PCL0012

INTRODUCTION TO
COMMERCIAL LAW
Chapter 1: Types of
Companies
Prepared by: Saidatul Nasuha binti Jamaludin
 C. COMPANY
• A business corporation of 1 or more individuals and registered under
the Companies Act 2016 – S. 9 (b)

• Sources of Malaysian Company Law

i. Statutes
- Companies Act 2016

ii. Case law precedent (Malaysia, UK & Australia)

- when the Act is silent and for interpretation
- S.5 Civil Law Act 1956 – English Common law
SOURCES OF COMPANY LAW
1. Companies Act 2016
2. Securities Commission Act 1993
3. Capital Markets & Services Act 2007.
4. Company Commission of Malaysia Act 2001
5. Civil Law Act 1956
6. Companies Regulations 2017
7. Listing requirements of Bursa Malaysia Securities Berhad (BSMB)
8. Securities Commission Guidelines
9. Best Practices in Malaysian Code of Corporate Governance 2012
10. Common Law
DEVELOPMENT OF MALAYSIAN COMPANY LAW
COMPANIES ACT 2016
• Amongst the aim of Act 777 are to reflect the importance of
developed information and communication technology, to reflect the
cost compliance, to reduce conflicts between various corporate
regulatory bodies and to simplify the operational process of a
company in Malaysia.
• A company incorporated in Malaysia must be registered in
accordance with the Companies Act 2016. (CA)
• The CA 2016 performs 2 functions
- An enabling function; and
- A regulatory function
REGULATORY BODIES
1. Companies Commission of Malaysia /SSM
2. Securities Commission (SC)
3. Bursa Malaysia Securities Berhad
 COMPANIES COMMISSION OF MALAYSIA (SSM)
• (SSM) is a statutory body formed as a result of a
merger between the Registrar of Companies (ROC)
and the Registrar of Businesses (ROB) in Malaysia
which regulates companies and businesses.
• SSM came into operation on 16 April 2002. The main
activity of SSM is to serve as an agency to
incorporate companies and register businesses as well
as to provide company and business information to the
public.
• As the leading authority for the improvement of
corporate governance, SSM fulfils its function to
ensure compliance with business registration and
corporate legislation through comprehensive
enforcement and monitoring activities so as to sustain
positive developments in the corporate and business
sectors of the Nation.
 SECURITIES COMMISSION (SC)
• The Securities Commission Malaysia (SC)
was established on 1 March 1993 under
the Securities Commission Act 1993 (SCA).
• They are a self-funded statutory body
entrusted with the responsibility to regulate
and develop the Malaysian capital market.
• Their mission is "to promote and maintain
fair, efficient, secure and transparent
securities and derivatives markets; and
facilitate the orderly development of an
innovative and competitive capital market".
 BURSA MALAYSIA SECURITIES BERHAD
Bursa Malaysia is an exchange
holding company established in
1973 and listed in 2005.
DEFINITION OF “CORPORATION” & “COMPANY”
• Corporation = any body corporate formed/incorporated/existing
within Malaysia/outside
• Malaysia and includes any foreign company.

• Body corporate = artificial person with separate legal personality

• A company is a type of corporation. Company = a company

incorporated under CA 2016.
 ADVANTAGES
• Fund
- raise enormous fund/capital
- allow a large number of people to pool their resources
• Separate legal personality
- simplifies dealing (e.g. the cost of transfer of the assets can be
avoided when new participants are admitted/depart by just
transferring shares instead of assets).
• Limited Liability
- limit a person risk
- transfer risk to the company rather than the members
CLASSIFICATION OF THE COMPANY
• The Act classifies companies in a variety
of ways. The significant classifications are according to:

a) Liability of its members;

b) Status/Membership;
c) Relationship with other companies;
d) Place of incorporation.
1.
CLASSIFICATION
ACCORDING TO
LIABILITY OF
MEMBERS
A. CLASSIFICATION ACCORDING TO
LIABILITY OF MEMBERS
There are 2 types:
1) Limited
2) Unlimited
A. CLASSIFICATION ACCORDING TO LIABILITY OF MEMBERS
• S. 10 (1) CA 2016
• What is limited liability? – the liability of the members to contribute
towards the assets of the company on winding up is limited.
• A privilege granted to shareholders of a company.
• S. 435 CA 2016: the extent of contribution that must be made by a
member towards the liability of a company in the event the
company is wound up.
• S 435(2)(b) CA 2016: contributions to be made limited to the
unpaid amount.
A. CLASSIFICATION ACCORDING TO LIABILITY OF MEMBERS
Case: Tan Tien Kok v Medical Specialist Centre (JB) S/B (1994) 3
MLJ 469
• Surcharge imposed by the Defendant was contrary to the concept of limited
liability of the act.
• Relevant section – s 214(1)(d) CA 1965 which is equivalent to s 435(2)(b)
CA2016.
• The company’s own liability for its debts is never limited.
• A company must pay off what it owes to its creditors.
• A member’s liability will be important in the event the company cannot pay its
debts in full out of its own assets (liquidation).
 (1)Limited
company

