MEMBERSHIP OF COMPANY

RIGHTS OF MEMBER STATUTORY REMEDIES FOR MEMBERS

Right to receive notice of meeting • By virtue of Section 223 and 228, its purpose is to
Section 101(2) restrain the directors from entering into a substantial
Section 2(1) defines member as Right to vote at members meeting
value of property transaction without the member's
Right to receive dividends approval.
a) in the case of a company limited by shares, a person whose name is entered in the
• Section 195 provides for management review during
register of members as the holder for the time being of one or more shares in the
company; or Right to question, discuss, comment and make recommendations at meetings Section 195(1) the members meeting. This is a new right conferred
b) in the case of a company limited by guarantee, a person whose name is entered in upon members, they shall be given reasonable
Right to restrain the company from entering substantial value property transaction Section 223 and Section 228 opportunity to question, discuss or make
the register of members.
without the approval of the members recommendation on the company's management.
• Generally, a member of a company is a person whose name appears in the company's • Section 346 provides a remedy when the member is
Right to appoint proxy Section 334
register of members. oppressed by the directors or the controlling members.
• Section 14(3)(e) provides that the first member of the company will be named in the Right to take action against the company or directors or other members for oppression Section 346 This section provides a remedy for a member in the
application for registration. event the affairs of the company are conducted in a
• A member of a company can be a natural person or another company other than its Right to take action in the name of the company Section 347 manner which is oppressive, in disregard of his interest
subsidiary. This means that, a body corporate cannot be a member of its holding as a member, discrimatory or prejudicial to him. This
company. Right to wind up the company Section 464 and 465 section provides remedies for both members and also
• A company who is a member of another company is often called a 'corporate member'.
• A member of unlimited company is liable to the company's debt.
the debenture holder.
• Where a member of a company limited by shares only liable for the amount unpaid on his shares, whereas a member for a • However, the Companies Act 2016 did not define on
REQUIREMENT TO BE A PROCEDURES TO BE A MEMBER what amount to oppressive, in disregard of his interest,
MEMBER company limited by guarantee only liable to contribute the amount he has undertaken to contribute in the event the company
is wound up. unfairly discriminate for the purpose of Section 346.
• Section18(2) provides that a person shall
Re Kong Thai Sawmill (Miri) S/B
• If a member is a natural become a member of a company upon its
person, he must attain the incorporation if he is named as a member in
There must be a visible departure from the standard of fair
PROPER PLAINTIFF RULE dealings and a violation of the conditions of fair play which a
age of majority when he the application for incorporation of the
becomes the member of company. shareholders is entitled to expect before a case of oppression
• The impact of the doctrine of separate legal personality and the doctrine of privity of contract is that only the parties to the can be made... "Disregard" involves something more than a
the company. • The person must agree to become a member
contract can sue and be sued. failure to take account of the minority interest. There must be
• The effects of Section and to his name being entered in the
• This means that even if the company suffers losses resulting from any breach of contact done by the wrongdoer, a member of
33(1) provide that the company's register of members. awareness of that interest and an evident decision to override
the company cannot sue the wrongdoer on behalf of the company.
member is contracting • A person can be a member of a company by it or brush it aside or set at naught the proper company
• Only the company can take legal action against the wrongdoer.
parties and thus they subscribing to its shares, or through allotment,
• The above rule which provides that a member of a company cannot take action on behalf of the company is known as the procedure.
should have the capacity transfer or transmission.
"Proper Plaintiff Rule".
to contract. • Section 347 is for the circumstances where the
• This has been developed in the case of Foss v Harbottle.
member is taking or defending an action in the name of
MODES IN WHICH A PERSON CAN BE A MEMBER
Foss v Harbottle. the company.
1. When he is allotted shares in the company. • Section 351 provides for an injunction to restrain the
Facts: Two shareholders in the company brought an action Held: It was decided that the conduct of the defendant was not wrongdoer from committing an act which contravenes
• Section 97(1) provides that, a company is no longer required to issue a
against the company's directors and other persons. They alleged an injury to the plaintiffs exclusively; it was an injury to the the Act. This section provides remedies in a situation
share certificate to a shareholder unless the company's constitution
that the directors had misapplied the company's property and company as a whole. The company and the member are not the
requires it. However, the shareholder may apply to the company for a where a person engages or intends to engage in a
had caused certain transactions to be entered into improperly same thing and the action could not be maintained by the
share certificate to be issued. conduct which is against the Companies Act 2016.
plaintiffs.
