CORPORATE DIRECTORS TRAINING

PROGRAMME FUNDAMENTAL

THE DYNAMICS OF A COMPANY

By:

Mr Radha Krishnan Alagamalai

SSM Associate Speaker
Companies Commission of Malaysia (SSM)
Malaysia

27 November 2018
OVER VIEW

• SSM’s - History ; Objectives ; Powers & Functions

• What is a Company?
• Key Characteristics of a Modern Company
• The Life-span of a Company
• Advantages in Carrying Out a Business Via a Company
• Key Role-Players in a Company
• Incorporation of a Company
• Types of Companies in Malaysia
• The Decision-making Powers in a Malaysian Company
• Management of a Company
• Financial Statement & Audit Exemption
• Closing a Company
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HISTORY ON THE FORMATION OF SSM
30 June 1999:
The Cabinet instructed for the formation of SSM
General framework Justifications

• Autonomy in financial • Rapid economic growth

management SSM of SSM of - increase in company
• Autonomy in human Companies Businesses incorporations
capital management (ROC) - Est. 1898 (ROB) - Est. 1939 - increase in business
• Daily affairs managed registrations
by a CEO - robust privatization
• The CEO is directly COMPANIES COMMISSION OF - robust foreign
answerable to the MALAYSIA ACT 2001 (Act 614) investment
Minister
• Administered by a • The need to
Board of Commission enhancement the
Members. national corporate
• Focus areas: governance framework
(a) development of • Established: April 2002 • The need to enhance
corporate legal OBJECTIVES the of public service
framework (i) To ensure systematic and dynamic growth of the delivery system
(b) technology corporate and business sector. • The advent of
(c) R&D (ii) To ensure the conduct of business is in accordance with globalization
(d) domestic and the laws and principles of corporate governance.
international (iii) Towards the establishment of an autonomous, flexible
networking and responsive regulatory authority.
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SSM’S POWERS & FUNCTIONS

4
SSM’S PRESENCE NATIONWIDE

SSM PERLIS

SSM
SSM KEDAH
KELANTAN
Langkawi SSM SABAH
Service Centre
SSM PULAU SSM TERENGGANU
PINANG SSM LABUAN

SSM PERAK
SSM PAHANG Tawau
Miri Branch Branch
SSM
SELANGOR Temerloh
Branch

SSM N.
SEMBILAN
Muar Branch SSM SARAWAK
SSM MELAKA

SSM JOHOR

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WHAT IS A COMPANY…..REALLY?

Section 2 of the
Companies Act 2016
“Company” means a company
incorporated pursuant to this
Act or under any
corresponding previous written
law

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WHAT IS A COMPANY…..REALLY?

“Did you ever expect a corporation to have a conscience, when it has no soul to be damned, and no body to be
kicked”
Edward, First Baron Thurlow, 1731 - 1806

“The word "corporation" derives from corpus, the Latin word for body. Entities which carried on business and were
the subjects of legal rights were found in ancient Rome, and the Maurva Empire in ancient India. In medieval
Europe, churches became incorporated, as did local governments, such as the Pope and the City of London
Corporation. The point was that the incorporation would survive longer than the lives of any particular member,
existing in perpetuity. The alleged oldest commercial corporation in the world, the Stora Kopparberg mining
community in Falun, Sweden, obtained a charter from King Magnus Eriksson in 1347”
Wikipedia

Santa Clara County v Southern Pacific Railroad 118 U. S. 394 (1886): US Supreme Court - The Fourteenth
Amendment of the US Constitution applies equally to corporation?

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KEY CHARACTERISTICS OF A COMPANY
1. Separate legal entity from
the owners of the company
Section 20 & 21 CA 2016
2. The liability of the owners
(shareholders) can be limited
3. Continuous existence until
removed from register
4. Capacity to sue and be sued
5. can enter into contracts
6. can incur obligations
7. can hold properties
Salomon v A Salomon & Co Ltd [1897] AC 22
Aron Salomon was a boot and shoe manufacturer . He ran a
business as a sole trader under the name ‘A Salomon & Co’. He
eventually incorporated a limited liability company. He took
20,001 shares and gave 1 share each to his wife and 5 children.
The business was transferred into the company. Salomon
continued to run the business as usual. The company was later
subjected to liquidation.
The House of Lords held that incorporation of the company
created a separate person. Even though the business was the
same and was even run by the same person, the company was
not an agent or trustee for the members. The members were not
liable in respect of the company’s obligations.
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THE LIFE-SPAN OF A COMPANY

