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2 Dollar Company Myth

October 17th, 2007 · 3 Comments

  

Question:

My company has signed a contract with Company A. Subsequently, this Company A has breach the contract. However, I have discovered that they are only a 2 dollar company (paid up capital is only RM2.00). The contract sum is RM75,000. Can I sue them and get the RM75,000 or I only can get RM2.00 from them?

Answer:

It really depend on what type of Company A is before considering whether to present a Section 218 action pursuant to the Companies Act 1965 (“the Act”) to wind-up Company A, henceforth, it is necessary to peruse the Memorandum and articles of association of Company A to determine what is the best remedy for you.

Assuming that Company A is a company limited by shares, Section 4(1) of the Act defined “a company limited by shares” means “a company formed on the principle of having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them”. Section 214(d) of the Act states that “in the case of a company limited by shares, no contribution shall be required from any member exceeding the amount, if any, unpaid on the shares in respect of which he is liable as a present or past member.”

If the holders has fully paid up its shares, there is no further liability to the holder to contribute to the payment of the company’s debts should the company become insolvent. The practice in Malaysia when incorporating a new company would generally subscribe to an authorized capital of RM100,000, hence, on the face of the question, it seem there is a remedy for you.

(This content is contributed by Ivan Chen, Advocate & Solicitor)

Tags: Company Law

3 responses so far ↓

  • 1 Yap // Oct 18, 2007 at 9:04 am

    Thanks for the article. It’s definitely a piece of helpful information.

  • 2 Avanguard // Oct 18, 2007 at 9:29 am

    It is prudent to always do a company search on the company which you will be dealing with. Such search can be done online or walk-in with a nominal fee. If it is a “2 ringgit” company, then it would be advisable to insist on a personal guarantee from the director of the company. If not, then by law the members of the company is protected.

  • 3 Eddie Law // Oct 18, 2007 at 11:56 am

    Hi Yap,

    Thanks for dropping by my blog.

    Hi Avanguard,

    Yes you are right, since the CCM search now can be done online and only cost RM15.00 per search.

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