparency andaccountability in the agent’s actions. By keeping detailed records, the agent can provide clearevidence of how they have managed the principal’s affairs, which is essential for maintainingtrust in the agency relationship.Importance in Decision-Making:Informed Decisions: Proper accounting is crucial for enabling the principal to make informeddecisions about the business. Without accurate and timely information, the principal cannotassess the financial health of the business or make strategic decisions. Tomas’s duty to renderproper accounts ensures that Charles and the other directors of PETCUTE Sdn. Bhd. have thenecessary information to manage the company effectively.Legal and Financial Compliance: Accurate accounting is also essential for legal and financialcompliance. If the agent fails to keep proper records, it could lead to issues with tax authorities,
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auditors, or regulatory bodies, which can have severe legal and financial implications for theprincipal.Conclusion:If Tomas acted as an agent of Charles and breached any of these duties, the liability for thecontract with Super-Petfood Sdn. Bhd. could potentially extend to Charles and the company,depending on the circumstances. However, if the breach is severe, Charles could seek remediesagainst Tomas for acting outside the scope of his authority or in breach of his fiduciary duties.
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Question 2a)Types of Shares Available for Public IssuanceThere are primarily two types of shares that Gangnam Mee Berhad can issue to the public:ordinary sharesandpreference shares. Each type of share comes with distinct features that canimpact the company's capital structure, control, and financial obligations.Ordinary SharesOrdinary shares are also known as equity shares, the most common type of equity that acompany can issue. Shareholders who purchase ordinary shares typically enjoy voting rights inthe company’s general meetings and are entitled to dividends, which are paid after preferenceshareholders have received their fixed dividends. The capital raised through ordinary shares doesnot need to be repaid by the company, and dividends are only distributed when the companymakes profits (Poems, n,d)DifferencesOrdinary shares grant voting rights, whereas preference shares generally do not. The dividendson ordinary shares are variable and are paid after preference dividends. Additionally, in the eventof liquidation, ordinary shareholders are paid after all other debts and preference shareholders(Crestlegal, n,d).Advantages of Ordinary Shares(Azizam, n,d)No Fixed Dividend Obligation.Dividends are paid based on available profits, allowingflexibility in financial management.
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Increased Capital Without Debt.Issuing ordinary shares raises capital without increasing thecompany’s debt burden.Retains Control.Although ordinary shares grant voting rights, existing shareholders canmaintain control by limiting the number of new shares issued.Potential for High Returns.If the company performs well, dividends and share prices mayincrease, attracting more investors.Equity Cushion.In case of financial distress, ordinary shares absorb losses first, protectingcreditors and preference shareholders.Disadvantages of Ordinary Shares(Azizam, 2021)Dilution of Ownership.Issuing new shares can dilute existing shareholders' control over thecompany.Dividend Expectation Pressure.Shareholders may expect regular dividends, pressuring thecompany to distribute profits.Vulnerability to Market Volatility.Share prices can fluctuate based on market perceptions,impacting the company's valuation.Risk of Hostile Takeovers.If too many shares are issued, it might open the door for a hostiletakeover.Last in Liquidation.In the event of liquidation, ordinary shareholders are the last to be paid,making the shares riskier.Preference Shares(Azizam, 2021)Preference shares offer shareholders a fixed dividend before any dividends is distributed toordinary shareholders. Unlike ordinary shares, preference shares generally do not carry votingrights unless the dividend is in arrears. Preference shares can be categorized into cumulative andnon-cumulative, with cumulative shares entitling shareholders to accumulate unpaid dividends.
