As stated, Mr Ravi was the sole proprietor in a business selling Turkish carpets that the sole proprietor, also known as “proprietorship”, is an unincorporated business with one owner who pays personal income tax on profits from the business. With little government regulation, they are the simplest business to set up or take apart, making them popular among individual self-contractors or business owners. In other words, Mr Ravi is personally owes every penny that his business can't pay. So if his business doesn't have enough cash or assets to pay its debts, creditors can, and sometimes will, take his personal assets -- or at least the assets that aren't protected by state exemption laws.
However, Mr Ravi later incorporated the business and set up a company, Ravi Carpet Sdn Bhd in April 2011. When a company is incorporated it is vested with legal personality. This means that in the eyes of the law, a company is treated as a legal person. When a company becomes incorporated under the Companies Act 1965, the following occurs:
- The company is a body corporate with the powers of an incorporated company;
- It may sue and be sued in its own name;
- It has perpetual succession;
- It may own land; and
- The liability of its members may be limited.
The Company Act 1965 does not completely define the word ‘company’. The best definitions come from case law. For example, Buckley J in Re Stanley [1960] stated:
“… the word company has no strictly technical meaning. It involves two ideas (a) that the association is of persons so numerous as not to be aptly described as a firm; (b) that the consent of all the other members is not required to the transfer of a member’s interest. It may include an incorporated company.” Companies are usually incorporated to trade for profit, however some may have charitable purposes or to minimise tax liability. The case of Salomon v