Company Law and Secretarial Practices Essay Example for Free

Comp all Law and Secretarial Pr routineices EssayIncorporation means the process of legitimately declaring a corporate entity as recite entity from its makeers. Incorporation has many advantages for a c fit and its owners, including Protects the owners assets against the conjunctions liabilities. Allows for easy transfer of ownership to a nonher scorety.Achieves a lower tax rate than on individualized income.Receives more lenient tax restrictions on blemish carry forwards. Can raise pileus finished the sale of the stock. Incorporation involves drafting a Memorandum of Association and an Articles of Association, which lists the primary adjudicate of the business and its location, along with the spot of sh atomic number 18s and class of stock being issued, if any. Incorporation leave behind also involve state-specific registration schooling and fees. Those procedures are lowtaken by a promoter who is a individual who starts up a business, particularly a corporati on, including the financing. The formation of a corporation starts with an idea.Pre-incorporation identification numberivities transform this idea into an actual corporation and the promoter is the individual who carries on these activities. Usually the promoter is the main shareholder or atomic number 53 of the management team and receives stock for his/her efforts in organization. Without incorporation, troupe Law stomach non stand by itself as integrity amended is criti chit-chaty meant to protect the shareholders as strong as the member of the union which is incorporated. As mentioned above, incorporation tends to protect the welfare of the business and its owners in various perspectives like intellectual property, taxation and capital shares. In different words, Company rectitude (or the law of business knowledges) is the field of law concerning companies.Furthermore, in that respect are various types of fraternity that can be form in different jurisdictions as shown in Malaysian Company actuate 1965 prick 14(2) which are a play along special(a) by guarantee. Commonly apply w present companies are formed for non-commercial purposes, such as clubs or charities. The members guarantee the compensationment of certain (usually nominal) amounts if the caller-up goes into insolvent liquidation, hardly they prevail no economic rights in relation to the phoner. a society limited by guarantee with a share capital. A crossing entity, usually apply where the go with is formed for non-commercial purposes, plainly the activities of the companionship are partly funded by investors who bide a return. a come with limited by shares.The most common form of caller commitd for business ventures. an unlimited union either with or without a share capital. This is a hybrid company, a company similar to its limited company (Ltd.) counterpart just where the members or shareholders do not usefulness from limited financial obligation should the com pany ever go into formal liquidation. Meanwhile, thither are thousands of company law nerves that showed that incorporation is the bedrock of formation of Company Law. As such, We held out a few exercises here which understandably indicated the importance of Company Law in determining the court instance related to incorporation. Salomon v A Salomon and Co Ltd 1897 AC 22Corporate cave in someonealitySalomon conducted his business as a repair trader. He sold it to a company incorporated for the purpose called A Salomon and Co Ltd. The only members were Mr Salomon, his wife, and their atomic number 23 children. Each member took one 1 share each. The company bought the business for 39,000. Mr Salomon shootd for 20,000 further shares. However, 10,000 was not paid by the company, which instead issued Salomon with series of debentures and gave him a floating charge on its assets. When the company failed the companys recipient contended that the floating charge should not be honour ed, and Salomon should be do responsible for the companys debts. Lord Halsbury LC verbalise it seems to me unworkable to dispute that once the company is profoundly incorporated it must be treated like any other independent psyche with its rights and liabilities appropriate to itself, and that the motives of those who took part in the promotion of the company 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 court follow up complaining of various atypicalities in the affairs of the association. article 49 of the Associations constitution stated that all disputes were to handled by arbitration. The question of whether a soulfulness who is not a member of the company has rights to sue on the statutory contract provide by what is now sharealisation 33 of the Companies make for 2006 was c onsidered . It was held that an outsider to whom rights are purportedly disposed(p) by the companys articles in his capacity as an outsider cannot sue in that capacity, whether he is also a member of the company or not. From this case comes the fundamental concept that a company has a sub judice personality or identity separate from its members. A company is thus a legal person.Macaura v Northern Assurance Co Ltd 1925 AC 619Members have no engagement in a companys propertyThe owner of a timber soil sold all the timber to a company which was owned almost solely by him. He was the companys largest creditor. He insured the timber against fire, but in his own name. After the timber was destroyed by fire the insurance company refused the claim.The House of Lords held that in regularise to have an insurable interest in property a person must have a legal or equitable interest in that property. The claim failed as the corporator even if he holds all the shares is not the corporation neither he nor any creditor of the company has any property legal or equitable in the assets of the corporation.In a nutshell, the order of incorporation which is embedded in constituent 16(5) On and from the date of incorporation