2. A person may purchase the company's shares from an allottee of the shares or any • Section 465(1) offers to a member who has been
person who is holding those shares. This case laid down the rule that the proper plaintiff to bring an action to enforce a company's rights is the company itself. While the rule oppressed may petition to the court to wind up the
• The purchaser becomes a member of the company when his name is has its advantages, it has a significant disadvantages, where the directors who are alleged to have breached their duties to the company company on the grounds that the directors acted in
entered in to the register of members Section 106(1). are also a majority of the board, it is hardly likely that these directors will have the company commence legal action against them for their own interest, or if it is just and equitable to do so.
3. When an existing member passes away, his shares will be transmitted to his legal breach of duty.
representative.

TYPES OF LEGAL ACTION PROTECTION OF MINORITY SHAREHOLDERS

1. Personal action: 2. Representative action: 3. Derivative action: • Section 211 provides that directors shall manage the company's affairs and business. But the said power is subject
A member is allowed to Action is taken by a member on behalf of himself as Where the wrong has been committed against the company. The company will be to the Companies Act and the constitution.
take action of he is well as other members when the rights of members named as a party to the legal action but as a defendant even though the action is • The constitution also gives power to the directors to manage the company's business and affairs. Thus, it makes the
deprived of his rights as a are deprived. This will avoid the multiplicity of action in actually brought by the member for the company's benefit. director a person who is primarily responsible for the management of the company.
member (Pender v respect of the same matter. • If the members are in control they may remove the director who is not in their favour and appoint a new one.
Lushington) or if his This is because the wrongdoer shall not give their consent if the company is to be Members may also pass a special resolution to adopt a constitution to curb the power of the directors.
property is expropriated For example where the requirement for special named as the plaintiff. However, this common law rights has been abrogated by • However, the above steps are not available to members who are not in control. They may also face a situation where
(Brown v British Abrasive majority was not complied with or where the rights of the Section 347(3). Members have to avail themselves of the statutory rights the majority abuse their powers and position in the company and obtain the company's waiver. So long as the
Wheel Co.) the members attached to their shares were invaded. under Section 347. wrongdoers are in control, no action will be taken against them.
 EXCEPTION FOR THE PROPER PLAINTIFF RULE 2. The Act Should be Done by Special Majority
• There are transactions which require
1. Fraud has been Committed against the Minority Greenhalgh v Ardene Cinemas Ltd special majority for example, the passing
A question that may be asked is whether the of a members special resolution. If only
• There is a general principle which provides that holders of powers should not abuse their powers. resolution was passed to discriminate between an ordinary resolution was passed, the
• By virtue of Section 213, a director shall exercise his powers for a proper purpose and in good faith in the best interest of the company. the majority and the minority so as to give the minority who objected to the resolution
• Thus, if the wrongdoers were in control, they will definitely not causing the company to take action against themselves. majority an advantage in which the minority was may apply to the court to restrain the
• But when a fraud was committed against the minority, then the court will allow an action to be taken by a member on behalf of the company against the deprived. If so, then it is fraud on the minority. company from acting on it.
wrongdoers who were in control of the company. Quins & Axtens Ltd v Salmon
A). There is Fraud. The company's constitution provided that
Abdul Rahman Aki v Krubong Industrial Park (Melaka) Sdn Bhd &Ors certain contracts must be approved by Salmon
=The court held that it is sufficient for the plaintiff to prove that thewrongdoers abuse their powers and they are still in control of thecompany. and Axtens. In one instance, Salmon refused to
consent and the directors called for a
i. Expropriate of Corporate Property. member's meeting to approve the transaction.
• There is a principle that the majority members or the directors cannot expropriate the asset or property of the company by the application of Section 218 on the prohibition against the improper use of property, Upon application by Salmon, the court granted
asset and Section 228 on the transaction with directors, substantial shareholders or connected persons. an injunction to restrain the company from
• Even if the wrongful conduct of the directors and shareholders is ratified by the members and does not come within the ambit of the above provision, action may still be taken against them at common law. acting on the member's resolution.
