COMPANY LAW

Law relating to companies:

-Companies Act 1965

-Capital Market and Services Act 2007
-Securities Commission Act 1993
-Companies Commission of Malaysia Act 2001
Bodies that are responsible to regulate the
activities of companies:

Companies Commission of Malaysia

Bursa Malaysia Securities Berhad (BURSA)- formerly
known as KLSE
Securities Commission (SC)
Pengurusan Danaharta Nasional Berhad
INTRODUCTION

In Malaysia, there are basically five types of

business entities , namely a sole proprietorship,
partnership, limited partnership and company.
The important and most business entities in
Malaysia are Company.
Entrepreneurs may have to explore the option of
incorporating a company as their business
vehicle.
The principal statute that governs company law
in Malaysia is the Companies Act 2016.
Company
• The word company is defined to mean a company
incorporated under Companies Act 2016.
• Section 9, CA2016 – the essential requirement of a
company as having :

 A name
 One or more members having limited or unlimited liability
for the obligations of the company.
 In the case of a company limited by shares, one or more
shares.
 One or more directors requires a public company to have at
least two directors.
Types of Company
• In Malaysia, companies can generally be
classified as follows :
Limited and Unlimited companies
Public and Private companies

• Section 192(1), CA2016– A company is liable

for its debts.
• 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 unlimited
company. – Section 192 (1) CA
2016.
Company Limited by shares
• Section 10(2), CA 2016 & Sec 192(2)(a) – 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.
• Its members 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 the company is wound up and the assets of the company are
insufficient to meet his liabilities, a member who has fully paid up
on his shares will not called upon to contribute for the companies
debts.
• 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.
• Thus the member of a limited company
knows his maximum liability. At the most,
he will lose the amount he has agreed to
invest in the company.
• His other personal assets will not be
impacted when the company becomes
insolvent. – Section 435(2) (b) CA2016.
Company Limited By Guarantee
• A member’s liability is limited to the amount he agrees to contribute
in the event if the company is wound up. – Sec 10(3), Companies
Act 2016.
• Section 31 (1), CA 2016 – requires company limited by guarantee to
have a constitution which shall contain matters prescribed:
1. The company is limited by guarantee
2. Object of the company
3. Capacity, rights, power and privileges of the company.
4. Number of members with which the company propose to be
incorporated.
5. Others matters required by the CA 2016.
6. Other matters as the company so wishes.
• A member under company limited guarantee do not give
upfront financial to kick start the operation.
• Usually this types of company will not formed to carry
on a business but rather to provide recreation or
amusement or promote commerce or any object to the
community or country. – Sec 45(1) CA 2016.
• Sec 45 (2), CA 2016 – does not allow the company to
contributes its profits as dividend to its members.
• According to Section 11(2), CA 2016 – a company
limited by guarantee shall be a public company.
Private and Public Companies
A company having a share capital may be
incorporated as a private company if its
Memorandum or Articles:
i. Restricts the right to transfer its shares
ii. Limits the number of members to not more than
fifty
iii.Prohibits any invitation to the public to
subscribe for any shares in or debentures of the
company
iv.Prohibits any invitation to the public to deposit
money with the company for fixed periods or
payable at call whether bearing or not bearing
interest
a public company is a company other than a
private company
in Malaysia, a public limited company has
‘Berhad’ (Bhd) as part or at the end of its
name
a private limited company has the words
‘Sendirian Berhad’ (Sdn Bhd) as part of or at
the end of its name
a private unlimited company has the word
‘Sendirian’ (Sdn) at the end of its name
Exempt Private Companies
Private companies can be further sub-classified
as either exempt private companies or private
companies, which are not exempt private
companies.
An exempt private company is defined in
section 2(1) as “a private company in the shares
of which no beneficial interest is held directly or
indirectly by any corporation and which has not
more than twenty members none of whom is a
corporation”.
Thus, only a private company limited by shares
can be an exempt private company.
Further, an exempt private company must not
have more than 20 members.
All the members of an exempt private company
must be individuals. None of them can hold
shares on behalf of a corporation. “Corporation”
is defined in section 3 to mean a local or foreign
company as well as a local or foreign limited
liability partnership.
Many entrepreneurs prefer to incorporate
an exempt private company as their
business vehicle and painstakingly ensure
that it does not lose its status. This is
because an exempt private company is a
“hybrid” between a partnership and a
limited company, and it enjoys certain
benefits which are not given to other
companies.
Foreign Company
A company incorporated outside
Malaysia, which has a place of business
or is carrying on business within
Malaysia.
A foreign company establishing a place
of business or to carry on business within
Malaysia must lodge with ROC for
registration:
a certified copy of the certificate of its
incorporation, or registration in its place of
incorporation or origin, or a document of
similar effect
a certified copy of its charter, statute or
memorandum and articles or other instrument
constituting or defining its constitution
where the list includes directors resident in
Malaysia who are members of the local board
of directors, a memorandum duly executed by
or on behalf of the foreign company stating
the powers of the local directors
a memorandum of appointment or power of
attorney under the seal of the foreign company
or executed on its behalf in such manner as to
be binding on the company
a statutory declaration in the prescribed form
made by the agent of the Company
Effect of Incorporation
The effect of incorporation of a company
is that the company is vested with a
corporate personality. (treated as a legal
person)
Unlike a partnership or sole
proprietorship, a company is a corporate
body and legal person, which has status
and personality distinct and seperate from
that of the members constituting it.
Incorporation brings forth the
following effects:
1) That the company is a body corporate
with the powers of an incorporated
company.
2)That it may sue and be sued in its own
name.
3)That it has perpetual succession.
4)That it may own land.
5)That the liability of its members may be
limited.
The company and its members are two
separate bodies.
A company and its members are separate
person- the veil of incorporation principle.
This principle was established in the case
of Salomon v Salomon & Co Ltd.
Salomon v Salomon & Co Ltd
Facts: Mr Salomon setup a company with
the required 7shareholders which consists
of his wife and 5 childrens. He and two of
his sons became the directors. He then
lend the company some money and was
given debenture thus making him a
secured creditor. The company then got
into financial problem. The question of
law was who should paid first, unsecured
creditors (employees and utility bills) or
Mr. Salomon as a secured creditor.
Held: Mr Salomon was a distinct
entity from his company, his
directorship, his shareholding, and
his rights as secured creditor. Thus,
Mr Salomon did not have to pay to
the company's creditor since Mr
Salomon and company are 2 separate
legal entities.
As a consequences of incorporation, a
company acquires a personality of its own.
Generally, the law will not go behind this veil
of incorporation to look at the membership of
the company.
In exceptional cases- where upholding the rule
in Salomon would lead to injustice- "the court
will lift the corporate veil"
Court to take action as if no entity separate
from the members existed. After that, the
court will make the company, directors or
managers liable for debts and obligations.
 These exceptions are described as cases of "lifting the veil of
incorporation" and arise in the following instances:
1) Number of members below 2
2) Responsibility for fraudulent trading (Re William C Leitch
Brs Ltd)
3) Publication of name
4) Taxation and nationality rules (Daimler Co Ltd v Continental
Tyre & Rubber Co (Great Britain)Ltd)
5) Holding and subsidiary companies (People's Insurance Co (M)
Sdn Bhd v People's Insurance Co Ltd & Ors)
6) Evasion of legal obligations or abuse of legal rights(Gilford
Motor Co Ltd v Horne) (Jones v Lipman)
7) Other instances- such as to do justice where there is fraud.
(Aspatra Sdn Bhd & 21 Ors v Bank Bumiputra Malaysia Bhd
& Anor)
Differences between Limited Company,
Partnership & Sole-Proprietorship
 Can be compared in the following areas:
a) Structure
b) Registration
c) Tranferability
d) Management
e) Number of members
f) Constitution
g) Capital and liability
h) Borrowing powers
i) Security over assets
j) Rules, procedure and information to public
k) Dissolution
 Sole-
Company Partnership Proprietorship
Structure-
A company is a person 2 or more persons Individual in business
separate from its carrying on business on his own.
members. with a view of profit