a. Company b. Company
limited by limited by
share guarantee
(1) LIMITED COMPANY
• Liability of its members is limited
• Debts of company can only be satisfied from assets of the
company not from personal property of its members in case of
winding up.
• It must have the word “Berhad” or “Bhd.” as part of and at the
end of its name.
• Usually, public limited companies are also publicly listed on a
stock exchange, making them public listed companies such as
Malayan Banking Group Bhd or Genting Bhd.
(1) LIMITED COMPANY
a. Company limited by share
• - A company formed on the principle of having the liability of its
members limited to the amount of unpaid shares held by them.
S.10 (2) CA 2016
• A member cannot be asked to pay more than the amount unpaid
of his shares when the company is wound up
• If he has paid in full of his shares, he cannot be asked for any
further contribution, the creditors of the company are not entitled
to take member’s personal asset in satisfaction of corporate
liabilities
 (1) LIMITED COMPANY
b. Company limited by guarantee
• A company formed on the principle of having the liability of its
members limited by the memorandum to respective amount that
the members undertake to contribute to the property of the
company in the event of its being wound up. S. 10(3) CA 2016.
• How much each members agree will be stated in the
memorandum of association
• Guarantee companies are not usually trading companies
• Guarantee companies are engaged in charitable, scientific,
religious or artistic activities
 (1) LIMITED COMPANY (cont..)
• A company limited by guarantee does no have share capital.
• S. 435(2)(c) CA 2016: Upon winding up, no contribution shall be
required from any member exceeding the amount undertaken to
be contributed by him to the assets of the company.
• S. 38 CA 2016: must have a Constitution & submit its Constitution
at the point of incorporation.
• There are no shareholders, only members who act as guarantors to run
the operation. Members do not contribute capital to the company but
are responsible to pay debts if it closes down, according to the
amount of guarantee as promised.
 (2)UNLIMITED COMPANY
• There is no limit of liability on its members. Its members are liable for the
debts of the company without limit if the company has insufficient assets to
meet its debts in case of winding up - S. 10 (4) CA 2016.
• A person can register a Sdn company to form a mutual fund that holds
assets for investment purposes, rather than to carry out business. Since it has
unlimited liability among its shareholders, it is similar to a Partnership with
more flexibility in the ownership of shares where shareholders are free to
sell their shares back to the company.
• Rare type of company.
• S. 25(c) CA 2016 : Name to have “Sendirian” or “Sdn”
CONVERSION FROM UNLIMITED TO LIMITED
COMPANY
2.
CLASSIFICATION
ACCORDING TO
STATUS
B. CLASSIFICATION ACCORDING TO STATUS
There are 2 types:
• Private company
• Public company

S. 11 CA 2016
By looking at the status of a company, it can be classified to
either:
i. Public Company; or
ii. Private Company
PRIVATE COMPANY
• Definition : S. 2(1) (a) – (c) CA 2016
• S. 25 (1) (b) CA 2016 : To have the word “ Sendirian Berhad” or
“Sdn Bhd” as part of its name.
• A Sdn Bhd company is a private company limited by shares. It is
a separate legal entity which is capable of earning incomes,
owning properties, signing contracts, suing another entity, and
getting sued on its own name, separating your liabilities from the
company itself.
PRIVATE COMPANY
• Amongst the distinguished features of a private company:
i. S. 42(2) CA : Restricts the transfer of its shares
ii. S. 42(1) CA : Limit number of members
iii. S. 43(1) CA : Prohibits the offer of shares or debentures or
invite public to deposit money.
PUBLIC COMPANY
• Similar to a Sdn Bhd company, a Bhd company is a company
limited by shares with a few differences – it can offer shares to
the public without a limit on the number of shareholders, requires
at least 2 directors and is governed by Bursa Malaysia Securities
Berhad and the Security Commission of Malaysia.
• The registration of this business entity can be time-consuming and
expensive due to strict compliance requirements. However,
funding for the company would be easier to obtain since it is
publicly listed on the market.
PUBLIC COMPANY
• Unlimited shareholders
• Company’s liabilities separated from the directors’ and shareholders’.
• All public limited companies in Malaysia must have at least two
shareholders. There is no limit to the number of shareholders to
be possessed by such a company.
CONVERSION FROM PUBLIC PRIVATE COMPANY
• Formation of private companies with a single
shareholder : S. 9(b); S. 42
• Requirement of only one director for private companies
: S. 9 & S. 196
• Generally, all companies registered in Malaysia, must
have a director.
• Requirement of having a director:
• S. 196(1) : minimum number of director of company in Malaysia :
• Public Company : 2 directors
• Private Company : 1 director
3.
CLASSIFICATION
ACCORDING TO
RELATIONSHIP WITH
OTHER COMPANIES
C. ACCORDING TO RELATIONSHIP WITH
OTHER COMPANIES
There are 2 types:
i. Holding company
ii. Subsidiary company
HOLDING & SUBSIDIARY COMPANIES
 (1) HOLDING COMPANY
- Holding company in Malaysia is registered with the sole purpose of
controlling and managing the assets and the investment policies of
another company.