specified in the certificate of incorporation but mental object to this Act the subscribers to the memorandum together with such other persons as whitethorn from term to time become members of the company shall be a body corporate bby the name contained in the memorandum capable right off of exercising all the functions of an incorporated company and of suing and being sued and having unadulterated succession and a common seal with superpower to hold land but with such liability on the part of the members to contribute to the assets of the company in the event of its being wound up as is provided by this Act clearly demonstrated that the foundation of Company Law is the company and that without incorporation and the human race of a separate corpor ate personality, there couldnt be a base for the formation of Company law and Companies Act.2. In practice, in no circumstances, is it possible to pierce the corporate veil amidst a parent and a auxiliary company. A company is an artificial person. Once it is incorporated, it comes into being and is a separate legal entity from its members and officers. The importance of the principle of separate legal entity was world-class established in the landmark 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 consideration for 20000 shares and debentures of 10000 issued in favour of Mr Salomon. Mr Salomon ended up holding 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 financial obstruction and was wound up. An act ion 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 same persons and the same hands received the winningss, the company was not an agent or trustee for the members. Incorporation of the company created a separate person. The members were not liable in respect of the companys obligations.The same applies to parent and adjuvant companies. Both parent and subsidiary companies has their own separate legal entity. One example is the case of The Peoples indemnification Co (M) v The Peoples Insurance Co Ltd (1986). In this case, the plaintiff company, Peoples Insurance Co. (M) Sdn. Bhd. (PICMSB) was a subsidiary of the first suspects company, Peoples Insurance Co. Ltd. (PICL). On 12 January 1978, five theater film directors of PICMSM held a showdown.One of the directors was the Managing manager of the defendant (PICL), another one was General Manager a nd Director of the defendant (PICL), and another one was Executive Director of the defendant (PICL). During the opposition they get outed a stop that affected PICL. The defendant (PICL) denied any liability. The court held that i. The parent and subsidiary companies are two 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 Meeting as directors and agent of the subsidiary iii. A endurance of the Board of directors of the subsidiary does not bind the parent company. The annunciation did not constitute a contract between the parties.Thus, it is held that the principle of separate legal entity applies as well to related companies, including wholly owned subsidiaries. In Adams v Cape Industries PLC (1990), the main defendant was an English registered company presiding everywhere a group of companies whose business was in the mining (in South Africa), and marketing, of asbestos. The company had become the subject of a class action lawsuit in the United States, and the company tried to avoid bit the case in the American courts on jurisdictional grounds. The Plaintiffs obtained a taste against the English company in the American courts, but as Cape had no assets left in the U.S., they indeed sought to bring down the judgment against the principal company in the group in the English courts.The court tolerateed that the purpose of the corporate group structure set up by Cape Industries had been used specifically to ascertain that the legal liability of a particular subsidiary would fall only upon itself and not the parent company in England. The court refused to pierce the veil of incorporation to give the judgment creditor to enforce its judgment against the judgment debtors holding company. The court refused to treat both the subsidiary and holding companies as one single entity.However the legislature recognizes that there whitethorn arise c ircumstances when this principle of separate legal entity may lead to adverse positions, and thus have enacted statutory exceptions to lift the veil of incorporation under specified circumstances. Normally in new situations or circumstances, court decides on case by case basis to pierce the veil of incorporation. There are instances where the court held that the related companies do not have separate legal entities they are indeed one legal entity.In DHN Food Distributors Ltd v capital of the United Kingdom Borough of Tower Hamlets (1976), DHN carried on the business of operating a grocery on the property owned by one of its wholly owned subsidiaries. The property was compulsorily acquired by the authority which refused to pay compensation to DHN as it did not have any interest on the land. The English Court of Appeal held that the group operated as a single economic unit and thus DHN could recover the compensation due to them under law.In conclusion, in normal practice with no circ umstances, 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). Only 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 defeat the resolution of their removal from the board. The action proposed by Joe and Mike is not allowed under atom 132D of Companies Act 1965. member 132D(1) of the Act reads, notwithstanding anything in a companys memorandum or articles, the directors shall not, without the foregoing approval of the company in general group meeting, exercise any power of the company to issue shares. Unless 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 component part, the compan ys 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 obtain the approval of the companys shareholders in general meeting before exercising their power to issue shares.When an allotment of