Registration-
Need to be registered Need to be registered Need to register his
with Company with CCM under the business under the
Commission of Registration of Registration of
Malaysia (CCM) as a Business Act 1956 Business Act 1956
company under the
Companies Act 1965
Transferability-
Shares in a company are
generally transferable
although the right of
transfer may be restricted.
Management-
Members of a company
as such are neither its
managers (directors) nor
its agent
Number of members-
No max. number of
member (except private
company max.50)
Generally, partner cannot A sole-proprietor may
transfer his status to transfer his business to
someone else without the someone else.
consent of all other
partners.
Partners are agents of the The sole-proprietor owns
firm for carrying on its and manage the firm
business in the ordinary himself and can employ
course of business and employees to manage the
are generally entitled to firm for him.
manage the firm.
The max. 20 (there is no There is only 1 person in
ceiling on number of sole-proprietorship
members for professional
firms)
Constitution-
A company must be
constituted in writing, i.e.
by a Memorandum and
Articles of Association
Capital & Liability-
Capital subscribed by
members for their shares
cannot ordinarily be
returned to them, but (in a
limited company) they are
not liable for its debt once
they hold fully paid
shares.
A partnership may be
formed orally or in
writing
Partners may withdraw
capital but their liability
for the firm’s debts to its
creditor is unlimited.
No agreement is
necessary since the
sole-proprietor is only
one person by himself
A sole-proprietor may
also withdraw capital.
His liability for the
firm’s debts and to its
creditors is unlimited.
Borrowing powers
Companies can borrow Partners have unrestricted A sole-proprietor has
for purposes covered by powers of borrowing in unrestricted powers of
their objects as contained terms of amount and borrowing.
in their Memorandum of purpose.
Association.

Security over assets

Companies can use Partners cannot create A sole-proprietor cannot
current assets as security floating charges but they create floating charges
by creating floating can mortgage the firm’s but can mortgage the
charges. assets. firm’s assets.
Rules, procedure and
information to public-

Companies are subject to Partnership may be sole-proprietorship are

various statutory rules of formed informally and formed informally and
procedure and are they need not supply information about the
required to supply certain information to the public. firm need not be
information to public. published.

Dissolution-

A company is dissolved Partnership may be Sole-proprietorship may

by winding-up and dissolved informally, be dissolved informally
liquidation which is a e.g. by agreement of the by the sole-proprietors
formal procedure partners himself.
Floating Charge
The floating charge is useful for many
companies, allowing them to borrow even
though they have no specific assets, such
as freehold premises which they can use
as security. A floating charge allows all
the company's assets, such as stock in
trade, plant and machinery, vehicles, etc.,
to be charged.
Thank
You