Incorporation = Carrying out Cessation of

Birth business = Living business = Death

 Effective management of a company’s life-span  9

THE LIFE-SPAN OF A COMPANY

Companies are technically immortals

Sometimes they can be

Companies can fall resuscitated…….
• Reconstruction & Amalgamation
sick…if not • Receivership
properly managed • Corporate Voluntary Arrangement
• Judicial Management
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ADVANTAGES IN CARRYING OUT A BUSINESS VIA A COMPANY
Company Business - Sole Proprietorship and
Partnership
A separate legal entity Not separate legal entity
The liability of owners and shareholders is limited The liability of the sole proprietor and partners
are not limited
Continuous existence Subject to the existence of the owners
Transferability of ownership through the transfer of Transferability of ownership through change in
shares registered owners
Assets and properties can be owned by the Assets and properties owned by individuals and not
company b business
Taxation and incentives attributed to the company Taxation and incentives attributed to individual
as separate legal entity owners
Cessation through winding-up or striking-off Cessation through closure of business

A company is simply the most recognized form of business vehicle…….

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KEY ROLE-PLAYERS IN A COMPANY

1. Board of 2. Company
directors Secretaries

3. Auditors 4. Employees

Receiver Manager Winding

Corporate
Judicial Manager Liquidators up
Rescue
CVA Nominee
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KEY ROLE-PLAYERS IN A COMPANY

1. Board of directors

Who is a director?

“Director” includes any person occupying the position of director of a corporation by

whatever name called and includes a person in accordance with whose directions or
instructions the majority of directors of a corporation are accustomed to act and an
alternate or substitute director
[Section 2 CA 2016]

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KEY ROLE-PLAYERS IN A COMPANY

1. Board of directors

Minimum number of directors

• Section 196(1) CA 2016:
a private company must have at least 1 Malaysian resident director
a public company must have at least 2 Malaysian resident directors
and shall not include an alternate or substitute
Malaysian resident - ordinarily resides in Malaysia by having a principal place of residence in
Malaysia

Powers of directors
• Section 211 CA 2016: general powers of a director to manage and direct the affairs of a
company
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KEY ROLE-PLAYERS IN A COMPANY

“Captain” “Body of Captains”

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KEY ROLE-PLAYERS IN A COMPANY

2. Company secretaries

Who is a company secretary?

“There is also the developing role of the company secretary in terms of advising the board and the
Chairman of the company’s and director’s compliance obligation under the law. The Cadbury Committee
looked to company secretaries to advice the Chairman and the board on the implementation of the Code
of Best Practice. Their role is, therefore, not purely administrative. They have a crucial role as well, which
then follows through into a crucial role in encouraging compliance with the law.”
High Level Committee Report on Corporate Governance, 1999

• Section 235 CA 2016: Every company shall have at least 1 company secretary who is a natural person, at
least 18 years old and ordinarily resides in Malaysia

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KEY ROLE-PLAYERS IN A COMPANY

3. Auditors

Who is an auditor?
“The duties of an auditor of a company generally are:
• To examine and form an opinion on the adequacy of the books, financial statements and
records of the company; and
• To report to the members on the financial statements and other records examined by him
and on every balance sheet, every profit and loss financial statement (and the consolidated
financial statements as the case may be).”
Section 266 CA 1965
• Each company must appoint at least 1 auditor but SSM may exempt qualified private company from
appointing an auditor.
• Section 267/271 CA 2016: appointment is by directors at any time within 18 months of
incorporation for private company or before the first AGM for public company and subsequent
appointments by the shareholders. 17
INCORPORATION OF A COMPANY IN MALAYSIA – S14
MyCoID2016
Option 1

Application for
Incorporation Registration of
incorporation
SUPERFORM
MyCoID2016
Option 2
Application to
Application
Reserve Name Registration of
for Incorporation
RM50 – 30 days incorporation
SUPERFORM
Max – 180 days 18
MYCOID2016 - APPLICATION FOR INCORPORATION
Statement by Lodger
• Name of Co.
• Private or Public
• Nature of business
• Registered office address
• Details of member(s),
director(s) and secretary
(optional)
• Class and number of
shares to be taken by
members/amount of
guarantee
Statement by Notification of
Promoter confirming Registration
• Consent to act as • Company No. assigned
promoter/director • If name is not available,
• That he is not SSM will assign specific
disqualified under expression for the
CA2016 name
• Certificate of
incorporation issued on
payment of RM20
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NOTICE OF REGISTRATION OF COMPANY – S19

The notice of registration is conclusive evidence that the requirements of

this Act in respect of registration and matters precedent and incidental to
such registration have been complied with and that the company is
duly registered under Companies Act 2016.