shares takes place by the company without compiling without any statutory procedure, it is an irregular allotment. Although it is necessary to obtain only an ordinary resolution for the issuance of new shares, section 132D (5) requires such resolution 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 essential if the shares issued are consideration or part consideration for the acquisition of shares or assets by the company. Section 132D (6A) provides that if the consideration for the shares in kind or partially in kind, it is sufficient for the directors to claim the members in writing at least(prenominal) 14 days before the shares are issued.The consequences for non compliance of section 132D are provided in section 132D (6) which reads, Any issue of shares made by a company in contravention of this section shall be void and consideration given for the shares shall be recoverable gibely. In fact, the directors are liable to compensate the company and the allottee for any loss, insurance or be which might spend as a result of the breach. According to section 132D (7), any director who knowingly contravenes, or permits or authorizes the contravention of, this section with respect 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 keep up or incurred thereby. Thus, Joe and Mike shall be liable topay compensation to the com pany and Luke if any loss or cost incurred.However, the shareholders or creditor of the company may apply to the court for proof of the shares under section 63. If the court finds the issuance of shares is just 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 that an act of the company which is irregular offers room for its regularization or validation by application of the just and equitable principles embodied in section 63. Nevertheless, it seems to be impossible for the court to validate the shares in the situation above if any appeal is made.Besides that, the intention of Joe and Mike to raise Lukes shares is to allow him to defeat the resolution of their removal from the board. Section 128 of the Companies Act 1965 provides for the removal of a director of a humankind company but no provision is made for the removal of a director of a private company. This is left to the companys article. Article 69 of Table A provides that the company may by ordinary resolution arrive at a director. Thus, if Singing Stars Sdn Bhds article has adopted Table A, then the procedure provided in Section 128 has to be followed. Also, depending on the companys article, either an ordinary or fussy resolution has to be passed in the meeting by the shareholders of the company.In business or commercial law, ordinary resolution is a resolution passed by the shareholders of a company mainly affirmed by not less than 50% of the members casting their votes, whereas special 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 still cant defeat the resolution because a resolution is passed found on the voting cast by the majority in the meeting. Hence, Tony shall not annoyance about Joes and Mikes action in raising Lukes stake to 40% by issuing shares as its legality is bounded by section 132D of Companies Act 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 remove them off as the directors can still be passed.3b. After this they will pass resolutions to remove Tony from the board andto stand in him with Luke.Directors are agents of the company and thus owe a fiduciary duty towards the company. Section 4(1) of the Companies Act 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 accustomed to act and an alternate or substitute director. Section 4(1) states that a director includes a de facto director, a empennage director and an alternate or substitute director.Sections 122(1) and (1A) of the Companies Act 1965 provides that, every comp any shall have at least two directors, who each has his principal or only place of residence within Malaysia. Sections 122(2) of the Companies Act 1965 provides that, no person other than a natural person of beat age shall be a director of a company. This is clear that only a human being can be a director. Besides that, Section 122(2) imposes the minimum age of the director which is 18 years old. Thus, only a person who is 18 years old and above may be appoint as a director. Section 129 of the Companies Act 1965 provides that, notwithstanding anything in the memorandum or articles of the company no person of or over the age of seventy years shall be appointed 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 annual general meeting.The office of a Tony as a director may become v acant if he is disqualified pursuant to the Companies Act 1965 or the articles of association, resigned from the position, removed 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 virtue of the Companies Act 1965 (b)becomes a bankrupt or makes any arrangement or composition with his creditors generally (c)is prohibited from being a director by reason of any order made under the Companies Act 1965 (d)becomes of unsound mind or a person whose person or estate is liable to be dealt with in any way under the law relating to metal deflect (e)resigns his office by know in writing to the company (f)for more than six months is absent without the consent of the directors from meetings of the directors held during that plosive speech sound (g) without the consent of the company in general meeting holds any other office of profit under the compa ny except that of managing director or manager (h)is directly or indirectly interested in any contract or proposed contract with the company and fails to declare the nature of his interest in a manner required by the Companies Act 1965.Tony will not be removed as he is not disqualified by the articles of association.The sufferance 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 agreement with a company, a director of a company shall not resign or vacate his office if, by his resignation or vacation from office, the number of directors of