- Usually, the holding company represents a parent company for the

other businesses in which it holds voting shares;
- the holding company can own voting rights in more companies.
 (1) HOLDING COMPANY
- According to the Section 4 of the Companies Act, a business is
considered a holding company if it has the following rights:
i) it controls the board of directors
ii) it owns more than 50% of the voting rights in the other company
(which can be considered a subsidiary); and
iii) it owns more than 50% of the issued share capital of the
subsidiary.

- The holding company has the right of appointing directors in the

other company and the subsidiary can’t act in this sense without the
consent of the holding company
(1) HOLDING COMPANY
- S.4(1)(a)(i) – (iii) - a company is deemed to be a subsidiary of a holding
company if the holding company with respect to the subsidiary:
I )BOD: Controls the composition of the BOD of the subsidiary company
• How to determine control?
• S. 4(2) CA: If holding company could appoint or remove all or majority of
subsidiary’s directors.
• How?
• S. 4 (2)(a) – (b)
II.) Voting power: Controls more than half of the voting power of the
subsidiaries
III.) Issued capital: Controls more than half of the issued share capital of the
subsidiaries excluding preferences shares
HOLDING COMPANY
- S.4 (1)(b) – a corporation is also deemed to be a subsidiary if it is
a subsidiary of a holding company that itself a subsidiary.
ULTIMATE HOLDING COMPANY : S.5
- S.5: A corporation is an ultimate holding company of another
corporation if:
a. That other corporation is a subsidiary of that holding company
b. The holding company is not itself a subsidiary of another
S.5 - ULTIMATE HOLDING COMPANY A: Parent
Company

B: Subsidiary
ULTIMATE HOLDING COMPANY for A
S. 4 (1) b Parent for
B1

B1:
subsidiary
for B
(2) SUBSIDIARY COMPANY
- A subsidiary has a separate legal entity from its parent company.
Therefore, the subsidiary is liable for its debts and liabilities. A
subsidiary is suitable for both foreign and local companies who want
to expand their business in Malaysia. The company name does not
need to be the same as the foreign parent company, and it can
conduct all business activities.

- Company where the composition of its directors and voting power is

control by another company and that other company holds more than
½ of the issued share capital in this company. (S.6)
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management/subsidiary-company
WHOLLY OWNED SUBSIDIARY : S.6
Wholly owned subsidiary
- S6: A corporation is wholly owned subsidiary if none of its
members is a person other than
a. Its holding company
b. A nominee of its holding company
c. Another wholly owned subsidiary of the holding company, or
d. Nominee of such a wholly owned subsidiary
RELATED CORPORATIONS : S. 7
A corporation is deemed to be related to each other if –
a. It is the holding company of another corporation;
b. It is a subsidiary of another corporation; or
c. It is a subsidiary of the holding company of another corporation.
4.
CLASSIFICATION
ACCORDING TO
PLACE OF
INCORPORATION
D. ACCORDING TO PLACE OF INCORPORATION
• There are 2 types:
(1) Local - Company incorporated in Malaysia.
(2) Foreign - Company incorporated outside
Malaysia. (S.2)
 FOREIGN COMPANY : S.2
• A foreign company desiring to establish a place of business in Malaysia
must be registered here.
• S. 2(1) defines “foreign company” :
a) A company, corporation society, association or other body
incorporated outside Malaysia; or
b) An unincorporated society, association or other body which under
the law of its place of origin may sue or be sued, or hold property
in the name of the secretary or other officer of the body or
association duly appointed for that purpose and which does not
have its head office or principal place of business in Malaysia
TYPES OF COMPANIES
1. COMPANY LIMITED BY SHARES
2. COMPANY LIMITED BY GUARANTEES
3. UNLIMITED COMPANY
4. PRIVATE COMPANY
5. PUBLIC COMPANY
6. RELATED COMPANY
7. FOREIGN COMPANY