'The myth of corporate personality': a comparative legal analysis of the doctrine of corporate personality of Malaysian and Islamic laws

• Main Authors: Hassan, Halyani, Abd Ghadas, Zuhairah Ariff, Abdul Rahman, Nasarudin
• Format: Article
• Language: English
• Published: INSI Publications 2012
• Subjects: K Law (General)
• Online Access: http://irep.iium.edu.my/27687/1/Halyani%2C_Zuhaiarh_and_Nasarudin-_AJBAS_2012.pdf; http://irep.iium.edu.my/27687/; http://ajbasweb.com/old/ajbas/2012/Special%20oct/191-198.pdf

Corporate personality is an entrenched legal principle of the English company law. In Malaysia, the Companies Act 1965 (Act 125), which is modeled on the English Companies Act 1948 and the Australian Uniform Companies Act 1961, clearly incorporated the English law doctrine of corporate personality. Under this doctrine, a company is recognized as a legal person and have distinguished features, namely perpetual succession, right to enter into legal proceedings, and deals with property under its own name and ability to limit the liability of its members. Under the Islamic law, the term "musyarakah" or "shirkah" is used to refer to business entities. Shirkah literally means 'intermingle' implying the intermingling of properties that form the capital, whereby one cannot be differentiated from the other. The approach in classifying business entities is different between the common law and the Islamic law whereby under the common law, the regime of a company is totally different from a partnership and both are subjected to different laws. However under the Islamic law, shirkah could refers to both company and partnership structure. In all type of arrangements in the shirkah, the individuals are not separated from the shirkah as the shirkah is not regarded as a legal entity. In Malaysia, Shari 'ah compliance businesses are highly propagated. It is interesting to see that many Islamic institutions being established as body corporate. With such status, it is inherent that the common law principles on body corporate which are applicable in Malaysia under the Companies Act 1965 are unreservedly applicable to these institutions. An issue which arises from such practices is whether it is the corporate entity under the Companies Act 1965 is acceptable under the Islamic law and is it appropriate for Islamic businesses to be carried out by a conventional corporate entity. Objective of this paper is to analyze the status of corporate entity with special reference to the attribute of separate legal entity from both the Islamic law and the Malaysian law (which is based on the English law) and to conclude whether the principle of corporate entity is acceptable under the Islamic law.