UNIT 2: CLASSIFICATION OF COMPANIES

INTRODUCTION

 The principal statute that governs company law in Malaysia is the Companies Act
2016 (“the CA 2016”). The CA 2016 repealed the Companies Act 1965 (“the CA
1965”) with effect from January 31, 2017.
 The interpretation of the common phrases and words in the CA 2016 is in section
2(1).
 The word “company” is defined to mean “a company incorporated under this Act or
under any corresponding previous written law”. Thus, a company for the purpose of
the CA 2016 means a company incorporated in Malaysia. It is a local company.
 The word “corporation” is defined in section 3 to include both local and foreign
companies, as well as local and foreign limited liability partnerships.
 In Malaysia, companies can generally be classified as follows:
o Limited and unlimited liability companies;
o Public and private companies.

LIMITED AND UNLIMITED COMPANIES

 A company is liable for its debts. According to section 192(1) of the CA 2016, a
member shall not be liable for an obligation of a company by reason only of being a
member of the company.
 Whether a member is liable for the company’s debts in the event the company is
wound up depends on whether the company is a limited or an unlimited company.
 Section 10(1) states that a company may be incorporated as “(a) a company limited
by shares; (b) a company limited by guarantee; or (c) an unlimited company
Company limited by shares
 Section 10(2) says that “a company is limited by shares if the liability of its members
is limited to the amount, if any, unpaid on shares held by the members”. See also
section 192(2)(a) which reinforces this.
 In a company limited by shares, its member has either fully paid up on his shares or
otherwise.
 Where a member of a limited company has fully paid up on his shares, the general
principle is that he will not be liable for the debts of the company. Even in the event
the company is wound up, and the assets of the company are insufficient to meet its
liabilities towards its creditors, a member who has fully paid up on his shares will not
be called upon to contribute. He can be made liable if and only if the veil of
incorporation is lifted
 Where a member of a limited company has not fully paid up on his shares, he may
be called upon at any time by the company to pay the unpaid portion
Company limited by guarantee

 In a company limited by guarantee, a member’s liability is limited to the amount he

agrees to contribute in the event the company is wound up. This is prescribed in
section 10(3) and further reinforced by sections 192(2)(b) and 435(2)(c).
Unlimited company

 Section 10(4) of the CA 2016 defines an unlimited company as where “there is no

limit on the liability of its members”.
 An unlimited company may either be a private company or a public company
(section 11(3)).
PRIVATE AND PUBLIC COMPANIES

 A company can also be classified as either a private or a public company.

Private companies

 As the CA 2016 has made it optional for companies (other than companies limited by
guarantee) to adopt a constitution, the conditions are now stated in the Act itself.
 Section 42(1) provides that “a company limited by shares having not more than 50
shareholders may be registered as a private company…”. There are two conditions in
the said provision.
 First, only a company limited by shares may be a private company. A company
limited by guarantee is not qualified to be a private company because it does not
have a share capital.
 Secondly, the number of members is limited to only 50.
 Section 43(2) of the CA 2016 lists the third condition imposed on a private company,
that is, restriction on the transfer of its shares.
 The fourth, fifth and sixth conditions are stated in section 43(1). It prohibits a private
company from first, offering its shares or debentures to the public; secondly,
allotting or agreeing to allot shares or debentures with a view to offering them to the
public; and thirdly, inviting the public to deposit money with it.

In summary, the conditions which are required of a private company under the CA 2016
are:
1. It is a company limited by shares;
2. It has not more than 50 shareholders;
3. It restricts the transfer of its shares;
4. It cannot offer its shares or debentures to the public;
5. It cannot allot shares or debentures with a view of offering them to the public;
6. and It cannot invite the public to deposit money with the company

Public companies

 Section 2(1) defines a public company as a company other than a private company.
  Thus, unlike a private company, a public company may have any of the following
characteristics:
o It can be a company limited by shares or guarantee, or it can be an unlimited
company;
o It can have more than 50 shareholders;
o It need not restrict the transfer of its shares;
o It can offer its shares or debentures to the public;
o It can allot shares or debentures with a view of offering them to the public;
o and It can invite the public to deposit money with the company.
 A public company cannot have the word “Sendirian” or its abbreviation “Sdn” as part
of its name. This is following section 597(2) which provides that “a company shall not
use the word “Sendirian” or “Sdn” as part of its name if the company does not fulfil
the requirements required by this Act to be fulfilled by private companies”.

Differences between a public company and a private company

PUBLIC COMPANY PRIVATE COMPANY

NAME WITHOUT “SENDIRIAN/ SDN” “SENDIRIAN/ SDN” – S.697(2))
MAXIMUM NUMBERS NO LIMIT NOT MORE THAN 50 – (S.42)
OF MEMBERS
MINIMUM NUMBERS TWO (2) ONE (1) – S.196
OF DIRECTORS