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DifferencesPreference shares typically do not offer voting rights, unlike ordinary shares. They offer a fixeddividend, which is prioritized over ordinary dividends. In liquidation, preference shareholders arepaid before ordinary shareholders but after debt holders.Advantages of Preference Shares(Kotak Securities Team, 2023)Fixed Dividend Payments.Preference shares offer a predictable dividend, making themattractive to investors seeking stable income.No Dilution of Control.As preference shares often do not carry voting rights, they do not diluteexisting shareholders' control over the company.Attracts Conservative Investors.The fixed income feature attracts investors who prefer lowerrisk, potentially broadening the investor base.Priority in Liquidation.Preference shareholders are prioritized over ordinary shareholders incase of liquidation.Flexible Terms.Preference shares can be structured with various features (e.g., convertible orcumulative), offering flexibility in meeting investor needs.Disadvantages of Preference Shares(Kotak Securities Team, 2023)Fixed Financial Obligation.The company is obligated to pay dividends even if profits are low,potentially straining finances.Higher Cost of Capital.Preference shares typically require a higher dividend rate than ordinaryshares, increasing the cost of capital.Limited Participation in Profits.Unlike ordinary shareholders, preference shareholders do notbenefit from increased profits beyond their fixed dividend.No Tax Deductibility.Unlike interest on debt, dividend payments on preference shares are nottax-deductible, reducing the company’s tax efficiency.
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Potential Redemption Obligation.If the shares are redeemable, the company may face a futurecash outflow to repurchase them, impacting liquidity.ConclusionIn conclusion, Gangnam Mee Berhad has the option to raise capital through the issuance of eitherordinary shares or preference shares, each offering distinct advantages and disadvantages.Ordinary shares provide flexibility and the potential for high investor interest but may result indilution of control and ownership. Preference shares offer stability and protection of control butcome with the obligation of fixed dividends and can limit financial flexibility. The choicebetween these types of shares should align with the company’s strategic goals, financialcondition, and the preferences of its current and potential investors.b)Agency by Express AppointmentAccording to Section 140, an agency is created When the principal appoints the agent by expressagreement with the agent. The principal and the agent may have this formal agreement in writtenor orally. Principles of contract law are applicable to an agency arrangement. An agent mightagree to act in exchange for compensation. On the other hand, an agency is gratuitous if theagent consents to operate without receiving payment.With one exception, which is covered below, the general norm is that agency can be establishedorally and that written agreements are not required to do so. This general rule is applicable insituations where agents are appointed to sign contracts for the acquisition or sale of real estate,whether they are acting on behalf of the buyer or the seller. The only exception of this is when anagent is appointed to execute a deed on behalf of the principal. In this scenario, the agent must bedesignated by a power of attorney deed (EAA, n.d.).A Power of Attorney is an illustration of an express appointment. A power of attorney is severelyinterpreted, and the principal will not be held accountable if the attorney, in the alleged exerciseof his authority, changed his principal in a way that was not within the reasonable limits of his
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authority. Only after he embraces it will he be trustworthy. The law mandates that a power ofattorney be written for specific reasons.Agency by Implied AppointmentSection 140 of the Contract Act 1950 defines implied appointment as the result of someonerepresenting another person as having the power to act on his behalf by words. implied agency isa type of relationship where one party (the agent) has the authority to act on behalf of anotherparty (the principal) without a formal agreement. This may occur if the principal conveys to theagent the idea that they are authorized to act on their behalf or if the agent's conduct implies thatthey are doing so. It is critical to recognise that the agent has the power to bind the principal bytheir