11 Various types of companies

Various types of companies

By Section 14(1) of Companies Act 1965 (“Companies Act 1965” hereinafter referred to as the “Act”), any two or more persons coming together for any lawful purpose may by subscribing their names to a memorandum and complying with the requirements as to registration, form an incorporated company.

Section 14(2) states that a company may be:

(a) limited by shares;

(b) limited by guarantee;

(c) limited both by shares and guarantees; or

(d) an unlimited company.

 

 

Separate legal entity

Section 16(6) of the Act defines members as subscribers to the Memorandum of Association of a company and their names entered in the register of members of the company. The concept of a separate legal entity is that once a company is incorporated, the company becomes a legal person distinct from its members. The effect is that the company as a legal person can buy land and properties. It can enter into a contract and it can sue or be sued on it.

The other important aspect of incorporation is the effect of limited liability on its members. The effect of limited liability means that the members of a company are not liable for all the company’s debts but only up to the amount unpaid on the shares held by them, as in Section 18(3) of the Act.

However, the law does not permit a complete absence of liability on the part of the members. Members’ liabilities are limited to the extent that each member is liable to contribute, if called upon to do so, the full nominal value of his shares so far as this has not already been paid. If he/she has agreed to pay more than the nominal value, then his/her liability is limited to the amount he/she has agreed to pay.

Figure 1.1 Effect of separate legal entity

 

 

Activity 1.1
Question to Activity 1.1 Suggested answers to activity 1.1

 

 
 

 

 

 

Companies limited by shares

There are two types of companies that are limited by shares. These companies are usually private companies or public companies.

Most companies start business as private limited companies. Private limited companies can be started by two or more persons coming together to share their resources to start a business. Once the company is incorporated they will become the shareholders of the company. Private limited companies are identified by the abbreviation “Sendirian Berhad”. The abbreviation “Sendirian Berhad “can be shortened to “Sdn Bhd” or “S/B”.

Figure 1.2 Company limited by shares

 

 

Characteristics of a private limited company

  1. A private limited company cannot sell shares to the public. A private limited company usually will raise its capital for business through its shareholders’ own savings, bank loans, or loans through private arrangements with friends, relatives, etc.
  2. A private company must have a minimum of two members. The maximum number of members a private limited company can have is 50.
  3. A minimum paid-up capital of only RM2 is needed to start a private limited company.
  4. A private limited company having fulfilled the requirements for listing, may in future, list itself as a public limited company.

 

Note:

Effective 3 August 2009, the Main and Second Boards will be known as the Main Market. The Main Market is a single unified board for established companies. The old Mesdaq Market, which is for technology-based companies, is transformed into an alternative market for emerging companies of all sizes and sectors and will be called the ACE Market. Under the enhanced framework, changes would be made to the Capital Markets and Services Act 2007 (“CMSA”) and the regulatory functions of both Securities Commission (SC) and Bursa will be streamlined, Henceforth, companies that wish to be public listed will need to adhere to the following:

1. SC approval is required only for initial public offerings, reverse takeover, back-door listings, secondary listings, cross listings and transfer of listings. SC will continue its function as the gate-keeper to safeguard investor’s interests;

2. Secondary fund raising exercises such as rights issues, placements and issuing of securities that do not change the core business of the listed companies shall require Bursa’s approval. SC’s approval is no longer required.

3. *Admission route of listing is to be satisfied either by profit test or market capitalization test, if core business is that of  infrastructure project, then listing requirement is to follow the Infrastructure Project Corporation Test.

 

Characteristics of a public limited company

1. A public limited company sources its capital by selling shares to the public.

2. A public limited company is identified by the abbreviation “Berhad”.

3. The abbreviation “Berhad” can be shortened to “Bhd”.

 

 

Companies limited by guarantee

1. A company limited by guarantee is normally incorporated for non-profit making functions. The distinguishing feature of a company limited by guarantee is that the company has no share capital.

2. A company limited by guarantee has members rather than shareholders. The members of the company guarantee or undertake to contribute a predetermined sum to the liabilities of the company which becomes due in the event of the company being wound up. The predetermined sum is normally RM1.

3. A company limited by guarantee will normally include in its Memorandum a non-profit distribution clause.

4. A company limited by guaranteed is usually formed by clubs, professional, trade or research associations.

5. After the coming into operation of the Act, no company can become a company limited by guarantee with a share capital.

6. Section 14A of the Act, states that on or after the coming into operation of the Act, no company may be formed as or become a company limited by guarantee with a share capital.

 

 

Unlimited companies

1.  The important feature of an unlimited company is that the liability of its members is unlimited.

2.  Even though, the company is a separate legal personality and can trade in its own name, the members’ liability resembles that of a partnership.

3.  However, it is to be noted that the members’ unlimited liability is to the company itself and not to the company’s creditors.

 

Activity 1.2
Question to Activity 1.2 Suggested answers to activity 1.2

 

 

 

 

 

Exempt private companies

1. An exempt private company is a private limited company.

2. The shares of an exempt private company should not be held and are not held directly or indirectly by any corporation.

3. An exempt private company cannot have more than 20 members.

4. An exempt private company need not file its annual accounts with the Companies Commission of Malaysia (CCM) for the information of the public.

5. However, an exempt private company needs to file with CCM a certificate that is signed by the director of the company, the secretary and the auditor of the company stating that:

a. The Company has kept proper accounting record and other books during the financial year.

b. The audit report on the accounts is not qualified neither did it contain any comments made under Section 174(3) of the Act.

c. As at the date to which the accounts are drawn up, the company appears to be able to meet its liabilities as and when they fall due.

 

Foreign companies

1. Before a foreign company can establish a place of business in Malaysia, it needs approval from the Ministry of International Trade and Industry (MITI).

2. Once MITI has given approval, the foreign company must procure registration with Registrar of Companies (ROC) through CCM, an agency to incorporate companies.

3. A foreign company can conduct business in Malaysia if it incorporates a local company as its subsidiary or registers a branch in Malaysia.

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