TUNKU ABDUL RAHMAN UNIVERSIYTY COLLEGE

BBBL2113 INVESTMENT INDUSTRY LAW

TUTORIAL 6:

COMPANY LAW, TYPES OF COMPANIES, CONSTITUTION OF COMPANIES

1. Distinguish an exempt company from a private company.

Under Section 2 Company Act 2016, it states that exempt private companies in the shares of
which no beneficial interest is held directly or indirectly by any corporation and which has not
more than 20 members none of whom is a corporation.

However, private companies are not allowed more than 50 shareholders for a company limited
by share, under Section 42(1) Company Act 2016. A company limited by shares may be
registered as a private company, change its status from a public company into a private
company or remain registered as a private company as long as the shareholder does not
exceed 50 shareholders.

S.260(1) CA 2016 is an exempt private company need not file its accounts with the Companies
Commission of Malaysia. The company only needs to lodge a certificate (signed by a director,
secretary and auditor of the company) to declare that the company is able to meet its liabilities
as and when they fall due – Section 260 (1) Companies Act 2016.

Besides, S.224 (2)(a) & S.225(1) CA 2016 may lend money to its directors or any person
connected with its directors.

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2. Distinguish a company limited by shares from a company limited by guarantee.

Company limited shares are under the Section 10 Company Act 2016, and it means the
liability of the shareholders is limited to the amount unpaid on the shares. There is no way of
extra liability if the shares are fully paid. Company limited is the most common type of company
being incorporated. This type of company is used for conducting businesses. The most salient
feature for those companies limited by shares are those creditors unable to claim their losses
through the member’s personal assets to satisfy the company’s liability. In Section 11(1)
Company Act 2016, companies limited by shares can be either public or private companies. It
means private end with Sdn Bhd if public Bhd.

However, a company limited by guarantee is totally opposite of the company limited by

shares. Section 10(3) Company Act 2016, a company limited by guarantee means where
liability of members is limited to the amount that a member undertakes to contribute in the event
of winding up. This type of company is less practiced, but usually is practicing for non-trading
associations and clubs. For instance, The Tun Hussein Onn National Eye Hospital. Moreover,
Section 11(2) Company Act 2016, a company limited by guarantee must be in the form of a
public company. A company cannot be formed as or become a company limited by guarantee
with a share capital.

3. Distinguish a private company from a public company.

As stated in Section 42(1) Company Act 2016, private companies with more than 50
shareholders are not allowed for a company limited by share. A company limited by shares may
be registered as a private company, change its status from a public company into a private
company or remain registered as a private company as long as the shareholder does not
exceed 50 shareholders. Moreover,under section 43(1) Company Act 2016,a private company
shall not offer any shares or debentures of the company to the public. Furthermore, private
company shall not allot or agree to allot any shares or debentures of the company with a view to
offer such securities to the public. Next, private company shall not invite the public to deposit
money with the company for fixed periods or payable at call, whether bearing or not bearing
interest.

However, under Section 2 Company Act 2016, public company is a company other than
a private company and it shall not restrict the transfer of its shares. No minimum capital
requirement and public company may raise capital from the public. There is no limit in the
number of shareholders for a public company.Moreover, a public company can offer any shares
or debentures of the company to the public. Furthermore, public company can allot or agree to
allot any shares or debentures of the company with a view to offer such securities to the public.
Next, public company can invite the public to deposit money with the company for fixed periods
or payable at call, whether bearing or not bearing interest.
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BBBL2113 INVESTMENT INDUSTRY LAW

4. Consider the following separate and independent situations and advise the parties
concern as to the most suitable type of business or organization structure giving
reasons for your answer:

a. Wong intends to set up a company to sell his wife’s home-cook food. Mrs. Wong
is not well educated. She did not intend to actively participate in the business. Advise Mr.
Wong which types of company best suits him.
Private companies are the best suits for Mr Wong. According to Section 42(1) Company Act
2016, a private company is a company limited by shares having not more than 50 shareholders.

Transfer of shares is restricted according to Section 42(2) Company Act 2016. Setting up a
private company can ensure that they can maintain the ownership of the company between
them or any shareholders.

HomeCook Food Business needs small capital, they can raise capital to private companies from
themselves Mr Wong and Mrs Wong.

Private company , if membership or shareholders are Mr and Mrs Wong , less of 50 members -
Exempt private company.

For the liability, Mr & Mrs Wong's liability is limited to the shares they have paid up, they are not
responsible for the Company's debt.