words or deeds, hence it is imperative to establish the precise boundaries of their authority.For instance, if someone employs a contractor to remodel their home, the contractor is implicitlyauthorized to make material purchases and engage subcontractors on the homeowner's behalf.This is because, despite it not being specifically included in the contract, the homeowner hasgranted the contractor permission to act on their behalf (LSD, n.d.).For example,Chan Yin Tee V. William Jacks & Co. (Malaya) Ltd. 1964case. The appellantChan and Yong (a minor) were registered as partners. At a meeting with a representative of theCompany, the appellant held himself out to be Yongs partner. Goods were supplied to Yong butwere not paid for. The respondent company obtained judgment against the appellant and Yong.The appellant appealed to the Federal Court which held that since the appellant had held Yongout as his agent who had the authority to do things on his behalf, the appellant was liable forYongs acts.1Agency by Necessity1Chan Yin Tee v William Jacks & Co (Malaya) Ltd [1964] MLJ 290https://www.lawteacher.net/free-law-essays/commercial-law/what-is-law-of-agency-commercial-law-essay.php
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Section 142 Contract Act 1950 states that an agency may be established in response to need or inan emergency. The idea of "agency by necessity" states that in an emergency, one person has theauthority to build rapport and make important decisions on behalf of the other. It enables theagent to protect the principal from any danger. This kind of partnership is acknowledged by thelegal system.In contract law, agency by necessity essentially allows an individual or agent to take steps toprotect the principal's assets or property in an emergency, particularly in situations when thelatter is unable to provide instructions or permission. In corporate interactions, the idea of agencyby necessity is essential since it reduces losses and guarantees continuation in the event ofunforeseen circumstances. In the field of wealth management, this idea is equally essential. Forexample, a large number of wealth managers handle inheritances and create trusts and wills(Bhattacharyya, 2024).For illustration,Great Northern Railway Co. v Swaffield (1874). The railway company carriedthe defendant's horse to its destination. On arrival there was no one to receive the horse. Thestation master did not know the defendant or his agent's address and directed that the horse beput in a stable. The railway company later claimed the charges for the stable. The defendantrefused to pay. The court held that the plaintiff acted as an agent of necessity in this matter, sothe defendant must pay.2Agency by RatificationUnder the Contracts Act 1950, Section 149 states thatwhen an individual (the principal) ratifies,or accepts, an act that has already been performed in his name and on his behalf by anotherindividual (the agent) who in reality, lacked any actual authorisation (whether expressed orimplied), to act on the principal's behalf at the time the act was performed.When an act is validated by the principle, it establishes an agency connection between theprincipal and the agent only for that particular act but it does not establish an agency relationship2Great Northern Railway v Swaffield [1874] LR 9 Exch 132https://issuu.com/polisaslib3/docs/business_law_handbook/s/13865220
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for any other acts, past or future. When someone ratifies another person's action, they must havebeen alive at the time of the act's execution and possess the legal ability to carry it out on theirown. A person may be incapable of making decisions legally due to mental illness, bankruptcy orimmaturity (Agrawal, 2023).For example,Keighley Maxted & Co. v. Durant (1901). K&Co authorized Roberts, a cornmerchant, to buy wheat on a joint account for himself and them at a certain price. Roberts, on hisown behalf and without authority of anybody else, bought wheat at a higher price than theauthorized one, from Durant. The intention that he was acting for K&Co. as well as himself wasnot disclosed by Roberts to Durant. K & Co, however, later agreed with Roberts to buy the wheatat that (high) price but eventually failed to do so. Durant resold it at a loss and sued them forloss.3Agency by Estoppel or ‘holding out’Agency by estoppel refers to a situation in which the Principal, or the person who chose theagent to represent them, was willing to create the impression of an agency connection even in theabsence of a written agency