the company is reduced downstairs 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 will not be removed from the board. However, he may be removed from the board by an ordinary resolution. Section 128(1) of the Companies Act 1965 provides that, a public company may by ordinary resolution remove a director before the accomplishment 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 appointed to represent the interests of any particular class of shareholders or debenture holders the resolution to remove him shall not take effect until his successor 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 directo r of a public company shall not be removed by, or be required to vacate his office by reason of, any resolution request or notice 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 notice of the resolution is required to serve 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 notice 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 notice of an intended resolution to remove a director the company shall forthwith send a copy thereof to the director concerned, and the director (whether or not he is a member of the company) shall be entitled to be heard on the resolu tion at the meeting. The special notice of ordinary resolutions is also called notice of intention is given 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 be 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 efficacious 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 quartetteen 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 attempt 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 mettlesome Court held that Section 128 was not mandatory. The power to remove directors under that section co-existed 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 assoc iation had not been given either, so removed as director and consequently 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 verge of his appointment 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 perfor med 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 challenging the introduction of a new term into their existing 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 uneffective to remove Tony from the board and replace Tony with Luke. Tony will 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 shar es to Luke at RM0.60 each to allow for Lukes support towards them. The issuance of shares below the nominal harbor of RM1.00 is called issuance of shares at a discount. At common law, the issuance of shares below the par value (at a discount) is prohibited because it constitutes a reduction of share capital without arrest by the High Court. Section 64 of the Companies Act 1965 requires a special resolution that authorizes the reduction of its share capital with the confirmation by the Court. Case Re Wragg Ltd.Facts A liquidator took up a court case want a declaration that certain shares in the company issued to two members and registered in their names as fully paid 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 transaction was wholly legitimate. Lindley L.J. stated it is not law that persons cannot sell property to a limited company for fully paid-up shares and make a profit by the tr ansaction. We must not allow ourselves to be misled by talking of value. The value paid to the company is measured by the price at which the company agrees to buy 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 issuing shares at a discount that are stated in Section 58 and 59 of Companies Act 1965. In occasions 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 payment 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)Th e discounted shares are authorized by ordinary resolution passed in general meeting of the company and is confirmed by Court order (b) The resolution specifies the maximum rate of discount at which the shares are to be issued (c) the company can only issue shares at a discount only after one year it is entitled to commence business and (d) the discounted shares must be issued within one month from courts confirmation or within elongated 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 shall be guilty of an offence punishable with a fine of RM1000 and default penalty 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 w ith 15s credited as paid, leaving 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 exceptions 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 majority 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 share s 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 satisfied with Joe and Mike and wanted to vote them from the board. Hence, the majority of them will win and Luke will definitely 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 acceptance of payment by land from Luke for the shares. Joe and Mike do not have the power to accept the payment without the k nowledge 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 loss, 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 corrupt of its own or its holding companys shares Giving financial avail for the purpose of or in connection with the purchase of its own or its holding companys shares Dealing in or lending gold 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 b e 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 been allot to Pasti Hasil Sdn Bhd. The court held that financial assistance has been given to Pasti Hasil Sdn Bhd as the defendant agreed to treat a set 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 ethical 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 scheme to help a company called Maximum ( 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 facilitate the purchase by Grosscurth and his associates of Belmonts shares.Lord Denning in Wallersteiner v Moir (1974) propounded the following test 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 future 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 company 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.