COMPANIES

CONTENTS• Types of Companies• Differences between Companies and

Partnerships• Advantages of Companies over Partnerships

DEFINITION

A companyis an association of persons,

existing as a SEPARATE LEGAL ENTITY from the owners (or for members)

CORPORATIONLEGAL DEFINITION:

• S.4 (1) Companies Act (CA) 1965 – corporation is any body corporate whenever formed or incorporated.

• Include – any company or foreign company

• Exclude – Public authorities, Instrumentalities or agencies of the Government of Malaysia or of any State or body corporate not incorporated for commercial purposes and declared as such by notice of the Minister in the…• Gazette;• Corporation sole;• Co-operative societies; and• Trade Unions

REGISTERED COMPANIES

• Incorporated/registered under the CA 1965.

• An artificial legal person – may buy or sell properties, exercise rights of ownership and may sign contract by using a common seal.

• Common seal is the signature of the company

TYPES OF COMPANIES

• Companies in Malaysia are classified according to:• (i) liability or • (ii) private or public status

BY LIABILITY• S.14 (2) Companies Act 1965 (CA) – a company may be:– A company limited by shares;– A company limited by guarantee;– A company limited by shares and guarantee;– An unlimited (liability) company.

COMPANY LIMITED BY SHARES

• S.4 – 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.

• Liability of a member of this company will depend on whether his shares are fully paid or not.– If holds fully paid shares, has no further liability to the

company. (If the company becomes insolvent he does not have to contribute to the assets of the company)

– If partly paid shares, will be liable to contribute to the company’s assets, up to the amount still unpaid on the shares.

COMPANY LIMITED BY SHARES• S.214 (1) – liability of a member on the winding up does not extend

beyond the amount of unpaid shares.

• S.22 (3) – “Berhad” or “Bhd” as part of its name to indicate Ltd. Liability.

This is to inform creditors that the liability of the members are limited and that they can only look to whatever assets the company has to seek payment of the company’s debt.

• This is the most common form of company.• Classifies into

– (i) Private Co. – (ii) Public Co.

COMPANY LIMITED BY GUARANTEE

• S.4 – liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wounded up.

• The liability of the members is specified in the memorandum association.

• Non- profit making purposes

• Does not have a share capital. Members not required to contribute capital while company is operating.

COMPANY LIMITED BY GUARANTEE

• Supported by subscriptions of the members.

• Berhad or Bhd to indicate Ltd liability. S.23 (3). May apply to the Minister (MDTCA) to omit the word “Berhad” or “Bhd” – S.24

• After 1 February 1986 – only in the form of Public Company.

COMPANY LIMITED BY GUARANTEE

• If co is wound up, then its member who has undertaken in the memorandum to contribute a certain sum of money to the assets upon winding up, may be required to contribute up to his amount of guarantee towards payment of debts incurred by the company while he was a member.

• This liability extends to those who had left the co, but was a member within a year before the co wound up.

• Although this type of co does not have a share capital, it is still a separate legal entity.

• It is not normally used for trading, but often formed to run clubs and other organisations that are maintained by subscriptions, social activities and donations.

UNLIMITED COMPANY• Defined by S.4 as ‘a company formed on the principle of having no limit

placed on the liability of its members.

• In winding up, the members of this company are liable for the debts of the company without limit if the company’s assets are not sufficient.

• It is not much different than partnerships.

• The type of company enjoys the advantage of being a separate legal entity with two special features; – Unlike other companies, they are free to return their capital to their

members;– They must have their own Articles of Association (unlike other

companies that may adopt Table A- Fourth Schedule)

UNLIMITED COMPANY

• This company may or may not have a share capital and is rarely used as a trading company.

• It has been used for mutual funds where the company holds assets as investments among the shareholders.

• If a shareholder wishes to leave, he may sell back his shares to the company.

UNLIMITED COMPANY• Creditors have access to the personal property of all members to

an unlimited extent if the company is wound up and has insufficient funds.

• Major advantage – ability to return capital to its members without having to comply with the restrictions imposed by S.64.

• A past member is STILL liable if he has ceased to be a member less than a year prior to winding up.

• Name of a private unlimited company need only end with ‘Sendirian’ or ‘Sdn’.

COMPANIES LIMITED BY BOTH SHARES AND GUARANTEES

• A member liable to pay the amount, if any, unpaid on any shares held, in addition to meeting the guarantee undertaking to contribute a specified amount in the event that the company is wound up. – S.214(4)

• S.14A – no longer possible to form such company (as from 1986)

PRIVATE COMPANIES S.15(1)Where its Memorandum or Articles:

• Restrict the rights of transfer shares. No prescribed form of restrictions. The articles can state the restrictions, eg: giving right of pre-emption only to tother members before shares can be transferred to other persons, or there is to be no transfer unless the board of directors approve.

• Limit the number of members to not more than 50. If shares are jointly held, they are considered as held by one person. Employees of the company or its subsidiaries who are not members are not counted.

• Prohibits the invitations or offers of shares or debentures to the public;

• Prohibits the invitation or offer to the public to deposit money with the company.

PRIVATE COMPANIES S.15(1)

• May have a share capital with ltd or unlimited liability.

• May be distinguished from public co in having the word ‘Sendirian’ or the abbreviation ‘Sdn.’ as part of its name. (If the co is a limited liability co, then this word should come before the word ‘Bhd’ e.g: Syarikat X Sdn Bhd is a private limited co.)

• Can be exempt or non-exempt private co.

• Enjoy certain priviliged that are not given to public co. as they do not seek funds from the public.

EXEMPT PRIVATE COMPANY• Defined by S.4(1):• ‘a private co the shares of which no beneficial interest is held directly by

any corporation, and which has not more than twenty members none of whom is a corporation.’

• Therefore, its characteristics are:

• Its shares are held by individuals and not companies.• It has a membership of not more than 20 persons.• It is required to prepare a balance sheet and a profit and loss account for

their shareholders, but is exempted from having to file them with the co’s annual return with the RoC (Registrar of Companies)

• It can also give loans to the Directors.

PUBLIC COMPANIES• S.4 – a company other than a private company.

• As this company raises funds from the public, it is subjected to more regulatory controls than a private company. …necessary to protect large numbers of people who are also interesting public.

Conversion of Private to Public company.• A private company may convert to a public company by loading a

special resolution with the RoC (Registrar of Companies)• It may also involuntarily becomes a public company if it contravenes

with the restrictions of S.15(1)• A public company with a share capital may convert to a private

company also by lodging a special resolution.

GROUP COMPANIES

Holding and Subsidiary Companies.

• S.5 defines Holding (H) and Subsidiary (S) as:1. H controls the composition of the BOD of S,2. H holds more than half of the voting power of S, or 3. H holds more than half of the ISK of S;4. S is a subsidiary of any other corporation which is in turns a

subsidiary of H.

Ultimate Holding Co.• Where another co. is a subsidiary of a company (UH), whilst the UH

is not itself a subsidiary of any corporation.

FOREIGN COMPANY• S.4(1): ‘Where the company, or corporation, society, association

or other body incorporated outside Malaysia, but which carries on business in Malaysia..‘

• It is wholly or majority owned (measured in % of shares held) by non-Malaysians.

• Such company has to lodge certain documents as laid down in S.332(1) CA 1965 and pay the appropriate fees before commencing the business in Malaysia.

• A foreign company registered under the “Companies Act” 1965 has the power to hold immovable property in Malaysia.