agreement. Section 190 of Contracts Act 1950 states that the agencyby estoppel is regarded as a legally enforceable agency connection even if it is not an officiallyrecognised agreement to represent.This implies that an individual or organization cannot informally pretend that someone is actingon their behalf while excluding themselves from any liability resulting from that pretender'sdeeds.Put simply, if the third party was involved in giving the public or laypersons the idea that theywere a legitimate and formally authorized agent of the principle, then the principal is stopped(legally prohibited) from disputing that the third party was their agent. This holds true even incircumstances when the principal mishandled and unintentionally created that perception(Insuranceopedia, 2024).3Keighley Maxted & Co. v. Durant [1901] AC 240https://indiancaselaws.wordpress.com/2012/01/19/keighley-maxted-and-co-v-durant/
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For example,Soanes v London and South Western Railway Company(1919). A railwaycompany supplied its porters with a uniform, thus holding the porters out as the company's agent.A porter who was off-duty and therefore not acting as agent of the company at this time, tookcharge of a passenger's luggage at a railway station. The luggage was later stolen and thepassenger sued the railway company for the loss. The court held that the railway company wasstopped from denying that the porter was its agent. Therefore, the railway company was liablefor its agents' action.4ReferencesAgrawal,A.(2023,April25).AgencybyRatification-Contract.LawBhoomi.https://lawbhoomi.com/agency-by-ratification/Aishwarya Agrawal. 2024, April 1.Difference between partnership and company.Lawbhoomi.https://lawbhoomi.com/difference-between-partnership-and-company/Bhattacharyya, R. (2024, July 29).Agency By Necessity - What Is It, Example, Conditions,Importance.WallStreetMojo.https://www.wallstreetmojo.com/agency-by-necessity/BizFillings.2024,July13.The7BenefitsofFormingaCorporation.Startupnation.https://startupnation.com/start-your-business/plan-your-business/benefits-of-forming-a-corporation/4Soanes v London and South Western Railway Company All ER 852https://vlex.co.uk/vid/mears-v-the-london-802477541
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Corpnet.2024,May15.TheBenefitofIncorporatingaBusiness.Corpnet.https://www.corpnet.com/blog/benefits-of-incorporating/EAA.(n.d.).(3)Formationofagency.EstateAgentsAuthority.https://www.eaa.org.hk/en-us/Information-Centre/Publications/Agency-Law/-3-Formation-of-agencyGreatNorthernRailwayvSwaffield[1874]LR9Exch132.https://issuu.com/polisaslib3/docs/business_law_handbook/s/13865220Insuranceopedia.(2024,February29).WhatisAgencybyEstoppel?-Definition fromInsuranceopedia.Insuranceopedia.https://www.insuranceopedia.com/definition/667/agency-by-estoppelLSD.(n.d.).impliedagencydefinition·LSData.LSD.Law.https://www.lsd.law/define/implied-agencySetantasolicitors.(n.d.)TheLegalDifferenceBetweenaPartnershipandaCompany.Setantasolictors.https://setantasolicitors.ie/the-legal-difference-between-a-partnership-and-a-companySoanesvLondonandSouthWesternRailwayCompanyAllER852.https://vlex.co.uk/vid/mears-v-the-london-802477541Testbook.2023,August24.DifferenceBetweenCompanyandPartnershipFirm:AComprehensiveComparison.Testbook.https://testbook.com/key-differences/difference-between-company-and-partnership-firmKeighleyMaxted&Co.v.Durant[1901]AC240.https://indiancaselaws.wordpress.com/2012/01/19/keighley-maxted-and-co-v-durant/
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ChanYinTeevWilliamJacks&Co(Malaya)Ltd[1964]MLJ290.https://www.lawteacher.net/free-law-essays/commercial-law/what-is-law-of-agency-commercial-law-essay.phpCrestlegal.(n,d).Ordinarysharesvspreferenceshares.Crestlegal.https://crestlegal.com/ordinary-shares-vs-preference-shares/Poems.(n,d).OrdinaryShares.Glossary.https://www.poems.com.sg/glossary/investment/ordinary-share/Azizam. (2021, August 7).Ordinary Shares vs Preference Shares: What Are The Differences andWhich One is a Better Option?Malaya Corporate Group.https://malayacorporate.com/article/ordinary-shares-vs-preference-shares-what-are-the-differences-and-which-one-is-a-better-option/Kotak Securities Team. (2023, November 8).Pros And Cons Of Preference Shares.KotakSecurities.https://www.kotaksecurities.com/share-market/pros-and-cons-of-preference-shares/Netlawman. 2022, September.Partnership or company- which business structure should youchoose.Netlawman.https://www.netlawman.co.uk/ia/partnership-or-company
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