Cook v Deeks
❑ Facts: The directors who were also the majority shareholders, expropriated a project which the company was negotiating. As they formed the majority, they passed a shareholders resolution to declare that the 3. The Special Rights of the Members were
company had no interest in the contract. The minority shareholders, Cook, objected and took action against the majority shareholders. Invaded
❑ Held: The court held that the shareholders resolution was invalid as it was fraud on Cook, a minority shareholder in the company. • The rights of members attached to their
shares are found in the Companies Act
ii. Self-serving Negligence 2016 as well as in the company's
• There is an issue arises as to whether a minority member is permitted to commence action against the director who were negligent. constitution.
• Where rights of members were invaded,
Pavlides v Jensen However, the position would be different if one of the directors benefited from the grossly undervalued sale. the members may take action in their
Facts: The directors sold an asset valued at 1 million for Daniels v Daniels own name, this is because the injury
182,000. Facts: The board of directors sold one of the company's asset a grossly undervalued price to one of the directors. The director subsequently sold it for a party was the members and not the
Held: The court held that the majority shareholders could ratify large profit. company.
the sale thus the directors were absolved from liability. Held: The court held that such undervalued transaction which benefited one of the directors or majority shareholders was a fraud on minority. • For example, where shares are
preference shares, the rights of the
iii. Expropriation of Minority's Property holders will be spelt out in the
• Section 36 provides that company's constitution can be altered by special resolution UNLESS prohibited by the company's constitution. However, it must be noted that any alteration on the company's constitution company's constitution.
must also subjected to a principle that it should be for the benefit of the company as a whole. Pender v Lushington
Eastmanco Ltd v Greater London Council Brown v British Abrasive Wheel Co. Facts: The company's articles provided that a
Facts: The council had a block of flats and formed a company. The council effected a policy to sell the lease of the flats, with each purchaser Facts: The shareholders holding 98% of the company's shares wanted to member was entitled to vote for every 10
holding one share with voting rights in the company. However, the voting rights would be suspended until all flats were sold. Until then, the buy out the remaining shareholder. When the minority refused, the shares up to a maximum of 100 votes. A
council would have the sole voting rights in the company. However, after selling 12 flats, the council changed its policy and decided not to sell majority passed a member's resolution to alter the company's member who had many shares, transferred
the remaining flats. As a result, the 12 purchasers who were shareholders in the company would never be entitled to voting rights so long as constitution to the effect that a member was required to sell his shares some of his shares to Mr Pender with the
the council's policy remained. The company brought an action against the council for changing the policy. The Council, being the only voting if so requested by the member holding 90% of the company's shares. understanding that Mr Pender would vote
shareholder passed a resolution instructing the company's directors to discontinue the action. One of the shareholders/purchasers then Held: It was held that the alteration of the article was to enable the according to his instruction. However, during
applied to the court for leave to bring action on behalf of the company against the council (majority shareholder). majority to expropriate the minority's property and thus it was a fraud on the meeting, the directors disallowed Mr
Held: The court held that the council had used its voting power not to promote the best interest of the company but for its own advantage, to the minority. Hence, the alteration is ineffective. The member's property Pender's votes. Mr Pender brought a action
the detriment of the minority shareholders. The disadvantage caused to the minority was not a trivial matter; it was a radical alteration of the involved not only their shares in the company but also their rights against the directors.
basis on which the council sold the flats. It was an abuse of power by the majority and a fraud on the minority. attached to the shares. Held: The court held that Mr Pender could sue
to enforce his rights as a member.
B). The Wrongdoers are in Control. Tan Guan Eng & Anor v Ng Kweng Hee & Ors
• The plaintiff needs to establish that fraud The court said that control can be determined from the shareholding. If the majority of shares are held by the wrongdoers, then it is obvious that they are in control. 4. When the Justice of the Case Requires it
has been committed by the person who is However, sometimes the wrongdoers do not hold the majority shares. Then the court may go behind the apparent ownership of the shares in order to determine • The rule in Foss v Harbottle is not
in control and who decides whether action whether the wrongdoers do in fact control the company. conclusive. The court will allow
is to be taken by the company. Thus, it is amember to take action against the
important to establish control. Ting Chong Maa v Chor Sek Choon wrongdoer where justice of the
The plaintiff and defendant had equal shares in the company but the defendant was the managing director. Clearly, the defendant was in control. caserequires it.