Limited Liability in Corporate Group: A Critical Examination under Common Law and Shariah in Malaysia
Downloads
Limited liability is a default rule in company law that protects shareholders from shifted-business risk in a company to external parties. Its application in the corporate group setting is heavily criticized for causing harm to the subsidiary’s creditors particularly. While this rule is proposed to be refined due to its rigidly unreasonable privilege and lack of justice, it becomes more complicated where the Shariah-compliant businesses have adopted this rule as their corporate structure. Despite this, the Malaysian company law recognizes the distinct legal personalities of entities within corporate group regardless their businesses are typically operated as a single entity. Contrastingly, limited liability is not established in Islamic business entities like sharikah (partnership) because the latter entails a single entity premised on a sharing-business risk among the partners. The study undertakes doctrinal analysis to examine the application of limited liability in corporate group under the Malaysian company law and compare it with the Shariah principles of sharikah. The study relies on the library-based research in collecting and gathering the data to support this methodology. The paper proposes to show whether the conventional rule of limited liability could be directly applied to group of companies operating Shariah-compliant businesses which supposedly comply its corporate structure with sharikah. The paper concludes that such direct application is untenable due to different natures and business structures. Examining this comparison is substantial to explore the essential of forming a new business model for Shariah-compliant corporate groups structured based on sharikah principles.
Downloads
Abd Ghadas ZA and Abd Aziz H, ‘Analysis on The Doctrine of Limited Liability under Company Law and Shariah’ (2019) 24 Al-Shajarah Journal of Islamic Thought and Civilization of IIUM.
Ahmed H, ‘Islamic Law, Investors’ Rights and Corporate Finance’ (2012) 12(2) Journal of Corporate Law Studies.
Al-Baqmi SZA-M, Sharikat Al-Musahamah Fi Al-Nidzam Al-Saudi Dirasat Muqabalah Bi Al-Fiqh Al-Islami (1st edn, Obeikan 2019).
Al-Hammadi AUAM, Al-Sharikah Dzat Al-Masuliyyah Al-Mahdudah Fi Al-Fiqh Al-Islami Wa Qanun Dawlah Al-Imarat Al-Arabiyyah Al-Muttahidah (1st edn, Dar Al-Muayyad 2007).
Al-Haqil AM, ‘Al-Masuliyyah Al-Mahdudah Fi Al-Sharikat Dirasah Ta’siliyyah Tatdbiqiyyah’ (2019) 25 Majallah Al-`Adl.
Al-Hujailani AAMA, Tasarrufat Al-Amin Fi Al-`Uqud Al-Maliyyah (1st edn, Vol 1, Majallah Al-Hikmah, Great Britain 2002).
Al-Khalil AM, Al-Ashum Wa Al-Sanadat Wa Ahkamuha Fi Al-Fiqh Al-Islami (1st edn, Dar Ibn Al-Jawzi 2002).
Al-Khayyat AA, Al-Sharikat Fi Al-Shariah Al-Islamiyyah Wa Al-Qanun Al-Wad`ie (4th edn, Muassasah Al-Risalah 1994).
——, ‘Al-Sharikat Al-Qabidhah Wa Ahkamuha Al-Syari’yyah’, Majallat Majma’ Al-Fiqh Al-Islami Li Mu’tamar Majma’ Al-Fiqh Al-Islami (Vol 2 2004).
Al-Qarahdaghi AMA, Buhuth Fi Fiqh Al-Bunuk Al-Islamiyyah (1st edn, b, Isdarat Wazarah Al-Awqaf wa Al-Shuun Al-Islamiyyah Qatar 2010).
Al-Soifi AA, Al-Sharikat Al-Qobidah Wa Ahkamuha Fi Al-Fiqh Al-Islami (1st edn, Dar Al-Nafais 2006).
Al-Zuhaili W, Al-Mua’malat Al-Maliyyah Al-Mua’sirah (Dar Al-Fikr 2002).
Asad M, Nawaz HMU and Ali B, ‘Limited Liability of Shareholders: Islamic Perspective (A Critical Appraisal)’ (2020) 14 Journal of Managerial Sciences.
Belenzon S, Lee H and Pataconni A, ‘Managing Risk in Corporate Groups: Limited Liability, Asset Partitioning, and Risk Compartmentalization’ (2023) 44 Strategic Management Journal, Wiley Blackwell.
Beuerle CG and Schillig MA, Comparative Company Law (Oxford University Press 2019).
Blumberg P, ‘Limited Liability and Corporate Groups’ (1986) 11 The Journal of Corporation Law.