Certificate
of Issued on application to SSM
Incorporati with prescribed fee of RM20
on s17

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TYPES OF COMPANIES IN MALAYSIA

COMPANIES

Limited by
Limited by shares Unlimited
guarantee
Listed
Private Public
Non-listed
• Restricted rights to transfer
• Not more than 50 shareholders Foreign companies
• Public invitation prohibited [ Part V, Division 1 of CA 2016]

• Section 2 CA 2016 - company, corporation,

Exempt private Non-exempt society, association or other body incorporated
company outside Malaysia or unincorporated society,
private company
association or body
Not more than 20 • Foreign companies having a place of
individual shareholders business/carrying on business within Malaysia
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POWERS OF A COMPANY

 Companies have unlimited capacity (s21)

 A company shall be capable of exercising all the functions of a body
corporate and have the full capacity to carry on or undertake any
business or activity including to sue and be sued; to acquire, own, hold,
develop or dispose of any property; and to do any act which it may do or
to enter into transactions.
 A company shall have the full rights, powers and privileges for the
purposes mentioned above.

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THE DECISION-MAKING POWERS IN A MALAYSIAN COMPANY

Decision-making
Companies Act Constitution
jurisdictions, powers and (if adopted)
2016 procedures

Board of Directors Shareholders

• Determines the overall management and • Powers exercisable through general

direction of a company meetings/written resolution by private
• Supervisory of the management of the company
business and affairs of a company
SUBJECT TO
SUBJECT TO
CA 2016 AND
CA 2016 AND
Constitution! Constitution!

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THE CONSTITUTION OF A COMPANY – S31

Company with a Constitution

• the company, each director and each member of the company shall have the rights,
powers, duties and obligations set out in the Act, except to the extent that such
rights, powers, duties and obligations are permitted to be modified in accordance
with the Act, and are so modified by the constitution of the company.
• The constitution of a company has no effect to the extent that it contravenes or is
inconsistent with the provisions of CA 2016.

Company without a Constitution

• the company, each director and each member of the company shall have the rights,
powers, duties and obligations as set out in the Act.
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FORM OF CONSTITUTION – S34

• Company limited
CA2016 • Constitution is the
by shares, M&A originally
• Company limited
Constitution registered or as
by guarantee,
adopted under altered.
Constitution
S32
registered under

CA2016 S38
CA1965

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TRANSITIONAL PROVISION ON CONSTITUTION – S619(3)

 The M&A of an existing company in force and operative at the

commencement of CA2016 (i.e. 31 January 2017), and the
provisions of Table A under the Fourth Schedule of the
Companies Act 1965 if adopted as all or part of the articles of
association of a company at the commencement of CA2016, shall
have effect as if made or adopted under CA2016, unless
otherwise resolved by the company.

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MANAGEMENT OF A COMPANY - TYPES OF MEETINGS

MEETINGS

Members Board of directors

Meeting of
AGM Class
Members/
(Public co. only) General Meeting Meetings
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MANAGEMENT OF A COMPANY – THE “BOARD MEETING”

Section 211 CA 1965

The business and affair of a company must be managed

Scope/Mandate by, or under the direction of the Board.

+ The Board has all the power necessary for managing and
for directing and supervising the management of the
business and affairs of the company subject to any
Powers modification, exception or limitation contained in this Act
or in the constitution of the company.

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MANAGEMENT OF A COMPANY - THE AGM (PUBLIC COMPANY)
When? Section 340
• AGM to be held once every calendar year.
- Platform for shareholders to engage
the company
- First AGM to be held within 18 months
of incorporation
- Subsequent AGM to be held within 6
months of financial year end and not
more than 15 months after the
previous AGM.
• SSM may, on application, extend the
timeframe for meeting due to any
special reason
What?
Business to be transacted
• Lay the audited financial statement of
the company.
• Election of retiring directors
• Appointment of auditors and fixing
their remuneration
• Other business – general mandate for
directors to issue shares, payment of
directors’ fees & benefits, share buy
back, etc
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FINANCIAL STATEMENTS (FS)

Private
Company Directors to prepare FS within
18 months of incorporation and
subsequently within 6 months
of financial year end
Private Co..
audit exemption FS to be circulated to
for Qualifying Co. member(s), etc within 6
- Dormant months of financial year end
-Zero Revenue
- Threshold
Qualified Lodge FS with SSM within 30
days of circulation to
member(s)
Public
Company Directors to prepare FS within 18
months of incorporation and
subsequently within 6 months of
financial year end
s248
FS to be circulated to
member(s), etc at least 21
s258 days before AGM date
Lodge FS with SSM within
s259 30 days from AGM

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PRACTICE DIRECTIVE 3/2017
QUALIFYING CRITERIA FOR AUDIT EXEMPTION

Dormant Companies

(a) Dormant since incorporation

(b) Dormant throughout last financial year and
current financial year

(i) Has not carried out business; and

(ii) No accounting transaction – exclude statutory
payments
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PRACTICE DIRECTIVE 3/2017
QUALIFYING CRITERIA FOR AUDIT EXEMPTION