Exempt private Company no need to lodge financial accounts in lieu thereof lodge a certificate.
This certificate prepared by the Company Sect.

b. Mat has recently invented a new gadget that does not require the conventional
ironing method to iron clothes but only need to be hung in a special cupboard and the
hot air directed to the clothes will iron them automatically. His family and friends are very
excited about the invention and they think that it has great market potential. However,
the capital requirement to register the invention and the cost of building the cupboard is
rather high. Advise Mat.

Based on Mat’s situation, the public company will be the most suitable type of business
structure for him. According to Section 2 Company Act 2016, public company refers to a
company other than a private company.

A public company need not restrict the transfer of its shares and no limit in the number of
members, which could have more than 50 members. Public company can offer its
shares or debentures to the public and invite the public to deposit money with the
company. If it was a private company, it is not suitable because it will not have the
resources to raise capital. The more membership or shareholders, the more funds will be
gathered. If further capital is needed, this public company can go for listing by issuing
more shares to the public, such as initial public offering.
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The case study above makes known that Mat has a business idea with a great market
potential. However, he faced a problem with the high capital requirement to start his
business. By setting up a public company, Mat is allowed to raise funds from the public
by issuing shares with no limitation on the number of shareholders.

Thus, Mat could start his business as he is able to meet the high capital requirement on
the registration of inventions as well as the cost of building the cupboard.

Liability of members will be limited to the shares they have subscribed and fully paid for.
If the company has no further assets to pay creditors, the company will have the
responsibility to pay its debt, not the members.
Sections 42 and 43 are not applicable to public companies.

In conclusion, setting up a public company would be the best choice for Mat, as the
features of a public company could help him to solve his problems on the high capital
requirement.

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BBBL2113 INVESTMENT INDUSTRY LAW

5. Explain in detail what is group of companies and the importance of identifying

company as a group of companies.
In S.4(1) CA 2016, it states a corporation (S) shall be deemed to be a subsidiary of another
corporation (H) only if H controls the composition of the board of directors of S;

H controls more than 50% of the voting power in S; or

H holds more than 50% of the total number of issued shares of S; or
S is a subsidiary of any corporation which is a subsidiary of H.

According to S.247 CA 2016, if there is a holding and subsidiary relationship between 2

companies, the company must ensure that their financial year coincide within 2 years to enable
group accounts to be prepared.

The second is for the purpose of monitoring giving financial assistance. S.123 CA 2016 states
that a company cannot give financial assistance for the purchase of its own shares or that of its
holding company.

The third is to monitor the provision of loans to directors. According to S.224 CA 2016, it
prohibits the company from giving loans to its own directors or a related company. Only exempt
private companies can do so.

According to S.225 CA 2016, it states it prohibits the company from giving loans to persons
connected to its own directors or persons connected to directors of its holding company.

Moreover, it also monitors dealings with the company. S.228 CA 2016 states that prohibit
certain dealings by the company with its own directors or directors of its holding company
unless approved by the general meeting.

Furthermore, it is also monitoring subsidiary from being a member of its holding company.
According to S. 22 CA 2016, it states that subsidiary cannot hold shares in its holding company.

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BBBL2113 INVESTMENT INDUSTRY LAW

6. What a constitution of a company is? Must all companies have a constitution of

its own?

A constitution of a company refers to a document that generally set out the rules for the
management of a company including the relationship between its director and shareholders.A
constitution is also known as a single document in Company Act 2016. For example, it usually
contains the procedures of conducting a meeting, the way to vote, who can be the Board of Director,
etc.

Not all companies must have their own constitution as it depends on what type of the company is
established. According to Section 34 Company Act 2016, constitution is defined as, if the company is
limited by shares, a document is adopted as constitution of the company by way of special resolution
(at least 75% shareholders’ approval).

If the company is limited by guarantee, a document is lodged for registration of the company under
Section 38 Company Act 2016.

If the company is registered under Company Act 1965, the M&A will be still registered under
Company Act 1965. Under Section 90 Company Act 2016, constitution is mandatory for any
companies that issue different classes of shares or preference shares. Besides, constitution is a
must for company limited by guarantee (CLBG) under Section 38 Company Act 2016.

However, it is optional under Section 31 (1) Company Act 2016, stated that all other companies may
or may not have a constitution, except for CLBG. For example, Touch n Go Sdn Bhd is not
mandatory if no preference shares are issued, while World Vision Malaysia Berhad is mandatory for
having a constitution as it is a CLBG. Public listed companies are mandatory to have a constitution
to comply with Bursa Malaysia Listing requirements. According to Section 32(4) Company Act 2016,
a company may adopt a constitution by passing a special resolution. Under Section 91 CA 2016
mandatory when different classes of share are issued, or company issued preference shares.

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