Butaiban M `Abdullah, Ahkam Al-Khasarat Wa Tatbiqatuha Al-Mu`asirah (1st edn, Dar Sulaiman Al-Maiman lii Al-Nashr wa Al-Tawzi’ 2021).
Disomimba AA-SW, ‘Ahkam Al-Sharikah Al-Qabidhah Wa Al-Tabi`ah Fi Al-Fiqh Al-Islami’ (International Islamic University Malaysia 2006).
El-Gari MA, ‘Athar Al-Ikhtilaf Baina Al-Shakhsiyyah Al-Tabi`iyyah Wa Al-I’tibariyyah Fi Al-Ahkam Al-Fiqhiyyah Li Mustajiddat Al-Masrafiyyah Al-Islamiyyah’, 5th Shura Fiqh Conference 2013 (2013).
Fahmi HK, ‘Al-Sharikat Al-Hadithah Wa Al-Sharikat Al-Qabidhah’, Majallat Majma’ Al-Fiqh Al-Islami Li Mu’tamar Majma’ Al-Fiqh Al-Islami (14th Sess., Munadzamah Al-Mu’tamar Al-Islami 2003).
Ghadas ZAA and Engku Ali ERA, ‘Partners’ Limited: Limited Liability in Partnerships Structure: An Overview of The Common Law and The Shariah’ (2009) 1 Shariah Law Reports xlv.
Hamd Al-Razin AM, ‘Al-Shakhsiyyah Al-Hukmiyyah Li Al-Sharikah Al-Mu`asirah Dirasah Fiqhiyyah’ (Al-Jami`ah Al-Imam Muhammad Sa`ud Al-Islamiyah 2005).
Ireland P, ‘Limited Liability, Shareholder Rights and The Problem of Corporate Irresponsibility’ (2010) 34 Cambridge Journal of Economics.
——, ‘Corporate Schizophrenia: The Corporation as a Separate Legal Person and an Object of Property.’ [2016] University of Bristol.
Kafi A, Al-Hajah Al-Shar`iyyah Hududuha Wa Qawa`iduha (1st edn, Dar Al-Kutub Al-Ilmiyyah 2004).
Koutsias M and Dine J, ‘The Three Shades of Tax Avoidance of Corporate Groups: Company Law, Ethics and the Multiplicity of Jurisdictions Involved’ (2019) 30(1) European Business Law Review.
Krishnan L, Rajoo P and Vergis AC, Principles of Business and Corporate Law, Malaysia (4th edn., Commerce Clearing House, Wolters Kluwer 2022).
Macey JR, ‘The Central Role of Myth in Corporate Law’ (2020).
Maddur J, ‘Al-Sharikah Al-Qabidhah Qawa`id Al-Musharakah Wa Dhawabit Al-Munafasah’ (Jamiah Al-Haj Likhudr Al-Batinah 1 2019).
Mohd Sulaiman AN and Othman E, Malaysia Company Law: Principles and Practices (2nd edn, Wolters Kluwer 2018).
Myers C and Czarnezki JJ, ‘Sustainable Business Law? The Key Role of Corporate Governance and Finance’ (2021) 51 Environmental Law.
Nyazee IAK, Islamic Law of Business Organization: Corporations (Adam Publishers & Distributors 2010).
Nzafashwanayo D, ‘Corporate Groups under the Laws of Rwanda: An Economic Reality without Legal Identity’ (2016) 7 Beijing Law Review.
Quinn J, ‘The Corporate Objective: Reinterpreting Directors’ Duties’ (Dublin City University 2016).
Ramli N, Abd Ghadas ZA and Abd Aziz H, ‘Sustainability of Businesses via Shariah-Compliant Framework: Analysis of Shariah Principles on Corporation’ (2023) 31 IIUM Law Journal.
Rizkiah SK and Muhammadin FM, ‘A Critical Examination towards the Islamic Discourse on “Limited Liability”’ (2020) 11(1) UUM Journal of Legal Studies.
Sheehy B, ‘Sustainability, Justice and Corporate Law: Redistributing Corporate Rights and Duties to Meet the Challenge of Sustainability’ (2022) 23 European Business Organization Law Review.
Tepre P, ‘Liability Deficit Problem of Multinational Corporate Groups: A Proposal for Legislative and Judicial Reform’ (University of British Columbia 2017).
Uthmani MT, An Introduction to Islamic Finance (Idara Isha’at E-Diniyat (P) Ltd 2008).
Copyright (c) 2025 Nazri Ramli, Zuhairah Ariff Abd Ghadas, Hartinie Abd Aziz
This work is licensed under a Creative Commons Attribution 4.0 International License.