Zero-Revenue Revenue does include

reversals
Companies Expenses incurred in
maintaining co. is ignored

Total Assets
does not exceed
No revenue during No revenue in
immediate past 2 RM300,000 for each
current financial year of
financial years
3 financial years
All three conditions to be met for zero-revenue
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PRACTICE DIRECTIVE 3/2017
QUALIFYING CRITERIA FOR AUDIT EXEMPTION
Revenue not exceeding
RM100,000

Threshold-Qualified
Companies
Current financial year Total assets does not exceed
and immediate past RM300,000
2 financial years
All three conditions to be met for
Threshold qualified

Not more than 5 employees

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PRACTICE DIRECTIVE 3/2017
AUDIT DIRECTED BY MEMBERS/SSM

Member(s) with 5% of issued shares or

class of shares

At least 5% of total number of

Members eligible to vote

On direction of SSM
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PRACTICE DIRECTIVE 3/2017
SUBMISSION OF ACCOUNTS FOR QUALIFYING COS

Certificate
• approved • Dormant Companies
• CA65 – from 1.9.17
accounting
standards • Signed by a • CA2016 – from 31.1.17
director • Zero-revenue
• From 1.1.18
certifying audit • Threshold Qualified
Financial exemption • From 1.7.18
Statement
FYE applicable

Exempt Private companies, if qualifying company

must lodge financial statement. 35
MANAGEMENT OF A COMPANY – MEETING OF
MEMBERS

Who can convene a Meeting of Members?

• Board

• any member holding at least ten per centum of the issued share capital of
a company or a lower percentage as specified in the constitution or if the
company has no share capital, by at least five per centum in the number
of the members.

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MANAGING ANNUAL LODGEMENT
Annual Return to be lodged within 30 days
of anniversary of incorporation date
Lodgment fee - Private Co. RM150
Public Co. RM500 Section 259

Section 68

Financial Statements /EPC Certificate to be lodged within 30 days of

- Circulation of FS to members (private company)
- AGM (public company)
Lodgment fee - Private Co. Audited FS RM50
Private Co. Unaudited FS RM20
Private Co. EPC cert RM200
Public Co. RM200
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CLOSING A COMPANY

HOW TO CLOSE A COMPANY?

Winding up Striking off

Voluntary Compulsory

Court
Members’ Creditors’

Petition for Winding-up (Civil action)

Solvent Insolvent
• Must possess locus standi
• Section 464 CA 2016 – Who can petition
• Requires members’ resolution 38
MEMBERS VOLUNTARY WINDING UP

3 WOUND UP
4
2
Meeting of


Members
Lodgement of • Appointment of liquidator

1
Board of directors 
declaration of solvency

• Lodged with SSM

• Cessation of power of directors
and members
• Notification of termination of
employees
• Submission of false
meeting


• Prohibition of transfer of shares
information constitute an • Prohibition of disposition of
offence properties
• Determination of solvency • Status change to ‘winding up’
• Written declaration of solvency:
(i) assets of the company, and amount * Company cease to carry out business upon
expected to be realized commencement of winding up
(ii) liabilities of the company * Statutory documents by directors/company
(iii) estimated expenses of winding up secretary cannot be lodged
* All court proceedings will be stayed
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POWERS OF SSM TO STRIKE OFF COMPANY S549
SSM’s POWER

SSM’s OWN MOTION APPLICATION OF

S. 549 (a) to (d) DIRECTOR/MEMBER/LIQUIDATOR
S. 549 (a) and (d), S.550

S. 549
(a)the company is not carrying business or is not in operation;
(b)the company has contravened the Act;
(c)the company is being used for unlawful purposes or
incompatible with peace, welfare, security, public interest,
pubic order, good order or morality in Malaysia;
(d)the company is being wound up by the court but –
(i) there is no liquidator acting
(ii) the affairs of the company is fully wound up but liquidator
failed to lodge any return
(a)the affairs of the company is fully wound up but there is no
sufficient fund to pay the cost of obtaining a dissolution
order
S. 549
(a)the company is not carrying business or is
not in operation;
(d) the company is being wound up by the
court but –
(i) there is no liquidator acting;
(ii)the affairs of the company is fully wound
up but liquidator failed to lodge any
return;
(iii)the affairs of the company is fully wound
up but there is no sufficient fund to pay
the cost of obtaining a dissolution order
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RECAP

• SSM’s - History ; Objectives ; Organizational Structure ; Powers & Functions

• Analogy of Running a Company
• What is a Company?
• The Historical Development of Companies
• Key Characteristics of a Modern Company
• The Life-cycle of a Company
• Advantages in Carrying Out a Business Via a Company
• Key Role-Players in a Company
• Incorporation of a Company
• Categories of Companies in Malaysia
• The Decision-making Powers in a Malaysian Company
• Management of a Company
• Closing a Company
41
THANK YOU
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